On Tuesday, Evercore ISI adjusted its price target for Kilroy Realty Corporation (NYSE:KRC), increasing it slightly to $41.00 from the previous $40.00. The firm maintained its "In Line" rating for the real estate investment trust. The revision follows Kilroy Realty's reported leasing activity, which exceeded analyst estimates.
Kilroy Realty achieved a total of 436,000 square feet (ksf) in leasing for the quarter, surpassing the estimated 191ksf. This figure includes 209ksf of short-term deals lasting less than a year. Excluding these short-term agreements, the leasing volume stood at 226ksf, with 12ksf related to recently completed projects and 215ksf being second-generation space. For comparison, the company leased 235ksf in the second quarter and 400ksf in the first quarter of the year.
The stabilized portfolio's occupancy rate saw a modest increase, ending the third quarter at 84.3%, a 60 basis point rise from 83.7% in the previous quarter. This improvement was somewhat unexpected as it countered the anticipated decrease in occupancy due to commencements and shorter-term leases, which balanced out known vacancies.
Evercore ISI's model now predicts an occupancy rate of 83.2% by the end of fiscal year 2024, with an average occupancy of 83.9%, slightly below Kilroy Realty's midpoint projection. The firm also anticipates funds from operations (FFO) to decrease by 6.1% in 2025. Upon adjusting for one-time factors in the third quarter, the FFO growth appears relatively flat, a trend expected to continue into 2026, given that significant contributions from the Key Operating Properties II (KOP II) are not projected until late that year.
The analyst report concludes with a note on Kilroy Realty's strategic focus. Despite the current market conditions, Evercore ISI encourages the company to concentrate on building up occupancy and advancing leasing efforts in its core markets, which are deemed crucial to the company's success. The updated price target reflects these considerations and the latest data incorporated into Evercore ISI's analysis.
In other recent news, Kilroy Realty Corporation's Q3 earnings outperformed expectations, with funds from operations (FFO) per share reaching $1.17, surpassing BTIG's estimate by $0.14 and the consensus by $0.12. The company also raised its full-year 2024 guidance by $0.15 to $4.41. Despite this, BTIG maintained a neutral rating, citing concerns about the sustainability of the increase in occupancy and development stabilizations.
Kilroy Realty's recent acquisition of the Junction at Del Mar, a two-building complex with a 96.3% lease rate, for $35 million, suggests confidence in select market opportunities. This acquisition is the company's first since the third quarter of 2021. Evercore ISI, however, revised its price target for Kilroy Realty to $38.00 from $39.00, maintaining an "In Line" rating, due to a decrease in leasing volume.
The company's Q2 2024 performance indicated a recovery in their real estate portfolio, particularly in San Diego and Bellevue markets. Organizational changes were announced, 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.
InvestingPro Insights
Kilroy Realty Corporation's recent performance aligns with several InvestingPro metrics and tips. The company's market cap stands at $4.91 billion, with a P/E ratio of 24.46, indicating investor confidence despite the challenges in the real estate sector. Notably, KRC has maintained dividend payments for 28 consecutive years and has raised its dividend for 6 consecutive years, as highlighted by InvestingPro Tips. This consistency in dividend policy could be attractive to income-focused investors, especially given the current dividend yield of 5.19%.
The company's strong leasing activity, as mentioned in the article, is reflected in its financial metrics. KRC's revenue for the last twelve months as of Q3 2024 was $1.12 billion, with a gross profit margin of 67.2%. This solid financial performance supports the InvestingPro Tip that analysts predict the company will be profitable this year. Additionally, KRC's liquid assets exceeding short-term obligations suggest financial stability, which is crucial given the current market conditions and the company's focus on building occupancy.
InvestingPro offers 13 additional tips for Kilroy Realty Corporation, providing investors with a comprehensive analysis of the company's financial health and market position. For those interested in deeper insights, these additional tips can be accessed through the InvestingPro product.
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