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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES, April 27 -- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its first quarter ended March 31, 1998, with funds from operations (FFO) of $16.1 million, or $0.56 per share on a diluted basis. Net income in the first quarter totaled $8.9 million, or $0.35 per share on a diluted basis, on revenues of $29.0 million.

In the year-earlier stub period from February 1 to March 31, 1997, Kilroy reported FFO of $5.0 million, or $0.29 per share on a diluted basis. Net income for the period was $2.7 million, or $0.18 per share on a diluted basis. Revenues totaled $9.0 million. The company completed its initial public offering of common stock on January 31, 1997.

``Southern California commercial real estate markets are experiencing the best conditions we've seen in 30 years,'' said John B. Kilroy, Jr., the company's president and chief executive officer. ``And we're now at a point in the cycle where we expect development to become an increasingly important part of our growth plans,'' he said.

During the first quarter, Kilroy completed $133 million of acquisitions, adding 1.1 million square feet of space to the company's office and industrial real estate portfolio. In addition, in April the company acquired the Pacific Corporate Center complex in San Diego for $64.3 million. The project includes 411,339 square feet of existing space and two development sites on which Kilroy has announced plans to build three new buildings totaling 240,000 square feet.

Overall, Kilroy's Southern California development program includes 1.3 million square feet of space under construction and over three million square feet in planned development. In addition to San Diego County, the principal submarkets for the company's development projects include the Westside of Los Angeles, Burbank, the northwestern Los Angeles Interstate 101 Corridor, Long Beach, and Orange County.

Some of the information presented in this release is forward-looking in nature. Although the information is based on the company's current best judgment, actual results could vary from expectations stated here. Numerous factors will affect Kilroy'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 and capital market conditions. For further information, please see Kilroy's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.

Kilroy Realty Corporation, owns, operates and develops office and industrial properties, primarily in California. At March 31, 1998, the company owned 4.9 million square feet of commercial office space and 5.5 million square feet of industrial space. At quarter's end, the company's portfolio was 92.3% leased.

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

                                       Three Months         Period from
                                          Ended          February 1, 1997 to
                                     March 31, 1998         March 31, 1997

    Revenues                              $ 28,951             $ 8,972

    Net income available to
     common stockholders (a)               $ 8,879             $ 2,652

    Weighted average common shares
     outstanding (Basic)                    25,230              14,475
    Weighted average common shares
     outstanding (Diluted)                  25,400              14,586

    Net income per share of
     common stock (Basic)                   $ 0.35              $ 0.18
    Net income per share
     of common stock (Diluted)              $ 0.35              $ 0.18

    Funds from operations                 $ 16,061             $ 4,959

    Weighted average common shares/units
     outstanding (Basic) (b)                28,679              17,127
    Weighted average common shares/units
     outstanding (Diluted) (b)              28,849              17,238

    Funds from operations per common
     share/unit (Basic) (b)                 $ 0.56              $ 0.29
    Funds from operations per common
     share/unit (Diluted) (b)               $ 0.56              $ 0.29

                                      March 31, 1998       March 31, 1997

    Occupancy rates
     California                              92.5%               98.4%
     Washington                              82.4%               37.3%
     Arizona                                100.0%              100.0%
     Nevada                                 100.0%                 N/A
     Weighted average total                  92.3%               88.8%

    (a) Net income after minority interests
    (b) Calculated based on average shares outstanding assuming conversion of
        all common partnership units outstanding

            KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
                 (unaudited, in thousands, except share data)

                                         March 31,          December 31,
                                           1998                 1997

    ASSETS
    INVESTMENT IN REAL ESTATE:
     Land and improvements                $216,650            $177,118
     Buildings and improvements            721,513             622,901
     Land and construction in progress      40,828              34,671
     Total investment in real estate       978,991             834,690
     Accumulated depreciation
      and amortization                   (127,075)           (121,780)
     Investment in real estate, net        851,916             712,910

    Cash and cash equivalents               13,526               8,929
    Restricted cash                          4,914               5,680
    Tenant receivables, net                  6,887               7,367
    Escrow deposits                         16,439               5,114
    Deferred financing and
     leasing costs, net                     14,389              13,053
    Prepaid expenses and
     other assets                            4,638               4,601

        TOTAL ASSETS                     $ 912,709           $ 757,654


    LIABILITIES & STOCKHOLDERS' EQUITY
    LIABILITIES:
     Mortgage debt                       $ 134,959           $ 131,363
     Line of credit                        162,000             142,000
     Accounts payable and
      accrued expenses                       9,378               9,711
     Accrued distributions                  12,413              10,804
     Rents received in advance
      and tenant security deposits          12,538              11,441
        Total Liabilities                  331,288             305,319

    COMMITMENTS AND CONTINGENCIES

    MINORITY INTERESTS:
    8.075% Series A Cumulative Redeemable
     Preferred Unitholders                  59,077
    Common Unitholders                      66,338              55,185
    Total minority interests               125,415              55,185


    STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value,
     30,000,000 shares authorized,
     none issued and outstanding
    Common stock, $.01 par value, 150,000,000
     shares authorized, 26,746,585 and 24,475,000
     shares issued and outstanding             267                 245
    Additional paid-in capital             463,951             403,163
    Distributions in excess
     of earnings                           (8,212)             (6,258)
    Total Stockholders' Equity             456,006             397,150

    TOTAL LIABILITIES &
     STOCKHOLDERS' EQUITY                $ 912,709           $ 757,654



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

                                         Three Months        Period from
                                            Ended         February 1, 1997 to
                                        March 31, 1998       March 31, 1997

    REVENUES:
     Rental income                        $ 25,460             $ 7,110
     Tenant reimbursements                   2,823                 706
     Interest income                           474                 971
     Other income                              194                 185
        Total revenues                      28,951               8,972

    EXPENSES:
     Property expenses                       3,971               1,239
     Real estate taxes                       1,686                 353
     General and administrative              1,559                 725
     Ground leases                             305                 185
     Interest expense                        4,786               1,531
     Depreciation and amortization           5,854               1,744
        Total expenses                      18,161               5,777

    Income before equity in
     loss of subsidiary
     and minority interest                  10,790               3,195

    Equity in loss of subsidiary                (1)                (57)

    Minority Interests:
    Dividend on cumulative redeemable
     preferred units                          (700)
    Minority Interest in earnings           (1,210)               (486)

    Net Income                             $ 8,879             $ 2,652

    Weighted average shares
     outstanding (Basic)                    25,230              14,475
    Weighted average shares
     outstanding (Diluted)                  25,400              14,586

    Income per common
     share (Basic)                          $ 0.35              $ 0.18
    Income per common
     share (Diluted)                        $ 0.35              $ 0.18


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

                                         Three Months        Period from
                                             Ended        February 1, 1997 to
                                        March 31, 1998      March 31, 1997

    Net income                              $8,879              $2,652
     Add:
     Minority interest in earnings           1,210                 486
     Depreciation and amortization           5,854               1,744
     Other                                     118                  77
    Funds from operations                  $16,061              $4,959

    Weighted average common shares/
     units outstanding (Basic)              28,679              17,127
    Weighted average common shares/
     units outstanding (Diluted)            28,849              17,238

    Funds from operations per
     common share/unit (Basic)               $0.56               $0.29
    Funds from operations per
     common share/unit (Diluted)             $0.56               $0.29

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

                                         Three Months       Period from
                                           Ended        February 1, 1997 to
                                       March 31, 1998     March 31, 1997

    Funds from operations                  $16,061              $4,959

    Adjustments:
    Amortization of deferred
     financing costs                           206                 161
    Tenant improvements,
     leasing commissions and
     recurring capital expenditures           (485)               (212)
    Net effect of straight-line rents         (657)                  5
    Funds available for distribution       $15,125              $4,913

    Funds available for distribution
     per common share/unit (Basic)           $0.53               $0.29
    Funds available for distribution
     per common share/unit (Diluted)         $0.52               $0.29
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