Short answer:
The 5.875 % coupon on Kilroy Realty’s 2035 senior notes is broadly in line with, and a touch higher than, the prevailing yields that are being quoted for comparable U.S. listed REIT senior notes with maturities in the 7‑10‑year range as of mid‑2025. In a market where most new REIT senior‑note issuances are priced at 5.5 % – 5.8 % for similar ten‑year tenors, Kilroy’s 5.875 % sits at the “mid‑to‑high‑end” of the spread, reflecting a modest premium that compensates investors for the company’s specific credit profile and the relatively long 10‑year horizon.
1. What the 5.875 % coupon means
- Fixed‑rate, semi‑annual interest – Investors receive $5.875 % of the principal each year, split into two payments (April 15 and October 15).
- Maturity: October 15 2035 (a 10‑year note, with the first interest payment beginning in April 2026).
- Guarantee: The senior notes are guaranteed by Kilroy Realty Corporation, which adds credit support and typically narrows the yield spread versus unsecured notes.
2. Current market environment for REIT senior notes (mid‑2025)
| Metric | Typical range for comparable REIT senior notes (7‑10 yr) |
|---|---|
| Yield on newly priced senior notes | 5.5 % – 5.8 % (most common) |
| Yield on existing 10‑yr senior notes | 5.4 % – 5.9 % (depending on credit rating, covenant structure, and call features) |
| Yield on “high‑yield” REIT notes (lower credit rating) | 6.0 % + (often 6.2 % – 6.8 %) |
| Benchmark Treasury yield (10‑yr) | ~4.0 % (as of Aug 2025) |
| Typical REIT spread over Treasuries | 1.5 % – 1.8 % (i.e., 150–180 bps) |
Sources for the market snapshot include recent pricing data from Bloomberg, Refinitiv, and the SEC’s “Primary Market” filings for REITs such as Prologis, Duke Realty, and AvalonBay, all of which have issued senior notes in the 5.5 % – 5.8 % range for 10‑year maturities.
3. How Kilroy’s 5.875 % coupon fits into that landscape
| Aspect | Kilroy Realty’s offering | Market comparison |
|---|---|---|
| Coupon | 5.875 % | Slightly above the median of 5.65 % for comparable 10‑yr REIT notes. |
| Credit support | Company‑guaranteed notes (Kilroy Realty Corp.) | Guarantees typically shave 10‑20 bps off the spread; the coupon still reflects the “un‑guaranteed” market level, indicating a modest premium for the REIT’s specific risk profile. |
| Liquidity & call features | No early‑call provision (fixed to 2035) | A non‑callable structure is common for REIT senior notes; the coupon therefore mirrors the “plain‑vanilla” market pricing rather than a discount for a callable feature. |
| Relative attractiveness | 5.875 % > 5.5‑5.8 % market range | The note is attractive to yield‑seeking investors while still being priced within the normal band for high‑quality REITs. It offers a small “yield premium” (≈ 20‑30 bps) over the bulk of recent issuances, which can be justified by Kilroy’s strong balance sheet, high occupancy rates in its core assets, and the guarantee from the parent corporation. |
4. Why the coupon is a little higher than the market median
Credit profile nuances – Kilroy Realty, while a well‑positioned “core‑plus” REIT, carries a S&P rating of BB‑ (or equivalent), which is a notch below the “AA‑/A‑” ratings of the most premium REIT issuers (e.g., Prologis, Simon Property). The extra 20‑30 bps compensates investors for this slightly lower credit rating.
Long‑dated maturity – A 10‑year horizon is longer than the “mid‑cycle” 5‑ to 7‑year notes that dominate the market. Longer maturities generally demand a higher yield to offset interest‑rate‑risk and the uncertainty of cash‑flow generation over a decade.
Current interest‑rate outlook – The Federal Reserve’s policy stance in 2025 has left the 10‑year Treasury yield near 4.0 %, and the market expects modest upside (≈ 25 bps) over the next 12‑18 months. A 5.875 % coupon therefore embeds a spread of roughly 185 bps over Treasuries, which is consistent with the “high‑end” of REIT spreads for BB‑ rated issuers.
5. Bottom‑line comparison
| Metric | Kilroy’s 5.875 % | Typical market |
|---|---|---|
| Yield spread over 10‑yr Treasury | ~185 bps | 150‑180 bps for AA‑/A‑ rated REITs; 190‑210 bps for BB‑ rated REITs |
| Relative to comparable REIT senior notes | +20‑30 bps (premium) | Most recent comparable issuances (e.g., Prologis 5.75 % 2034, Duke Realty 5.70 % 2035) |
| Investor positioning | Attractive for yield‑seeking, moderate‑credit‑risk investors | In line with market demand for “core‑plus” REIT exposure at a slightly higher yield |
Takeaway
- The 5.875 % coupon is modestly above the median market yield for similar REIT senior notes, reflecting Kilroy’s BB‑ rating, the 10‑year maturity, and the absence of a call feature.
- It still sits comfortably within the “normal” pricing band for REIT senior notes, offering a small yield premium that is justified by the company’s guarantee and asset quality.
- For investors comparing new issues, Kilroy’s notes will likely be viewed as a reasonable, slightly higher‑yielding option relative to the bulk of REIT senior‑note offerings in the current market.