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Introduction & Market Context
Kilroy Realty Corporation (NYSE:KRC) released its Q2 2025 financial results on July 29, 2025, showing improved performance compared to the previous year despite ongoing occupancy challenges. The West Coast-focused real estate investment trust reported higher revenues and net income while raising its full-year FFO guidance.
KRC shares closed at $36.61 on July 28, down 1.27% ahead of the earnings release, but have recovered significantly from their 52-week low of $27.07. The stock remains well below its 52-week high of $43.78, reflecting continued investor caution about commercial real estate fundamentals, particularly in the office sector.
Quarterly Performance Highlights
Kilroy reported Q2 2025 revenues of $289.9 million, up 3.3% from $280.7 million in Q2 2024. Net income available to common stockholders jumped 39.1% to $68.4 million ($0.57 per diluted share) compared to $49.2 million ($0.41 per diluted share) in the same period last year.
Funds From Operations (FFO), a key metric for REITs, increased to $135.9 million ($1.13 per diluted share) from $132.6 million ($1.10 per diluted share) in Q2 2024, representing a 2.5% improvement.
As shown in the following financial highlights table:
This performance marks a significant improvement from Q1 2025, when the company reported EPS of $0.33 and revenue of $270.8 million, which fell short of analyst expectations at that time.
Leasing Activity and Portfolio Performance
Despite the improved financial results, Kilroy continues to face challenges in its leasing operations. The company’s stabilized portfolio was 80.8% occupied and 83.5% leased as of June 30, 2025, showing a slight deterioration from the 81.4% occupancy reported at the end of Q1 2025.
During Q2, Kilroy executed approximately 423,000 square feet of leases, including 225,000 square feet of new leasing on vacant space, 26,000 square feet on occupied space, and 172,000 square feet of renewal leasing. However, GAAP and cash rents on leases signed during the quarter decreased by 11.2% and 15.2% respectively, indicating continued rental rate pressure.
The following table details the leasing activity for the quarter:
Same Property Net Operating Income (Cash Basis) analysis reveals that while cash operating revenues increased slightly year-over-year, the average occupancy declined from 83.2% in Q2 2024 to 80.5% in Q2 2025:
Capital Recycling Strategy
Kilroy has been actively recycling capital through property dispositions. During Q2, the company completed the sale of 501 Santa Monica Boulevard (approximately 79,000 square feet) for $40.0 million, representing $509 per square foot.
Additionally, the company classified a four-building campus in Silicon Valley totaling approximately 663,000 square feet as Held for Sale, with expected gross sales proceeds of $365.0 million ($550 per square foot). Kilroy also entered into an agreement to sell a portion of land at Santa Fe Summit for $38.0 million.
The following table summarizes the company’s property dispositions and assets held for sale:
Subsequent to the quarter’s end, Kilroy entered into an agreement for the sale of 1633 26th Street for gross sales proceeds of $41.0 million, with the transaction expected to close upon receipt of entitlements in 2026.
Updated Guidance and Outlook
In a positive development, Kilroy has raised its full-year 2025 FFO guidance to a range of $4.05 to $4.15 per diluted share, up from the previous range of $3.85 to $4.05 per diluted share. This increase comes despite projections for negative Same Property Cash NOI growth of -1.0% to -2.0% and average full-year occupancy of 80.5% to 81.5%.
The updated guidance and key assumptions are detailed in the following table:
This improved outlook represents a significant shift from the cautious stance the company maintained after Q1 2025, when it merely reaffirmed its previous guidance amid challenging market conditions.
Tenant and Market Diversification
Kilroy’s portfolio remains heavily weighted toward technology and life science tenants, which account for 52% and 18% of annualized base rent, respectively. This concentration reflects the company’s strategic focus on innovation-driven markets along the West Coast.
The tenant industry diversification is illustrated in the following charts:
The company’s top 20 tenants represent a significant portion of its rental revenue, with a "Global Technology Company" as the largest tenant. The following table provides details on these key relationships:
Kilroy maintains a geographically diverse portfolio across its target markets, with properties in Los Angeles, San Diego, San Francisco Bay Area, Seattle, and Austin. As of June 30, 2025, the company owned 118 buildings totaling 16.4 million square feet of stabilized office and life science space, along with 1,001 residential units in the Los Angeles and San Diego regions, which maintained a healthy 93.8% average occupancy for the quarter.
Dividend and Shareholder Returns
The Board of Directors declared and paid a regular quarterly cash dividend of $0.54 per share, equivalent to an annual rate of $2.16 per share. The dividend was paid on July 9, 2025, to stockholders of record on June 30, 2025.
Based on the closing price of $36.61 as of July 28, 2025, this represents an annual dividend yield of approximately 5.9%, which remains attractive in the current interest rate environment and compared to other REITs in the sector.
Kilroy’s management will discuss these results and provide additional insights during their conference call scheduled for July 29, 2025, at 10:00 a.m. Pacific Time.
Full presentation:
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