On Friday, JPMorgan revised its stance on Kilroy Realty (NYSE: NYSE:KRC), upgrading the stock from a Neutral rating to Overweight. The firm's analyst anticipates an upturn in leasing activities across Kilroy's primary West Coast markets by 2025, which may lead to a reassessment of the company's stock value. The price target has also been raised to $49.00, up from the previous $45.00.
According to InvestingPro data, the company maintains a healthy 5.55% dividend yield and has raised its dividend for 6 consecutive years, demonstrating strong financial discipline.
The analyst from JPMorgan noted that despite the current high vacancy rates and potential challenges in Kilroy Realty's portfolio, these factors have been accounted for in their forecasts. The market is already cognizant of these risks, which could include tenants vacating or downsizing.
Supporting this view, InvestingPro analysis shows the company maintains a solid current ratio of 1.39, indicating strong ability to meet short-term obligations.
The expectation is that the situation will improve as the push to return tech employees to the office gains momentum and office assets begin to change hands more frequently, offering clearer indicators of their market value.
Kilroy Realty's KOP II development project, which is currently without a tenant, is also highlighted as a focal point. Any progress in leasing this development is seen as a potential positive influence on the company's prospects.
In the interim, the analyst views Kilroy's valuation as reasonable, describing it as "very cheap by historical measures," with an implied capitalization rate of approximately 9% on a portfolio that is over 80% occupied and consists of high-quality office spaces on the West Coast.
The upgrade comes with the expectation that Kilroy Realty's core markets will see a boost in leasing activities, which is anticipated to positively affect the company's stock.
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