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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES, Apr 29, 2002 (BUSINESS WIRE) -- Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2002, with net income of $13.5 million, or $0.49 per share, on revenues of $52.6 million. Included in the company's first-quarter earnings was $3.9 million, or $0.13 per share, of non-recurring preferred return income. In the first quarter of 2001, KRC reported net income of $6.4 million, or $0.24 per share, on revenues of $50.4 million.

Funds from operations (FFO) totaled $27.2 million, or $0.89 per share, compared to $21.9 million, or $0.72 per share in the prior year's first quarter.

All per-share amounts in this report are presented on a diluted basis.

As previously reported, the company completed in the first quarter the buyout of the remaining real estate interests in twelve properties from The Allen Group. In connection with that transaction, KRC recognized $0.13 per share of preferred return income on its equity investment that had been earned previously but had been fully reserved for financial reporting purposes until the buyout was completed and the related litigation between the parties was settled.

KRC completed and stabilized $32 million of new development in the first quarter of 2002, adding an aggregate 131,300 square feet of space in two new office properties to its portfolio. At quarter's end, the company's stabilized portfolio was 94.2% occupied.

KRC has an additional 910,000 square feet of space currently in lease-up, under construction or committed for construction representing a total estimated investment of approximately $263 million. These properties are 62% leased or committed.

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 Corporation 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 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 primarily in the coastal regions of California and Washington. Principal submarkets for KRC's current development program include West Los Angeles, El Segundo and coastal San Diego, where the company's total development pipeline is more than $500 million. At March 31, 2002, the company owned 7.4 million square feet of commercial office space and 5.1 million square feet of industrial space.

                      KILROY REALTY CORPORATION
                      SUMMARY QUARTERLY RESULTS
           (unaudited, in thousands, except per share data)
                                       Three Months      Three Months
                                          Ended              Ended
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
Revenues                               $    52,635       $    50,367
Net Income available to common
 stockholders (1)                      $    13,507       $     6,426
Weighted average common shares
 outstanding -- basic                       27,256            26,713
Weighted average common shares
 outstanding -- diluted                     27,550            26,971
Net Income per share of common
 stock -- basic                        $      0.50       $      0.24
Net Income per share of common
 stock -- diluted                      $      0.49       $      0.24
Operating Earnings (2)                 $    15,017       $     8,358
Weighted average common shares/
 units outstanding -- basic (3)             30,317            30,225
Weighted average common shares/
 units outstanding -- diluted (3)           30,611            30,484
Operating Earnings per common
 share/unit -- basic (3)               $      0.50       $      0.28
Operating Earnings per common
 share/unit -- diluted (3)             $      0.49       $      0.27
Funds From Operations                  $    27,153       $    21,876
Funds From Operations per common
 share/unit -- basic (3)               $      0.90       $      0.72
Funds From Operations per common
 share/unit -- diluted (3)             $      0.89       $      0.72
Common shares outstanding at
 end of period                              27,572            26,975
Common partnership units
 outstanding at end of period                4,458             3,282
                                      --------------    --------------
   Total common shares and units
    outstanding at end of period            32,030            30,257
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
Occupancy rates:
   California                                 93.9%             96.4%
   Washington                                 98.3%            100.0%
   Arizona                                   100.0%            100.0%
   Nevada                                                      100.0%
                                      --------------    --------------
    Weighted average total                    94.2%             96.6%
Total square feet of stabilized
 properties owned at end of period:
   Office                                    7,357             7,064
   Industrial                                5,086             5,768
                                      --------------    --------------
    Total                                   12,443            12,832
(1) Net Income after minority interests.
(2) Excludes effect of 2001 charge for cumulative effect of change in
    accounting principle of $1.4 million.
(3) 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)
                                         March 31,       December 31,
                                           2002              2001
                                      --------------    --------------
ASSETS
------
INVESTMENT IN REAL ESTATE:
 Land and improvements                 $   277,842       $   269,366
 Buildings and improvements              1,179,214         1,140,499
 Undeveloped land and construction
  in progress                              204,566           191,129
                                      --------------    --------------
  Total investment in real estate        1,661,622         1,600,994
 Accumulated depreciation and
  amortization                            (248,702)         (241,665)
                                      --------------    --------------
  Investment in real estate, net         1,412,920         1,359,329
Cash and cash equivalents                   10,432            16,487
Restricted cash                              5,984             5,413
Tenant receivables, net                     30,051            32,151
Deferred financing and leasing
 costs, net                                 42,208            37,068
Prepaid expenses and other assets            4,896             6,781
                                      --------------    --------------
  TOTAL ASSETS                         $ 1,506,491        $ 1,457,229
                                      ==============    ==============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
LIABILITIES:
 Secured debt                          $   457,186        $   459,587
 Unsecured line of credit                  284,000            155,000
 Unsecured term facility                                      100,000
 Accounts payable, accrued expenses
  and other liabilities                     49,745             53,879
 Accrued distributions                      15,163             14,634
 Rents received in advance and
  tenant security deposits                  15,155             15,955
                                      --------------    --------------
  Total liabilities                        821,249            799,055
                                      --------------    --------------
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                               74,477             49,176
 Minority interest in Development
  LLCs                                                         15,869
                                      --------------    --------------
  Total minority interests                 226,978            217,546
                                      --------------    --------------
STOCKHOLDERS' EQUITY:
 Common stock                                  275                274
 Additional paid-in capital                494,354            479,295
 Distributions in excess of earnings       (33,305)           (33,163)
 Accumulated net other
  comprehensive loss                        (3,060)            (5,778)
                                      --------------    --------------
  Total stockholders' equity               458,264            440,628
                                      --------------    --------------
  TOTAL LIABILITIES & STOCKHOLDERS'
   EQUITY                              $ 1,506,491        $ 1,457,229
                                      ==============    ==============
    KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
           (unaudited, in thousands, except per share data)
                                       Three Months      Three Months
                                           Ended             Ended
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
REVENUES:
 Rental income                         $    45,295       $    44,379
 Tenant reimbursements                       5,618             5,520
 Interest income                               285               436
 Other income                                1,437                32
                                      --------------    --------------
     Total revenues                         52,635            50,367
                                      --------------    --------------
EXPENSES:
 Property expenses                           7,701             6,982
 Real estate taxes                           3,850             3,635
 General and administrative expenses         2,968             3,089
 Ground leases                                 383               392
 Interest expense                            9,359            10,791
 Depreciation and amortization              12,866            13,611
                                      --------------    --------------
     Total expenses                         37,127            38,500
                                      --------------    --------------
Income from operations                      15,508            11,867
Net gains on dispositions of
 operating properties                                            305
                                      --------------    --------------
Income before minority interests and
 cumulative effect of change in
 accounting principle                       15,508            12,172
                                      --------------    --------------
Minority interests:
 Distributions on Cumulative Redeemable
  Preferred units                           (3,375)           (3,375)
 Minority interest in earnings of
  Operating Partnership                     (1,510)             (845)
 Recognition of previously reserved
  Development LLC preferred return           3,908
 Minority interest in earnings of
  Development LLCs                          (1,024)             (134)
                                      --------------    --------------
     Total minority interests               (2,001)           (4,354)
                                      --------------    --------------
Net income before cumulative effect
 of change in accounting principle          13,507             7,818
Cumulative effect of change in
 accounting principle                                         (1,392)
                                      --------------    --------------
Net income                             $    13,507       $     6,426
                                      ==============    ==============
Weighted average shares
 outstanding -- basic                       27,256            26,713
Weighted average shares
 outstanding -- diluted                     27,550            26,971
Net Income per common share --
 basic                                 $      0.50       $      0.24
                                      ==============    ==============
Net Income per common share --
 diluted                               $      0.49       $      0.24
                                      ==============    ==============
                       KILROY REALTY CORPORATION
                          OPERATING EARNINGS
           (unaudited, in thousands, except per share data)
                                       Three Months      Three Months
                                           Ended             Ended
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
Net income                             $    13,507       $     6,426
Adjustments:
 Minority interest in earnings of
  Operating Partnership                      1,510               845
 Net gains on dispositions of
  operating properties                                          (305)
 Cumulative effect of change in
  accounting principle                                         1,392
                                      --------------    --------------
Operating Earnings                     $    15,017       $     8,358
                                      ==============    ==============
Weighted average common shares/
 units outstanding -- basic                 30,317            30,225
Weighted average common shares/
 units outstanding -- diluted               30,611            30,484
Operating Earnings per common
 share/unit -- basic                   $      0.50       $      0.28
                                      ==============    ==============
Operating Earnings per common
 share/unit -- diluted                 $      0.49       $      0.27
                                      ==============    ==============
                       KILROY REALTY CORPORATION
                         FUNDS FROM OPERATIONS
           (unaudited, in thousands, except per share data)
                                       Three Months      Three Months
                                           Ended             Ended
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
Operating Earnings                     $    15,017       $     8,358
Adjustments:
 Depreciation and amortization              12,136            12,970
 Non-cash amortization of
  restricted stock grants                                        548
                                      --------------    --------------
Funds From Operations                  $    27,153       $    21,876
                                      ==============    ==============
Funds From Operations per common
 share/unit -- basic                   $      0.90       $      0.72
                                      ==============    ==============
Funds From Operations per common
 share/unit -- diluted                 $      0.89       $      0.72
                                      ==============    ==============
                       KILROY REALTY CORPORATION
                   FUNDS AVAILABLE FOR DISTRIBUTION
           (unaudited, in thousands, except per share data)
                                       Three Months      Three Months
                                           Ended             Ended
                                      March 31, 2002    March 31, 2001
                                      --------------    --------------
Funds From Operations                  $    27,153       $    21,876
Adjustments:
 Amortization of deferred
  financing costs                              778               381
 Tenant improvements, leasing
  commissions and recurring
  capital expenditures                        (335)           (1,011)
 Net effect of straight-line rents          (1,228)           (1,714)
                                      --------------    --------------
Funds Available for Distribution       $    26,368       $    19,532
                                      ==============    ==============
Funds Available for Distribution
 per common share/unit -- basic        $      0.87       $      0.65
                                      ==============    ==============
Funds Available for Distribution
 per common share/unit -- diluted      $      0.86       $      0.64
                                      ==============    ==============
CONTACT:
Kilroy Realty Corporation
Richard E. Moran Jr., (310) 563-5533
Tyler H. Rose, (310) 563-5531

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