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Kilroy Realty Corp. Reports Third-Quarter Financial Results

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LOS ANGELES, Oct 31, 2001 (BUSINESS WIRE) -- Kilroy Realty Corp. (NYSE:KRC) today reported funds from operations (FFO) in its third quarter ended Sept. 30, 2001, of $20.5 million, or $0.67 per share, down from $21.1 million, or $0.69 per share, in the third quarter of 2000.

For the first nine months of 2001, the company said FFO totaled $70.6 million, or $2.31 per share, up from $61.9 million, or $2.02 per share in the year-earlier period.

KRC said net income totaled $9.3 million, or $0.34 per share, for its third quarter ended Sept. 30, 2001, down from $15.7 million, or $0.59 per share, in the third quarter of 2000. Revenues in the third quarter totaled $51.4 million, up from $47.2 million in the prior year's quarter.

For the first nine months of 2001, the company reported net income of $30.8 million, or $1.13 per share, down from $38.1 million, or $1.42 per share, in the first nine months of 2000. Revenues for the nine-month period totaled $160.0 million, up from $136.4 million in the year-earlier period. All per-share amounts in this report are presented on a diluted basis.

KRC is currently developing or is committed to develop 963,500 square feet of space in Southern California, with completion dates scheduled through 2002. This committed development pipeline, representing a total estimated investment of approximately $243 million, is currently 51 percent leased or committed.

As part of its program to sell non-core assets, the company sold one office and four industrial buildings in the third quarter, including its only three assets located in the state of Nevada. Total proceeds from the dispositions were approximately $29.4 million.

Some of the information presented in this release is forward- looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kilroy Realty Corp. believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from Kilroy Realty's expectations are set forth as risk factors in the company's Securities and Exchange Commission reports and filings. Included among these factors are changes in general economic conditions, including changes in the economic conditions affecting industries in which its principal tenants compete; any failure of the general economy to recover timely from the current economic downturn; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs, including utility costs; future demand for its debt and equity securities; its ability to refinance its debt on reasonable terms at maturity; its ability to complete current and future development projects on schedule and on budget; the demand for office space in markets in which Kilroy Realty has a presence; 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. Many of these factors are beyond Kilroy Realty's ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, Kilroy Realty claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Kilroy Realty Corp. 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 primarily 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 more than $500 million. At Sept. 30, 2001, the company owned 7.1 million square feet of commercial office space and 5.2 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      Three      Nine       Nine
                             Months     Months     Months     Months
                              Ended      Ended     Ended      Ended
                            Sept. 30,  Sept. 30,  Sept. 30, Sept. 30,
                              2001       2000       2001      2000
                            ---------  ---------  --------- ---------
Revenues                    $ 51,446   $ 47,249   $160,047   $136,355
Net income available to
 common stockholders (1)    $  9,283   $ 15,679   $ 30,806   $ 38,060
Weighted average common
 shares outstanding - basic   27,359     26,455     27,080     26,647
Weighted average common
 shares outstanding - diluted 27,587     26,697     27,315     26,758
Net income per share of
 common stock - basic       $   0.34   $   0.59   $   1.14   $   1.43
Net income per share of
 common stock - diluted     $   0.34   $   0.59   $   1.13   $   1.42
Funds From Operations       $ 20,512   $ 21,067   $ 70,625   $ 61,899
Weighted average common
 shares/units outstanding
 - basic (2)                  30,421     30,203     30,303     30,457
Weighted average common
 shares/units outstanding
 - diluted (2)                30,648     30,444     30,538     30,568
Funds From Operations per
 common share/unit
 - basic (2)                $   0.67   $   0.70   $   2.33   $   2.03
Funds From Operations per
 common share/unit
 - diluted (2)              $   0.67   $   0.69   $   2.31   $   2.02
Common shares outstanding
 at end of period                                   27,426     26,455
Common partnership units
 outstanding at end
 of period                                           3,061      3,748
                                                  --------- ---------
  Total common shares and
   units outstanding at
   end of period                                    30,487     30,203
                                                  Sept. 30, Sept. 30,
                                                    2001      2000
                                                  --------- ---------
Occupancy rates:
  California                                          94.6%      96.6%
  Washington                                          99.3%     100.0%
  Arizona                                            100.0%     100.0%
  Nevada                                                        100.0%
                                                  --------- ---------
    Weighted average total                            94.8%      96.9%
Total square feet of
 stabilized properties owned
 at end of period:
   Office                                            7,130      6,294
   Industrial                                        5,243      5,807
                                                  --------- ---------
                Total                               12,373     12,101
(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)
                                            Sept. 30,       Dec. 31,
                                              2001            2000
                                           -----------    -----------
ASSETS
INVESTMENT IN REAL ESTATE:
 Land and improvements                     $   274,569    $   266,444
 Buildings and improvements                  1,136,946      1,054,995
 Undeveloped land and construction
  in progress, net                             170,122        162,633
 Investment in unconsolidated real estate                      12,405
                                           -----------    -----------
    Total investment in real estate          1,581,637      1,496,477
 Accumulated depreciation and amortization    (232,029)      (205,332)
                                           -----------    -----------
    Investment in real estate, net           1,349,608      1,291,145
Cash and cash equivalents                       10,718         17,600
Restricted cash                                 25,800         35,014
Tenant receivables, net                         32,236         32,521
Note receivable from related party                             33,274
Deferred financing and
 leasing costs, net                             37,470         39,674
Prepaid expenses and other assets                4,890          7,941
                                           -----------    -----------
    TOTAL ASSETS                           $ 1,460,722    $ 1,457,169
                                           ===========    ===========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
 Secured debt                              $   437,688    $   432,688
 Unsecured line of credit                      185,000        191,000
 Unsecured term facility                       100,000        100,000
 Accounts payable, accrued expenses
  and other liabilities                         48,336         33,911
 Accrued distributions                          14,634         13,601
 Rents received in advance and
  tenant security deposits                      14,643         17,810
                                           -----------    -----------
     Total liabilities                         800,301        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                         49,573         62,485
 Minority interest in Development LLCs          14,164         11,748
                                           -----------    -----------
     Total minority interests                  216,238        226,734
                                           -----------    -----------
STOCKHOLDERS' EQUITY:
 Common stock                                      274            265
 Additional paid-in capital                    478,986        460,390
 Distributions in excess of earnings           (27,623)       (19,230)
 Accumulated other comprehensive loss           (7,454)
                                           -----------    -----------
     Total stockholders' equity                444,183        441,425
                                           -----------    -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $ 1,460,722    $ 1,457,169
                                           ===========    ===========
   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
           (unaudited, in thousands, except per share data)
                              Three      Three      Nine       Nine
                             Months     Months     Months     Months
                              Ended      Ended     Ended      Ended
                            Sept. 30,  Sept. 30,  Sept. 30, Sept. 30,
                              2001       2000       2001      2000
                            ---------  ---------  --------- ---------
REVENUES:
  Rental income             $ 44,992   $ 40,555   $135,400   $117,627
  Tenant reimbursements        5,901      4,748     17,591     14,036
  Interest income                170      1,706        883      3,008
  Other income                   383        240      6,173      1,684
                            ---------  ---------  --------- ---------
    Total revenues            51,446     47,249    160,047    136,355
                            ---------  ---------  --------- ---------
EXPENSES:
  Property expenses            7,911      6,217     22,254     17,749
  Real estate taxes            4,106      3,523     12,480      9,959
  General and
   administrative expenses     2,949      2,890      9,337      8,077
  Ground leases                  379        423      1,146      1,211
  Interest expense            10,657     10,024     32,060     27,800
  Depreciation and
   amortization               12,680      9,941     38,634     28,909
                            ---------  ---------  --------- ---------
    Total expenses            38,682     33,018    115,911     93,705
                            ---------  ---------  --------- ---------
Income from operations        12,764     14,231     44,136     42,650
Net gains on dispositions
 of operating properties       2,468      7,288      4,007     11,256
                            ---------  ---------  --------- ---------
Income before minority
 interests and cumulative
 effect of change in
 accounting principle         15,232     21,519     48,143     53,906
                            ---------  ---------  --------- ---------
Minority interests:
 Distributions on Cumulative
  Redeemable Preferred units  (3,375)    (3,375)   (10,125)   (10,125)
 Minority interest in
  earnings of Operating
  Partnership                 (1,027)    (2,227)    (3,668)    (5,442)
 Minority interest in
  earnings of
  Development LLCs            (1,547)      (238)    (2,152)      (279)
                            ---------  ---------  --------- ---------
    Total minority
     interests                (5,949)    (5,840)   (15,945)   (15,846)
                            ---------  ---------  --------- ---------
Net income before cumulative
 effect of change in
 accounting principle          9,283     15,679     32,198     38,060
Cumulative effect of change
 in accounting principle                            (1,392)
                            ---------  ---------  --------- ---------
Net income                  $  9,283   $ 15,679   $ 30,806   $ 38,060
                            =========  =========  ========= =========
Weighted average shares
 outstanding - basic          27,359     26,455     27,080     26,647
Weighted average shares
 outstanding - diluted        27,587     26,697     27,315     26,758
Income per common
 share - basic              $   0.34   $   0.59   $   1.14   $   1.43
                            =========  =========  ========= =========
Income per common
 share - diluted            $   0.34   $   0.59   $   1.13   $   1.42
                            =========  =========  ========= =========
                 KILROY REALTY CORPORATION
                   FUNDS FROM OPERATIONS
     (unaudited, in thousands, except per share data)
                              Three      Three      Nine       Nine
                             Months     Months     Months     Months
                              Ended      Ended     Ended      Ended
                            Sept. 30,  Sept. 30,  Sept. 30, Sept. 30,
                              2001       2000       2001      2000
                            ---------  ---------  --------- ---------
Net income                  $  9,283   $ 15,679   $ 30,806  $  38,060
 Adjustments:
   Minority interest in
    earnings of Operating
    Partnership                1,027      2,227      3,668      5,442
   Depreciation and
    amortization              12,123      9,941     37,123     28,909
   Net gains on
    dispositions of
    operating properties      (2,468)    (7,288)    (4,007)   (11,256)
   Cumulative effect of
    change in accounting
    principle                                        1,392
   Non-cash amortization of
    restricted stock grants      547        508      1,643        744
                            ---------  ---------  --------- ---------
Funds From Operations       $ 20,512   $ 21,067   $ 70,625   $ 61,899
                            =========  =========  ========= =========
Weighted average common
 shares/units outstanding
 - basic                      30,421     30,203     30,303     30,457
Weighted average common
 shares/units outstanding
 - diluted                    30,648     30,444     30,538     30,568
Funds From Operations per
 common share/unit - basic  $   0.67   $   0.70   $   2.33   $   2.03
                            =========  =========  ========= =========
Funds From Operations per
 common share/unit
 - diluted                  $   0.67   $   0.69   $   2.31   $   2.02
                            =========  =========  ========= =========
                       KILROY REALTY CORPORATION
                   FUNDS AVAILABLE FOR DISTRIBUTION
           (unaudited, in thousands, except per share data)
                              Three      Three      Nine       Nine
                             Months     Months     Months     Months
                              Ended      Ended     Ended      Ended
                            Sept. 30,  Sept. 30,  Sept. 30, Sept. 30,
                              2001       2000       2001      2000
                            ---------  ---------  --------- ---------
Funds From Operations       $ 20,512   $ 21,067   $ 70,625  $  61,899
 Adjustments:
   Amortization of deferred
    financing costs              408        426      1,188      1,119
   Tenant improvements,
    leasing commissions and
    recurring capital
    expenditures              (2,240)    (2,462)    (6,919)    (5,193)
   Net effect of
    straight-line rents       (1,927)    (2,611)    (4,514)    (5,668)
                            ---------  ---------  --------- ---------
Funds Available
 for Distribution           $ 16,753   $ 16,420   $ 60,380  $  52,157
                            =========  =========  ========= =========
Funds Available for
 Distribution per common
 share/unit - basic         $   0.55   $   0.54   $   1.99  $    1.71
                            =========  =========  ========= =========
Funds Available for
 Distribution per common
 share/unit - diluted       $   0.55   $   0.54   $   1.98  $    1.71
                            =========  =========  ========= =========
CONTACT:          Kilroy Realty Corp., Los Angeles
                  Richard E. Moran Jr., 310/563-5533
                  Tyler H. Rose, 310/563-5531

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