Initiated 2026-10-24 · Price $37.27 (close 2026-10-23, stockanalysis.com) · Mkt cap $4.38bn · Real estate / West Coast office and life-science REIT · Model: verified

Rating: Hold — Conviction: Medium

Kilroy's leasing has turned: Q3 2026 signed 815k sq ft, and $100.7mm of rent is signed but not yet commenced, against a run-rate NOI of ~$693mm. But the portfolio is only 76.9% occupied, leverage is 7.2x, and $1.27bn of debt matures by 2029 at coupons below today's issuance rates. The upside in the model rests on two assumptions: that private buyers price this office portfolio near broker averages, and that ~$1.5bn of land is worth its cost. The AFFO stream on its own does not support the current price. That split keeps this a Hold.

Conviction tests (3a-v-c): T1 pass (Base +13.7% at +1pp, +17.2% at −1pp; Hold at both) · T2 fail (NAV alone +43.7% reads Buy; AFFO DCF alone −12.9% reads Hold) · T3 pass (one est. input, the NCI half of other_claims, moves Base 2.4%) · T4 pass (no single pending event >25%)

Model value range vs price
Bear $29.37Base $43.00Bull $56.13Price $37.27

Business overview

Kilroy owns 16.3mm sq ft of stabilized office and life-science space. By YTD NOI, the San Francisco Bay Area is 44.3% (SF CBD 25.6%), Seattle 17.1%, Los Angeles 16.1%, and San Diego and Austin the remaining ~22.5%. Tenants are mostly technology companies: the top ten include Stripe, Adobe, Box, Salesforce, DoorDash, Netflix and Cruise. In 2026 it sold $347.5mm of office and residential assets and bought nothing. Kilroy Oyster Point Phase 2 (KOP 2, 872k sq ft of life-science space) entered the stabilized pool in Q1 2026 at 7% occupied and 49% leased.

Three variables drive earnings:

Competition

Bull case

  1. The signed-not-commenced book converts. $48.3mm of SNO rent commences between Q4 2026 and H2 2027, and $52.4mm in 2028+. Q3 was among Kilroy's best leasing quarters since 2019, with leased occupancy up in all five regions. Plays out if retention runs near Q3's 78% and SF AI and tech demand holds. Model: ss_noi_growth
  2. KOP 2 leases up. 49% leased; SNO rent commencing 2028+ averages ~$103/sq ft, largely KOP 2 (est.). Each additional 100k sq ft is roughly $8–10mm of NOI (est.). Plays out if biotech funding stabilizes. Model: acq_noi
  3. Private cap rates set the value. Today's price implies a ~9.1% cap rate on run-rate NOI with land at cost. That is well above the ~7.3% broker averages. Plays out if office financing reopens. Model: cap_rate, terminal_p_affo

Bear case

  1. Tech tenants keep shrinking. Cruise (4.6% of ABR, lease to 2031; tenant credit n/a (unverified)), DIRECTV (2.1%) expires 2026–27 and Okta (3.2%) in 2028. If retention stays near the YTD 45%, new leasing only refills vacated space. Plays out if AI hiring does not offset broader tech cost-cutting. Model: ss_noi_growth
  2. Shrinking to fund the balance sheet. Further sales at ~7%+ yields cut NOI faster than they cut interest, and KOP 2 lease-up stalls. Plays out if 2027 guidance relies on dispositions again. Model: acq_noi
  3. Rates reprice both sides. $795mm matures 2026–2028 at 3.6–4.8% and refinances near 6–7%. With the 10Y at 5.00%, office cap rates could move toward 8.25% (bear case). Plays out if S3 or S4 persists. Model: cost_of_debt, cap_rate, terminal_p_affo
  4. The land is worth less than cost. Flower Mart ($690mm cost basis) has no start date, and its carry is capitalized into reported FFO (~$49mm of interest in 2026). Model: not in the value range — land enters at cost through other_claims; see the land sensitivity below.

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
P/FFO (TTM, aggregator) 10.1x · 10.4x on 2026 guide mid ($3.57) n/a (unverified) Cousins 10.0x · BXP 9.1x · Douglas Emmett 7.2x stockanalysis.com, 2026-10-23; Q3 release
Implied cap rate (Q3 run-rate NOI / EV; EV = mkt cap + $4,411mm debt − cash + NCI − land at cost) 9.1% (7.9% with land at zero) n/a (unverified) n/a (not on one source) model-inputs basis
P/B 0.84x n/a (unverified) Cousins 1.06x · BXP 1.92x · Douglas Emmett 0.93x stockanalysis.com, 2026-10-23
Dividend yield ($2.16 annualized) 5.8% n/a (unverified) Cousins 4.43% · BXP 4.51% · Douglas Emmett 7.47% stockanalysis.com, 2026-10-23

Model-implied value range (from model-summary.json; reit module, NAV at a cap rate and AFFO/share DCF with a terminal P/AFFO, midpoints): Bear $29.37 · Base $43.00 · Bull $56.13 per share, i.e. implied returns of −21.2% / +15.4% / +50.6% vs $37.27. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet:

Model note: tier full, status built, verification verified (1,988 formula cells matched in LibreOffice). No assumptions without basis. Scenario consistency is OK on all 14 rows.

Relative value vs peers
MetricKRCBXPCUZDEIHPPPeer medianvs median
P/FFO10.1x9.1x10.0x7.2xn/a9.1x+12%
EV/EBITDA (TTM)14.9x16.6x13.1x12.8x13.4x13.3x+12%
P/B0.8x1.9x1.1x0.9x0.2x1.0x−16%
Dividend yield5.8%4.5%4.4%7.5%n/a4.5%+1.3pp
P/FFOKRC10.1xCUZ10.0xBXP9.1xDEI7.2x
EV/EBITDA (TTM)BXP16.6xKRC14.9xHPP13.4xCUZ13.1xDEI12.8x
P/BBXP1.9xCUZ1.1xDEI0.9xKRC0.8xHPP0.2x
Dividend yieldDEI7.5%KRC5.8%BXP4.5%CUZ4.4%

As of 2026-10-23. One source and one definition for every company: aggregator TTM multiples, lease-inclusive EV. Not the model's own EV basis (see the report's valuation table). Quotes taken at the 4:00 PM ET close on 2026-10-23; pages fetched 2026-10-24. Dashed line = peer median. Source: stockanalysis.com /stocks/<ticker>/statistics/, fetched 2026-10-24.

Notes. Hudson Pacific's P/FFO is negative (-3.91x) on negative TTM FFO, shown as null. Hudson Pacific pays no common dividend (n/a on the source).

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − A levered office equity with beta 1.19 de-rates; private cap rates barely move Med −$3.09
S2 Slow bear / recession − Tech layoffs stop leasing and SNO deals slip. Milder than Base − Bear ($13.64) because it lasts two years without the bear case's refinancing and exit-multiple reset High −$7.78
S3 Rapid rate shock − Cap rates track real yields, and 2026–2028 maturities refinance higher High −$7.39
S4 Slow rate grind − Multi-year repricing of 2.5–3.7% coupons; cap rates drift up Med −$4.55
S5 Soft-landing cuts + Financing reopens and cap rates compress while tech hiring holds High +$5.72
S6 Recession-driven cuts − Lower rates don't offset a breaking labor market for an office landlord Med −$3.01
S7a Credit liquidity shock − Forced selling hits the most levered REIT subsector; the revolver covers 2027 Med −$4.00
S7b Slow default cycle − Venture-backed tenants default; office credit spreads widen Med −$2.90
S8 Stagflation − Higher rates outweigh fixed rent bumps; leasing slows Med −$4.63
S9a Dollar spike 0 No material effect, not modeled — domestic rents — $0.00
S9b Dollar slide 0 No material effect, not modeled — as S9a — $0.00
S10 Melt-up + Tech funding lifts SF leasing and REIT multiples Med +$3.59
S11 Energy supply shock − No operating channel; yields and financing costs rise Low −$0.20
S12 Mega-cap/AI derating − AI and tech tenants drove the 2026 SF recovery; a funding pullback stalls it Med −$4.08

Currently active/on watch per the playbook:

Model value change vs Base, by scenario
S2 Slow bear / recession−$7.78S3 Rapid rate shock−$7.39S8 Stagflation−$4.63S4 Slow rate grind−$4.55S12 Mega-cap/AI derating−$4.08S7a Credit liquidity shock−$4.00S1 Fast equity crash−$3.09S6 Recession-driven cuts−$3.01S7b Slow default cycle−$2.90S11 Energy supply shock−$0.20S9a Dollar spike$0.00S9b Dollar slide$0.00S10 Melt-up+$3.59S5 Soft-landing cuts+$5.72

What would change the call

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Sources