6.3%-Yield Kilroy Realty Stock Could Double in Price
May 16, 2024
Why Investors Should Consider KRC Stock
The Federal Reserve has yet to begin its much-anticipated reduction in interest rates, but they’re coming, which means opportunities for capital-intensive businesses.
But why wait to invest until the lower interest rate cycle begins? It sometimes makes sense to get ahead of the market and look at the current opportunities. In this regard, I particularly like real estate investment trusts (REITs). These-income oriented investments provide above-average yields and steady income.
An office and residential REIT stock with above-average price appreciation potential is Kilroy Realty Corp (NYSE:KRC).
What I like about the company is its focus on the office market, along with its secondary investments in residential real estate. The company has investments in Austin, Los Angeles, San Diego, San Francisco, and Seattle.
As of December 30, 2023, the REIT’s stabilized portfolio comprised 121 office properties and 1,001 residential units covering around 17.0 million square feet. At that time, the properties were 85.0% occupied and 86.4% leased. (Source: “Investor Relations,” Kilroy Realty Corp, last accessed May 10, 2024.)
The below chart shows the high risk/reward opportunity in Kilroy Realty stock, given that the stock is 62.0% below its record high of $88.99 in February 2020.
KRC stock traded as low as $25.99 in May 2023. Since then, it has been rallying on the improving conditions of the office real estate market. Kilroy Realty stock is currently trading just below its 50-day moving average (MA) of $34.47 and 200-day MA of $34.03.
More importantly, KRC stock has moved into a bullish golden cross formation on the chart, with its 50-day MA breaking above its 200-day MA.
Chart courtesy of StockCharts.com
Profits & Positive Free Cash Flow
Kilroy Realty Corp’s revenues have increased for five consecutive years. Since 2019, they rose by 35.0% to a record-high $1.13 billion in 2023.
The company’s revenue outlook is mixed at this point as the future demand for office space is unclear, due to the ongoing work-at-home trend.
Analysts estimate that Kilroy Realty will report marginally lower revenues of $1.09 billion for full-year 2024, followed by a small increase to $1.12 billion for 2025. (Source: “Kilroy Realty Corporation (KRC),” Yahoo! Finance, last accessed May 10, 2024.)
| Fiscal Year | Revenues | Growth |
| 2019 | $837.5 Million | N/A |
| 2020 | $898.4 Million | 7.3% |
| 2021 | $955.0 Million | 6.3% |
| 2022 | $1.1 Billion | 14.9% |
| 2023 | $1.13 Billion | 3.0% |
(Source: “Kilroy Realty Corp.,” MarketWatch, last accessed May 10, 2024.)
Kilroy Realty’s gross margins have held steady around the 70% level over the last five years.
| Fiscal Year | Gross Margin |
| 2019 | 69.7% |
| 2020 | 71.0% |
| 2021 | 71.8% |
| 2022 | 70.7% |
| 2023 | 68.9% |
Kilroy Realty Corp has been profitable based on generally accepted accounting principles (GAAP) diluted earnings per share (EPS). The company needs to deliver more consistent earnings growth, though. The company’s high GAAP-diluted EPS of $5.36 in 2021 appear to be an aberration.
Analysts, on average, expect Kilroy Realty to report a drop in profits to $1.53 per diluted share for 2024 and $1.57 per diluted share for 2025. They have high estimates of $1.83 and $2.18 per diluted share for 2024 and 2025, respectively. (Source: Yahoo! Finance, op. cit.)
Much depends on the state of the economy and whether more workers return to offices.
| Fiscal Year | GAAP-Diluted EPS | Growth |
| 2019 | $1.86 | N/A |
| 2020 | $1.63 | -12.7% |
| 2021 | $5.36 | 229.6% |
| 2022 | $1.97 | -63.2% |
| 2023 | $1.80 | -9.0% |
(Source: MarketWatch, op. cit.)
Kilroy Realty Corp’s funds statement shows positive free cash flow (FCF) for the past five consecutive years, including a five-year best in 2023. Companies often use FCF to pay dividends, buy back their own shares, and reduce their debts.
| Fiscal Year | FCF (Millions) | Growth |
| 2019 | $386.5 | N/A |
| 2020 | $455.6 | 17.9% |
| 2021 | $516.4 | 13.4% |
| 2022 | $592.2 | 14.7% |
| 2023 | $602.6 | 1.8% |
(Source: MarketWatch, op. cit.)
Kilroy Realty Corp’s balance sheet carried $5.05 billion in total debt and $510.2 million in cash at the end of 2023. (Source: Yahoo! Finance, op. cit.)
The company has managed to easily cover its annual interest expenses with higher earnings before interest and taxes (EBIT). Kilroy Realty’s interest coverage ratio of 3.1 times in 2023 was acceptable, but it could improve, given that its interest coverage ratio from 2019 to 2023 averaged 3.7 times.
| Fiscal Year | EBIT (Millions) | Interest Expense (Millions) |
| 2020 | $278.1 | $70.8 |
| 2021 | $737.5 | $78.6 |
| 2022 | $343.7 | $84.3 |
| 2023 | $352.5 | $114.2 |
(Source: Yahoo! Finance, op. cit.)
Kilroy Realty Corp’s Piotroski score—an indicator of a company’s balance sheet, profitability, and operational efficiency—was on the weak side in 2023, at 3.0. That’s below the midpoint of the Piotroski score’s range of 1.0 to 9.0.
Look for Kilroy Realty Stock’s Dividend Growth to Continue
KRC stock has paid dividends for 28 consecutive years and has paid rising dividends for six straight years.
Kilroy Realty stock’s forward dividend yield of 6.27% (as of this writing) is well above current bond yields and above the stock’s five-year average dividend yield of 4.07%. (Source: Yahoo! Finance, op. cit.)
| Metric | Value |
| Dividend Growth Streak | 6 Years |
| Dividend Streak | 28 Years |
| 7-Year Dividend Compound Annual Growth Rate | 5.3% |
| 10-Year Average Dividend Yield | 3.6% |
| Dividend Coverage Ratio | 2.4 |
The Lowdown on Kilroy Realty Corp
I like Kilroy Realty Corp’s profitability and ability to generate consistent FCF, which likely makes KRC stock’s dividend safe. While investors collect the nice dividends, they also have the potential to benefit from above-average price appreciation.
Moreover, Kilroy Realty has extremely strong institutional ownership, with 475 institutions holding the majority of the company’s outstanding shares. The top two institutional investors in Kilroy Realty stock are The Vanguard Group, Inc., with a 14.48% stake, and BlackRock Inc (NYSE: BLK), with a 12.42% stake. (Source: Yahoo! Finance, op. cit.)
