Kilroy Rlty — Financial Results

Occupancy and Rental Rates Are Slipping Across the Portfolio

Occupancy edged down across nearly every region, and when existing space was re-leased, rents came in meaningfully lower than the expiring leases they replaced. The cash rent decline of 18.4% is particularly notable — it means tenants are paying less out of pocket than their predecessors. The company attributed much of the rent decline to deals with four specific tenants, but the trend signals that the office and life science leasing market in Kilroy's West Coast cities remains under pressure.

Core Property Income Fell 3%, Driven by Lease Expirations and Tenant Move-Outs

Net Operating Income (NOI) — essentially revenue minus direct property costs, before interest and depreciation — declined $28.2 million. The same-property portfolio (properties owned throughout both years) was responsible for most of that drop, driven by lease expirations that reduced base rent, tenants moving out, and lower straight-line rent adjustments. This is the clearest measure of how the existing portfolio is performing on its own merits.

Kilroy Sold $466M in Properties and Bought $397M in New Ones

The company sold six buildings across three transactions for $466 million and used most of those proceeds to acquire five buildings for $397 million. Additionally, a fourth property (three buildings) was under contract for $124.5 million at year-end and closed in January 2026. This capital recycling strategy — selling assets the company considers mature or non-core and redeploying into higher-potential properties — is a central part of how Kilroy is reshaping its portfolio, though the net effect on NOI in 2025 was negative, as sold properties contributed more income than the newly acquired ones at this early stage.

The $1.2B Kilroy Oyster Point Development Is 44% Leased With Much Still to Fill

The company's largest active project, Kilroy Oyster Point Phase 2 in South San Francisco, is an 871,738 square-foot life science campus with a total estimated investment of $1.2 billion. It moved into the tenant improvement phase in early 2025 and is expected to be added to the stabilized portfolio once major construction wraps up (expected January 2026). The project is only 44% leased, meaning more than half the space still needs tenants. At this scale, the leasing trajectory here will have a significant impact on future earnings.

Funds From Operations Dropped 8.3%, Reflecting Weaker Operating Performance

FFO is the REIT industry's standard measure of recurring earnings power — it strips out depreciation and property sale gains, which can distort net income. The $45.7 million decline reflects the weaker same-property income and the loss of contributions from sold properties. Net income actually rose (partly due to $127 million in gains on property sales), but FFO shows the underlying operating trend more clearly.

Balance Sheet Remains Solid With $1.3B in Available Liquidity

Kilroy ended 2025 with $179 million in cash and a fully undrawn $1.1 billion revolving credit line, giving it roughly $1.3 billion in immediate liquidity. About 95.7% of its debt is fixed-rate, limiting exposure to interest rate swings. The company also refinanced smoothly during the year — issuing $400 million in new 10-year notes at 5.875% and repaying $400 million of older notes that matured. The nearest significant debt maturities are $450 million due in 2026 (a term loan and senior notes series), which management has options to extend further.