On Monday, Evercore ISI adjusted its price target for Kilroy Realty Corporation (NYSE:KRC), a real estate investment trust, reducing it to $38.00 from the previous $39.00. The firm maintained its "In Line" rating for the stock.
The revision follows Kilroy Realty's reported decrease in leasing volume, which dropped to 235,000 square feet in the current quarter from 400,000 square feet in the first quarter.
The company saw a decline in both long-term leases, which decreased to 193,000 square feet from 270,000 square feet, and short-term leases, which fell to 42,000 square feet from 130,000 square feet.
The analyst noted that investor focus will likely center on occupancy trends. Evercore ISI 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.
These projections are primarily due to the dilutive effect following the maturity of a 3.45% $404 million bond. The raised capital for this bond is expected to incur interest at approximately 5%, influenced by a reduction in capitalized interest related to the King of Prussia (KOP) development later in 2025.
The analysis by Evercore ISI suggests that approximately 50% of the projected FFO decline can be attributed to both the bond's maturity and the KOP development's impact. The firm emphasized the importance for Kilroy Realty to focus on increasing occupancy and advancing leasing for its developments as key objectives.
In summary, the updated price target reflects a modest decrease based on the company's recent leasing performance and projected financial outcomes. Evercore ISI's revised figures incorporate a conservative stance on retention and leasing within Kilroy Realty's core markets.
In other recent news, Kilroy Realty Corporation reported a strong Q2 in 2024, indicating a recovery in their real estate portfolio, especially in San Diego and Bellevue markets. The company announced plans for organizational changes, including the hiring of a new CFO and an EVP General Counsel.
The updated 2024 guidance projects an increase in Funds From Operations (FFO) and same-store Net Operating Income (NOI), despite a projected negative 3-4% cash same-store NOI for the next quarter.
Demand for office space in San Francisco, driven by the tech and AI sectors, is nearing pre-pandemic levels. However, recovery in the Los Angeles market is slower, particularly for larger format tenants. 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
In light of Evercore ISI's recent price target adjustment for Kilroy Realty Corporation (NYSE:KRC), current data from InvestingPro provides additional context for investors. Kilroy Realty's market capitalization stands at approximately $4.01 billion, with a price-to-earnings (P/E) ratio of 20.12, suggesting a market valuation that aligns with its earnings. Despite recent challenges, the company has maintained a strong gross profit margin of 67.33% over the last twelve months as of Q2 2024, which indicates efficient cost management relative to its revenues. Moreover, Kilroy Realty has shown dedication to its shareholders through consistent dividend payments, having raised its dividend for six consecutive years and maintaining payments for an impressive 28 consecutive years.
InvestingPro Tips highlight the company's resilience, such as its ability to cover short-term obligations, as its liquid assets exceed its short-term liabilities. Additionally, analysts predict Kilroy Realty will remain profitable this year, a reassuring sign amidst concerns over leasing volume declines. For investors seeking further insights, there are over 6 additional InvestingPro Tips available, including detailed analysts' earnings revisions and the stock's recent performance metrics. These tips can provide a more nuanced understanding of Kilroy Realty's position within the real estate investment sector and can be accessed for deeper analysis on InvestingPro.
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