This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Hot SoCal Market Warms Up Region's REITs

The fact that buying properties in Southern California is so difficult also has propelled Kilroy's stock. The company owns over 12 million square feet of office and industrial space in Southern California. Rather than try to buy in this low-yield environment, Kilroy is focusing on developing its huge land holdings in the region. Its development pipeline under construction now totals 644,000 square feet, and will cost $189 million. The company also plans an additional 1.1 million square feet of office development in San Diego, for a total investment of $409.1 million.

Kilroy will see cash yields of 9% to 9.5% on its current developments, substantially higher than the 5% to 6% acquisition cap rates in Southern California right now.

Kilroy is a "great story over the next three years because they don't have any pressure to buy (properties)," says AuBuchon, who rates the company buy. "They have this built-in internal growth pipeline." A.G. Edwards expects to receive or seek compensation from Kilroy within the next three months.

But it might be difficult to still take advantage of the upside on Kilroy. The company is trading at 18.6 times the consensus estimate for its 2006 funds from operations, a common metric for measuring REIT performance. Industrial REITs, on average, are trading at 14.5 times next year's FFO, and office REITs are at an average 14 times FFO, according to SNL Financial.

Kilroy's dividend yield is down to 3.3%. The average dividend yield for all REITs, except mortgage REITs, is currently 5.17%, according to SNL.

But with its strong development pipeline, analysts, on average, expect Kilroy to grow FFO 11% annually over the next five years. AuBuchon thinks 8% to 10% growth annually is more realistic. But even that growth rate is better than what can be expected for many REITs, which helps explain Kilroy's higher valuation.

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
ARI $17.07 0.00%
KRC $75.48 0.00%
MPG $17.96 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs