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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its stance on Kilroy Realty Corporation (NYSE:NYSE:KRC), downgrading the real estate investment trust's stock rating from Outperform to Neutral. The firm also revised its price target for Kilroy Realty, lowering it to $43 from the previous $45.
According to InvestingPro data, the company maintains a "Good" financial health score, with liquid assets exceeding short-term obligations and a healthy current ratio of 1.39.
The downgrade by Mizuho analysts was prompted by a combination of factors affecting the company's performance. The analysts noted that office market fundamentals in several of Kilroy Realty's sub-markets are currently sluggish, with little indication of imminent improvement.
Additionally, the leasing activity for the Life Sciences sector at Kilroy's significant Oyster Point project has been limited, with the concern that capitalized interest is diminishing. Despite these challenges, KRC has maintained dividend payments for 28 consecutive years, currently offering a 5.46% yield.
These concerns have led Mizuho to believe that the consensus estimates for Kilroy Realty's funds from operations (FFO) are overly optimistic. The analysts forecast that it could take between six to twelve months to rebuild occupancy levels. They also see little sign of a revival in traditional technology sectors returning to office spaces, which impacts their projections. Mizuho's FFO estimates are now 2% below the Street's consensus.
The new price target of $43 set by Mizuho suggests a modest 6% potential upside for Kilroy Realty shares. The analysts conclude that the risk-reward profile for the stock is balanced, with both bullish and bearish outcomes equally likely. This repositioning by Mizuho reflects a cautious outlook on Kilroy Realty's near-term financial performance.
In other recent news, Kilroy Realty has been the subject of differing analyst outlooks and has reported strong performance in its third-quarter earnings call. JPMorgan has upgraded Kilroy Realty's stock from a Neutral rating to Overweight, anticipating a rebound in leasing activities across the company's primary West Coast markets by 2025. Notably, the company's KOP II development project, currently without a tenant, is seen as a potential positive influence on the company's prospects.
Contrarily, Scotiabank (TSX:BNS) downgraded the company's stock from Sector Perform to Sector Underperform, citing expectations of continued challenges in occupancy rates in the years 2025 and 2026. Scotiabank's assessment suggests that Kilroy Realty would need a significant increase in new leasing activity to maintain stable occupancy levels.
On the earnings front, Kilroy Realty reported an increase in Funds From Operations (FFO) to $1.17 per share and raised its full-year FFO guidance. The company also signed leases totaling 436,000 square feet, including a notable lease with NVIDIA (NASDAQ:NVDA). Despite upcoming lease expirations and tenant bankruptcy at 4400 Bohannon and 4690 Executive Drive, Kilroy Realty's proactive management strategies aim to maintain steady growth. These are recent developments in the company's operations.
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