Kilroy Realty Lifts 2026 FFO Outlook as Leasing Hits Nine-Year High
The West Coast office landlord raised its full-year FFO guidance to $3.49 to $3.63 a share after first-quarter same-property cash NOI growth topped its own forecast.
Kilroy Realty Corp. (KRC) reported first-quarter 2026 funds from operations of $108.8 million, or $0.91 a share, down 11% from $122.3 million, or $1.02 a share, a year earlier, as a new development project weighed on portfolio occupancy. The West Coast office landlord nonetheless raised its full-year FFO guidance, pointing to stronger-than-expected same-property performance and a robust leasing pipeline.
The quarter's defining tension was between headline occupancy pressure and underlying operating momentum. Stabilized portfolio occupancy fell to 77.6% from 81.6% at the end of 2025, a 400-basis-point sequential decline driven almost entirely by the addition of the fully vacant KOP 2 development in King of Prussia, Pennsylvania, to the stabilized pool in January. Excluding KOP 2, occupancy stood at 81.5%, essentially unchanged from the prior quarter.
Revenue of $270.1 million was roughly flat year over year and slipped from $272.2 million in the fourth quarter, extending a gradual slide from $289.9 million in the second quarter of 2025. The net result was a loss of $19.3 million, or $0.16 a share, swinging from year-ago net income of $39.0 million after a $61.8 million impairment charge on the Columbia Square Living and Jardine residential towers in Hollywood. Those 393 units were classified as held for sale during the quarter and subsequently sold in April for $202 million.
Same-property cash NOI told a different story, rising 1.8% year over year to $168.6 million — a positive inflection that beat the company's initial guidance range of negative 1.50% to flat. Leasing activity totaled 568,000 square feet, the strongest first quarter since 2017, with 406,000 square feet of new leases on vacant space. Rent spreads remained negative on a GAAP and cash basis for second-generation leases, declining 10.6% and 16.8% respectively, though excluding space vacant more than a year, GAAP rents rose 19.2% and cash rents gained 5.2%.
The stronger operating performance gave management room to lift full-year 2026 FFO guidance to $3.49 to $3.63 a share from an initial $3.25 to $3.45, a roughly 7% to 8% increase at the midpoint. Same-property cash NOI growth guidance was raised to 0.25% to 1.25% from the prior negative 1.50% to flat range, a revision that includes $5.9 million in settlement income received in the second quarter. Average full-year occupancy guidance was narrowed to 76.5% to 78.0%, while gross interest expense guidance was lowered to $208.0 million to $209.5 million from $212.0 million to $214.0 million, aided by an extended capitalization window for the Flower Mart development through December 2026.
Kilroy also strengthened its balance sheet during the quarter, expanding its revolving credit facility to $1.25 billion from $1.10 billion and its term loan to $250 million from $200 million, while improving borrowing spreads and pushing maturities out to 2030 and 2031 respectively. The company repurchased 2.4 million shares at $30.80 a share for $72.7 million, reducing weighted average diluted shares outstanding to 118,100. Net debt to EBITDAre nonetheless rose to 7.0 times from 6.6 times a year earlier, reflecting the drag from lower FFO and higher interest expense, which climbed 24% year over year to $38.5 million.
Operating property dispositions guidance was raised to $347.5 million to $500 million from an initial plus or minus $300 million, reflecting roughly $350 million of non-core sales completed through the first quarter. The residential portfolio shrank to 608 units in San Diego following the Hollywood tower sale. With KOP 2's 800,000 square feet now absorbing leasing costs and Flower Mart capitalization extended, the company enters the back half of 2026 with a narrower but better-performing portfolio and a higher earnings floor than it projected three months ago.