Kilroy Realty Appears Cheap From Real Estate Valuation Perspective: Analyst

Core Viewpoint - J.P. Morgan analyst Anthony Paolone maintains an Overweight rating on Kilroy Realty Corporation (KRC) while lowering the price forecast to $42 from $49, citing the company's high-quality assets and strong balance sheet compared to other office REITs [1] Group 1: Company Portfolio and Market Outlook - The analyst expresses a positive view on Kilroy Realty's portfolio, highlighting its high-quality assets and strong balance sheet [1] - Leasing activity in key West Coast markets is expected to improve, particularly as tech companies encourage employees to return to the office [1][2] - Operational expense growth is projected to stabilize [2] Group 2: Valuation and Financial Projections - The stock appears undervalued based on a 9%+ implied cap rate and a current occupancy rate of around 80%, indicating it is cheap from a real estate valuation perspective [3] - During peak cycles, Kilroy Realty's assets were valued at cap rates in the low 4% range, further supporting the view that the stock is discounted [3] - The analyst has revised financial outlooks for 2025 and 2026, lowering FFO/share estimates to $4.01 for 2025 and $3.52 for 2026, reflecting a 12.3% year-over-year decline [4] Group 3: Factors Influencing Financial Revisions - The downward revisions in financial outlook are primarily driven by a reduction in capitalized interest, assuming that another $1 billion in land and projects will be excluded from active development [5] - This includes an estimated $600+ million from the Flower Mart project, over $200 million from the SIX0 development, and an additional $100-$200 million from various smaller projects [5] Group 4: Current Market Performance - KRC shares are trading higher by 1.10% to $33.22 as of the latest check [6]