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Kilroy Realty Corporation Reports Second Quarter Financial Results

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Southern California-based REIT Initiates Construction On Second Phase of Westside Media Center Project

LOS ANGELES, July 28 /PRNewswire/ -- Kilroy Realty Corporation (NYSE: KRC - news) today reported financial results for its second quarter ended June 30, 1999, with funds from operations (FFO) of $20.2 million, or $0.62 per share, up 8.8% on a per-share basis from $17.9 million, or $0.57 per share, for the second quarter of 1998. Net income in the second quarter rose to $10.8 million, or $0.39 per share, up from $9.8 million, or $0.36 per share, in the year-earlier quarter. Revenues for the period totaled $39.3 million, compared to $33.9 million a year ago.

For the first sixth months of 1999, the company reported FFO of $39.0 million, or $1.21 per share, up 7.1% on a per-share basis from $34.0 million, or $1.13 per share for the first six months of 1998. Net income in the first half of the year increased to $20.7 million, or $0.75 per share, up from $18.7 million, or $0.71 per share, in the year-earlier period. Revenues for the six months totaled $76.9 million, up from $63.3 million in 1998. All per-share amounts are presented on a diluted basis.

``With a robust economy lending support to our efforts, we continue to successfully execute our business plan at Kilroy Realty,'' said John B. Kilroy, Jr., the company's president and chief executive officer. ``Leasing activity in our existing portfolio remains strong, with occupancy at 96%, while our development projects in lease-up and to be delivered in 1999 are 96% committed,'' he said.

As part of that business plan, Kilroy Realty recently initiated construction on the second phase of its Westside Media Center office complex, located along West Los Angeles' western border with Santa Monica. This phase of the project encompasses a four-story, campus-style office building with approximately 150,000 square feet. The new construction is designed to complement the existing 78,000 square-foot building on the property, which is fully leased to a subsidiary of cable giant TCI. Preleasing activity for the new building is underway.

Overall, Kilroy Realty currently has 2.1 million square feet of office and industrial space in active lease-up, under construction or committed representing a total estimated investment of approximately $307 million. Of the total, 86% of the space is leased or under letter of intent.

Through the first half of 1999, the company signed lease agreements on more than 2.2 million square feet of office and industrial space, a record pace for the company and a strong indication of the continued popularity of the coastal Southern California submarkets in which Kilroy Realty focuses its real estate operations. Approximately 40% of the new leasing was related to the company's new development.

In addition, the company has a development pipeline of approximately 1.4 million square feet of space in various stages of pre-development and preleasing that will be built over the next several years on a phased basis. Principal submarkets for the company's development projects include coastal San Diego, West Los Angeles, Calabasas, Long Beach Airport, and Orange County.

Some of the information presented in this release is forward-looking in nature, including information concerning development timing and investment amounts. Although the information is based on the company's current expectations, actual results could vary from expectations stated here. Numerous factors will affect KRC'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 office and industrial real estate markets, competitive market conditions, future interest rate levels and capital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of June 30, 1999. The company does not undertake any responsibility to update this information for any unanticipated events which may cause actual results to differ from those expressed or implied by this information. For further information, please see KRC's Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its website at www.kilroyrealty.com.

Kilroy Realty Corporation, a Southern California-based real estate investment trust owns, operates and develops office and industrial properties, primarily in California. At June 30, 1999, the company owned 5.8 million square feet of commercial office space and 6.2 million square feet of industrial space.

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

                            Three Months Three Months  Six Months Six Months
                               Ended         Ended       Ended       Ended
                              June 30,     June 30,     June 30,   June 30,
                                1999         1998         1999       1998

    Revenues                  $39,301      $33,922      $76,851     $63,275

    Net income available
     to common
     stockholders (a)         $10,796       $9,785      $20,706     $18,664

    Weighted average common
     shares outstanding
     - basic                   27,629       27,407       27,631      26,325
    Weighted average common
     shares outstanding
     - diluted                 27,713       27,521       27,674      26,467

    Net income per share
     of common stock
     - basic                    $0.39        $0.36        $0.75       $0.71
    Net income per share
     of common stock
     - diluted                  $0.39        $0.36        $0.75       $0.71

    Funds from operations     $20,203      $17,894      $38,993     $33,955

    Weighted average
     common shares/units
     outstanding - basic (b)   32,302       31,385       32,109      30,039
    Weighted average
     common shares/units
     outstanding - diluted (b) 32,386       31,499       32,151      30,181

    Funds from operations
     per common share/unit
     - basic (b)                $0.63        $0.57        $1.21       $1.13
    Funds from operations
     per common share/unit
     - diluted (b)              $0.62        $0.57        $1.21       $1.13

    Common shares outstanding
     at end of period                                    27,629      27,649
    Common partnership units
     outstanding at end
     of period                                            4,673       3,993
        Total common shares
         and units outstanding
         at end of period                                32,302      31,642


                                                        June 30,     June 30,
                                                          1999         1998
    Occupancy rates
      California                                          95.3%       92.3%
      Washington                                          98.4%       82.9%
      Arizona                                            100.0%      100.0%
      Nevada                                             100.0%      100.0%
        Weighted average total                            95.6%       92.1%

    Total square feet of
     stabilized properties
     owned at end of period
      Office                                              5,810       5,410
      Industrial                                          6,152       5,618
        Total                                            11,962      11,028

    (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,         December 31,
                                                  1999               1998

    ASSETS
    INVESTMENT IN REAL ESTATE:
      Land and improvements                    $274,452           $253,500
      Buildings and improvements                907,145            828,425
      Undeveloped land and
       construction in progress, net            129,615            112,359
        Total investment in real estate       1,311,212          1,194,284
      Accumulated depreciation
       and amortization                        (158,503)          (145,437)
        Investment in real estate, net        1,152,709          1,048,847

    Cash and cash equivalents                     9,044              6,443
    Restricted cash                               5,422              6,896
    Tenant receivables, net                      17,669             15,630
    Notes receivable from related parties                            8,798
    Deferred financing and leasing costs, net    20,295             16,168
    Prepaid expenses and other assets             3,402              3,146

        TOTAL ASSETS                         $1,208,541         $1,105,928


    LIABILITIES & STOCKHOLDERS' EQUITY
    LIABILITIES:
      Mortgage debt                            $237,798           $133,383
      Unsecured line of credit                  252,500            272,000
      Accounts payable and accrued expenses      15,848             16,791
      Accrued distributions                      13,567             12,895
      Rents received in advance and
       tenant security deposits                  15,939             14,460
        Total liabilities                       535,652            449,529

    MINORITY INTERESTS:
      8.075% Series A Cumulative Redeemable
        Preferred unitholders                    73,716             73,718
      9.375% Series C Cumulative Redeemable
        Preferred unitholders                    34,471             34,410
      Common unitholders                         80,302             72,372
      Minority interest in Development LLCs       9,733
        Total minority interests                198,222            180,500

    STOCKHOLDERS' EQUITY:
      Common stock                                  276                276
      Additional paid-in capital                488,737            487,467
      Distributions in excess of earnings       (14,346)           (11,844)
        Total stockholders' equity              474,667            475,899

        TOTAL LIABILITIES &
         STOCKHOLDERS' EQUITY                $1,208,541         $1,105,928



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

                           Three Months Three Months   Six Months  Six Months
                              Ended         Ended        Ended        Ended
                             June 30,     June 30,      June 30,    June 30,
                               1999         1998          1999        1998

    REVENUES:
      Rental income          $34,164      $28,988       $66,982     $54,448
      Tenant reimbursements    4,193        3,852         8,316       7,077
      Interest income            221          409           621         883
      Other income               723          673           932         867
        Total revenues        39,301       33,922        76,851      63,275

    EXPENSES:
      Property expenses        5,329        5,066        10,463       9,037
      Real estate taxes        2,852        2,470         5,861       4,558
      General and
       administrative
       expenses                2,201        2,143         4,515       3,702
      Ground leases              334          290           671         595
      Interest expense         6,160        4,593        11,919       9,379
      Depreciation and
       amortization            7,460        6,565        14,677      12,419
        Total expenses        24,336       21,127        48,106      39,690

    Income before equity in
     loss of unconsolidated
     subsidiary and
     minority interests       14,965       12,795        28,745      23,585
    Equity in loss of
     unconsolidated
     subsidiary                  (14)         (24)          (14)        (25)
    Income before
     minority interests       14,951       12,771        28,731      23,560

    Minority interests:
      Distributions on
       Cumulative Redeemable
       Preferred units        (2,335)      (1,554)       (4,669)     (2,254)
      Minority interest
       in earnings            (1,820)      (1,432)       (3,356)     (2,642)
        Total minority
         interests            (4,155)      (2,986)       (8,025)     (4,896)

    Net income               $10,796       $9,785       $20,706     $18,664

    Weighted average
     shares outstanding
     - basic                  27,629       27,407        27,631      26,325
    Weighted average
     shares outstanding
     - diluted                27,713       27,521        27,674      26,467

    Income per common
     share - basic             $0.39        $0.36         $0.75       $0.71
    Income per common
     share - diluted           $0.39        $0.36         $0.75       $0.71


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


                           Three Months  Three Months  Six Months Six Months
                               Ended         Ended       Ended      Ended
                             June 30,      June 30,     June 30,   June 30,
                               1999          1998         1999       1998

    Net income               $10,796       $9,785      $20,706      $18,664
      Add:
       Minority interest
        in earnings            1,820        1,432        3,356        2,642
       Depreciation and
        amortization           7,460        6,565       14,677       12,419
       Other                     127          112          254          230
    Funds From Operations    $20,203      $17,894      $38,993      $33,955

    Weighted average common
     shares/units outstanding
     - basic                  32,302       31,385       32,109       30,039
    Weighted average common
     shares/units outstanding
     - diluted                32,386       31,499       32,151       30,181

    Funds From Operations
     per common share/unit
     - basic                   $0.63        $0.57        $1.21        $1.13
    Funds From Operations
     per common share/unit
     - diluted                 $0.62        $0.57        $1.21        $1.13


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


                           Three Months Three Months  Six Months  Six Months
                               Ended        Ended       Ended       Ended
                             June 30,     June 30,     June 30,    June 30,
                               1999         1998         1999        1998

    Funds From Operations    $20,203      $17,894      $38,993      $33,955

      Adjustments:
       Amortization of
        deferred financing
        costs                    269          299          563          505
      Tenant improvements,
       leasing commissions
       and recurring capital
       expenditures             (849)        (937)      (1,950)      (1,422)
      Net effect of
       straight-line rents    (1,220)        (915)      (2,609)      (1,572)
    Funds Available for
     Distribution            $18,403      $16,341      $34,997      $31,466

    Funds Available for
     Distribution per
     common share/unit
     - basic                   $0.57        $0.52        $1.09        $1.05
    Funds Available for
     Distribution per
     common share/unit
     - diluted                 $0.57        $0.52        $1.09        $1.04