Scotiabank upgrades Kilroy Realty stock rating on AI demand and leasing progress

Investing.com - Scotiabank upgraded Kilroy Realty (NYSE:KRC) from Sector Underperform to Sector Perform on Wednesday, while raising its price target to $47.00 from $40.00. The $5.28 billion market cap real estate company has shown strong momentum, with shares surging nearly 33% over the past six months. According to InvestingPro data, the stock is currently trading near its 52-week high of $44.34.

The upgrade reflects Scotiabank’s increased confidence in Kilroy’s ability to make progress on its remaining 2025-2027 lease expirations, which represent 15% of the company’s annual base rent (ABR). The company has demonstrated strong financial stability, maintaining dividend payments for 29 consecutive years, with a current attractive yield of 4.89%.

Scotiabank cited growing artificial intelligence demand as a key factor in its more positive outlook, particularly for Kilroy’s San Francisco Bay Area properties where the firm expects stronger re-leasing of expiring leases compared to other regions in the portfolio.

The bank noted that Kilroy’s San Francisco CBD portfolio, which represents 27% of the company’s net operating income and was 82.2% leased as of Q2, appears "well-positioned to capture its share of demand in the market."

Scotiabank analysts toured several Kilroy properties in Northern California with Mike Schmidt, SVP of leasing in NorCal, including 100 First (94% leased), 350 Mission (100% leased), and 201 Third (53% leased).

In other recent news, Kilroy Realty reported its second-quarter 2025 earnings, significantly surpassing analyst expectations. The company achieved an earnings per share of $0.57, compared to the forecasted $0.32, resulting in a notable 78.13% surprise. Revenue also exceeded projections, reaching $289.9 million against the expected $270.28 million, marking a 7.26% surprise. Despite these strong earnings, Kilroy Realty faced downgrades from major financial institutions. Barclays downgraded the company’s stock from Overweight to Equalweight, maintaining a price target of $43.00. This decision was influenced by the stock’s approximately 25% outperformance compared to the RMZ index. Additionally, Goldman Sachs downgraded Kilroy Realty from Neutral to Sell, setting a price target of $33.00. The firm expressed concerns about the weak office market and projected an average annual funds from operations per share decline of 7.0% over the next three years.

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