Kilroy Realty Corp.

The stable outlook on KRC reflects S&P Global Ratings' expectation that strong demand in key markets where the company operates will lead to sound cash flow growth. We expect this will be driven mostly from rent spreads, resulting in debt to EBITDA in the low- to mid-6x area and fixed-charge coverage (FCC) sustained above 3x. The outlook incorporates our expectation that KRC will execute on its asset disposition program to support leverage-neutral funding of its sizable development pipeline. We could lower the ratings if slower market fundamentals on the West Coast deteriorate KRC's operating performance such that rent spreads compress or concessions increase, resulting in negative same-property NOI growth and reduced EBITDA. We could also lower the ratings if KRC's

...Kilroy Realty Corp. (KRC) holds a leading position in outperforming West Coast markets, with strong operating performance. KRC owns high-quality properties in the San Francisco Bay Area, Los Angeles, San Diego, and other key submarkets. KRC's competitive position, along with strong market fundamentals on the West Coast, allow the company to maintain a highly leased portfolio and command high rental rates. KRC has a sizable development exposure. As of the first quarter of 2019, KRC had a $2.2 billion pipeline, one of the largest office REITs and the highest proportion relative its asset base. It began construction of two new speculative projects that heighten execution and leasing risks. KRC enjoys above average profitability. EBITDA margins are consistently in the low- to mid-60% area, which compare favorably to the peer group. High margins stem from its historical low cost of land and low-rise development designs. KRC has available proceeds from executed forward equity sales, which should...

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