Kilroy Realty third-quarter net income falls to $15.5 million, narrows FFO guidance

Kilroy Realty Corporation (NYSE: KRC) reported lower third-quarter results on Thursday, with revenue and net income both down from a year earlier, the company said in an 8-K filing.

The real estate investment trust owns office and life science properties in the San Francisco Bay Area, Los Angeles, Seattle, San Diego and Austin. Its results cover the quarter ended Sept. 30, 2026.

The company also updated its full-year 2026 funds from operations guidance, which it said reflects management's views on current and future market conditions.

Here's how the company did:

• Revenue: $271.6 million vs. $279.7 million a year earlier
• Net income available to common stockholders: $15.5 million, or $0.13 per diluted share, vs. $156.2 million, or $1.31 per diluted share a year earlier
• Funds from operations (FFO): $104.6 million, or $0.88 per diluted share, vs. $130.6 million, or $1.08 per diluted share a year earlier

Net operating income, a measure of property income before overhead, interest and depreciation, was $173.2 million. That compares with $188.8 million a year earlier.

Funds available for distribution, a cash measure adjusted for recurring leasing and capital spending, was $62.8 million, down from $100.9 million a year earlier.

Net debt to the company's share of EBITDAre, or earnings before interest, taxes, depreciation and amortization for real estate, rose to 7.2 times from 6.4 times a year earlier.

The company signed about 815,000 square feet of leases during the quarter. Of that, 345,000 square feet was new leasing on previously vacant space and 127,000 square feet was new leasing on occupied space.

Renewals totaled 343,000 square feet. One stood out: a 12-year renewal of about 243,000 square feet at Crossing 900 with Box, Inc.

Rents on second-generation leases signed in the quarter rose 30.6% on a GAAP basis and 9.7% on a cash basis from prior levels, excluding short-term leases. Excluding leases on space vacant for more than 12 months, the increases were 37.9% and 13.9%.

"Momentum in our West Coast markets continued to accelerate in the third quarter, with over 800,000 square feet of long-term leases signed, representing one of the Company's highest quarterly leasing volumes since 2019," said Angela Aman, Chief Executive Officer.

The stabilized portfolio, which covers 17.1 million square feet across 123 buildings, was 76.9% occupied and 83.0% leased at Sept. 30, 2026. Leases signed but not yet commenced represented 610 basis points of the portfolio.

Excluding Kilroy Oyster Point Phase 2, the portfolio was 80.7% occupied and 84.8% leased.

In August, the company agreed to sell the land at Kilroy East Village in San Diego for $19.5 million in gross sales proceeds. The agreement is subject to a non-refundable deposit, and the company expects the sale to close in the fourth quarter.

In July, the company repaid the outstanding $200.0 million of 4.350% Private Placement Senior Notes Series B, due October 2026, at par.

The company declared and paid a regular quarterly cash dividend of $0.54 per share, or $2.16 annualized, on Oct. 14, 2026. Stockholders of record on Sept. 30, 2026, received it.

The company updated its full-year 2026 Nareit FFO per diluted share guidance to $3.55 to $3.59, from the previous range of $3.49 to $3.63. The low end rose and the high end fell.

Other assumptions also changed. General and administrative and leasing costs are now guided at $89.5 million to $90.5 million, up from $87.5 million to $89.5 million. Gross interest expense is now $207.5 million to $208.5 million, from $208.0 million to $209.5 million.

The assumption for operating property dispositions stayed at $347.5 million to $500.0 million.

"Looking ahead, our high-quality portfolio, solid balance sheet, and nimble approach position us well to capitalize on the real-time fundamental improvements we are seeing across our regions," Aman said.

The company will discuss third-quarter results on an earnings call on Oct. 23, 2026, starting at 10:00 a.m. Pacific Time. The call is expected to last about one hour.

The company furnished the results and a supplemental financial report under Items 2.02 and 7.01, and said it also posted the supplemental report on its website.