Time to Raise Dividends, Kilroy? (Part 1/2)

chart01Kilroy Realty Corporation (NYSE:KRC), an office-sector REIT focused on premier west-coast real estate, has not raised its dividend rates since 2009. Distributing them every quarter since 1997, Kilroy has paid US$0.35 cash dividends, equivalent to a 2 percent dividend yield. Kilroy invests in class A properties in the coastal areas of Los Angeles, Orange and San Diego Counties, the San Francisco Bay area and Greater Seattle.

Its recent highlight has been property development in San Francisco and environs, an area whose real estate fundamentals have been robust, its net positive job growth driving demand for a limited supply. Whoever has recently sought real estate there knows how much prices have risen. Kilroy’s pipeline includes the Exchange on 16th in the Mission Bay neighborhood. Uber, in partnership with Alexandria Real Estate Equities (NYSE:ARE), will build its headquarters there.

chart02Kilroy enjoys such fast-growing technology tenants as Apple and LinkedIn; the latter, a major tenant, represents over 6 percent of the annualized base rent (ABR). Also, DropBox has pre-leased a development in San Francisco. The top fifteen tenants encompass 36 and 31 percent of the total ABR and rentable area respectively. Kilroy has a US$6.3 billion market capitalization, among the four largest office REITs.

Over the past five years, Kilroy’s stock has had a good run, doubling to the current level of about U$67. Especially over the past year, Kilroy has continued to improve financially. Operating margins have inched up while the leverage ratio has decreased. FFO has also increased significantly — 18 percent year over year — and FFO payout ratio has decreased to 43 percent, increasing the chances of dividends going up.

To be continued…

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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