KRC · Kilroy Realty Corporation

Kilroy Realty Corporation reported a challenging first quarter of 2026 on a GAAP basis, swinging to a net loss of $(19.3) million, or $(0.16) per diluted share, compared to net income of $39.0 million in the prior year period. This decline was driven by a $61.8 million impairment of real estate assets and a $23.5 million loss on the sale of depreciable operating property, which weighed on GAAP earnings. However, operating fundamentals showed resilience, with revenues remaining relatively stable at $270.1 million compared to $270.8 million in Q1 2025. Funds from Operations (FFO), a key metric for REITs, declined to $108.8 million, or $0.91 per diluted share, from $122.3 million, or $1.02 per diluted share, in the same quarter last year.

Operationally, the company demonstrated strong leasing momentum, executing 568,000 square feet of leases—the strongest first-quarter performance since 2017. This activity included 406,000 square feet of new leasing on previously vacant space, highlighted by a 145,000-square-foot development lease with Cooley LLP in Downtown Redwood City. The stabilized portfolio was 77.6% occupied and 82.3% leased at quarter-end, representing 470 basis points of leases signed but not yet commenced, which provides visibility for future occupancy gains. However, leasing spreads remained under pressure, with GAAP and cash rents on second-generation leases decreasing 10.6% and 16.8%, respectively, reflecting the current market environment.

The company remained active in capital recycling, completing approximately $350 million in asset sales year-to-date, including the Kilroy Sabre Springs campus and Del Mar Tech Center. Proceeds were allocated toward debt repayments, including $50 million of senior notes repaid in April, and opportunistic share repurchases totaling 2.4 million shares for $72.7 million at a weighted average price of $30.80. Management raised full-year 2026 FFO guidance to a range of $3.49 to $3.63 per diluted share, up from the prior range of $3.25 to $3.45, citing updated assumptions for same-property NOI growth and the impact of recent transactions.