Is Now A Good Time To Buy Kilroy Realty Corp.?

When investors consider acquiring a stock, making an informed decision requires assessing numerous variables, including the fundamentals, historical performance, dividend growth and recent events.

Investors also need to determine whether now is an opportune moment to acquire a particular stock. How do analysts perceive the company’s prospects? Does it have a niche that makes it unique? How do the technical indicators look?

Take a look at one diversified REIT, that just announced fourth-quarter earnings and has recently replaced its CEO. So is now a good time to buy it?

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Kilroy Realty Corp. KRC is a Los Angeles-based diversified REIT that owns and operates 115 properties, consisting of offices, life science labs and mixed-use properties on the U.S. West Coast and in parts of Texas. It also has more than 1,000 residential units on the West Coast. Its portfolio totals approximately 17 million square feet.

Kilroy Realty has a market cap of $4.04 billion. The 52-week range is $25.99-$43.37. Its recent closing price was $34.42. Kilroy Realty is a member of the S&P MidCap 400 Index.

As of Dec. 31, Kilroy's stabilized portfolio was 85% occupied and 86.4% leased. Some of its largest office tenants include Stripe Inc., Salesforce Inc., Linkedin Corp. and Adobe Systems. 

Same-store occupancy levels have declined over the past year from 91.7% to 86.3%. Occupancy on its residential properties in the fourth quarter was 92.5%.

One important note about Kilroy — Chairman and CEO John Kilroy, recently announced his retirement at the end of 2023 after 32 years of operating Kilroy Realty.  On Dec. 14, the board announced that Angela Aman has been appointed CEO effective Jan. 22.

As for debt, about 95% of its portfolio is unencumbered. Of the debt it has, about 95% of it is fixed or capped rate. There is no outstanding balance on its unsecured revolving credit facility.

On Feb. 5, Kilroy Realty reported its fourth-quarter operating results. Funds from operations (FFO) of $1.08 beat the analysts' consensus estimate of $1.04 but was 7.69% lower than FFO of $1.17 in the same quarter a year ago. Revenue of $265.64 million missed the estimate of $284.09 and was 5.69% below revenue of $281.69 million in the fourth quarter of 2022.

Kilroy also provided full-year 2024 guidance for FFO per share of $4.10-$4.25, with a midpoint of $4.18. However, the consensus estimate was for $4.31.

Wall Street was not happy with the news and Kilroy sold off about 2% in early trading.

Analysts have not been upbeat on Kilroy recently. On Jan. 30, Deutsche Bank analyst Omotayo Okusanya initiated coverage on Kilroy Realty with a Hold rating and announced a price target of $40. On Dec. 15, Wolfe Research analyst Andrew Rosivach downgraded Kilroy Realty from Outperform to Peer Perform.

Kilroy has increased its quarterly dividend by 10.2% from $0.49 to $0.54 per share over the past five years. The annual dividend of $2.16 presently yields 6.27%. There have been no cuts nor suspensions of the dividend during that time. The payout ratio is just over 47%, suggesting that the dividend is safe.

Kilroy's share price has now pulled back about 20% from its intraday high of $42.20 on Jan. 10. Shares also fell through recent support at $33.73, leading to a decline to $33.13 after the earnings release. The dividend yield has risen about 1.2% along with the share decline.

Does that make this a good time to purchase shares in Kilroy Realty?

On the positive side, the price/FFO ratio is about 7.4% and the dividend yield is significantly higher than the five-year average of 3.89%, suggesting that shares are presently undervalued.

Technically, Kilroy appears to be getting close to a bottom, but with the weaker earnings and guidance, the potential for a further decline is still there. Analyst downgrades or price target cuts often follow a weaker earnings report and that could add pressure to the price as well in the coming days. 

Having a significant portion of its office portfolio on the West Coast will likely keep occupancies at present or lower levels in the immediate future. Short interest is at 5.77% and likely to grow. Added to this there is a new CEO in place after more than three decades of Kilroy running the ship. It will take time to see whether the new CEO takes this REIT in new directions.

Overall, despite a few positives, at the moment, there are still better REITs to own than Kilroy Realty Corp. But should the share price drop below $30, it would be worthy of consideration.

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