On Tuesday, Kilroy Realty Corporation (NYSE:) stock received a reiteration of a Neutral rating from BTIG following the company’s third-quarter financial results. Kilroy Realty reported third-quarter funds from operations (FFO) per share of $1.17, which exceeded BTIG’s estimate by $0.14 and the consensus by $0.12. Additionally, the company raised its midpoint guidance for the full year 2024 by $0.15 to $4.41.
The reported quarter was seen as a net positive, with Kilroy Realty’s leasing statistics and earnings surpassing expectations. However, the results prompted more questions than answers. Despite the earnings beat, attributed to rental income surpassing BTIG’s estimate by $8.4 million, there was no significant change in occupancy or development stabilizations that would account for the substantial increase, suggesting the possibility of a one-time event.
Kilroy Realty disclosed that they signed 436,000 square feet of leases in the quarter, although 209,000 square feet of these were short-term leases of one year or less. This trend has been increasing over the past year. While short-term leases can lead to longer-term renewals, the increase in third-quarter occupancy to 84.3%, up 60 basis points sequentially, may not be sustainable as the guidance for the full-year average occupancy is 84.0%, implying a 70 basis points decline in the fourth quarter.
The company’s recent activity, including its first acquisition since the third quarter of 2021, shows a strategic move by management. Kilroy Realty purchased the Junction at Del Mar, a two-building complex with a 96.3% lease rate, for $35 million. This acquisition, located near Kilroy’s One Paseo cluster, suggests management is confident in the business outlook and sees value in select market opportunities.
BTIG noted interest in management’s strategy to sell non-core land parcels, which can negatively impact net operating income (NOI), and reinvest the proceeds into operating assets. This could indicate that values and fundamentals have potentially reached their lowest point in certain West Coast office markets, with San Diego cited as an example.
Further insights are expected during tomorrow’s conference call, where additional thoughts on the pace and outlook for office leasing and the potential recycling of capital from non-core land into cash-flowing assets will be discussed. BTIG has indicated that their estimates for Kilroy Realty are currently under review following these developments.
In other recent news, Kilroy Realty Corporation reported a decrease in leasing volume, as analyzed by Evercore ISI. The firm revised its price target for the company, reducing it to $38.00 from the previous $39.00, while maintaining an “In Line” rating. Evercore ISI also revised its occupancy projections for Kilroy Realty, anticipating a 7.6% decrease in funds from operations (FFO) in 2024 and an additional 2.6% or $0.11 decline to $4.16 in 2025, primarily due to the dilutive effect following the maturity of a 3.45% $404 million bond.
In contrast, the company reported a strong Q2 in 2024, indicating a recovery in their real estate portfolio, particularly in San Diego and Bellevue markets. They also announced organizational changes, including the hiring of a new CFO and an EVP General Counsel. The updated 2024 guidance projects an increase in FFO and same-store Net Operating Income (NOI), despite a projected negative 3-4% cash same-store NOI for the next quarter.
Kilroy Realty expressed interest in expanding its Austin portfolio and exploring opportunities in other parts of the capital stack. The company’s updated 2024 guidance indicates a midpoint FFO of $4.26, attributed to higher net reimbursements and better parking revenues. These are some of the recent developments within Kilroy Realty Corporation.
InvestingPro Insights
Kilroy Realty Corporation’s recent performance and strategic moves are further illuminated by real-time data from InvestingPro. The company’s market capitalization stands at $4.93 billion, with a P/E ratio of 24.9, suggesting investors are willing to pay a premium for its earnings. This valuation is particularly interesting given the company’s recent earnings beat and raised guidance.
InvestingPro Tips highlight Kilroy’s strong dividend history, having maintained dividend payments for 28 consecutive years and raised them for 6 consecutive years. This consistent dividend policy aligns with the company’s stable financial position, as evidenced by its liquid assets exceeding short-term obligations. The current dividend yield of 5.19% may be attractive to income-focused investors.
The company’s recent stock performance has been robust, with a one-year price total return of 59.99% and a three-month return of 15.4%. This positive momentum is reflected in the stock trading near its 52-week high, at 95.07% of that peak. These metrics suggest that the market is responding favorably to Kilroy’s recent operational performance and strategic decisions, such as the acquisition of the Junction at Del Mar.
For readers interested in a deeper analysis, InvestingPro offers 7 additional tips that could provide further insights into Kilroy Realty’s financial health and market position.
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