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Kilroy Realty Corporation Reports Higher Second Quarter Net Income after Settling Claims Against Peregrine Systems for Payments to Total $21 Million

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LOS ANGELES--(BUSINESS WIRE)--July 29, 2003--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2003, with net income of $13.4 million, or $0.49 per share, compared to $5.0 million, or $0.18 per share in the second quarter of 2002. Revenues from continuing operations in the second quarter totaled $51.3 million, up from $48.7 million in the year-earlier period.

For the first six months of 2003, KRC reported net income of $24.3 million, or $0.88 per share, compared to $18.5 million, or $0.67 per share, in the first half of 2002. Revenues from continuing operations in the six-month period totaled $105.0 million, up from $98.5 million in the same period of 2002.

KRC's funds from operations (FFO) in the second quarter totaled $24.9 million, or $0.78 per share, compared to $23.4 million, or $0.73 per share, in the prior year's second quarter. For the first six months of 2003, FFO totaled $51.2 million, or $1.61 per share, compared to $50.5 million, or $1.61 per share, in the same period of 2002.

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

KRC SETTLES PEREGRINE SYSTEMS CLAIM

On July 18, 2003, the Delaware bankruptcy court entered an order approving Peregrine Systems, Inc.'s plan of reorganization. Peregrine Systems had filed a voluntary petition for relief under chapter 11 of the bankruptcy code on September 22, 2002. Under the terms of the plan of reorganization and in accordance with a settlement agreement previously approved by the bankruptcy court, KRC will receive a payment in the third quarter of 2003 of approximately $18 million and four additional payments of approximately $750,000 to be paid annually over the next four years. These payments reflect a reimbursement for damages that KRC suffered as a result of Peregrine's rejection and/or termination of all but one of KRC's five leases with Peregrine.

KRC said FFO in the second quarter and in the first six months of 2003 were increased by $2.5 million, or $0.08 per share, representing the reversal of reserves previously recorded in connection with Peregrine's 2002 bankruptcy filing. Based on the settlement, the reserves were no longer necessary and were reversed in the second quarter of 2003. The company expects to record a net lease termination fee of approximately $15 million in the third quarter.

KRC said the bankruptcy court also approved Peregrine's assumption, in part, of the lease with KRC for 3611 Valley Centre Drive in the Del Mar submarket of San Diego. Under the revised terms of this lease, Peregrine will lease 78,037 square feet of this 129,680-square-foot building that is currently 100% leased to Peregrine. The revised lease terms commence on August 28, 2003.

The bankruptcy court also entered an order approving Peregrine's rejection of its lease with KRC for 3811 Valley Centre Drive effective July 31, 2003. This 112,067-square-foot building is currently 58% subleased to other tenants.

The company also reported today that during the second quarter it added a 151,000-square-foot office property in West Los Angeles to its stabilized portfolio. The property is currently 61% committed. The company also disposed of three non-strategic properties totaling 260,827 square feet for total proceeds of $31 million. Overall, KRC's stabilized portfolio was 91% occupied at the end of the second quarter.

KRC continues to develop an additional 457,000 square feet of space in Southern California, with completion dates scheduled through 2003. This committed development pipeline, which represents a total estimated investment of approximately $137 million, is currently 68% committed. In addition, the company has four redevelopment projects underway or in lease-up in Southern California totaling 471,000 square feet of space. The estimated incremental redevelopment costs for these projects is approximately $50 million.

Earnings guidance for 2003 will be discussed by KRC management on its July 29, 2003, earnings conference call. The call will begin at 11:00 am PDT and last approximately one hour. Those interested in listening via the Internet can access the conference call at www.kilroyrealty.com. Please go to the website 15 minutes before the call and register. It may be necessary to download audio software to hear the conference call. Those interested in listening via telephone can access the conference call at (800) 915-4836. A replay of the conference call will be available via phone through August 5, 2003, at (800) 428-6051, passcode #296250 or via the Internet at the company's website.

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; 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 El Segundo and coastal San Diego. At June 30, 2003, the company owned 6.9 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     Six       Six
                                  Months   Months    Months    Months
                                  Ended    Ended     Ended     Ended
                                 June 30, June 30, June 30,  June 30,
                                   2003     2002      2003      2002
                                 -------- -------- --------  --------

 Revenues from continuing
  operations                     $51,297  $48,660  $104,955   $98,549

 Revenues including discontinued
  operations                     $51,930  $51,179  $106,510  $103,529

 Net income available to common
  stockholders (1)               $13,360   $4,957   $24,286   $18,464

 Weighted average common shares
  outstanding - basic             27,351   27,463    27,287    27,360
 Weighted average common shares
  outstanding - diluted           27,545   27,805    27,488    27,678

 Net income per share of common
  stock - basic                    $0.49    $0.18     $0.89     $0.67
 Net income per share of common
  stock - diluted                  $0.49    $0.18     $0.88     $0.67

 Funds From Operations (2)       $24,893  $23,358   $51,210   $50,510

 Weighted average common
  shares/units outstanding -
  basic (3)                       31,572   31,827    31,513    31,076
 Weighted average common
  shares/units outstanding -
  diluted (3)                     31,766   32,169    31,714    31,394

 Funds From Operations per common
  share/unit - basic (3)           $0.79    $0.73     $1.63     $1.63
 Funds From Operations per common
  share/unit - diluted (3)         $0.78    $0.73     $1.61     $1.61

 Common shares outstanding at end
  of period                                          27,565    27,744
 Common partnership units
  outstanding at end of period                        4,219     4,421
                                                     ------    ------
  Total common shares and units
   outstanding at end of period                      31,784    32,165


                                                        June    June
                                                         30,     30,
                                                         2003    2002
                                                        -----   -----
 Stabilized portfolio occupancy rates:
  Los Angeles                                            81.4%   87.4%
  Orange County                                          97.9%   97.0%
  San Diego                                              89.4%   99.2%
  Other                                                  96.4%   98.4%
                                                        -----   -----
   Weighted average total                                90.9%   94.8%

 Total square feet of stabilized properties owned
  at end of period:
  Office                                                6,943   7,570
  Industrial                                            4,877   5,086
                                                       ------  ------
   Total                                               11,820  12,656

(1) Net income after minority interests.
(2) Reconciliation of Net Income to Funds From Operations and
    management statement on 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)

                                                June 30,    Dec. 31,
                                                  2003        2002
                                                --------    --------
 ASSETS
 INVESTMENT IN REAL ESTATE:
  Land and improvements                          $275,328    $288,228
  Buildings and improvements, net               1,244,711   1,289,525
  Undeveloped land and construction in
   progress, net                                  178,318     108,465
                                                ---------   ---------
   Total investment in real estate              1,698,357   1,686,218
  Accumulated depreciation and amortization      (297,050)   (278,503)
                                                ---------   ---------
   Investment in real estate, net               1,401,307   1,407,715

 Cash and cash equivalents                          6,865      15,777
 Restricted cash                                    7,588       6,814
 Current receivables, net                           2,604       3,074
 Deferred rent receivables, net                    33,575      29,466
 Deferred leasing costs, net                       32,548      31,427
 Deferred financing costs, net                      6,291       6,221
 Prepaid expenses and other assets                  7,036       6,108
                                                ---------   ---------

   TOTAL ASSETS                                $1,497,814  $1,506,602
                                                =========   =========

 LIABILITIES & STOCKHOLDERS' EQUITY
 LIABILITIES:
  Secured debt                                   $510,501    $507,037
  Unsecured line of credit                        255,000     255,000
  Accounts payable, accrued expenses and
   other liabilities                               41,022      43,917
  Accrued distributions                            15,733      15,670
  Rents received in advance, tenant security
   deposits and deferred revenue                   19,491      24,310
                                                  -------     -------
   Total liabilities                              841,747     845,934
                                                  -------     -------

 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                                     66,874      68,196
                                                  -------     -------
   Total minority interests                       219,375     220,697
                                                  -------     -------

 STOCKHOLDERS' EQUITY:
  Common stock                                        274         273
  Additional paid-in capital                      494,421     493,116
  Distributions in excess of earnings             (50,587)    (47,629)
  Accumulated net other comprehensive loss         (7,416)     (5,789)
                                                  -------     -------
   Total stockholders' equity                     436,692     439,971
                                                  -------     -------

   TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $1,497,814  $1,506,602
                                                =========   =========


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

                                    Three    Three     Six      Six
                                    Months   Months   Months   Months
                                    Ended    Ended    Ended    Ended
                                   June 30, June 30, June 30, June 30,
                                     2003     2002     2003     2002
                                   -------- -------- -------- --------
 REVENUES:
  Rental income, net               $45,703  $42,275  $89,152  $85,396
  Tenant reimbursements              5,249    6,356   10,932   11,694
  Other income                         345       29    4,871    1,459
                                    ------   ------  -------   ------
      Total revenues                51,297   48,660  104,955   98,549
                                    ------   ------  -------   ------

 EXPENSES:
  Property expenses                  7,703    7,192   16,382   14,470
  Real estate taxes                  3,662    3,852    7,510    7,482
  General and administrative
   expenses                          4,011    3,648    7,869    6,616
  Ground leases                        324      333      644      716
  Interest expense                   7,585    8,668   15,274   17,927
  Depreciation and amortization     13,230   18,021   26,969   30,389
                                    ------   ------   ------   ------
      Total expenses                36,515   41,714   74,648   77,600
                                    ------   ------   ------   ------

 OTHER INCOME:
  Interest income                       48       86       94      371
                                    ------   ------   ------   ------
      Total other income                48       86       94      371
                                    ------   ------   ------   ------

 Income from continuing operations
  before net gains on dispositions  14,830    7,032   30,401   21,320
 Net gains on dispositions of
  operating properties                          896               896
                                    ------   ------   ------   ------

 Income from continuing operations
  before minority interests         14,830    7,928   30,401   22,216
                                    ------   ------   ------   ------

 Minority interests:
  Distributions on Cumulative
   Redeemable Preferred units       (3,375)  (3,375)  (6,750)  (6,750)
  Minority interest in earnings of
   Operating Partnership
   attributable to continuing
   operations                       (1,527)    (798)  (3,158)  (2,185)
  Recognition of previously
   reserved Development LLC
   preferred return                                             3,908
  Minority interest in earnings of
   Development LLCs                                            (1,024)
                                    ------   ------   ------   ------
      Total minority interests      (4,902)  (4,173)  (9,908)  (6,051)
                                    ------   ------   ------   ------

 Income from continuing operations   9,928    3,755   20,493   16,165

 Discontinued operations:
  Revenues from discontinued
   operations                          633    2,519    1,555    4,980
  Expenses from discontinued
   operations                         (362)  (1,129)    (868)  (2,370)
  Net gain on disposition of
   discontinued operations           3,690             3,690
  Minority interest in earnings of
   Operating Partnership
    attributable to discontinued
    operations                        (529)    (188)    (584)    (311)
                                    ------   ------   ------   ------
      Total discontinued operations  3,432    1,202    3,793    2,299
                                    ------   ------   ------   ------

 Net Income                        $13,360   $4,957  $24,286  $18,464
                                    ======   ======   ======   ======

 Weighted average shares
  outstanding - basic               27,351   27,463   27,287   27,360
 Weighted average shares
  outstanding - diluted             27,545   27,805   27,488   27,678

 Net Income per common share -
  basic                              $0.49    $0.18    $0.89    $0.67
                                    ======   ======   ======   ======
 Net Income per common share -
  diluted                            $0.49    $0.18    $0.88    $0.67
                                    ======   ======   ======   ======


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

                                    Three    Three     Six      Six
                                    Months   Months   Months   Months
                                    Ended    Ended    Ended    Ended
                                   June 30, June 30, June 30, June 30,
                                     2003     2002     2003     2002
                                   -------- -------- -------- --------

 Net income                        $13,360   $4,957  $24,286  $18,464

  Adjustments:
      Minority interest in earnings
       of Operating Partnership      2,056      986    3,742    2,496
      Depreciation and amortization 13,167   18,311   26,872   30,446
      Net gains on dispositions of
       operating properties         (3,690)    (896)  (3,690)    (896)
                                    ------   ------   ------   ------
 Funds From Operations (1)         $24,893  $23,358  $51,210  $50,510
                                    ======   ======   ======   ======

 Weighted average common
  shares/units outstanding - basic  31,572   31,827   31,513   31,076
 Weighted average common
  shares/units outstanding -
  diluted                           31,766   32,169   31,714   31,394

 Funds From Operations per common
  share/unit - basic                 $0.79    $0.73    $1.63    $1.63
                                    ======   ======   ======   ======
 Funds From Operations per common
  share/unit - diluted               $0.78    $0.73    $1.61    $1.61
                                    ======   ======   ======   ======

(1) Management believes that Funds From Operations ("FFO") is a useful
    supplemental measure of the Company's operating performance.  The
    Company computes FFO in accordance with the White Paper on FFO
    approved by the Board of Governors of the National Association of
    Real Estate Investment Trusts ("NAREIT").  The White Paper defines
    FFO as net income or loss computed in accordance with generally
    accepted accounting principles ("GAAP"), excluding extraordinary
    items, as defined by GAAP, and gains and losses from sales of
    depreciable operating property, plus real estate related
    depreciation and amortization (excluding amortization of deferred
    financing costs and depreciation of non-real estate assets), and
    after adjustment for unconsolidated partnerships and joint
    ventures.  Other real estate investment trusts ("REITs") may use
    different methodologies for calculating FFO and, accordingly, the
    Company's FFO may not be comparable to other REITs.

    Because FFO excludes depreciation and amortization, gains and
    losses from property dispositions, and extraordinary items, it
    provides a performance measure that, when compared year over year,
    reflects the impact to operations from trends in occupancy rates,
    rental rates, operating costs, development activities, general and
    administrative expenses, and interest costs, providing perspective
    not immediately apparent from net income.  In addition, management
    believes that FFO provides useful information to the investment
    community about the Company's financial performance when compared
    to other REITs since FFO is generally recognized as the industry
    standard for reporting the operations of REITs.

    However, FFO should not be viewed as an alternative measure of the
    Company's operating performance since it does not reflect either
    depreciation and amortization costs or the level of capital
    expenditures and leasing costs necessary to maintain the operating
    performance of the Company's properties, which are significant
    economic costs that could materially impact the Company's results
    of operations.

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

SOURCE: Kilroy Realty Corporation