Kilroy Realty’s 27 Year Dividend Streak Could End If Cash Flow Doesn’t Improve

Kilroy Realty Corp (NYSE:KRC) is a real estate investment trust focused on office and life science properties in high-barrier coastal markets including San Francisco, Los Angeles, Seattle, San Diego, and Austin. The portfolio is 81.0% occupied and 83.3% leased as of Q3 2025. With a dividend yield around 6.3%, income investors need to understand whether this payout is sustainable. I analyzed the cash flow, balance sheet, and management’s track record to determine if this dividend can hold up.

The Dividend Snapshot

Kilroy maintained quarterly dividends at $0.54 for eight consecutive quarters, suggesting management prioritizes stability over growth. The 27-year unbroken payment history is reassuring, but recent financial metrics reveal tightening conditions.

Cash Flow Coverage Is Alarmingly Thin

In 2024, Kilroy generated $541.1 million in operating cash flow but spent $501.0 million on capital expenditures, leaving just $40.2 million in free cash flow. Against $256.3 million in dividend payments, the FCF payout ratio hits a troubling 638%. The company is not covering its dividend from cash generation.

As a REIT, Kilroy must distribute at least 90% of taxable income, not free cash flow. The company reported net income of $211.0 million in 2024, giving an earnings payout ratio of roughly 121%. The dividend exceeds both free cash flow and net income, meaning the company relies on asset sales, debt, or other financing to sustain the payout.

Debt Levels Are Manageable but Rising

The balance sheet shows debt-to-equity of 0.84x, reasonable for a REIT. However, cash dropped from $510.2 million at the end of 2023 to $165.7 million by the end of 2024, a 67.5% decline. Cash recovered to $372.4 million in Q3 2025, but the volatility is notable.

Strong Leasing Activity Supports Revenue

Kilroy signed 552,000 square feet of leases in Q3 2025, including 237,000 square feet of new leasing. A major win came in January 2026 with a 280,000-square-foot, 16.5-year lease to UCSF Health at Kilroy Oyster Point Phase 2. These long-term, creditworthy tenants provide revenue stability supporting the dividend, even if cash flow generation remains tight.

This Dividend Carries Elevated Risk

Dividend Safety Rating: Moderate to High Risk

Kilroy’s 27-year unbroken dividend history is impressive, but the current financial structure is strained. Free cash flow does not cover the dividend, and the company relies on external financing or asset sales to bridge the gap. Strong leasing momentum and institutional-grade tenants provide some cushion, but the payout is not sustainable from operations alone. If the company can reduce CapEx intensity and stabilize cash generation, the dividend could be maintained. But if market conditions deteriorate or financing becomes more expensive, a cut is a real possibility.