Balanced Risk-Reward: Leasing Wins at KOP2 Offset by Market Headwinds and Delayed FFO Growth Support Hold Rating on Kilroy

John Kim, an analyst from BMO Capital, reiterated the Hold rating on Kilroy Realty. The associated price target remains the same with $44.00.

John Kim has given his Hold rating due to a combination of factors related to both recent leasing success and ongoing operational risks. He acknowledges the significant strategic win from securing UCSF as a long-term anchor tenant at the KOP2 development, which boosts pre-leasing to a meaningful level and enhances the project’s credibility with other potential life science and technology tenants. However, his updated forecasts now assume a slower ramp-up in occupancy from this lease and higher capitalized interest in the near term, which pushes out the earnings contribution and dampens Core FFO growth expectations for 2026–2027. He also notes that while management targets attractive rental levels at KOP2, the elevated vacancy in the broader San Francisco market makes the ultimate economics of leasing less certain.
At the same time, Kim views the KOP2 project as a high-quality, well-executed development that should benefit from recent leasing traction, but he believes investors will need patience as the business plan plays out over several years. The extension of capitalized interest and the likelihood of ongoing work at assets like Flower Mart effectively lower the near-term earnings bar, suggesting that upside will be more back-end loaded. Taken together, the combination of a strong asset and leasing milestone, offset by timing delays, market headwinds, and questions around achievable rents, leads him to maintain a neutral, or Hold, stance on Kilroy’s shares for now. Overall, he sees balanced risk-reward, with the stock not yet offering a sufficiently compelling catalyst or valuation support to justify a more aggressive rating.

Kim covers the Real Estate sector, focusing on stocks such as Alexandria Equities, Kilroy Realty, and BXP. According to TipRanks, Kim has an average return of -1.6% and a 43.03% success rate on recommended stocks.