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Kilroy Realty Corporation Reports Second Quarter Financial Results

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LOS ANGELES, Aug. 1, 2001 -- Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2001, with net income of $15.1 million, or $0.55 per share, compared to $12.8 million, or $0.49 per share in the second quarter of 2000. Revenues for the period totaled $58.2 million, up from $45.3 million a year ago.

For the first six months of 2001, the company reported net income of $21.5 million, or $0.79 per share, down from $22.4 million, or $0.84 per share, in the year-earlier period. Revenues for the six months totaled $108.6 million, up from $89.1 million in 2000.

Funds from operations (FFO) for the second quarter were $28.2 million, or $0.93 per share, compared to $20.2 million, or $0.67 per share in the second quarter of 2000. For the first six months of 2001, FFO totaled $50.1 million, or $1.64 per share, up from $40.8 million, or $1.33 per share for the first six months of 2000. All per-share amounts in this report are presented on a diluted basis.

The company's second quarter results include a non-recurring lease termination fee of $5.4 million (or $0.18 per share) related to a lease default by a tenant at the company's Westside Media Center project.

KRC completed and stabilized two new office buildings during the second quarter aggregating 170,870 square feet of space for a total investment of approximately $37.5 million. The two buildings, both located in San Diego County, were 100% leased on completion. The company is currently developing or is committed to develop an additional 975,311 square feet of space in Southern California, with completion dates scheduled through 2002. This committed development pipeline, representing a total estimated investment of approximately $240 million, is currently 50% preleased.

Some of the information presented in this release is forward-looking in nature within the meaning of the federal securities law. Although the information is based on the company's current best judgment, actual results, including the timing and total investment of the company's development projects, and the timely leasing or re-leasing of space at current or anticipated rents, could vary from expectations stated here. Numerous factors will affect KRC'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, capital market conditions and risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.

Kilroy Realty Corporation is a Southern California-based real estate investment trust active in the office and industrial property sectors. For more than 50 years, the company has owned, developed, acquired and managed real estate assets in the coastal regions of California and Washington. Principal submarkets for KRC's current development program include Calabasas, West Los Angeles, El Segundo and coastal San Diego, where the company's total development pipeline is over $500 million. At June 30, 2001, the company owned 7.2 million square feet of commercial office space and 5.6 million square feet of industrial space. More information on Kilroy Realty can be found at www.kilroyrealty.com.

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

                                Three Months         Six Months
                                    Ended               Ended
                                   June 30,            June 30, 
                                2001      2000      2001       2000
                              -------   -------   --------   -------
 Revenues                     $58,234   $45,336   $108,601   $89,106

 Net income available to
  common stockholders (1)     $15,097   $12,804   $ 21,523   $22,381

 Weighted average
  common shares
  outstanding - basic          27,160    26,259     26,938    26,744
 Weighted average
  common shares
  outstanding - diluted        27,380    26,348     27,177    26,788

 Net income per share
  of common stock - basic     $  0.56   $  0.49   $   0.80   $  0.84
 Net income per share
  of common stock - diluted   $  0.55   $  0.49   $   0.79   $  0.84

 Funds From Operations        $28,237   $20,153   $ 50,113   $40,832

 Weighted average common
  shares/units outstanding
  - basic (2)                  30,260    30,041     30,243    30,586
 Weighted average common
  shares/units outstanding
  - diluted (2)                30,481    30,131     30,482    30,630

 Funds From Operations
  per common share/unit
  - basic (2)                 $  0.93   $  0.67   $   1.66   $  1.33
 Funds From Operations
  per common share/unit
  - diluted (2)               $  0.93   $  0.67   $   1.64   $  1.33

 Common shares outstanding
  at end of period                                  27,266    26,455
 Common partnership units
  outstanding at end of period                       3,063     3,748
                                                    ------    ------
   Total common shares and
    units outstanding at
    end of period                                   30,329    30,203


                                 June 30, 2001      June 30, 2000
                                 -------------      -------------
 Occupancy rates:
     California                       94.5%             97.1%
     Washington                       99.8%             99.7%
     Arizona                         100.0%            100.0%
     Nevada                          100.0%            100.0%
                                     ------            ------
     Weighted average total           94.9%             97.3%

 Total square feet of stabilized
  properties owned at end of period:
     Office                           7,235             6,333
     Industrial                       5,606             6,238
                                     ------            ------ 
     Total                           12,841            12,571

  (1) Net income after minority interests.

  (2) Calculated based on weighted average shares outstanding assuming
      conversion of all common limited partnership units outstanding.


         KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
         -----------------------------------------------------
                       (unaudited, in thousands)

                                         June 30,      December 31,
                                           2001           2000
                                        -----------    -----------
 ASSETS
 INVESTMENT IN REAL ESTATE:
   Land and improvements               $   285,733    $   266,444
   Buildings and improvements            1,154,660      1,054,995
   Undeveloped land and
    construction in progress, net          143,564        162,633
   Investment in unconsolidated
    real estate                               --           12,405
                                       -----------    -----------
    Total investment in real estate      1,583,957      1,496,477
   Accumulated depreciation
    and amortization                      (224,157)      (205,332)
                                       -----------    -----------
    Investment in real estate, net       1,359,800      1,291,145

 Cash and cash equivalents                  13,898         17,600
 Restricted cash                             7,222         35,014
 Tenant receivables, net                    30,095         32,521
 Note receivable from related party           --           33,274
 Deferred financing and leasing
  costs, net                                37,455         39,674
 Prepaid expenses and other assets           5,371          7,941
                                       -----------    -----------
    TOTAL ASSETS                       $ 1,453,841    $ 1,457,169
                                       ===========    ===========
 LIABILITIES & STOCKHOLDERS' EQUITY
 LIABILITIES:
   Secured debt                        $   438,947    $   432,688
   Unsecured line of credit                185,000        191,000
   Unsecured term facility                 100,000        100,000
   Accounts payable and
    accrued expenses                        38,554         33,911
   Accrued distributions                    14,558         13,601
   Rents received in advance
    and tenant security deposits            16,302         17,810
                                       -----------    -----------
    Total liabilities                      793,361        789,010
                                       -----------    -----------
 MINORITY INTERESTS:
   8.075% Series A Cumulative
    Redeemable Preferred unitholders        73,716         73,716
   9.375% Series C Cumulative
    Redeemable Preferred unitholders        34,464         34,464
   9.250% Series D Cumulative
    Redeemable Preferred unitholders        44,321         44,321
   Common unitholders of the
    Operating Partnership                   50,076         62,485
   Minority interest in
    Development LLCs                        12,177         11,748
                                       -----------    -----------
    Total minority interests               214,754        226,734
                                       -----------    -----------
 STOCKHOLDERS' EQUITY:
   Common stock                                273            265
   Additional paid-in capital              474,864        460,390
   Distributions in excess
    of earnings                            (23,742)       (19,230)
   Accumulated other
    comprehensive loss                      (5,669)          --
                                       -----------    -----------
    Total stockholders' equity             445,726        441,425
                                       -----------    -----------
    TOTAL LIABILITIES &
     STOCKHOLDERS' EQUITY              $ 1,453,841    $ 1,457,169
                                       ===========    ===========


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

                           Three Months Ended      Six Months Ended
                                 June 30,              June 30, 
                             2001       2000       2001        2000
                           -------    -------    --------    --------
 REVENUES:
   Rental income           $46,029    $39,370    $ 90,408    $ 77,072
   Tenant reimbursements     6,170      4,594      11,690       9,288
   Interest income             277      1,016         713       1,302
   Other income              5,758        356       5,790       1,444
                           -------    -------    --------    --------
       Total revenues       58,234     45,336     108,601      89,106
                           -------    -------    --------    --------
 EXPENSES:
   Property expenses         7,443      6,074      14,338      11,532
   Real estate taxes         4,744      3,049       8,379       6,436
   General and
    administrative expenses  3,034      2,555       6,388       5,187
   Ground leases               375        399         767         788
   Interest expense         10,612      9,948      21,403      17,776
   Depreciation and
    amortization            12,521      9,645      25,954      18,968
                           -------    -------    --------    --------
       Total expenses       38,729     31,670      77,229      60,687
                           -------    -------    --------    --------

 Income from operations     19,505     13,666      31,372      28,419
 Net gains on dispositions
  of operating properties    1,234      4,273       1,539       3,968
                           -------    -------    --------    --------
 Income before minority
  interests and cumulative
  effect of change in
  accounting principle      20,739     17,939      32,911      32,387
                           -------    -------    --------    --------
 Minority interests:
   Distributions on
    Cumulative Redeemable
    Preferred units         (3,375)    (3,375)     (6,750)     (6,750)
   Minority interest in
    earnings of Operating
    Partnership             (1,796)    (1,843)     (2,641)     (3,215)
   Minority interest in
    earnings of
    Development LLCs          (471)        83        (605)        (41)
                           -------    -------    --------    --------
       Total minority
        interests           (5,642)    (5,135)     (9,996)    (10,006)
                           -------    -------    --------    --------

 Net income before
  cumulative effect of
  change in accounting
  principle                 15,097     12,804      22,915      22,381
 Cumulative effect of
  change in accounting
  principle                   --         --        (1,392)       --
                           -------    -------    --------    --------
 Net income                $15,097    $12,804    $ 21,523    $ 22,381
                           =======    =======    ========    ========
 Weighted average shares
  outstanding - basic       27,160     26,259      26,938      26,744
 Weighted average shares
  outstanding - diluted     27,380     26,348      27,177      26,788

 Income per common share
  - basic                  $  0.56    $  0.49    $   0.80    $   0.84
                           =======    =======    ========    ========
 Income per common share
  - diluted                $  0.55    $  0.49    $   0.79    $   0.84
                           =======    =======    ========    ========


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

                             Three Months Ended    Six Months Ended
                                   June 30,             June 30,
                                2001     2000        2001     2000
                              -------   -------    -------   -------
 Net income                   $15,097   $12,804    $21,523   $22,381

 Adjustments:
   Minority interest in
    earnings of Operating
    Partnership                 1,796     1,843      2,641     3,215
   Depreciation and
    amortization               12,030     9,645     25,000    18,968
   Net gains on dispositions
    of operating properties    (1,234)   (4,273)    (1,539)   (3,968)
   Cumulative effect of change
    in accounting principle       --        --       1,392       --
   Non-cash amortization of
    restricted stock grants       548       134      1,096       236
                              -------   -------    -------   -------
 Funds From Operations        $28,237   $20,153    $50,113   $40,832
                              =======   =======    =======   =======

 Weighted average common
  shares/units outstanding
  - basic                      30,260    30,041     30,243    30,586
 Weighted average common
  shares/units outstanding
  - diluted                    30,481    30,131     30,482    30,630

 Funds From Operations per
  common share/unit - basic   $  0.93   $  0.67    $  1.66   $  1.33
                              =======   =======    =======   =======
 Funds From Operations per
  common share/unit - diluted $  0.93   $  0.67    $  1.64   $  1.33
                              =======   =======    =======   =======

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

                             Three Months Ended    Six Months Ended
                                   June 30,             June 30,
                                2001     2000        2001     2000
                              -------   -------    -------   -------

 Funds From Operations        $28,237   $20,153    $50,113   $40,832

 Adjustments:
   Amortization of deferred
    financing costs               399       487        780       693
   Tenant improvements,
    leasing commissions and
    recurring capital
    expenditures               (3,668)   (1,827)    (4,679)   (2,731)
  Net effect of straight-line
   rents                         (873)   (1,549)    (2,587)   (3,057)
                              -------   -------    -------   -------
 Funds Available for
  Distribution                $24,095   $17,264    $43,627   $35,737
                              =======   =======    =======   =======
 Funds Available for
  Distribution per common
  share/unit - basic          $  0.80   $  0.57    $  1.44   $  1.17
                              =======   =======    =======   =======
 Funds Available for
  Distribution per common
  share/unit - diluted        $  0.79   $  0.57    $  1.43   $  1.17
                              =======   =======    =======   =======
-0-
CONTACT: Kilroy Realty Corporation
         Richard E. Moran Jr., Executive Vice President
             and Chief Financial Officer
             (310) 563-5533

         Tyler H. Rose, Senior Vice President
             and Treasurer
             (310) 563-5531