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Kilroy Realty Corporation Reports Fourth Quarter Earnings and on Key Lease Issues

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LOS ANGELES--(BUSINESS WIRE)--Feb. 3, 2003--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its fourth quarter ended December 31, 2002, with net income of $14.0 million, or $0.50 per share, compared to $7.6 million, or $0.28 per share in the fourth quarter of 2001. Revenues from continuing operations in the fourth quarter totaled $51.7 million, compared to $48.0 million in the fourth quarter of 2001.

For its fiscal year ended December 31, 2002, KRC reported net income of $40.3 million, or $1.45 per share, compared to $38.4 million, or $1.40 per share, in 2001. Revenues from continuing operations in 2002 totaled $202.1 million, compared to $203.6 million in 2001.

KRC's funds from operations (FFO) totaled $24.3 million, or $0.76 per share, in the fourth quarter of 2002, compared to $20.9 million, or $0.68 per share in the prior year's fourth quarter. For the year, FFO totaled $97.9 million, or $3.09 per share, compared to $91.6 million, or $3.00 per share, in 2001.

On Tuesday, February 4, 2003, KRC management will discuss 2003 earnings guidance during its quarterly conference call. Based on management's view of current market conditions and certain assumptions with regard to rental rates and other projections, an FFO per share range of $2.60 to $2.80 for the fiscal year 2003 will be discussed.

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

KRC stabilized $106 million of new development in 2002, adding an aggregate 436,000 square feet of space in six new office properties to its portfolio. At year-end, the company's stabilized portfolio was 93.7% occupied.

KRC also disposed of $41.8 million of non-strategic real estate assets aggregating 468,000 square feet of space during the fourth quarter, including the sale of two office and two industrial properties that produced a net gain of $6.1 million for the period. The company used the proceeds from these dispositions to help fund its development program and finance the company's stock repurchase program. In the fourth quarter, the company repurchased 508,200 common shares at an average price of $22.39 per share.

The company's committed development pipeline, totaling 608,400 square feet of space in Southern California, represents a total estimated investment of approximately $198 million, and is currently 53% leased.

KRC Reports on Key Lease Issues

The company also reported today that Peregrine Systems has indicated it intends to file a motion in bankruptcy court seeking to reject its two remaining leases it has with Kilroy Realty totaling 241,747 square feet in the northern San Diego submarket of Del Mar. Approximately 65,000 square feet of this space is currently subject to subleases whose rental obligations are anticipated to continue.

The company also reported that on Thursday, January 30, 2003, numerous press reports announced that Brobeck, Phleger & Harrison LLP had decided to dissolve. Brobeck leases two properties from KRC in Del Mar totaling approximately 162,000 square feet, and representing approximately 2.4% of the company's total annual base rental revenues. The company reported that it had not received any official statement from Brobeck, and that at this time it is uncertain how Brobeck's reported actions may affect the company's leases with Brobeck.

The company also reported today that it recognized a $4.1 million lease termination fee in January 2003 associated with a 68,000 square-foot office property located in the Sorrento Mesa area of coastal San Diego that was fully leased to Ericsson. KRC is actively re-marketing the property.

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 December 31, 2002, the company owned 7.4 million square feet of commercial office space and 4.9 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    Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 Dec. 31, Dec. 31,  Dec. 31,  Dec. 31,
                                   2002     2001      2002      2001
                                 -------- -------- --------- ---------

Revenues from continuing
 operations                      $51,653  $48,024  $202,095  $203,610

Revenues including discontinued
 operations                      $52,470  $49,598  $207,481  $209,645

Net income available to common
 stockholders (1)                $13,965   $7,625   $40,312   $38,431

Weighted average common shares
 outstanding - basic              27,453   27,426    27,450    27,167
Weighted average common shares
 outstanding - diluted            27,691   27,545    27,722    27,373

Net income per share of common
 stock - basic                     $0.51    $0.28     $1.47     $1.41
Net income per share of common
 stock - diluted                   $0.50    $0.28     $1.45     $1.40

Funds From Operations (2)        $24,262  $20,933   $97,940   $91,558

Weighted average common
 shares/units outstanding -
 basic (3)                        31,689   30,487    31,443    30,349
Weighted average common
 shares/units outstanding -
 diluted (3)                      31,928   30,606    31,715    30,555

Funds From Operations per common
 share/unit - basic (3)            $0.77    $0.69     $3.11     $3.02
Funds From Operations per common
 share/unit - diluted (3)          $0.76    $0.68     $3.09     $3.00

Common shares outstanding at end
 of period                                           27,420    27,426
Common partnership units
 outstanding at end of period                         4,237     3,061
                                                   --------- ---------
  Total common shares and units
   outstanding at end of period                      31,657    30,487


                                                   December  December
                                                    31, 2002  31, 2001
                                                   --------- ---------
Occupancy rates:
  Los Angeles                                          86.4%     89.8%
  Orange County                                        98.8%     97.3%
  San Diego                                            93.1%    100.0%
  Other                                                97.4%     99.3%
                                                   --------- ---------
  Weighted average total                               93.7%     95.8%

Total square feet of stabilized
 properties owned at end of
 period:
  Office                                              7,448     7,225
  Industrial                                          4,881     5,086
                                                   --------- ---------
  Total                                              12,329    12,311


(1) Net income after minority interests.

(2) Reconciliation of Net Income to Funds From Operations is included
    after the Consolidated Statements of Operations.

(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)


                                                 December   December
                                                    31,        31,
                                                   2002       2001
                                                ---------- -----------

ASSETS
------
INVESTMENT IN REAL ESTATE:
Land and improvements                             $288,228   $269,366
Buildings and improvements                       1,289,525  1,140,499
Undeveloped land and construction in progress,
 net                                               108,465    191,129
                                                ---------- -----------
   Total investment in real estate               1,686,218  1,600,994
Accumulated depreciation and amortization         (278,503)  (241,665)
                                                ---------- -----------
   Investment in real estate, net                1,407,715  1,359,329

Cash and cash equivalents                           15,777     16,487
Restricted cash                                      6,814      5,413
Current receivables, net                             3,074      4,770
Deferred rent receivables, net                      29,466     27,381
Deferred leasing costs, net                         31,427     33,120
Deferred financing costs, net                        6,221      3,948
Prepaid expenses and other assets                    6,108      6,781
                                                ---------- -----------

   TOTAL ASSETS                                 $1,506,602 $1,457,229
                                                ========== ===========

LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
LIABILITIES:
Secured debt                                      $507,037   $459,587
Unsecured line of credit                           255,000    155,000
Unsecured term facility                                  -    100,000
Accounts payable, accrued expenses and other
 liabilities                                        43,917     53,879
Accrued distributions                               15,670     14,634
Rents received in advance, tenant security
 deposits and deferred revenue                      24,310     15,955
                                                ---------- -----------
   Total liabilities                               845,934    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                                        68,196     49,176
Minority interest in Development LLCs                    -     15,869
                                                ---------- -----------
   Total minority interests                        220,697    217,546
                                                ---------- -----------

STOCKHOLDERS' EQUITY:
Common stock                                           273        274
Additional paid-in capital                         493,116    479,295
Distributions in excess of earnings                (47,629)   (33,163)
Accumulated net other comprehensive loss            (5,789)    (5,778)
                                                ---------- -----------
   Total stockholders' equity                      439,971    440,628
                                                ---------- -----------

   TOTAL LIABILITIES & STOCKHOLDERS' EQUITY     $1,506,602 $1,457,229
                                                ========== ===========


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

                                  Three    Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 Dec. 31, Dec. 31,  Dec. 31,  Dec. 31,
                                   2002     2001      2002      2001
                                 -------- -------- --------- ---------

REVENUES:
Rental income                    $45,788  $43,754  $177,104  $175,266
Tenant reimbursements              4,798    4,092    21,799    21,125
Interest income                       62      147       513     1,030
Other income                       1,005       31     2,679     6,189
                                 -------- -------- --------- ---------
   Total revenues                 51,653   48,024   202,095   203,610
                                 -------- -------- --------- ---------

EXPENSES:
Property expenses                  8,460    7,351    30,799    28,741
Real estate taxes                  3,960    2,879    15,548    14,960
General and administrative
 expenses                          2,975    2,823    12,557    11,692
Ground leases                        319      361     1,354     1,507
Interest expense                   8,615    9,579    35,640    41,457
Depreciation and amortization     14,468   13,174    59,781    51,460
                                 -------- -------- --------- ---------
   Total expenses                 38,797   36,167   155,679   149,817
                                 -------- -------- --------- ---------

Income from continuing operations
 before net gains on dispositions 12,856   11,857    46,416    53,793
Net gains on dispositions of
 operating properties                         707       896     4,714
                                 -------- -------- --------- ---------

Income from continuing operations
 before minority interests        12,856   12,564    47,312    58,507
                                 -------- -------- --------- ---------

Minority interests:
Distributions on Cumulative
 Redeemable Preferred units       (3,375)  (3,375)  (13,500)  (13,500)
Minority interest in earnings of
 Operating Partnership
 attributable to continuing
 operations                       (1,257)    (751)   (4,636)   (4,185)
Recognition of previously
 reserved Development LLC
 preferred return                                     3,908
Minority interest in earnings of
 Development LLCs                          (1,549)   (1,024)   (3,701)
                                 -------- -------- --------- ---------
   Total minority interests       (4,632)  (5,675)  (15,252)  (21,386)
                                 -------- -------- --------- ---------

Income from continuing operations  8,224    6,889    32,060    37,121

Discontinued operations:
Revenues from discontinued
 operations                          817    1,574     5,386     6,035
Expenses from discontinued
 operations                         (339)    (755)   (2,511)   (3,016)
Net gain on disposition of
 discontinued operations           6,100              6,570
Minority interest in earnings of
 Operating Partnership
 attributable to discontinued
 operations                         (837)     (83)   (1,193)     (317)
                                 -------- -------- --------- ---------
   Total discontinued operations   5,741      736     8,252     2,702
                                 -------- -------- --------- ---------

Net income before cumulative
 effect of change in
 accounting principle             13,965    7,625    40,312    39,823
Cumulative effect of change in
 accounting principle                                          (1,392)
                                 -------- -------- --------- ---------

Net income                       $13,965   $7,625   $40,312   $38,431
                                 ======== ======== ========= =========

Weighted average shares
 outstanding - basic              27,453   27,426    27,450    27,167
Weighted average shares
 outstanding - diluted            27,691   27,545    27,722    27,373

Net Income per common share -
 basic                             $0.51    $0.28     $1.47     $1.41
                                 ======== ======== ========= =========
Net Income per common share -
 diluted                           $0.50    $0.28     $1.45     $1.40
                                 ======== ======== ========= =========


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

                                    Three    Three
                                    Months   Months    Year     Year
                                    Ended    Ended    Ended    Ended
                                   Dec. 31, Dec. 31, Dec. 31, Dec. 31,
                                     2002     2001     2002     2001
                                   -------- -------- -------- --------

Net income                         $13,965   $7,625  $40,312  $38,431

Adjustments:
Minority interest in earnings of
 Operating Partnership               2,094      834    5,829    4,502
Depreciation and amortization       14,303   12,634   59,265   49,757
Net gains on dispositions of
 operating properties               (6,100)    (707)  (7,466)  (4,714)
Cumulative effect of change in
 accounting principle                                           1,392
Non-cash amortization of restricted
 stock grants                                   547             2,190
                                   -------- -------- -------- --------
Funds From Operations              $24,262  $20,933  $97,940  $91,558
                                   ======== ======== ======== ========

Weighted average common
 shares/units outstanding - basic   31,689   30,487   31,443   30,349
Weighted average common
 shares/units outstanding - diluted 31,928   30,606   31,715   30,555

Funds From Operations per common
 share/unit - basic                  $0.77    $0.69    $3.11    $3.02
                                   ======== ======== ======== ========
Funds From Operations per common
 share/unit - diluted                $0.76    $0.68    $3.09    $3.00
                                   ======== ======== ======== ========


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

                                    Three    Three
                                    Months   Months    Year     Year
                                    Ended    Ended    Ended    Ended
                                   Dec. 31, Dec. 31, Dec. 31, Dec. 31,
                                     2002     2001     2002     2001
                                   -------- -------- -------- --------

Funds From Operations              $24,262  $20,933  $97,940  $91,558

Adjustments:
Amortization of deferred financing
 costs                                 970      532    2,647    1,720
Tenant improvements, leasing
 commissions and recurring capital
 expenditures                       (7,082)  (4,249) (11,113) (11,168)
Net effect of straight-line rents   (1,260)  (2,272)  (4,339)  (6,786)
                                   -------- -------- -------- --------
Funds Available for Distribution   $16,890  $14,944  $85,135  $75,324
                                   ======== ======== ======== ========

Funds Available for Distribution
 per common share/unit - basic       $0.53    $0.49    $2.71    $2.48
                                   ======== ======== ======== ========
Funds Available for Distribution
 per common share/unit - diluted     $0.53    $0.49    $2.68    $2.47
                                   ======== ======== ======== ========

CONTACT:
Kilroy Realty Corporation
Richard E. Moran Jr., 310/481-8483
Tyler H. Rose, 310/481-8484