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Kilroy Realty Corporation Reports Second-Quarter Financial Results

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LOS ANGELES, Jul 24, 2002 (BUSINESS WIRE) -- Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2002, with net income of $5.0 million, or $0.18 per share, on revenues of $51.3 million. KRC's second-quarter earnings were reduced by a $5.3 million ($0.17 per share) charge to depreciation for capitalized leasing costs and a $1.5 million ($0.05 per share) charge to record development and bad debt reserves related to the financial condition of Peregrine Systems, Inc., an existing tenant. In the second quarter of 2001, the company reported net income of $15.1 million, or $0.55 per share, on revenues of $58.2 million. Earnings in the second quarter of 2001 were increased by a $5.4 million ($0.18 per share) non-recurring lease termination fee.

For the first six months of 2002, KRC reported net income of $18.5 million, or $0.67 per share, on revenues of $103.9 million. In the same year-earlier period, the company reported net income of $21.5 million, or $0.79 per share, on revenues of $108.7 million.

KRC's funds from operations (FFO) totaled $23.4 million, or $0.73 per share, in the second quarter of 2002, compared to $28.2 million, or $0.93 per share, in the prior year's second quarter. Second-quarter FFO was reduced by the $1.5 million ($0.05 per share) charge to record development and bad debt reserves related to the financial condition of Peregrine Systems. For the first six months of 2002, FFO totaled $50.5 million, or $1.61 per share, compared to $50.1 million, or $1.64 per share, in the same period of 2001.

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

KRC added $49 million of new development to its stabilized portfolio in the second quarter of 2002, including an aggregate 213,900 square feet of space in three new office properties. At quarter's end, the company's stabilized portfolio was 94.8% occupied.

KRC has an additional 697,600 square feet of space currently in lease-up or under construction, representing a total estimated investment of approximately $221 million. These properties are 42% 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, a member of the S&P Small Cap 600 Index, 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. At June 30, 2002, the company owned 7.6 million square feet of commercial office space and 5.1 million square feet of industrial space. More information can be found at www.kilroyrealty.com.

                       KILROY REALTY CORPORATION
                       SUMMARY QUARTERLY RESULTS
           (unaudited, in thousands, except per share data)
                            Three Months Ended     Six Months Ended
                            June 30,   June 30,   June 30,   June 30,
                              2002       2001       2002       2001
                            --------   --------   --------   --------
Revenues                    $ 51,265   $ 58,234   $103,900   $108,701
Net income available to
 common stockholders (a)    $  4,957   $ 15,097   $ 18,464   $ 21,523
Weighted average common
 shares outstanding - basic   27,463     27,160     27,360     26,938
Weighted average common
 shares outstanding - diluted 27,805     27,380     27,678     27,177
Net income per share
 of common stock - basic    $   0.18   $   0.56   $   0.67   $   0.80
Net income per share
 of common stock - diluted  $   0.18   $   0.55   $   0.67   $   0.79
Funds From Operations       $ 23,358   $ 28,237   $ 50,510   $ 50,113
Weighted average common
 shares/units outstanding
 - basic (b)                  31,827     30,260     31,076     30,243
Weighted average common
 shares/units outstanding
 - diluted (b)                32,169     30,481     31,394     30,482
Funds From Operations per
 common share/unit
 - basic (b)                $   0.73   $   0.93   $   1.63   $   1.66
Funds From Operations per
 common share/unit
 - diluted (b)              $   0.73   $   0.93   $   1.61   $   1.64
Common shares outstanding
 at end of period                                   27,744     27,266
Common partnership units
 outstanding at end of period                        4,421      3,063
                                                  --------   --------
   Total common shares and
    units outstanding at
    end of period                                   32,165     30,329
                                                   June 30,   June 30,
                                                     2002       2001
                                                  --------   --------
  Occupancy rates:
     California                                       94.6%      94.5%
     Washington                                       97.7%      99.8%
     Arizona                                         100.0%     100.0%
     Nevada                                                     100.0%
                                                  --------   --------
       Weighted average total                         94.8%      94.9%
Total square feet of stabilized
 properties owned at end of period:
     Office                                          7,570      7,235
     Industrial                                      5,086      5,606
                                                  --------   --------
       Total                                        12,656     12,841
(a) Net income after minority interests.
(b) 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,     Dec. 31,
                                                 2002         2001
  ASSETS                                     -----------  -----------
  ------
  INVESTMENT IN REAL ESTATE:
   Land and improvements                     $   285,585  $   269,366
   Buildings and improvements                  1,220,923    1,140,499
   Undeveloped land and construction
    in progress, net                             172,331      191,129
                                             -----------  -----------
     Total investment in real estate           1,678,839    1,600,994
   Accumulated depreciation and amortization    (259,676)    (241,665)
                                             -----------  -----------
     Investment in real estate, net            1,419,163    1,359,329
  Cash and cash equivalents                       12,663       16,487
  Restricted cash                                  5,811        5,413
  Tenant receivables, net                         29,511       32,151
  Deferred financing and leasing costs, net       37,909       37,068
  Prepaid expenses and other assets                5,520        6,781
                                             -----------  -----------
    TOTAL ASSETS                             $ 1,510,577  $ 1,457,229
                                             ===========  ===========
  LIABILITIES & STOCKHOLDERS' EQUITY
  LIABILITIES:
   Secured debt                              $   455,302  $   459,587
   Unsecured line of credit                      306,000      155,000
   Unsecured term facility                                    100,000
   Accounts payable, accrued expenses
    and other liabilities                         39,016       53,879
   Accrued distributions                          15,891       14,634
   Rents received in advance and tenant
    security deposits                             16,737       15,955
                                             -----------  -----------
     Total liabilities                           832,946      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                         72,415       49,176
   Minority interest in Development LLCs                       15,869
                                             -----------  -----------
     Total minority interests                    224,916      217,546
                                             -----------  -----------
  STOCKHOLDERS' EQUITY:
   Common stock                                      277          274
   Additional paid-in capital                    499,196      479,295
   Distributions in excess of earnings           (42,079)     (33,163)
   Accumulated net other comprehensive loss       (4,679)      (5,778)
                                             -----------  -----------
     Total stockholders' equity                  452,715      440,628
                                             -----------  -----------
    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,510,577  $ 1,457,229
                                             ===========  ===========
                       KILROY REALTY CORPORATION
                 CONSOLIDATED STATEMENTS OF OPERATIONS
           (unaudited, in thousands, except per share data)
                            Three Months Ended     Six Months Ended
                            June 30,   June 30,   June 30,   June 30,
                              2002       2001       2002       2001
REVENUES:                   --------   --------   --------   --------
 Rental income              $ 44,435   $ 46,029   $ 89,730   $ 90,408
 Tenant reimbursements         6,714      6,170     12,332     11,690
 Interest income                  86        277        371        713
 Other income                     30      5,758      1,467      5,890
                            --------   --------   --------   --------
     Total revenues           51,265     58,234    103,900    108,701
                            --------   --------   --------   --------
EXPENSES:
 Property expenses             7,529      7,330     15,230     14,312
 Real estate taxes             4,063      4,744      7,913      8,379
 General and administrative
  expenses                     3,129      2,973      6,097      6,073
 Ground leases                   333        375        716        767
 Provision for potentially
  unrecoverable development
  costs                          519                   519        100
 Interest expense              8,768     10,612     18,127     21,403
 Depreciation and
  amortization                18,502     12,695     31,368     26,295
                            --------   --------   --------   --------
     Total expenses           42,843     38,729     79,970     77,329
                            --------   --------   --------   --------
Income from operations         8,422     19,505     23,930     31,372
Net gains on dispositions
 of operating properties         896      1,234        896      1,539
                            --------   --------   --------   --------
Income before minority
 interests and cumulative
 effect of change in
 accounting principle          9,318     20,739     24,826     32,911
                            --------   --------   --------   --------
Minority interests:
 Distributions on Cumulative
  Redeemable Preferred units  (3,375)    (3,375)    (6,750)    (6,750)
 Minority interest in earnings
  of Operating Partnership      (986)    (1,796)    (2,496)    (2,641)
 Recognition of previously
  reserved Development LLC
  preferred return                                   3,908
 Minority interest in earnings
  of Development LLCs                      (471)    (1,024)      (605)
                            --------   --------   --------   --------
     Total minority interests (4,361)    (5,642)    (6,362)    (9,996)
                            --------   --------   --------   --------
Net income before cumulative
 effect of change in
 accounting principle          4,957     15,097     18,464     22,915
Cumulative effect of change
 in accounting principle                                       (1,392)
                            --------   --------   --------   --------
Net income                  $  4,957   $ 15,097   $ 18,464   $ 21,523
                            ========   ========   ========   ========
Weighted average shares
 outstanding - basic          27,463     27,160     27,360     26,938
Weighted average shares
 outstanding - diluted        27,805     27,380     27,678     27,177
Net Income per common
 share - basic              $   0.18   $   0.56   $   0.67   $   0.80
                            ========   ========   ========   ========
Net Income per common
 share - diluted            $   0.18   $   0.55   $   0.67   $   0.79
                            ========   ========   ========   ========
                       KILROY REALTY CORPORATION
                         FUNDS FROM OPERATIONS
           (unaudited, in thousands, except per share data)
                            Three Months Ended     Six Months Ended
                            June 30,   June 30,   June 30,   June 30,
                              2002       2001       2002       2001
                            --------   --------   --------   --------
Net income                  $  4,957   $ 15,097   $ 18,464   $ 21,523
 Adjustments:
  Minority interest in
   earnings of Operating
   Partnership                   986      1,796      2,496      2,641
  Depreciation and
   amortization               18,311     12,030     30,446     25,000
  Net gains on dispositions
   of operating properties      (896)    (1,234)      (896)    (1,539)
  Cumulative effect of
   change in accounting
   principle                                                    1,392
  Non-cash amortization of
   restricted stock grants                  548                 1,096
                            --------   --------   --------   --------
Funds From Operations       $ 23,358   $ 28,237   $ 50,510   $ 50,113
                            ========   ========   ========   ========
Weighted average common
 shares/units outstanding
 - basic                      31,827     30,260     31,076     30,243
Weighted average common
 shares/units outstanding
 - diluted                    32,169     30,481     31,394     30,482
Funds From Operations per
 common share/unit - basic  $   0.73   $   0.93   $   1.63   $   1.66
                            ========   ========   ========   ========
Funds From Operations per
 common share/unit - diluted $  0.73   $   0.93   $   1.61   $   1.64
                            ========   ========   ========   ========
                       KILROY REALTY CORPORATION
                   FUNDS AVAILABLE FOR DISTRIBUTION
           (unaudited, in thousands, except per share data)
                            Three Months Ended     Six Months Ended
                            June 30,   June 30,   June 30,   June 30,
                              2002       2001       2002       2001
                            --------   --------   --------   --------
Funds From Operations       $ 23,358   $ 28,237   $ 50,510   $ 50,113
 Adjustments:
  Amortization of deferred
   financing costs               442        399      1,220        780
  Tenant improvements,
   leasing commissions
   and recurring capital
   expenditures               (1,302)   (3,668)    (1,637)    (4,679)
  Net effect of
   straight-line rents            97      (873)    (1,131)    (2,587)
                            --------   --------   --------   --------
Funds Available for
 Distribution               $ 22,595   $ 24,095   $ 48,962   $ 43,627
                            ========   ========   ========   ========
Funds Available for
 Distribution per common
 share/unit - basic         $   0.71   $   0.80   $   1.58   $   1.44
                            ========   ========   ========   ========
Funds Available for
 Distribution per common
 share/unit - diluted       $   0.70   $   0.79   $   1.56   $   1.43
                            ========   ========   ========   ========
CONTACT:
Kilroy Realty Corp., Los Angeles
Richard E. Moran Jr., 310/481-8483
Tyler H. Rose, 310/481-8484

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