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Kilroy Realty Corporation Reports 17% Increase in 1998 FFO Per Share

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LOS ANGELES, Feb. 3 /PRNewswire/ -- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fiscal year ended December 31, 1998, with funds from operations (FFO) of $71.2 million, or $2.30 per share. Net income in 1998 totaled $38.8 million, or $1.43 per share on revenues of $136.3 million.

In the year earlier stub period from February 1, 1997 to December 31, 1997, KRC reported FFO of $39.1 million, or $1.83 per share. Net income for the period was $22.1 million, or $1.19 per share. Revenues totaled $66.1 million. FFO per share in 1997 would have been $1.96 per share if adjusted to reflect pro forma results for a 12-month period.

The Southern California-based real estate investment trust completed its initial public offering of common stock on January 31, 1997. Per-share amounts for all periods in this release are presented on a diluted basis.

For the company's fourth quarter ended December 31, 1998, KRC reported FFO of $18.9 million, or $0.59 per share, up 9.3% on a per share basis from $15.0 million, or $0.54 per share, in the fourth quarter of 1997. Net income in the fourth quarter rose to $10.2 million, or $0.37 per share, compared to $8.8 million, or $0.36 per share, in the year-earlier quarter. Revenues totaled $39.3 million, versus $23.5 million a year ago.

Reflected in the company's fourth quarter results are two unusual events. The company earned a $1.9 million lease termination fee related to a property in San Diego. This property was subsequently re-leased at higher rates for a longer term. The company also recorded a provision for potentially unrecoverable pre-development costs of $1.7 million.

``Kilroy Realty delivered solid results in 1998 -- a strong year for commercial real estate in California but a challenging period for most REITs,'' said John B. Kilroy, Jr., the company's president and chief executive officer. ``We achieved our earnings objectives, maintained a sound financial structure, expanded our commercial real estate portfolio by 27%, and improved net operating results within our existing portfolio,'' he said.

``Looking forward,'' Kilroy added, ``we remain carefully focused on executing our business plan, most significantly the development pipeline of over $500 million we've established in some of Southern California's fastest growing commercial real estate submarkets.''

Kilroy Realty completed $254 million in building acquisitions and $71 million in new development during 1998, adding more than 2.5 million square feet of space to the company's office and industrial real estate portfolio. Year-end occupancy for KRC's portfolio, including newly acquired and stabilized development properties, was 96% up from 93% at the end of 1997. The increase in occupancy reflected successful leasing efforts in all of the company's major markets, including Southern California and Seattle.

Kilroy Realty has approximately 932,000 square feet of office and industrial space under construction, representing a total projected investment of $113 million. An additional 2.2 million square feet of space is in various stages of pre-development and preleasing, and will be built over the next several years on a phased basis. Principal submarkets for the company's development projects include San Diego, West Los Angeles, the northwestern Los Angeles Interstate 101 Corridor, Long Beach, and Orange County.

Some of the information presented in this release is forward-looking in nature. Although the information is based on the company's current best judgment, actual results could vary from expectations stated here. Numerous factors will affect the company's actual results, some of which are beyond the company's control. These include the timing and strength of regional economic growth, the strength of commercial and industrial real estate markets, competitive market conditions, future interest rate levels and capital market conditions. For further information, please see the company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.

Kilroy Realty Corporation, a Southern California-based real estate investment trust owns, operates and develops office and industrial properties, primarily in California. At December 31, 1998, the company owned 5.6 million square feet of commercial office space and 6.2 million square feet of industrial space.

                            KILROY REALTY CORPORATION
                            SUMMARY QUARTERLY RESULTS
                 (unaudited, in thousands, except per share data)

                      Three Months Three Months  Year Ended    Period from
                          Ended       Ended        Ended    February 1, 1997
                      December 31, December 31, December 31, to December 31,
                           1998        1997         1998            1997

    Revenues              $39,294     $23,481     $136,284        $66,129

    Net income available
     to common
     stockholders (a)     $10,173      $8,820      $38,822        $22,060

    Weighted average
     common shares
     outstanding (Basic)   27,639      24,475       26,989         18,445
    Weighted average
     common shares
     outstanding (Diluted) 27,640      24,573       27,060         18,539

    Net income per
     share of common
     stock (Basic)          $0.37       $0.36        $1.44          $1.20
    Net income per
     share of common
     stock (Diluted)        $0.37       $0.36        $1.43          $1.19

    Funds from operations $18,868     $14,952      $71,174        $39,142

    Weighted average
     common shares/units
     outstanding
     (Basic) (b)           31,840      27,683       30,897         21,302
    Weighted average
     common shares/units
     outstanding
     (Diluted) (b)         31,840      27,780       30,967         21,396

    Funds from operations
     per common
     share/unit
     (Basic) (b)            $0.59       $0.54        $2.30          $1.84
    Funds from operations
     per common
     share/unit
     (Diluted) (b)          $0.59       $0.54        $2.30          $1.83

    Common shares
     outstanding at
     end of period                                  27,639         24,475
    Common partnership
     units outstanding
     at end of period                                4,201          3,406
        Total shares and
        units outstanding
        at end of period                            31,840         27,881

                                                December 31,    December 31,
                                                     1998           1997
    Occupancy rates
      California                                     95.9%          93.6%
      Washington                                     90.8%          80.3%
      Arizona                                       100.0%         100.0%
      Nevada                                        100.0%         100.0%
        Weighted average total                       95.9%          93.0%

    Total square feet of stabilized
     properties owned at end of period
      Office                                         5,600          4,201
      Industrial                                     6,157          5,027
        Total                                       11,757          9,228

    (a)Net income after minority interests

    (b)Calculated based on average shares outstanding assuming conversion of
       all common partnership units outstanding



              KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
                   (unaudited, in thousands, except share data)

                                                   December 31, December 31,
                                                       1998          1997
    ASSETS
    INVESTMENT IN REAL ESTATE:
     Land and improvements                           $253,500      $177,118
     Buildings and improvements                       828,425       622,901
     Land and construction in progress, net           112,359        34,671
       Total investment in real estate              1,194,284       834,690
     Accumulated depreciation and amortization       (145,437)     (121,780)
       Investment in real estate, net               1,048,847       712,910

    Cash and cash equivalents                           6,443         8,929
    Restricted cash                                     6,896         5,680
    Tenant receivables, net                            15,630         7,367
    Notes receivable from related parties               8,798
    Escrow deposits                                       350         5,114
    Deferred financing and leasing costs, net          16,168        13,053
    Prepaid expenses and other assets                   2,796         4,601

       TOTAL ASSETS                                $1,105,928      $757,654

    LIABILITIES & STOCKHOLDERS' EQUITY
    LIABILITIES:
     Mortgage debt                                   $133,383      $131,363
     Line of credit                                   272,000       142,000
     Accounts payable and accrued expenses             18,091         9,711
     Accrued distributions                             12,895        10,804
     Rents received in advance and tenant
      security deposits                                13,160        11,441
       Total liabilities                              449,529       305,319

    MINORITY INTERESTS:
     8.075% Series A Cumulative Redeemable
      Preferred unitholders                            73,718
     9.375% Series C Cumulative Redeemable
      Preferred unitholders                            34,410
     Common unitholders                                72,372        55,185
      Total minority interests                        180,500        55,185

    STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value, 28,300,000 shares
      authorized, none issued and outstanding
     8.075% Series A Cumulative Redeemable Preferred stock,
      $.01 par value, 1,700,000 shares authorized, none
      issued and outstanding
     Series B Junior Participating Preferred stock,
      $.01 par value, 400,000 shares authorized, none
      issued and outstanding
     9.375% Series C Cumulative Redeemable Preferred stock,
      $.01 par value, 700,000 shares authorized, none
      issued and outstanding
     Common stock, $.01 par value, 150,000,000
      shares authorized, 27,639,210 and 24,475,000
      shares issued and outstanding                       276           245
     Additional paid-in capital                       487,467       403,163
     Distributions in excess of earnings              (11,844)       (6,258)
      Total stockholders' equity                      475,899       397,150

     TOTAL LIABILITIES & STOCKHOLDERS' EQUITY      $1,105,928      $757,654



         KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
                 (unaudited, in thousands, except per share data)

                      Three Months Three Months  Year Ended    Period from
                          Ended       Ended        Ended    February 1, 1997
                      December 31, December 31, December 31, to December 31,
                           1998        1997         1998            1997

    REVENUES:
     Rental income        $32,521      $20,191    $117,338        $56,069
     Tenant reimbursements  4,111        2,159      14,152          5,600
     Interest income          507          696       1,698          3,571
     Other income           2,155          435       3,096            889
       Total revenues      39,294       23,481     136,284         66,129

    EXPENSES:
     Property expenses      5,469        2,771      19,281          8,770
     Real estate taxes      3,025        1,123       9,579          3,048
     General and
      administrative        2,240        1,297       7,739          4,949
     Ground leases            369          268       1,223            938
     Interest expense       5,926        3,024      20,568          9,738
     Depreciation and
      amortization          7,041        4,832      26,200         13,236
     Provision for
      potentially
      unrecoverable
      pre-development costs 1,700                    1,700
     Total expenses        25,770       13,315      86,290         40,679

    Income before equity
     in income (loss) of
     subsidiary and
     minority interests    13,524       10,166      49,994         25,450

    Equity in income
     (loss) of subsidiary      29         (164)          5             23

    Minority Interests:
    Dividends on
     Cumulative Redeemable
     Preferred units       (1,852)                  (5,556)
    Minority interest
     in earnings           (1,528)      (1,182)     (5,621)        (3,413)

    Net Income            $10,173       $8,820     $38,822        $22,060

    Weighted average
     shares
     outstanding (Basic)   27,639       24,475      26,989         18,445
    Weighted average
     shares
     outstanding (Diluted) 27,640       24,573      27,060         18,539

    Income per
     common share (Basic)   $0.37        $0.36       $1.44          $1.20
    Income per common
     share (Diluted)        $0.37        $0.36       $1.43          $1.19


                            KILROY REALTY CORPORATION
                              FUNDS FROM OPERATIONS
                 (unaudited, in thousands, except per share data)

                      Three Months Three Months  Year Ended    Period from
                          Ended       Ended        Ended    February 1, 1997
                      December 31, December 31, December 31, to December 31,
                           1998        1997         1998            1997

    Net income            $10,173       $8,820     $38,822        $22,060
     Add:
      Minority interest
       in earnings          1,528        1,182       5,621          3,413
      Depreciation and
       amortization         7,041        4,832      26,200         13,236
      Other                   126          118         531            433
    Funds from operations $18,868      $14,952     $71,174        $39,142

    Weighted average
     common shares/units
     outstanding (Basic)   31,840       27,683      30,897         21,302
    Weighted average
     common shares/units
     outstanding (Diluted) 31,840       27,780      30,967         21,396

    Funds from operations
     per common
     share/unit (Basic)     $0.59        $0.54       $2.30          $1.84
    Funds from operations
     per common
     share/unit (Diluted)   $0.59        $0.54       $2.30          $1.83


                            KILROY REALTY CORPORATION
                         FUNDS AVAILABLE FOR DISTRIBUTION
                 (unaudited, in thousands, except per share data)

                      Three Months Three Months  Year Ended    Period from
                          Ended       Ended        Ended    February 1, 1997
                      December 31, December 31, December 31, to December 31,
                           1998        1997         1998            1997

    Funds from operations $18,868      $14,952     $71,174        $39,142

    Adjustments:
     Amortization
      of deferred
      financing costs         287          141         995            949
     Tenant improvements,
      leasing commissions
      and recurring
      capital expenditures   (942)        (387)     (3,190)        (1,193)
     Net effect of
      straight-line rents  (1,526)        (409)     (4,509)          (698)
    Funds available
     for distribution     $16,687      $14,297     $64,470        $38,200

    Funds available
     for distribution
     per common
     share/unit (Basic)     $0.52        $0.52       $2.09          $1.79
    Funds available
     for distribution
     per common
     share/unit (Diluted)   $0.52        $0.51       $2.08          $1.79