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Kilroy Realty Corporation Reports Third Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Oct. 25, 2004--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its third quarter ended September 30, 2004, with net income of $10.4 million, or $0.36 per share, compared to $20.0 million, or $0.72 per share, in the third quarter of 2003. Revenues from continuing operations totaled $55.0 million, compared to $68.8 million in the year-earlier period. Funds from operations (FFO) in the third quarter totaled $20.2 million, or $0.62 per share, compared to $37.5 million, or $1.17 per share, in the third quarter of 2003.

For the first nine months of 2004, KRC reported net income of $24.2 million, or $0.85 per share, compared to $44.3 million, or $1.61 per share, in the first nine months of 2003. Revenues from continuing operations in the nine-month period totaled $163.4 million, compared to $169.9 million in the same period of 2003. The company's funds from operations in the first nine months of 2004 totaled $64.5 million, or $1.99 per share, compared to $88.7 million, or $2.79 per share, in the same period of 2003.

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

KRC's financial results also included $0.8 million and $15.4 million in the third quarter of 2004 and 2003, respectively, and $0.8 million and $17.9 million for the first nine months of 2004 and 2003, respectively, as part of a $21.3 million settlement reached with Peregrine Systems, Inc. over claims arising from its bankruptcy filing in September 2002. Excluding these payments, KRC's 2004 third quarter funds from operations would have been $19.4 million and its 2003 third quarter funds from operations would have been $22.1 million. For the first nine months of 2004, its funds from operations would have been $63.8 million and for the first nine months of 2003, its funds from operations would have been $70.8 million.

"Led by solid results in our office properties, successful leasing efforts at KRC during the third quarter have increased occupancy in our stabilized portfolio to 93%," said John B. Kilroy, Jr., the company's president and CEO.

KRC maintains an active committed development and redevelopment program in the Southern California commercial real estate market that currently includes two buildings under construction totaling approximately 103,000 square feet and two buildings in lease-up totaling approximately 310,000 square feet. This committed pipeline represents a total estimated investment of approximately $107 million, of which $71 million has been spent to date.

Earnings guidance for 2004 will be discussed by KRC management during the company's October 26, 2004, earnings conference call. The call will begin at 11:00 a.m. 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 telephone through November 3, 2004, at 800-428-6051, reservation #363263, 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; 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; fluctuations in the company's share price and the resulting impact on general and administrative 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. KRC is currently active in office development and redevelopment in Los Angeles and San Diego counties. At September 30, 2004, the company owned 7.4 million square feet of commercial office space and 4.6 million square feet of industrial space. More information is available at www.kilroyrealty.com.


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

                          Three       Three       Nine        Nine
                          Months      Months      Months      Months
                          Ended       Ended       Ended       Ended
                         Sept. 30,   Sept. 30,  Sept. 30,    Sept. 30,
                           2004        2003        2004        2003
                         ---------   ---------   ---------   ---------
Revenues from continuing
 operations               $55,045     $68,783    $163,372    $169,852

Revenues including
 discontinued operations  $55,412     $70,062    $165,758    $175,519

Net income available to
 common stockholders (1)  $10,357     $20,039     $24,194     $44,325

Weighted average common
 shares outstanding -
 basic                     28,271      27,584      28,203      27,387
Weighted average common
 shares outstanding -
 diluted                   28,440      27,801      28,369      27,593

Net income per share of
 common stock - basic       $0.37       $0.73       $0.86       $1.62
Net income per share of
 common stock - diluted     $0.36       $0.72       $0.85       $1.61

Funds From Operations
 (2) (3)                  $20,185     $37,473     $64,524     $88,684

Weighted average common
 shares/units
 outstanding - basic (4)   32,327      31,799      32,304      31,609
Weighted average common
 shares/units
 outstanding - diluted (4) 32,495      32,015      32,469      31,816

Funds From Operations
 per common share/unit -
 basic (4)                  $0.62       $1.18       $2.00       $2.81
Funds From Operations
 per common share/unit -
 diluted (4)                $0.62       $1.17       $1.99       $2.79

Common shares
 outstanding at end of
 period                                            28,528      28,029
Common partnership units
 outstanding at end of period                       3,990       4,214
                                                 ---------   ---------
Total common shares and units
 outstanding at end of period                      32,518      32,243


                                                 Sept. 30,   Sept. 30,
                                                   2004         2003
                                                 ---------   ---------
Stabilized portfolio
 occupancy rates:
Los Angeles                                          84.8%       81.0%
Orange County                                        96.6%       94.5%
San Diego                                            96.4%       91.5%
Other                                                93.7%       95.9%
                                                 ---------   ---------
Weighted average total                               93.1%       89.8%

Total square feet of stabilized
 properties owned at end of
 period:
Office                                              7,393       7,318
Industrial                                          4,601       4,877
                                                 ---------   ---------
Total                                              11,994      12,195


(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) Reported amounts are attributable to common shareholders and
common unitholders.

(4) 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)

                                                Sept. 30,    Dec. 31,
                                                  2004         2003
                                               ----------- -----------
 ASSETS
 ---------------------------------------
 REAL ESTATE ASSETS:
      Land and improvements                      $288,861    $289,730
      Buildings and improvements, net           1,357,626   1,305,145
      Undeveloped land and construction in
       progress, net                               84,218     131,411
                                               ----------- -----------
       Total real estate held for
        investment                              1,730,705   1,726,286
      Accumulated depreciation and
       amortization                              (353,025)   (321,372)
                                               ----------- -----------
       Total real estate assets, net            1,377,680   1,404,914

 Cash and cash equivalents                          3,652       9,892
 Restricted cash                                    1,283       8,558
 Current receivables, net                           4,190       4,919
 Deferred rent receivables, net                    43,956      36,804
 Deferred leasing costs, net                       39,420      36,651
 Deferred financing costs, net                      3,190       3,657
 Prepaid expenses and other assets                  6,008       7,240
                                               ----------- -----------

       TOTAL ASSETS                            $1,479,379  $1,512,635
                                               =========== ===========

 LIABILITIES & STOCKHOLDERS' EQUITY
 ------------------------------------------
 LIABILITIES:
      Secured debt                               $494,932    $526,048
      Unsecured senior notes                      144,000
      Unsecured line of credit                     92,000     235,000
      Accounts payable, accrued expenses and
       other liabilities                           52,889      41,147
      Accrued distributions                        16,498      16,369
      Rents received in advance, tenant
       security deposits and deferred revenue      19,974      20,904
                                               ----------- -----------
       Total liabilities                          820,293     839,468
                                               ----------- -----------

 MINORITY INTERESTS:
      7.450% Series A Cumulative Redeemable
       Preferred unitholders                       73,638      73,716
      9.250% Series D Cumulative Redeemable
       Preferred unitholders                       44,321      44,321
      Common unitholders of the Operating
       Partnership                                 61,782      66,502
                                               ----------- -----------
       Total minority interests                   179,741     184,539
                                               ----------- -----------
 STOCKHOLDERS' EQUITY:
      7.800% Series E Cumulative Redeemable
       Preferred stock                             38,425      38,437
      Common stock                                    286         282
      Additional paid-in capital                  515,086     508,568
      Deferred compensation                        (1,929)       (852)
      Distributions in excess of earnings         (71,456)    (53,449)
      Accumulated net other comprehensive
       loss                                        (1,067)     (4,358)
                                               ----------- -----------
       Total stockholders' equity                 479,345     488,628
                                               ----------- -----------

       TOTAL LIABILITIES & STOCKHOLDERS'
        EQUITY                                 $1,479,379  $1,512,635
                                               =========== ===========



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

                          Three       Three       Nine        Nine
                          Months      Months      Months      Months
                          Ended       Ended       Ended       Ended
                         Sept. 30,   Sept. 30,  Sept. 30,    Sept. 30,
                           2004        2003        2004        2003
                         ---------   ---------   ---------   ---------
REVENUES:
Rental income             $50,501     $45,870    $147,127    $131,695
Tenant reimbursements       4,817       4,472      15,370      14,845
Other property income        (273)     18,441         875      23,312
                         ---------   ---------   ---------   ---------
   Total revenues          55,045      68,783     163,372     169,852
                         ---------   ---------   ---------   ---------

EXPENSES:
Property expenses           8,620       7,738      25,904      23,261
Real estate taxes           4,423       3,869      12,631      11,197
Provision for bad debts      (524)      2,749         116       1,662
Ground leases                 334         326         996         970
General and administrative
 expenses                   9,399       5,089      22,342      13,231
Interest expense            9,540       8,869      27,898      24,143
Depreciation and
 amortization              14,832      14,299      43,317      40,685
                         ---------   ---------   ---------   ---------
   Total expenses          46,624      42,939     133,204     115,149
                         ---------   ---------   ---------   ---------

OTHER INCOME:
Interest and other income      77          36         462         130
                         ---------   ---------   ---------   ---------
   Total other income          77          36         462         130
                         ---------   ---------   ---------   ---------

Income from continuing
 operations before minority
 interests                  8,498      25,880      30,630      54,833

Minority interests:
Distributions on Cumulative
 Redeemable
 Preferred units           (2,437)     (3,375)     (7,396)    (10,125)
Minority interest in earnings
 of Operating Partnership
 attributable to continuing
 operations                  (564)     (2,983)     (2,642)     (5,947)
                         ---------   ---------   ---------   ---------
   Total minority
    interests              (3,001)     (6,358)    (10,038)    (16,072)
                         ---------   ---------   ---------   ---------

Income from continuing
 operations                 5,497      19,522      20,592      38,761

Discontinued operations:
Revenues from discontinued
 operations                   367       1,279       2,386       5,667
Expenses from discontinued
 operations                  (117)       (638)       (989)     (2,891)
Net gain (loss) on
 disposition of discontinued
 operations                 6,212         (48)      6,148       3,642
Impairment loss on property
 held for sale                                       (726)
Minority interest in earnings
 of Operating Partnership
 attributable to discontinued
 operations                  (817)        (76)       (862)       (854)
                         ---------   ---------   ---------   ---------
 Total income from
  discontinued operations   5,645         517       5,957       5,564
                         ---------   ---------   ---------   ---------

Net income                 11,142      20,039      26,549      44,325

Preferred dividends          (785)                 (2,355)
                         ---------   ---------   ---------   ---------

Net income available for
 common shareholders      $10,357     $20,039     $24,194     $44,325
                         =========   =========   =========   =========

Weighted average shares
 outstanding - basic       28,271      27,584      28,203      27,387
Weighted average shares
 outstanding - diluted     28,440      27,801      28,369      27,593

Net Income per common
 share - basic              $0.37       $0.73       $0.86       $1.62
                         =========   =========   =========   =========
Net Income per common
 share - diluted            $0.36       $0.72       $0.85       $1.61
                         =========   =========   =========   =========



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

                          Three       Three       Nine        Nine
                          Months      Months      Months      Months
                          Ended       Ended       Ended       Ended
                         Sept. 30,   Sept. 30,  Sept. 30,    Sept. 30,
                           2004        2003        2004        2003
                         ---------   ---------   ---------   ---------
Net income available for
 common shareholders      $10,357     $20,039     $24,194     $44,325

Adjustments:
  Minority interest in
   earnings of Operating
   Partnership              1,381       3,059       3,504       6,801
  Depreciation and
   amortization            14,659      14,327      42,974      41,200
  Net (gain) loss on
   dispositions of operating
   properties              (6,212)         48      (6,148)     (3,642)
                         ---------   ---------    ---------  ---------
Funds From
 Operations (1) (2)       $20,185     $37,473     $64,524     $88,684
                         =========   =========   =========   =========

Weighted average common
 shares/units outstanding -
 basic                     32,327      31,799      32,304      31,609
Weighted average common
 shares/units outstanding -
 diluted                   32,495      32,015      32,469      31,816

Funds From Operations per
 common share/unit - basic  $0.62       $1.18       $2.00       $2.81
                         =========   =========   =========   =========
Funds From Operations per
 common share/unit
  - diluted                 $0.62       $1.17       $1.99       $2.79
                         =========   =========   =========   =========

(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 on
operating performance not immediately apparent from net income. In
addition, management believes that FFO provides useful information to
the investment community about the Company's operating 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.

(2) Reported amounts are attributable to common shareholders and
common unitholders.

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

SOURCE: Kilroy Realty Corporation