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Kilroy Realty (KRC) to Spend $25M in Westlake Terry Revamp

Kilroy Realty Corporation KRC is reportedly enhancing the former Westlake Terry campus and will incur capital expenditures worth $25 million for a "confidential tech client," per an article that referred to building permits.

Particularly, Westlake Terry is a two-building office campus, spanning 320,000 square feet of space, at Westlake Avenue North and Terry Street in the South Lake Union neighborhood. The property also encloses street-level retail space spanning 42,700 square feet area. The company purchased the campus for $170 million in 2013.

In fact, according to the permits filed with the city of Seattle, floors two to four of the eastern building and floors three to six of the western one will receive tenant improvements.

According to the article, tenant improvements are being carried out most probably for Amazon, unless plans for the campus are changed significantly. Westlake Terry is currently occupied by Microsoft, which is expected to move out by 2019.

Notably, in 2016, Kilroy Realty secured a long-term lease with the online giant. The 15-year lease is for 275,000 square feet of office space at 370 Westlake Ave. N. and 307 Terry Ave. N.

While the timeline for project completion and Amazon’s move-in is unclear, an expiration date of June 2020 has been filed in the permits.

Such efforts to refurbish space, according to tenant requirements, enable landlords to execute lease deals at favorable terms. Further, it will likely improve tenant retention.

Also, recovery in the economy and job market is expected to further spur demand for the company’s office properties. This is because as the economy revives, business grows and therefore, corporate sectors seek expansion, renting more space to accommodate the increased workforce.

Nevertheless, hike in interest rate is a concern for the company. Essentially, rising rates imply higher borrowing cost, which may affect its ability to purchase or develop real estate and lower dividend payouts as well.

Shares of this Zacks Rank #3 (Hold) company have underperformed its industry over the past six months. The stock has declined 16.3%, as against the industry’s 2.4% growth.




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