Kilroy earnings for the third quarter of 2026 showed stronger leasing activity and a modest increase in the full-year funds from operations outlook, despite lower year-over-year financial results. The office and life science landlord reported FFO of $0.88 per diluted share and signed approximately 815,000 square feet of leases. Results were released on October 22, followed by management’s earnings call on October 23.
Key Takeaways
- Kilroy raised its 2026 FFO guidance midpoint by $0.01 to $3.57 per diluted share while narrowing the range.
- Leasing accelerated, but occupied space declined slightly as signed leases awaited commencement.
- Upcoming DIRECTV expirations and additional Flower Mart expenses present challenges for 2027.
Table of Contents
- Kilroy earnings outlook improves despite lower quarterly results
- Leasing gains have not yet translated into higher occupancy
- DIRECTV and Flower Mart create 2027 headwinds
- Land sales and credit capacity support capital flexibility
- Conclusion
Kilroy earnings outlook improves despite lower quarterly results
Kilroy’s third-quarter financial and operational results narrowed full-year FFO guidance to $3.55–$3.59 per diluted share, compared with the previous $3.49–$3.63 range. The change raised the midpoint by one cent rather than increasing both ends of the forecast.
Quarterly FFO included approximately $0.01 per share of settlement and restoration fee income. The updated annual midpoint implies fourth-quarter FFO of approximately $0.86 per share, management said.
Same-property cash net operating income declined 1.5% year over year. Lower settlement and restoration fees and real estate tax refunds together reduced the growth rate by 170 basis points. Management narrowed its full-year same-property cash NOI growth assumption to 0.75%–1.00%, from 0.25%–1.25%.
| Item | Details |
|---|---|
| Quarterly revenue | Q3 2026: $271.6 million; Q3 2025: $279.7 million. |
| Net income available to common stockholders | Q3 2026: $15.5 million; Q3 2025: $156.2 million. |
| Diluted earnings per share | Q3 2026: $0.13; Q3 2025: $1.31. |
| Funds from operations | Q3 2026: $104.6 million; Q3 2025: $130.6 million. |
| Diluted FFO per share | Q3 2026: $0.88; Q3 2025: $1.08. |
Leasing gains have not yet translated into higher occupancy
Year-to-date leasing exceeded 1.75 million square feet, approximately 44% above the first nine months of 2025. Third-quarter activity included 345,000 square feet of new leases on previously vacant space, 127,000 square feet on currently occupied space and 343,000 square feet of renewals.
Renewals included a 12-year agreement covering approximately 243,000 square feet with Box at Crossing 900. Across comparable second-generation leases, excluding short-term agreements, GAAP rents increased 30.6% and cash rents rose 9.7% from prior levels.
The stabilized portfolio was 83.0% leased at September 30, up 150 basis points from the previous quarter, while occupancy fell 10 basis points to 76.9%. The gap matters because signing a lease does not immediately mean a tenant has commenced occupancy or rent payments.
Signed but not commenced leases covered more than 1.4 million square feet and represented approximately $101 million of annualized base rent, up $22 million sequentially. Management expects $14 million of annualized base rent to commence in the fourth quarter of 2026 and a further $34 million during 2027.
DIRECTV and Flower Mart create 2027 headwinds
DIRECTV’s El Segundo lease expires in two stages: 49,000 square feet expired at the start of the fourth quarter of 2026, and the remaining 484,000 square feet expires at the start of the fourth quarter of 2027. Together, the space represents approximately $16 million in annual base rent.
Interim Chief Financial Officer Eliott Trencher said a renewal in some form remained possible, but management’s base case was a full departure or meaningful downsizing. Kilroy is assessing re-leasing, repositioning and partial or full monetization options; none was presented as a completed transaction.
Management also expects capitalization at the Flower Mart project to cease around January 2027. That would bring an annualized increase of approximately $32 million in interest expense and $5 million in operating expenses and taxes. These expected costs are separate from the company’s 2026 guidance, which assumes continued capitalization through year-end.
Land sales and credit capacity support capital flexibility
Kilroy had $185 million of land sales under contract, with closings expected to begin late in 2026. This includes the pending $19.5 million sale of the Kilroy East Village land site in downtown San Diego, which the company anticipated closing in the fourth quarter.
The company repaid $200 million of private placement notes with cash on hand in July. It still faces approximately $395 million of maturities over the following nine months, carrying a weighted average interest rate of about 3.8%, and reported more than $1.2 billion of unused credit capacity.
Chief Executive Officer Angela Aman said potential disposition proceeds could support acquisitions, debt repayments or share repurchases. Those remain capital-allocation options rather than announced commitments.
Conclusion
The next test for Kilroy earnings is the scheduled commencement of signed leases in the fourth quarter, alongside the expected East Village land sale. Those milestones will help show how stronger leasing activity converts into rental income and available capital before the identified 2027 headwinds.
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