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Kilroy Realty Corp. ( KRC - Snapshot Report ) , a real estate investment trust (REIT), has recently acquired three office properties in Seattle, as part of its long-term strategy to own high-quality assets at below-replacement costs in areas that provide strong near-term cash flows and attractive long-term growth potential.
With the acquisition of approximately 837,000 square feet of space for an aggregate purchase price of $330 million, the company has nearly doubled its office space in the high growth submarket of the Puget Sound Region.
Kilroy purchased a three-building office campus spanning 420,000 square feet in the Lake Union submarket of Seattle for $145 million. The three-building campus, currently 100% leased, is strategically located in a high-growth area that is home to several high-tech industries, and is adjacent to the Burke Gilman Trail – the most popular running and biking trail in the region.
The property is expected to generate healthy revenue for the company as the Lake Union submarket continues to lead the region in growth and tenant demand with in-place rents well below market.
In addition, Kilroy is in escrow to purchase ‘Skyline Tower’ – a 24-story Class A office building spanning 417,000 square feet in Downtown Bellevue for $186 million. The acquisition is expected to be complete in third quarter 2012. The LEED (Leadership in Energy and Environmental Design) Silver certified property, currently 92% leased, is located in close proximity to ‘The Bravern’ and ‘Bellevue Square’ – two of the most prestigious residential and retail centers in the region.
LEED is an internationally recognized third-party green building certification system, which ensures that a building was designed and built for environment-compatibility, providing a healthy work environment and reducing operating costs. The projects are judged on six parameters, including Sustainable Sites, Water Efficiency, Energy & Atmosphere, Materials & Resources, Indoor Environmental Quality, and Innovation in Design.
The number of points earned by a project determines the level of LEED Certification it receives, which is currently available in four progressive levels – Certified: 40 – 49 points; Silver: 50 – 59 points; Gold: 60 – 79 points; and Platinum: 80 points and above.
Post-acquisition, Kilroy would own two of the leading Class A multi-tenant office buildings in Downtown Bellevue. The ‘Skyline Tower’ property is expected to generate healthy revenue for the company as the Downtown Bellevue submarket continues to attract premier technology and service companies with its high quality amenities and proximity to mass transit facilities.
With the latest transactions, Kilroy has acquired 1.7 million square feet of premier office space in the Puget Sound Region since its reentry into the Seattle market in 2010. The company’s Seattle portfolio -- spanning Bellevue, Kirkland, Redmond and the Lake Union submarkets -- represent about 10% of the total portfolio on a square-foot basis and approximately 13% of annual net operating income on a pro forma basis.
Kilroy owns, develops and manages a diverse portfolio of office, industrial and multi-purpose real estate properties primarily in the coastal regions of Los Angeles, Orange County, San Diego, greater Seattle and the San Francisco Bay Area. As of March 31, 2012, the company owned 11.8 million rentable square feet of commercial office space and 3.4 million rentable square feet of industrial space.
Kilroy maintains an active multi-year development program focused on the economically dynamic locations characterized by strong long-term demand, limited supply, and high barriers to entry. As such, most of the properties of the company are concentrated in the coastal submarkets of Southern California that offer both a vibrant economic backdrop for businesses and a unique quality of life for their employees.
Currently, we have a Neutral recommendation and a Zacks #3 Rank for Kilroy that translates into a short-term Hold rating. However, we have an Outperform recommendation and a Zacks #1 Rank (short-term Strong Buy rating) for MPG Office Trust, Inc. ( MPG - Snapshot Report ) , one of Kilroy's competitors.
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