Prepared by R.R. Donnelley Financial -- Form 8-K

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQ4gC1qMd9/8zVGj7eK64zS2TXAQ36TYwlS+LIFMIDPyZK3Z0gd6sQp62kv6WTgQ M4SbenmMYrLwdkY3h9cbZg== 0000898430-02-002661.txt : 20020725 0000898430-02-002661.hdr.sgml : 20020725 20020724213956 ACCESSION NUMBER: 0000898430-02-002661 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020724 ITEM INFORMATION: FILED AS OF DATE: 20020725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILROY REALTY CORP CENTRAL INDEX KEY: 0001025996 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954598246 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12675 FILM NUMBER: 02710284 BUSINESS ADDRESS: STREET 1: 2250 E IMPERIAL HWY STREET 2: C/O KILROY INDUSTRIES CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105635500 MAIL ADDRESS: STREET 1: C/O KILROY INDUSTRIES STREET 2: 2250 E IMPERIAL HIGHWAY #1200 CITY: EL SEGUNDO STATE: CA ZIP: 90245 8-K 1 d8k.htm FORM 8-K Prepared by R.R. Donnelley Financial -- Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15 (d) of

The Securities Exchange Act of 1934

Date of report (date of earliest event reported): July 24, 2002

KILROY REALTY CORPORATION

(Exact name of registrant as specified in its charter)

Maryland		Commission File Number:		95-4598246
(State of other jurisdiction of incorporation or organization)		1-12675		(I.R.S. Employer Identification No.)

12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064

(Address of principal executive offices)

(310) 481-8400

(Registrant’s telephone number, including area code)

ITEM 9. REGULATION FD DISCLOSURE

On July 24, 2002 the Company issued a press release announcing its earnings for the quarter ended June 30, 2002 and made publicly available certain supplemental information. The supplemental information is attached to this current report as Exhibit 99.1, and the press release is attached to this current report as Exhibit 99.2, and each are incorporated by reference to this report.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 24, 2002

KILROY REALTY CORPORATION

By:		/s/ ANN MARIE WHITNEY
		Ann Marie Whitney Senior Vice-President and Controller

EXHIBIT INDEX

Exhibit Number		Description

99.1	*	Second Quarter 2002 Supplemental Financial Report for the Quarter Ended June 30, 2002.

99.2	*	Press Release dated July 24, 2002.

*	Filed herewith.

EX-99.1 3 dex991.htm SECOND QUARTER SUPPLEMENTAL FINANCIAL REPORT Prepared by R.R. Donnelley Financial -- Second Quarter Supplemental Financial Report

Exhibit 99.1

Second Quarter 2002 Supplemental Financial Report

		Page
Financial Highlights		1
Consolidated Balance Sheets		2
Consolidated Statements of Operations		3
Funds From Operations and Funds Available for Distribution		4
Net Operating Income Breakdown		5
Same Store Analysis		6
Stabilized and Renovation Portfolio Occupancy Overview		7
Leasing Activity		8
Lease Expiration Summary and Lease Expirations by Region		9-11
Top Ten Office and Top Ten Industrial Tenants		12
Summary of Tenants Representing 5.0% or Greater of Annual Base Rental Revenue		13
Dispositions		14
Stabilized Development		15
In-Process and Committed Development Projects		16
Future Development Pipeline		17
Capital Structure		18
Debt Analysis		19

Some of the enclosed information presented is forward-looking in nature, including information concerning development timing and investment amounts. Although the information is based on Kilroy Realty Corporation’s current expectations, actual results could vary from expectations stated here. Numerous factors will affect Kilroy Realty Corporation’s actual results, some of which are beyond its 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. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. Kilroy Realty Corporation assumes no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise. For a discussion of important risks related to Kilroy Realty Corporation’s business, and an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see the discussion under the caption “Business Risks” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2001. In light of these risks, uncertainties and assumptions, the forward-looking events contained in this supplemental information might not occur.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Financial Highlights

(unaudited, $ in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2002			2001			% Change		2002			2001			% Change
INCOME ITEMS:
Revenues	$	51,265		$	58,234		(12.0	%)	$	103,900		$	108,701		(4.4	%)
Net Operating Income		39,254			45,508		(13.7	%)		79,670			84,530		(5.7	%)
Net Income		4,957			15,097		(67.2	%)		18,464			21,523		(14.2	%)
Funds From Operations		23,358			28,237		(17.3	%)		50,510			50,113		0.8	%
Funds Available for Distribution		22,595			24,095		(6.2	%)		48,962			43,627		12.2	%

Net Income per share—diluted	$	0.18		$	0.55		(67.3	%)	$	0.67		$	0.79		(15.2	%)
Funds From Operations per share—diluted	$	0.73		$	0.93		(21.5	%)	$	1.61		$	1.64		(1.8	%)
Funds Available for Distribution per share—diluted	$	0.70		$	0.79		(11.4	%)	$	1.56		$	1.43		9.1	%
Dividend per share	$	0.495		$	0.480		3.1	%	$	0.990		$	0.960		3.1	%

RATIOS:
Interest Coverage Ratio⁽¹⁾		4.1	x		4.0	x				4.2	x		3.7	x
Fixed Charge Coverage Ratio⁽²⁾		2.9	x		3.0	x				3.1	x		2.8	x
FFO Payout Ratio⁽³⁾		68.0	%		51.6	%	16.4	%		61.5	%		58.0	%	3.5	%
FAD Payout Ratio⁽⁴⁾		70.3	%		60.4	%	9.9	%		63.4	%		66.7	%	(3.3	%)

	June 30, 2002			Dec. 31, 2001			% Change
ASSETS:
Investments in Real Estate before Depreciation	$	1,678,839		$	1,600,994		4.9	%
Total Assets		1,510,577			1,457,229		3.7	%

CAPITALIZATION:
Total Debt	$	761,302		$	714,587		6.5	%
Total Preferred Stock⁽⁵⁾		155,000			155,000		—
Total Market Equity Value⁽⁵⁾		860,409			800,894		7.4	%
Total Market Capitalization⁽⁵⁾		1,776,711			1,670,481		6.4	%
Total Debt / Total Market Capitalization		42.8	%		42.8	%	—
Total Debt and Preferred / Total Market Capitalization		51.6	%		52.1	%	(0.5	%)

(1)

Calculated as income from operations before interest expense and depreciation and amortization divided by interest expense plus loan cost amortization.

(2)

Calculated as income from operations before interest expense and depreciation and amortization divided by interest expense plus loan cost amortization and current year paid and accrued preferred dividends.

(3)

Calculated as current year dividends paid and accrued to common shareholders divided by Funds From Operations.

(4)

Calculated as current year dividends paid and accrued to common shareholders divided by Funds Available for Distribution.

(5)

See “Capital Structure” on page 18.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Consolidated Balance Sheets

(unaudited, $ in thousands)

	June 30, 2002			December 31, 2001
ASSETS:
Land and improvements	$	285,585		$	269,366
Buildings and improvements		1,220,923			1,140,499
Undeveloped land and construction in progress, net		172,331			191,129

Total investment in real estate		1,678,839			1,600,994
Accumulated depreciation and amortization		(259,676	)		(241,665	)

Investment in real estate, net		1,419,163			1,359,329
Cash and cash equivalents		12,663			16,487
Restricted cash		5,811			5,413
Tenant receivables, net		29,511			32,151
Deferred financing and leasing costs, net		37,909			37,068
Prepaid expenses and other assets		5,520			6,781

TOTAL ASSETS	$	1,510,577		$	1,457,229

LIABILITIES AND STOCKHOLDERS’ EQUITY:
*Liabilities:*
Secured debt	$	455,302		$	459,587
Unsecured line of credit		306,000			155,000
Unsecured term facility					100,000
Accounts payable, accrued expenses and other liabilities		39,016			53,879
Accrued distributions		15,891			14,634
Rents received in advance and tenant security deposits		16,737			15,955

Total liabilities		832,946			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		72,415			49,176
Minority interest in Development LLCs					15,869

Total minority interests		224,916			217,546

*Stockholders’ Equity:*
Common stock		277			274
Additional paid-in capital		499,196			479,295
Distributions in excess of earnings		(42,079	)		(33,163	)
Accumulated net other comprehensive loss		(4,679	)		(5,778	)

Total stockholders’ equity		452,715			440,628

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,510,577		$	1,457,229

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Consolidated Statements of Operations

(unaudited, $ in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2002			2001			% Change		2002			2001			% Change
REVENUES:
Rental income	$	44,435		$	46,029		(3.5	%)	$	89,730		$	90,408		(0.7	%)
Tenant reimbursements		6,714			6,170		8.8	%		12,332			11,690		5.5	%
Interest income		86			277		(69.0	%)		371			713		(48.0	%)
Other income		30			5,758		(99.5	%)		1,467			5,890		(75.1	%)

Total revenues		51,265			58,234		(12.0	%)		103,900			108,701		(4.4	%)

EXPENSES:
Property expenses		7,558			7,330		3.1	%		15,230			14,312		6.4	%
Real estate taxes		4,063			4,744		(14.4	%)		7,913			8,379		(5.6	%)
General and administrative expenses		3,129			2,973		8.2	%		6,097			6,073		0.4	%
Ground leases		333			375		(11.2	%)		716			767		(6.6	%)
Provision for potentially unrecoverable development costs		519					100	%		519			100		419.0	%
Interest expense		8,768			10,612		(17.4	%)		18,127			21,403		(15.3	%)
Depreciation and amortization ⁽¹⁾		18,502			12,695		45.7	%		31,368			26,295		19.3	%

Total expenses		42,843			38,729		10.6	%		79,970			77,329		3.4	%

INCOME FROM OPERATIONS		8,422			19,505		(56.8	%)		23,930			31,372		(23.7	%)
Net gains on dispositions of operating properties		896			1,234		(27.4	%)		896			1,539		(41.8	%)

INCOME BEFORE MINORITY INTERESTS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		9,318			20,739		(55.1	%)		24,826			32,911		(24.6	%)

MINORITY INTERESTS:
Distributions on Cumulative Redeemable Preferred units		(3,375	)		(3,375	)	0.0	%		(6,750	)		(6,750	)	0.0	%
Minority interest in earnings of Operating Partnership		(986	)		(1,796	)	(45.1	%)		(2,496	)		(2,641	)	(5.5	%)
Recognition of previously reserved Development LLC preferred return										3,908					100.0	%
Minority interest in earnings of Development LLCs					(471	)	(100.0	%)		(1,024	)		(605	)	69.3	%

Total minority interests		(4,361	)		(5,642	)	(22.7	%)		(6,362	)		(9,996	)	(36.4	%)

NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		4,957			15,097		(67.2	%)		18,464			22,915		(19.4	%)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE													(1,392	)	100.0	%

NET INCOME	$	4,957		$	15,097		(67.2	%)	$	18,464		$	21,523		(14.2	%)

Weighted average shares outstanding—basic		27,463			27,160					27,360			26,938
Weighted average shares outstanding—diluted		27,805			27,380					27,678			27,177

NET INCOME PER COMMON SHARE:
Net income per common share—basic	$	0.18		$	0.56		(67.9	%)	$	0.67		$	0.80		(16.3	%)

Net income per common share—diluted	$	0.18		$	0.55		(67.3	%)	$	0.67		$	0.79		(15.2	%)

(1)

Included in depreciation for the three and six months ended June 30, 2002 is a non-cash charge of approximately $5.3 million for previously capitalized leasing costs, including leasing commissions and certain tenant improvements, related to the Company’s leases with Peregrine Systems, Inc.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Funds From Operations and Funds Available for Distribution

(unaudited, $ in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2002			2001			% Change		2002			2001			% Change
FUNDS FROM OPERATIONS:
Net Income	$	4,957		$	15,097		(67.2	%)	$	18,464		$	21,523		(14.2	%)
Adjustments:
Minority interest in earnings of Operating Partnership		986			1,796		(45.1	%)		2,496			2,641		(5.5	%)
Depreciation and amortization		18,311			12,030		52.2	%		30,446			25,000		21.8	%
Net gains on dispositions of operating properties		(896	)		(1,234	)	(27.4	%)		(896	)		(1,539	)	(41.8	%)
Cumulative effect of change in accounting principle													1,392		(100.0	%)
Non-cash amortization of restricted stock grants ⁽¹⁾					548		(100.0	%)					1,096		(100.0	%)

Funds From Operations	$	23,358		$	28,237		(17.3	%)	$	50,510		$	50,113		0.8	%

Weighted average common shares/units outstanding—basic		31,827			30,260					31,076			30,243
Weighted average common shares/units outstanding—diluted		32,169			30,481					31,394			30,482
FFO per common share/unit—basic	$	0.73		$	0.93		(21.5	%)	$	1.63		$	1.66		(1.8	%)

FFO per common share/unit—diluted	$	0.73		$	0.93		(21.5	%)	$	1.61		$	1.64		(1.8	%)

FUNDS AVAILABLFOR DISTRIBUTION:
Funds From Operations	$	23,358		$	28,237		(17.3	%)	$	50,510		$	50,113		0.8	%
Adjustments:
Amortization of deferred financing costs		442			399		10.8	%		1,220			780		56.4	%
Tenant improvements, leasing commissions and recurring capital expenditures		(1,302	)		(3,668	)	(64.5	%)		(1,637	)		(4,679	)	(65.0	%)
Net effect of straight-line rents ⁽²⁾		97			(873	)	(111.1	%)		(1,131	)		(2,587	)	(56.3	%)

Funds Available for Distribution	$	22,595		$	24,095		(6.2	%)	$	48,962		$	43,627		12.2	%

FAD per common share/unit—basic	$	0.71		$	0.80		(11.3	%)	$	1.58		$	1.44		9.7	%

FAD per common share/unit—diluted	$	0.70		$	0.79		(11.4	%)	$	1.56		$	1.43		9.1	%

(1)

Commencing January 1, 2002, non-cash amortization of restricted stock grants is not added back to calculate Funds From Operations.

(2)

This amount is net of a reserve for bad debts.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Net Operating Income Breakdown

		As of June 30, 2002⁽¹⁾
% OF TOTAL NOI BY PRODUCT TYPE:
*Office:*
Los Angeles		34.8%
Orange County		4.4%
San Diego		31.8%
Other		5.7%

Subtotal		76.7%

*Industrial:*
Los Angeles		3.4%
Orange County		18.7%
Other		1.2%

Subtotal		23.3%

% OF TOTAL NOI BY REGION:
Los Angeles		38.2%
Orange County		23.1%
San Diego		31.8%
Other		6.9%

Total		100.0%

(1)

Based on Net Operating Income for the six months ended June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Same Store Analysis⁽¹⁾

($ in thousands)

	Three Months Ended June 30,									Six Months Ended June 30,
	2002		2001		$ Change			% Change		2002		2001		$ Change			% Change
TOTAL SAME STORE PORTFOLIO
*Operating Revenues:*
Rental income	$	39,034	$	39,827	($	793	)	(2.0	%)	$	79,105	$	79,732	($	627	)	(0.8	%)
Tenant reimbursements		5,922		5,676		246		4.3	%		10,807		10,366		441		4.3	%
Other income		30		188		(158	)	(84.0	%)		1,351		299		1,052		351.8	%

Total operating revenues		44,986		45,691		(705	)	(1.5	%)		91,263		90,397		866		1.0	%

*Operating Expenses:*
Property expenses		6,387		6,727		(340	)	(5.1	%)		12,839		12,877		(38	)	(0.3	%)
Real estate taxes		3,523		3,931		(408	)	(10.4	%)		6,897		7,156		(259	)	(3.6	%)
Ground leases		291		325		(34	)	(10.5	%)		624		657		(33	)	(5.0	%)

Total operating expenses		10,201		10,983		(782	)	(7.1	%)		20,360		20,690		(330	)	(1.6	%)

*GAAP Net Operating Income*	$	34,785	$	34,708	$	77		0.2	%	$	70,903	$	69,707	$	1,196		1.7	%

	Same Store Analysis (Cash Basis)
	Three Months % Change		Six Months % Change
Operating Revenues	2.4	%	3.2	%
Operating Expenses	(7.1	%)	(1.6	%)

Cash Net Operating Income	5.5	%	4.7	%

(1)

Same store defined as all stabilized properties owned at January 1, 2001 and still owned at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Stabilized and Renovation Portfolio Occupancy Overview

	# of Buildings	Square Feet			Occupancy at:
	# of Buildings	Total	Leased	Available	6/30/02		3/31/02		12/31/01
STABILIZED PORTFOLIO:
OCCUPANCY BY PRODUCT TYPE:
*Office:*
Los Angeles	32	3,276,494	2,796,367	480,127	85.3	%	83.9	%	88.1	%
Orange County	12	546,850	493,545	53,305	90.3	%	89.7	%	89.7	%
San Diego	41	3,037,673	3,014,786	22,887	99.2	%	97.6	%	100.0	%
Other	6	709,354	693,690	15,664	97.8	%	98.1	%	99.0	%

Subtotal	91	7,570,371	6,998,388	571,983	92.4	%	91.2	%	93.9	%

*Industrial:*
Los Angeles	7	554,490	553,810	680	99.9	%	99.7	%	99.4	%
Orange County	52	4,236,038	4,148,232	87,806	97.9	%	98.3	%	98.3	%
Other	2	295,417	295,417	—	100.0	%	100.0	%	100.0	%

Subtotal	61	5,085,945	4,997,459	88,486	98.3	%	98.5	%	98.5	%

OCCUPANCY BY REGION:
Los Angeles	39	3,830,984	3,350,177	480,807	87.4	%	86.3	%	89.8	%
Orange County	64	4,782,888	4,641,777	141,111	97.0	%	97.3	%	97.3	%
San Diego	41	3,037,673	3,014,786	22,887	99.2	%	97.6	%	100.0	%
Other	8	1,004,771	989,107	15,664	98.4	%	98.6	%	99.3	%

TOTAL STABILIZED PORTFOLIO	152	12,656,316	11,995,847	660,469	94.8	%	94.2	%	95.8	%

RENOVATION PORTFOLIO:
*Office:*
Orange County	1	78,016	—	78,016

TOTAL PORTFOLIO	153	12,734,332	11,995,847	738,485

AVERAGE OCCUPANCY—STABILIZED PORTFOLIO							AVERAGE OCCUPANCY—SAME STORE PORTFOLIO
	Office		Industrial		Total			2002		2001 Change		% Change
Quarter-to-Date	91.4	%	98.3	%	94.2	%	Quarter-to-Date	95.2	%	96.2	%	(1.0	%)
Year-to-Date	91.6	%	98.4	%	94.4	%	Year-to-Date	95.4	%	96.4	%	(1.0	%)

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Leasing Activity

Quarter-to-Date

					2nd Generation
	# of Leases⁽¹⁾		Square Feet⁽¹⁾		TI/LC Per Sq. Ft.		Maintenance Capex Per Sq. Ft.⁽²⁾		Changes in Rents⁽³⁾		Changes in Cash Rents⁽⁴⁾		Retention Rates⁽⁵⁾		Weighted Average Lease Term (Mo.)
	New	Renewal	New	Renewal	TI/LC Per Sq. Ft.		Maintenance Capex Per Sq. Ft.⁽²⁾		Changes in Rents⁽³⁾		Changes in Cash Rents⁽⁴⁾		Retention Rates⁽⁵⁾		Weighted Average Lease Term (Mo.)
Office	5	9	111,798	43,509	$	7.20	$	0.03	(1.4	%)	(22.0	%)	31.3	%	86
Industrial	2	2	7,761	64,273	$	4.19	$	0.07	16.1	%	(1.2	%)	76.7	%	89

Total	7	11	119,559	107,782	$	5.82	$	0.04	3.6	%	(15.9	%)	48.4	%	87

Year-to-Date

					2nd Generation
	# of Leases⁽¹⁾		Square Feet⁽¹⁾		TI/LC Per Sq. Ft.		Maintenance Capex Per Sq. Ft.⁽²⁾		Changes in Rents⁽³⁾		Changes in Cash Rents⁽⁴⁾		Retention Rates⁽⁵⁾		Weighted Average Lease Term (Mo.)
	New	Renewal	New	Renewal	TI/LC Per Sq. Ft.		Maintenance Capex Per Sq. Ft.⁽²⁾		Changes in Rents⁽³⁾		Changes in Cash Rents⁽⁴⁾		Retention Rates⁽⁵⁾		Weighted Average Lease Term (Mo.)
Office	9	22	207,679	174,488	$	7.52	$	0.03	0.3	%	(6.9	%)	33.0	%	63
Industrial	11	9	129,335	158,748	$	2.39	$	0.07	9.9	%	(0.1	%)	52.9	%	73

Total	20	31	337,014	333,236	$	5.31	$	0.04	2.5	%	(5.3	%)	40.4	%	67

(1)

Includes first and second generation space, net of month-to-month leases. Excludes leasing on new construction. First generation space is defined as the space first leased by the Company.

(2)

Calculated over entire stabilized portfolio.

(3)

Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space.

(4)

Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space.

(5)

Calculated as the percentage of space either renewed or expanded into by existing tenants at lease expiration.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Lease Expiration Summary Schedule

($ in thousands)

Year of Expiration	# of Expiring Leases	Total Square Feet⁽¹⁾		% of Total Leased Sq. Ft.		Annual Base Rent		Annual Rent per Sq. Ft.
OFFICE:
Remaining 2002	23	127,796		1.9	%	$	2,320	$	18.15
2003	68	1,004,131		14.5	%		16,177		16.11
2004	63	817,059		11.8	%		17,975		22.00
2005	54	708,224		10.3	%		13,042		18.42
2006	45	588,493		8.5	%		13,215		22.46
2007	28	707,143		10.2	%		12,005		16.98
2008	12	628,211		9.1	%		14,431		22.97
2009	11	735,917		10.7	%		14,721		20.00
2010	8	282,263		4.1	%		6,225		22.05
2011 and beyond	19	1,304,285		18.9	%		26,981		20.69

Subtotal	331	6,903,522		100.0	%	$	137,092	$	19.86

INDUSTRIAL:
Remaining 2002	15	47,569		1.0	%	$	440	$	9.25
2003	35	540,365		11.0	%		3,540		6.55
2004	25	550,375		11.2	%		4,011		7.29
2005	16	709,056		14.4	%		5,243		7.39
2006	10	590,638		12.0	%		4,486		7.60
2007	10	398,629		8.1	%		2,479		6.22
2008	5	752,946		15.4	%		5,158		6.85
2009	7	505,976		10.3	%		3,039		6.01
2010	2	70,101		1.4	%		481		6.86
2011 and beyond	6	745,226		15.2	%		5,340		7.17

Subtotal	131	4,910,881		100.0	%	$	34,217	$	6.97

TOTAL PORTFOLIO:
Remaining 2002	38	175,365		1.5	%	$	2,760	$	15.74
2003	103	1,544,496		13.1	%		19,717		12.77
2004	88	1,367,434		11.6	%		21,986		16.08
2005	70	1,417,280		12.0	%		18,285		12.90
2006	55	1,179,131		9.9	%		17,701		15.01
2007	38	1,105,772		9.4	%		14,484		13.10
2008	17	1,381,157		11.7	%		19,589		14.18
2009	18	1,241,893		10.5	%		17,760		14.30
2010	10	352,364		3.0	%		6,706		19.03
2011 and beyond	25	2,049,511		17.3	%		32,321		15.77

Total	462	11,814,403	⁽¹⁾	100.0	%	$	171,309	$	14.50

(1)

Excludes space leased under month-to-month leases and vacant space at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Lease Expiration Schedule Detail by Region

($ in thousands)

	Los Angeles County									Orange County
Year of Expiration	# of Expiring Leases	Total Square Feet⁽¹⁾		% of Total Regional Sq. Ft.		Annual Base Rent		Annual Rent per Sq. Ft.		# of Expiring Leases	Total Square Feet⁽¹⁾		% of Total Regional Sq. Ft.		Annual Base Rent		Annual Rent per Sq. Ft.
OFFICE:
Remaining 2002	10	19,793		0.8	%	$	532	$	26.88	7	24,798		5.3	%	$	434	$	17.50
2003	27	575,472		22.8	%		10,453		18.16	24	74,127		15.7	%		1,281		17.28
2004	36	569,362		22.5	%		13,882		24.38	13	122,937		26.0	%		1,753		14.26
2005	22	169,589		6.7	%		4,774		28.15	9	51,689		10.9	%		993		19.21
2006	17	156,810		6.2	%		4,507		28.74	9	46,977		9.9	%		868		18.48
2007	3	25,328		1.0	%		715		28.23	3	22,553		4.8	%		268		11.88
2008	5	278,247		11.0	%		8,104		29.13	3	116,304		24.6	%		2,045		17.58
2009	6	395,569		15.7	%		8,558		21.63	—	—		—			—		—
2010	1	1,163		0.0	%		66		56.75	—	—		—			—		—
2011 and beyond	7	334,094		13.3	%		5,188		15.53	1	13,193		2.8	%		404		30.62

Subtotal	134	2,525,427		100.0	%	$	56,779	$	22.48	69	472,578		100.0	%	$	8,046	$	17.03

INDUSTRIAL:
Remaining 2002	11	20,553		3.7	%	$	203	$	9.88	4	27,016		0.7	%	$	237	$	8.77
2003	15	74,034		13.4	%		604		8.16	20	466,331		11.5	%		2,936		6.30
2004	8	116,445		21.0	%		937		8.05	17	433,930		10.7	%		3,073		7.08
2005	4	210,162		38.0	%		2,124		10.11	12	498,894		12.3	%		3,118		6.25
2006	—	—		—			—		—	9	426,098		10.5	%		3,262		7.66
2007	3	12,238		2.2	%		114		9.32	7	386,391		9.5	%		2,365		6.12
2008	—	—		—			—		—	5	752,946		18.5	%		5,158		6.85
2009	1	6,362		1.1	%		95		14.93	6	499,614		12.3	%		2,944		5.89
2010	—	—		—			—		—	2	70,101		1.7	%		481		6.86
2011 and beyond	1	113,820		20.6	%		1,161		10.20	4	500,529		12.3	%		3,473		6.94

Subtotal	43	553,614		100.0	%	$	5,238	$	9.46	86	4,061,850		100.0	%	$	27,047	$	6.66

TOTAL PORTFOLIO:
Remaining 2002	21	40,346		1.3	%	$	735	$	18.22	11	51,814		1.2	%	$	671	$	12.95
2003	42	649,506		21.1	%		11,057		17.02	44	540,458		11.9	%		4,217		7.80
2004	44	685,807		22.2	%		14,819		21.61	30	556,867		12.3	%		4,826		8.67
2005	26	379,751		12.3	%		6,898		18.16	21	550,583		12.2	%		4,111		7.47
2006	17	156,810		5.1	%		4,507		28.74	18	473,075		10.4	%		4,130		8.73
2007	6	37,566		1.2	%		829		22.07	10	408,944		9.0	%		2,633		6.44
2008	5	278,247		9.1	%		8,104		29.13	8	869,250		19.2	%		7,203		8.29
2009	7	401,931		13.1	%		8,653		21.53	6	499,614		11.0	%		2,944		5.89
2010	1	1,163		0.0	%		66		56.75	2	70,101		1.5	%		481		6.86
2011 and beyond	8	447,914		14.6	%		6,349		14.17	5	513,722		11.3	%		3,877		7.55

Total	177	3,079,041	⁽¹⁾	100.0	%	$	62,017	$	20.14	155	4,534,428	⁽¹⁾	100.0	%	$	35,093	$	7.74

(1)

Excludes space leased under month-to-month leases and vacant space at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Lease Expiration Schedule Detail by Region

($ in thousands)

	San Diego County									Other
Year of Expiration	# of Expiring Leases	Total Square Feet⁽¹⁾		% of Total Regional Sq. Ft.		Annual Base Rent		Annual Rent per Sq. Ft.		# of Expiring Leases	Total Square Feet⁽¹⁾		% of Total Regional Sq. Ft.		Annual Base Rent		Annual Rent per Sq. Ft.
OFFICE:
Remaining 2002	1	45,634		1.5	%	$	712	$	15.60	5	37,571		4.2	%	$	641	$	17.06
2003	2	107,128		3.5	%		1,527		14.25	15	247,404		27.8	%		2,952		11.93
2004	1	50,929		1.7	%		960		18.85	13	73,831		8.3	%		1,344		18.20
2005	5	356,994		11.8	%		4,548		12.74	18	129,952		14.6	%		2,727		20.98
2006	3	190,209		6.3	%		3,162		16.62	16	194,497		21.8	%		4,678		24.05
2007	7	548,878		18.2	%		8,627		15.72	15	110,384		12.4	%		2,395		21.70
2008	4	233,660		7.8	%		4,282		18.33	—	—		—			—		—
2009	3	305,378		10.1	%		5,149		16.86	2	34,970		3.9	%		1,014		29.00
2010	4	230,767		7.7	%		4,744		20.56	3	50,333		5.7	%		1,415		28.11
2011 and beyond	10	945,209		31.4	%		21,022		22.24	1	11,789		1.3	%		368		31.22

Subtotal	40	3,014,786		100.0	%	$	54,733	$	18.15	88	890,731		100.0	%	$	17,534	$	19.68

INDUSTRIAL:
Remaining 2002	—	—		—			—		—	—	—		—			—		—
2003	—	—		—			—		—	—	—		—			—		—
2004	—	—		—			—		—	—	—		—			—		—
2005	—	—		—			—		—	—	—		—			—		—
2006	—	—		—			—		—	1	164,540		55.7	%		1,224		7.44
2007	—	—		—			—		—	—	—		—			—		—
2008	—	—		—			—		—	—	—		—			—		—
2009	—	—		—			—		—	—	—		—			—		—
2010	—	—		—			—		—	—	—		—			—		—
2011 and beyond	—	—		—			—		—	1	130,877		44.3	%		708		5.41

Subtotal	—	—		—			—		—	2	295,417		100.0	%	$	1,932	$	6.54

TOTAL PORTFOLIO:
Remaining 2002	1	45,634		1.5	%	$	712	$	15.60	5	37,571		3.2	%	$	641	$	17.06
2003	2	107,128		3.5	%		1,527		14.25	15	247,404		20.9	%		2,952		11.93
2004	1	50,929		1.7	%		960		18.85	13	73,831		6.2	%		1,344		18.20
2005	5	356,994		11.8	%		4,548		12.74	18	129,952		11.0	%		2,727		20.98
2006	3	190,209		6.3	%		3,162		16.62	17	359,037		30.3	%		5,902		16.44
2007	7	548,878		18.2	%		8,627		15.72	15	110,384		9.3	%		2,395		21.70
2008	4	233,660		7.8	%		4,282		18.33	—	—		—			—		—
2009	3	305,378		10.1	%		5,149		16.86	2	34,970		2.9	%		1,014		29.00
2010	4	230,767		7.7	%		4,744		20.56	3	50,333		4.2	%		1,415		28.11
2011 and beyond	10	945,209		31.4	%		21,022		22.24	2	142,666		12.0	%		1,076		7.54

Total	40	3,014,786	⁽¹⁾	100.0	%	$	54,733	$	18.15	90	1,186,148	⁽¹⁾	100.0	%	$	19,466	$	16.41

(1)

Excludes space leased under month-to-month leases and vacant space at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Top Ten Office and Top Ten Industrial Tenants

($ in thousands)

Tenant Name	Rentable Square Feet	Annual Base Rental Revenues⁽¹⁾		Percentage of Total Annual Base Rental Revenues
Office Properties:
The Boeing Company	1,080,662	$	17,920	10.3%
Peregrine Systems, Inc.⁽²⁾	423,874		13,794	7.9%
DirecTV, Inc.	182,463		5,286	3.0%
Diversa Corporation	136,908		4,715	2.7%
Epson America, Inc.	166,575		4,251	2.5%
Epicor Software Corporation	172,778		3,477	2.0%
Newgen Results Corporation	102,875		3,445	2.0%
Scan Health Plan	119,219		3,429	2.0%
Intuit, Inc.	212,214		3,150	1.8%
Sony Music Entertainment, Inc.	94,844		2,791	1.6%

Total Office Properties	2,692,412	$	62,258	35.8%

Industrial Properties:⁽³⁾
Celestica California, Inc.	303,533	$	2,493	1.4%
Qwest Communications Corporation	244,800		2,422	1.4%
Mattel, Inc.	192,053		2,023	1.2%
Packard Hughes Interconnect	157,458		1,700	1.0%
Targus, Inc.	266,093		1,481	0.9%
NBTY Manufacturing, LLC	286,139		1,461	0.8%
Southern Plastic Mold, Inc.	188,000		1,201	0.7%
Kraft Foods, Inc.	164,540		1,185	0.7%
Extron Electronics	157,730		949	0.5%
Ricoh Electronics	100,000		809	0.5%

Total Industrial Properties	2,060,346	$	15,724	9.1%

(1)

Reflects annualized rent calculated on a straight-line basis.

(2)

Includes 64,946 rentable square feet of executed subleases with annual base rental revenue of approximately $2.1 million.

(3)

In July 2002, a lease with Abovenet Communications, Inc. was terminated prior to expiration. The lease for 113,820 square feet would have represented approximately $1.5 million, or 0.8% of the Company’s annual base rental revenues at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Summary of Tenants Representing 5.0% or Greater of Annual Base Rental Revenue

($ in thousands)

The Boeing Company	Rentable Square Feet	Annual Base Rental Revenues⁽¹⁾		Lease Expiration Date
Boeing Satellite Systems

2260 E. Imperial Highway, El Segundo	293,261	$	7,448	July 2004
909 N. Sepulveda, El Segundo	248,148		2,978	February 2003
1231 N. Miller Street, Anaheim	113,242		684	March 2009
2240 E. Imperial Highway, El Segundo	101,564		1,729	January 2004
2250 E. Imperial Highway, El Segundo	7,791		271	November 2004

	764,006		13,110

Boeing MTA (Military Transport Aircraft)

3760 Kilroy Airport Way, Long Beach	24,536		686	January 2003
3760 Kilroy Airport Way, Long Beach	26,620		831	January 2003

	51,156		1,517

Boeing Airplane-on-Ground Division

17930 Pacific Highway, Seattle	211,139		1,769	December 2002


Boeing Capital Corporation

3780 Kilroy Airport Way, Long Beach	43,636		1,223	September 2005


Boeing Realty Corporation
3760 Kilroy Airport Way, Long Beach	10,725		301	August 2005


Total	1,080,662	$	17,920






Peregrine Systems, Inc.⁽²⁾
Building 1	52,375	$	1,682	September 2010
Building 2	129,680		4,245	April 2012
Building 3	129,752		4,308	April 2013
Building 5⁽³⁾	112,067		3,559	July 2011

Total	423,874	$	13,794

(1)

Reflects annualized rent calculated on a straight-line basis.

(2)

Excludes Building 4 which is currently under construction and was previously committed to Peregrine Systems, Inc. Peregrine surrendered Building 4 back to the Company in June 2002.

(3)

Includes 64,946 rentable square feet of executed subleases with annual base rental revenues of approximately $2.1 million.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

2002 Dispositions

($ in thousands)

Project	Location	Type	Month of Disposition	Square Feet	Sales Price
1st QUARTER:
NONE
2nd QUARTER:
NONE






TOTAL YEAR-TO-DATE DISPOSITIONS

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Stabilized Development

($ in thousands)

Project	Location	Type	Start Date	Completion Date	Rentable Square Feet	Total Est. Investment		% Occupied
1st QUARTER:
Innovation Corporate Center—Lot 12	San Diego, CA	Office	2Q 2000	2Q 2001	70,617	$	15,232	100	%
Sorrento Gateway—Lot 4	San Diego, CA	Office	2Q 2001	1Q 2002	60,662		16,749	100	%

Subtotal					131,279		31,981	100	%

2nd QUARTER:
Calabasas Park Centre Ph II	Calabasas, CA	Office	2Q 2000	2Q 2001	98,706		22,256	91	%
Innovation Corporate Center Lot 8	San Diego, CA	Office	2Q 2000	2Q 2001	46,759		9,378	51	%
Pacific Corporate Center—Lots 25 & 27	San Diego, CA	Office	2Q 2001	4Q 2001	68,400		17,798	100	%

					213,865		49,432	85	%

TOTAL YEAR-TO-DATE STABILIZED DEVELOPMENT					345,144	$	81,413	91	%

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

In-Process and Committed Development Projects

($ in thousands)

			Estimated Construction Period		Est. Stabilization Date⁽¹⁾	Rentable Square Feet	Total Estimated Investment		Total Costs to Date⁽³⁾		% Leased		% LOI		Total % Committed⁽²⁾
Project	Location	Type	Start Date	Compl. Date	Est. Stabilization Date⁽¹⁾	Rentable Square Feet	Total Estimated Investment		Total Costs to Date⁽³⁾		% Leased		% LOI		Total % Committed⁽²⁾
PROJECTS IN LEASE-UP:
Westside Media Center—Phase III	West LA, CA	Office	4Q 2000	2Q 2002	2Q 2003	151,000	$	58,045	$	43,461	0	%	20	%	20%

Subtotal						151,000		58,045		43,461	0	%	20	%	20%

PROJECTS UNDER CONSTRUCTION:
Brobeck, Phleger & Harrison Expansion	Del Mar, CA	Office	3Q 2001	3Q 2002	3Q 2002	89,168		24,863		17,804	100	%	0	%	100%
Imperial & Sepulveda	El Segundo, CA	Office	1Q 2001	3Q 2002	3Q 2003	133,678		44,130		31,730	0	%	0	%	0%
Peregrine Systems Corporate
Ctr—Bldg 4⁽⁴⁾	Del Mar, CA	Office	3Q 2001	4Q 2002	4Q 2003	114,780		30,464		22,577	0	%	0	%	0%
San Diego Corporate Center	Del Mar, CA	Office	2Q 2002	3Q 2003	3Q 2004	208,961		62,999		21,955	84	%	0	%	84%

Subtotal						546,587		162,456		94,066	48	%	0	%	48%

TOTAL PROJECTS IN LEASE UP AND UNDER CONSTRUCTION						697,587		220,501		137,527	38	%	4	%	42%

COMMITTED DEVELOPMENT:
None

TOTAL IN-PROCESS AND COMMITTED DEVELOPMENT PROJECTS:						697,587	$	220,501	$	137,527	38	%	4	%	42%

(1)

Based on management’s estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.

(2)

Includes executed leases and signed letters of intent, calculated on a square footage basis.

(3)

Costs to date as of June 30, 2002.

(4)

Building 4 was previously committed to Peregrine Systems Inc. Peregrine surrendered Building 4 back to the Company in June 2002.

Some of the enclosed information presented is forward-looking in nature, including information concerning development timing and investment amounts. Although the information is based on Kilroy Realty Corporation’s current expectations, actual results could vary from expectations stated here. Numerous factors will affect Kilroy Realty Corporation’s actual results, some of which are beyond its 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. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. Kilroy Realty Corporation assumes no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise. For a discussion of important risks related to Kilroy Realty Corporation’s business, and an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see the discussion under the caption “Business Risks” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2001. In light of these risks, uncertainties and assumptions the forward-looking events contained in this supplemental information might not occur.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Future Development Pipeline

($ in thousands)

Project	Location	Type	Total Site Acreage	Estimated Rentable Square Feet	Total Estimated Investment		Total Costs to Date⁽¹⁾
SAN DIEGO COUNTY:
Innovation Corporate Center—Lot 2	San Diego, CA	Office	3.0	51,187	$	10,043	$	2,775
Innovation Corporate Center—Lot 4	San Diego, CA	Office	3.4	75,000		13,620		3,340
Innovation Corporate Center—Lot 9	San Diego, CA	Office	3.2	65,867		12,343		3,325
Innovation Corporate Center—Lot 10	San Diego, CA	Office	2.2	37,405		7,841		2,280
Pacific Corporate Center—Lots 3, 4 & 6	San Diego, CA	Office	10.9	225,000		47,170		12,887
Pacific Corporate Center—Lot 8	San Diego, CA	Office	5.0	95,000		25,621		6,452
Santa Fe Summit—Phase I	San Diego, CA	Office	7.6	150,000		33,438		6,445
Santa Fe Summit—Phase II	San Diego, CA	Office	7.6	150,000		34,003		6,445
Sorrento Gateway—Lot 1	San Diego, CA	Office	3.4	61,000		17,052		3,677
Sorrento Gateway—Lot 2	San Diego, CA	Office	4.4	80,000		23,816		6,813
Sorrento Gateway—Lot 3	San Diego, CA	Office	3.4	60,000		18,337		4,783
Sorrento Gateway—Lot 7	San Diego, CA	Office	4.1	57,000		18,675		6,090

TOTAL FUTURE DEVELOPMENT PIPELINE			58.2	1,107,459	$	261,959	$	65,312

(1)

Costs to date as of June 30, 2002.

Some of the enclosed information presented is forward-looking in nature, including information concerning development timing and investment amounts. Although the information is based on Kilroy Realty Corporation’s current expectations, actual results could vary from expectations stated here. Numerous factors will affect Kilroy Realty Corporation’s actual results, some of which are beyond its 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. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. Kilroy Realty Corporation assumes no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise. For a discussion of important risks related to Kilroy Realty Corporation’s business and an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see the discussion under the caption “Business Risks” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2001. In light of these risks, uncertainties and assumptions, the forward-looking events contained in this supplemental information might not occur.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Capital Structure

At June 30, 2002

($ in thousands)

	Shares/Units at June 30, 2002	Aggregate Principal Amount or $ Value Equivalent		% of Total Market Capitalization
DEBT:
Secured Debt		$	455,302	25.6	%
Unsecured Line of Credit			306,000	17.2	%

Total Debt		$	761,302	42.8	%

EQUITY:
8.075% Series A Cumulative Redeemable Preferred Units⁽¹⁾	1,500,000	$	75,000	4.2	%
9.375% Series C Cumulative Redeemable Preferred Units⁽¹⁾	700,000		35,000	2.0	%
9.250% Series D Cumulative Redeemable Preferred Units⁽¹⁾	900,000		45,000	2.6	%
Common Units Outstanding⁽²⁾	4,421,195		118,267	6.6	%
Common Shares Outstanding⁽²⁾	27,743,637		742,142	41.8	%

Total Equity		$	1,015,409	57.2	%

TOTAL MARKET CAPITALIZATION		$	1,776,711	100.0	%

(1)

Value based on $50.00 per share liquidation preference.

(2)

Valued based on closing share price of $26.75 at June 30, 2002.

KILROY REALTY CORPORATION

Second Quarter 2002 Supplemental Financial Report

Debt Analysis

At June 30, 2002

($ in thousands)

SECURED DEBT PRINCIPAL REPAYMENT SCHEDULE

2002		2003		2004		2005		2006		Thereafter		Total
$3,732		$95,241		$28,418		$88,933		$37,084		$201,894		$455,302

TOTAL DEBT COMPOSITION

	% of Total Debt		Weighted Average
	% of Total Debt		Interest Rate		Maturity
*Secured vs. Unsecured Debt:*
Secured Debt	59.8	%	6.5	%	5.8
Unsecured Debt	40.2	%	5.1	%	2.7
*Floating vs. Fixed Rate Debt:*
Fixed Rate Debt ^(1),(2),(4)	68.7	%	7.1	%	5.4
Floating Rate Debt ⁽³⁾	31.3	%	3.4	%	2.6

*Total Debt*			6.0	%	4.5

*Total Debt Including Loan Fees*			6.3	%

UNSECURED LINE OF CREDIT

Total Line		Outstanding Balance		Expiration Date
$425,000		$306,000		March 2005

CAPITALIZED INTEREST & LOAN FEES

Quarter-to-Date		Year-to-Date
$3.4		$7.2

(1)

The Company currently has an interest-rate swap agreement, which expires in November 2002, to fix LIBOR on $150 million of its floating rate debt at 5.48%.

(2)

The Company currently has an interest-rate swap agreement, which expires in January 2005, to fix LIBOR on $50 million of its floating rate debt at 4.46%.

(3)

The Company currently has interest-rate cap agreements, which expire in January 2005, to cap LIBOR on $100 millionof its floating rate debt at 4.25%.

(4)

The percentage of fixed rate debt to total debt does not take into consideration the portion of floating rate debt capped by the Company’s interest-rate cap agreements. Including the effects of the interest-rate cap agreements, the Company had fixed or capped approximately 81.8% of its total outstanding debt at June 30, 2002.

EX-99.2 4 dex992.htm PRESS RELEASE Prepared by R.R. Donnelley Financial -- Press Release

Exhibit 99.2

Contact:		FOR RELEASE:
Richard E. Moran Jr.		July 24, 2002
Executive Vice President
and Chief Financial Officer
(310) 481-8483
or
Tyler H. Rose
Senior Vice President
and Treasurer
(310) 481-8484

KILROY REALTY CORPORATION REPORTS

SECOND QUARTER FINANCIAL RESULTS

LOS ANGELES, July 24, 2002—Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2002, with net income of $5.0 million, or $0.18 per share, on revenues of $51.3 million. KRC’s second-quarter earnings were reduced by a $5.3 million ($0.17 per share) charge to depreciation for capitalized leasing costs and a $1.5 million ($0.05 per share) charge to record development and bad debt reserves related to the financial condition Peregrine Systems, Inc., an existing tenant. In the second quarter of 2001, the company reported net income of $15.1 million, or $0.55 per share, on revenues of $58.2 million. Earnings in the second quarter of 2001 were increased by a $5.4 million ($ 0.18 per share) non-recurring lease termination fee.

For the first six months of 2002, KRC reported net income of $18.5 million, or $0.67 per share, on revenues of $103.9 million. In the same year-earlier period, the company reported net income of $21.5 million, or $0.79 per share, on revenues of $108.7 million.

KRC’s funds from operations (FFO) totaled $23.4 million, or $0.73 per share, in the second quarter of 2002, compared to $28.2 million, or $0.93 per share in the prior year’s second quarter. Second quarter FFO was reduced by the $1.5 million ($0.05 per share) charge to record development and bad debt reserves related to the financial condition of Peregrine Systems. For the first six months of 2002, FFO totaled $50.5 million, or $1.61 per share, compared to $50.1 million, or $1.64 per share, in the same period of 2001.

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

KRC added $49 million of new development to its stabilized portfolio in the second quarter of 2002, including an aggregate 213,900 square feet of space in three new office properties. At quarter’s end, the company’s stabilized portfolio was 94.8% occupied.

KRC has an additional 697,600 square feet of space currently in lease-up or under construction representing a total estimated investment of approximately $221 million. These properties are 42% leased or committed.

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 June 30, 2002, the company owned 7.6 million square feet of commercial office space and 5.1 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 Months Ended June 30, 2002		Three Months Ended June 30, 2001		Six Months Ended June 30, 2002			Six Months Ended June 30, 2001
Revenues	$	51,265	$	58,234	$	103,900		$	108,701

Net income available to common stockholders ⁽¹⁾	$	4,957	$	15,097	$	18,464		$	21,523

Weighted average common shares outstanding—basic		27,463		27,160		27,360			26,938
Weighted average common shares outstanding—diluted		27,805		27,380		27,678			27,177

Net income per share of common stock—basic	$	0.18	$	0.56	$	0.67		$	0.80
Net income per share of common stock—diluted	$	0.18	$	0.55	$	0.67		$	0.79

Funds From Operations	$	23,358	$	28,237	$	50,510		$	50,113

Weighted average common shares/units outstanding—basic ⁽²⁾		31,827		30,260		31,076			30,243
Weighted average common shares/units outstanding—diluted ⁽²⁾		32,169		30,481		31,394			30,482

Funds From Operations per common share/unit—basic ⁽²⁾	$	0.73	$	0.93	$	1.63		$	1.66
Funds From Operations per common share/unit—diluted ⁽²⁾	$	0.73	$	0.93	$	1.61		$	1.64

Common shares outstanding at end of period						27,744			27,266
Common partnership units outstanding at end of period						4,421			3,063

Total common shares and units outstanding at end of period						32,165			30,329

					June 30, 2002			June 30, 2001
Occupancy rates:
California						94.6	%		94.5	%
Washington						97.7	%		99.8	%
Arizona						100.0	%		100.0	%
Nevada									100.0	%

Weighted average total						94.8	%		94.9	%

Total square feet of stabilized properties owned at end of period:
Office						7,570			7,235
Industrial						5,086			5,606

Total						12,656			12,841

(1)

Net income after minority interests.

(2)

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, 2002			December 31, 2001
ASSETS
INVESTMENT IN REAL ESTATE:
Land and improvements	$	285,585		$	269,366
Buildings and improvements		1,220,923			1,140,499
Undeveloped land and construction in progress, net		172,331			191,129

Total investment in real estate		1,679,358			1,600,994
Accumulated depreciation and amortization		(259,676	)		(241,665	)

Investment in real estate, net		1,419,163			1,359,329
Cash and cash equivalents		12,663			16,487
Restricted cash		5,811			5,413
Tenant receivables, net		29,511			32,151
Deferred financing and leasing costs, net		37,909			37,068
Prepaid expenses and other assets		5,520			6,781

TOTAL ASSETS	$	1,510,577		$	1,457,229

LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES:
Secured debt	$	455,302		$	459,587
Unsecured line of credit		306,000			155,000
Unsecured term facility					100,000
Accounts payable, accrued expenses and other liabilities		39,016			53,879
Accrued distributions		15,891			14,634
Rents received in advance and tenant security deposits		16,737			15,955

Total liabilities		832,946			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		72,415			49,176
Minority interest in Development LLCs					15,869

Total minority interests		224,916			217,546

STOCKHOLDERS’ EQUITY:
Common stock		277			274
Additional paid-in capital		499,196			479,295
Distributions in excess of earnings		(42,079	)		(33,163	)
Accumulated net other comprehensive loss		(4,679	)		(5,778	)

Total stockholders’ equity		452,715			440,628

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,510,577		$	1,457,229

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

	Three Months Ended June 30, 2002			Three Months Ended June 30, 2001			Six Months Ended June 30, 2002			Six Months Ended June 30, 2001
REVENUES:
Rental income	$	44,435		$	46,029		$	89,730		$	90,408
Tenant reimbursements		6,714			6,170			12,332			11,690
Interest income		86			277			371			713
Other income		30			5,758			1,467			5,890

Total revenues		51,265			58,234			103,900			108,701

EXPENSES:
Property expenses		7,529			7,330			15,230			14,312
Real estate taxes		4,063			4,744			7,913			8,379
General and administrative expenses		3,129			2,973			6,097			6,073
Ground leases		333			375			716			767
Provision for potentially unrecoverable development costs		519						519			100
Interest expense		8,768			10,612			18,127			21,403
Depreciation and amortization		18,502			12,695			31,368			26,295

Total expenses		42,843			38,729			79,970			77,329

Income from operations		8,422			19,505			23,930			31,372
Net gains on dispositions of operating properties		896			1,234			896			1,539

Income before minority interests and cumulative effect of change in accounting principle		9,318			20,739			24,826			32,911

Minority interests:
Distributions on Cumulative Redeemable
Preferred units		(3,375	)		(3,375	)		(6,750	)		(6,750	)
Minority interest in earnings of Operating Partnership		(986	)		(1,796	)		(2,496	)		(2,641	)
Recognition of previously reserved Development LLC preferred return								3,908

Minority interest in earnings of Development LLCs					(471	)		(1,024	)		(605	)

Total minority interests		(4,361	)		(5,642	)		(6,362	)		(9,996	)


Net income before cumulative effect of change in accounting principle		4,957			15,097			18,464			22,915
Cumulative effect of change in accounting principle											(1,392	)

Net income	$	4,957		$	15,097		$	18,464		$	21,523

Weighted average shares outstanding—basic		27,463			27,160			27,360			26,938
Weighted average shares outstanding—diluted		27,805			27,380			27,678			27,177

Net Income per common share—basic	$	0.18		$	0.56		$	0.67		$	0.80

Net Income per common share—diluted	$	0.18		$	0.55		$	0.67		$	0.79

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)

	Three Months Ended June 30, 2002			Three Months Ended June 30, 2001			Six Months Ended June 30, 2002			Six Months Ended June 30, 2001
Net income	$	4,957		$	15,097		$	18,464		$	21,523
Adjustments:
Minority interest in earnings of Operating Partnership		986			1,796			2,496			2,641
Depreciation and amortization		18,311			12,030			30,446			25,000
Net gains on dispositions of operating properties		(896	)		(1,234	)		(896	)		(1,539	)
Cumulative effect of change in accounting principle											1,392
Non-cash amortization of restricted stock grants					548						1,096

Funds From Operations	$	23,358		$	28,237		$	50,510		$	50,113

Weighted average common shares/units outstanding—basic		31,827			30,260			31,076			30,243
Weighted average common shares/units outstanding—diluted		32,169			30,481			31,394			30,482

Funds From Operations per common share/unit—basic	$	0.73		$	0.93		$	1.63		$	1.66

Funds From Operations per common share/unit—diluted	$	0.73		$	0.93		$	1.61		$	1.64

KILROY REALTY CORPORATION

FUNDS AVAILABLE FOR DISTRIBUTION

(unaudited, in thousands, except per share data)

	Three Months Ended June 30, 2002			Three Months Ended June 30, 2001			Six Months Ended June 30, 2002			Six Months Ended June 30, 2001
Funds From Operations	$	23,358		$	28,237		$	50,510		$	50,113
Adjustments:
Amortization of deferred financing costs		442			399			1,220			780
Tenant improvements, leasing commissions and recurring capital expenditures		(1,302	)		(3,668	)		(1,637	)		(4,679	)
Net effect of straight-line rents		97			(873	)		(1,131	)		(2,587	)

Funds Available for Distribution	$	22,595		$	24,095		$	48,962		$	43,627

Funds Available for Distribution per common share/unit—basic	$	0.71		$	0.80		$	1.58		$	1.44

Funds Available for Distribution per common share/unit—diluted	$	0.70		$	0.79		$	1.56		$	1.43

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