12:30 PM EST, 11/03/2025 (MT Newswires) -- Kilroy Realty ( KRC ) has cleared its "near-term hurdles" and should benefit from the ongoing recovery in San Francisco's office market, RBC Capital Markets said in a report Monday.

The firm said Kilroy is benefiting from "good leasing activity" at its KOP2 development and gradual advancement of its Flower Mart re-entitlement process, both expected to drive medium-term earnings growth.

Kilroy has reduced its 2026 lease expirations to about 973,000 square feet and needs to secure roughly 200,000 square feet of new or commencing leases per quarter to maintain occupancy. Management cited "improving dynamics" across most of its markets - particularly San Francisco, where brokers report rising tenant demand, RBC said.

Leasing at KOP2 is trending ahead of expectations, and Kilroy expects surpassing its 100,000-square-foot target for 2025, according to the report.

On the land front, Kilroy is nearing its $150 million land sales goal, with $79 million in pending deals expected to generate a $37 million gain. Its Flower Mart site, valued at $653 million, remains the largest asset, with development plans awaiting clarity from city reviews, expected by mid-2026.

RBC now expect Kilroy's funds from operations to decline 16.7% in 2026 before rising 4.9% in 2027, with potential upside of about $0.65 per share as key projects contribute to earnings, the report said.

Shares of Kilroy were up 1.2% in recent Monday trading.

Price: 42.69, Change: +0.44, Percent Change: +1.04