Kilroy Realty (KRC) is facing market volatility and competition on its KOP2 project amid anticipated earnings fluctuations due to known tenant moveouts, substantial lease expirations in 2026, and the impact of developments rolling off capitalization, RBC Capital Markets said in a note emailed Monday.
The firm said that interest expenses are expected to rise in 2026 as the Flower Mart project is expected to stop qualifying for capitalization by late 2025 and KOP2 will exit capitalization in January 2026.
Kilroy had strong leasing performance in the Q4 2024, including new leases to help offset a major 2026 lease expiration. However, 216,000 square feet of moveouts in early 2025 will lower occupancy.
RBC said that the transaction market is slowly improving, prompting Kilroy Realty to test asset sales where current valuations may not fully account for medium-term risks.
The firm reduced its price target for Kilroy to $39 from $44, while maintaining its sector perform rating.
Price: 33.14, Change: -0.18, Percent Change: -0.54
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