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Kilroy Realty Prices Senior Notes at 99.878%, To Raise $495.2M

Zacks Equity Research

Kilroy Realty Corporation KRC has announced the pricing of a public note offering through its operating partnership, Kilroy Realty, L.P. The offering of 3.050% senior notes, aggregating $500 million, has been priced at 99.878% of the principal amount.

The securities, set to mature in 2030, will pay semi-annual interest on Feb 15th and Aug 15th of each year for the time period of Feb 15, 2020, through Feb 15, 2030. The notes offer a yield to maturity of 3.064%. The offering, anticipated to close on Sep 17, is conditional to the satisfaction of customary closing norms.

Net proceeds from the offering, after deducting underwriting discount and the company’s estimated expenses, will be roughly $495.2 million. This will likely be used for general corporate purposes, including funding of development projects, acquisition of land and properties as well as reducing outstanding debt balances under the operating partnership’s term loan and revolving credit facility. The company intends to use the remaining proceeds in temporary investments such as marketable securities.

Notably, by paying down its debt obligations, this offering is likely to provide financial flexibility to the company. In addition, it reflects the company’s focus to address its financial obligations in an efficient way. 

The current low interest-rate environment has encouraged a number of REITs to tap the debt market, recently. As for Kilroy Realty, the note offering will likely improve its liquidity profile, and provide it a strong footing to pursue strategic acquisitions and fund pending development projects. In fact, in its second-quarter earnings release, the company announced anticipated development spending of around $250-$300 million for 2019. Amid solid fundamentals of the West Coast real estate markets, Kilroy Realty’s development plans seem apt. 

Additionally, the record-length economic expansion cycle, steadily low-unemployment rates and modest wage improvement have fueled disciplined growth for the national office market as well as office landlords. Further, continued job creation in office-using sectors is driving leasing activity and absorption levels for Kilroy Realty. Hence, focus to strengthen its office portfolio through acquisitions and developments is a strategic fit.

However, large lease expirations in the first half of the year have impacted cash net operating income (NOI). Although it is expected to improve in the upcoming quarters, management anticipates cash NOI to remain flat for full-year 2019. 

Currently, Kilroy Realty carries a Zacks Rank #3 (Hold). Over the past three months, shares of the company have gained 2.8% as compared with the industry’s growth of 4.3%.


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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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