What happened
The office-space segment of the commercial real estate market has taken a beating during the pandemic, but doubt about its recovery hasn't affected at least one notable player in this space: Kilroy Realty (KRC 1.29%), which saw its stock price rise by 11.9% during the month of February, according to data provided by S&P Global Market Intelligence.
Shares in the Los Angeles-based real estate investment trust (REIT) made that surge after fourth-quarter and 2021 full-year results released on Jan. 31. The report showed a profitable year just concluded and reason for optimism, driven by the company's successful focus on life sciences and traditional office space in San Diego, Los Angeles, and San Francisco.
KRC total return level. Data by YCharts.
So what
Kilroy stock is trading at about $71.75 a share, 3% below its 52-week high of $74.05 reached on Jan. 28 and up about 19% from its 52-week low of $60.37 from last June 15. An annual dividend of $2.08 per share is good for a yield of 2.89%, and the company has raised the payout for six straight years, including by 4.45% in the past three.
That performance stands out among the 19 REITs that the Nareit trade group places in the office category. Their year-to-date total return as of March 7 was a loss of 6.27%. Kilroy stock has provided a total gain of 8.14% since the year began, compared with declines of 8.94% for the S&P 500 and 9.28% for the Vanguard Real Estate ETF.
At year's end, Kilroy had a portfolio of more than 115 properties totaling about 15.5 million square feet, primarily office and life-sciences space that's 93.9% leased. Another 2.7 million square feet of life-sciences and office space is under development at an estimated investment of $2.2 billion. The company also has more than 1,000 residential units in Hollywood and San Diego that average about 88.9% occupancy.
That portfolio produced year-end results highlighted by a 6.3% growth in revenue from about $898.4 million to about $955 million. Funds from operations (FFO), a crucial measure of REIT profitability, rose nearly 5% from $3.73 per share in 2020 to $3.91 in 2021.
Image source: Getty Images.
Now what
Bank of America and Mizuho have upgraded Kilroy stock from neutral to buy, and MarketBeat says seven of eight analysts it tracks have assigned the stock a buy rating and give it a consensus price target of $80, which would be a nice 10% or so bump from its current price.
Helping to fuel the expectation for more growth from this office REIT is that robust development pipeline, which includes expected spending of $550 million to $650 million this year. That's along with seeing the results of Kilroy's first big move away from its base: the $580 million purchase of the brand-new Indeed Tower, a 36-story structure wrapped around a repurposed historic post office in red-hot Austin, Texas.
The company also is guiding for FFO per share in 2022 of $4.35 to $4.55, and growth in same-store net operating income of 4.5% to 5.5%. Meanwhile, a very modest dividend payout of 43.24% based on 2022 earnings estimates lends confidence to the company's ability to keep that cash flow up, if not increase it.