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 Kilroy Realty Corporation Reports Second Quarter Financial Results
   Wednesday, July 26, 2017 5:05:00 PM ET

Kilroy Realty Corporation (KRC ) today reported financial results for its second quarter ended June 30, 2017.

Second Quarter Highlights

Financial Results

-- Net income available to common stockholders of $0.30 per share

-- Funds from operations ("FFO") available to common stockholders and unitholders of $0.87 per share

-- Revenues of $180.6 million

-- In May, the company’s regular quarterly cash dividend was increased to an annualized rate of $1.70 per share, a 13.3% increase from the previous annualized dividend rate of $1.50 per share

Stabilized Portfolio

-- Stabilized portfolio was 93.9% occupied and 96.0% leased at June 30, 2017

-- Signed approximately 490,000 square feet of new or renewing leases

Development

-- In June, commenced construction of 333 Dexter, an approximate $380.0 million, 650,000 square-foot office project in the South Lake Union submarket of Seattle

Recent Developments

-- In July, provided notice to redeem all 4,000,000 outstanding shares of the company’s 6.375% Series H preferred stock callable on August 15, 2017 at par value of $25.00 per share

-- In July, Kilroy Realty, L.P., the company’s operating partnership, amended and restated its unsecured revolving credit facility and term loan facility (together, the "Facility"). Among other things, the amendment and restatement increased the size of the revolving credit facility from $600.0 million to $750.0 million, maintained the size of the term loan facility of $150.0 million, reduced the borrowing costs and extended the maturity date of the Facility to July 2022. The term loan facility features two six-month delay draw options and the Facility was undrawn at closing, including the $150.0 million term loan, which was repaid in full at closing with available cash. Concurrently with the closing of the Facility, Kilroy Realty, L.P. repaid its $39.0 million unsecured term loan with available cash

Results for the Quarter Ended June 30, 2017

For the second quarter ended June 30, 2017, KRC reported net income available to common stockholders of $29.8 million, or $0.30 per share, compared to $29.5 million, or $0.31 per share, in the second quarter of 2016. FFO in the 2017 second quarter was $88.8 million, or $0.87 per share, compared to $82.7 million, or $0.86 per share, in the year-earlier quarter. Revenues in the period totaled $180.6 million, compared to $160.1 million in the prior year’s second quarter.

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

Operating and Leasing Activity

At June 30, 2017, KRC’s stabilized portfolio totaled approximately 14.4 million square feet of office space and 200 residential units located in Los Angeles, Orange County, San Diego, the San Francisco Bay Area and Greater Seattle. During the second quarter, the company signed new or renewing leases in the office portfolio totaling 490,000 square feet of space. At quarter-end, the office portfolio was 93.9% occupied and 96.0% leased, compared to occupancy of 96.0% at December 31, 2016 and 95.5% at June 30, 2016. KRC’s 200-unit residential tower was 77.0% occupied and 82.0% leased at June 30, 2017.

Real Estate Development Activity

During the second quarter, KRC initiated construction of a two-building, 650,000 square-foot office project at 333 Dexter in the South Lake Union submarket of Seattle. The total investment for the project is estimated to be approximately $380.0 million, and is scheduled for completion in the third quarter of 2019. With the addition of 333 Dexter, KRC now has four projects currently under construction, including The Exchange on 16th and 100 Hooper, both located in San Francisco, and phase one of One Paseo, the company’s mixed-used project located in the Del Mar submarket of San Diego. The four projects total approximately 1.8 million square feet of office and PDR space, 237 residential units and 96,000 square feet of retail space, and represent a total estimated investment of approximately $1.4 billion.

Net Income Available to Common Stockholders / FFO Guidance and Outlook

The company has updated its guidance range of NAREIT-defined FFO per share - diluted for the full year 2017 to $3.35 - $3.45 per share with a midpoint of $3.40 per share, reflecting the impact of the write-off of the original issuance costs in connection with the redemption of the Series H Preferred Stock, timing of dispositions activity and overhead costs. The company’s guidance estimates for the full year 2017, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this press release, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this press release. These guidance estimates do not include any estimates of possible future gains or losses or the impact on operating results from possible future dispositions since any potential future disposition transactions will ultimately depend on market conditions and other factors, including but not limited to the company’s capital needs and its ability to defer some or all of the taxable gain on the sales. Moreover, the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the company provides guidance and may occur after the relevant guidance period. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the company’s control.

Conference Call and Audio Webcast

KRC management will discuss earnings guidance for fiscal year 2017 during the company’s July 27, 2017 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at http://investors.kilroyrealty.com/phoenix.zhtml?c=79637&p=irol-audioarchives . 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 (866) 777-2509. International callers should dial (412) 317-5413. In order to bypass speaking to the operator on the day of the call, please pre-register anytime at http://dpregister.com/10110452 . A replay of the conference call will be available via telephone on July 27, 2017 through August 3, 2017 by dialing (877) 344-7529 and entering passcode 10110452. International callers should dial (412) 317-0088 and enter the same passcode. The replay will also be available on our website at http://investors.kilroyrealty.com/phoenix.zhtml?c=79637&p=irol-audioarchives .

About Kilroy Realty Corporation

Kilroy Realty Corporation (KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. The company provides physical work environments that foster creativity and productivity and serves a broad roster of dynamic, innovation-driven tenants, including technology, entertainment, digital media and health care companies.

At June 30, 2017, the company’s stabilized portfolio totaled approximately 14.4 million square feet of office space and 200 residential units located in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and Greater Seattle. In addition, KRC had four projects totaling approximately 1.8 million square feet of office space, 237 residential units and 96,000 square feet of retail space under construction.

The company is recognized by GRESB as the North American leader in sustainability and was ranked first among 178 North American participants across all asset types. At the end of the second quarter, the company’s stabilized portfolio was 52% LEED certified and 71% of eligible properties were ENERGY STAR certified. More information is available at http://www.kilroyrealty.com .

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to release property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or implementations of, applicable laws, regulations or legislation; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; and our ability to maintain our status as a REIT. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2016 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information, and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

                                                                                                                                      KILROY REALTY CORPORATION
                                                                                                                                    SUMMARY OF QUARTERLY RESULTS
                                                                                                                          (unaudited, in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                              Three Months Ended June 30,                                                             Six Months Ended June 30,
                                                                                                      -------------------------------------------------                     -------------------------------------------------------------------------------------------------------------------------
                                                                                                           2017            2016                              2017          2016   
                                                                                                      --------------                     --------------                     -------------------- ------- --------------------                      -------------------- ------- --------------------
Revenues                                                                                                  $ 180,598                          $ 160,133                                         $ 359,906                                                              $ 305,579
                                                                                                                                                                                                                                                    
Net income available to common stockholders (1)                                                           $  29,833                          $  29,535                                         $  56,162                                                              $ 200,530
                                                                                                                                                                                                                                                    
Weighted average common shares outstanding - basic                                              98,275                             92,210                                            97,834                                                                 92,217
Weighted average common shares outstanding - diluted                                            98,827                             92,825                                            98,427                                                                 92,784
                                                                                                                                                                                                                                                    
Net income available to common stockholders per share - basic (1)                            $    0.30                          $    0.32                                         $    0.56                                                              $    2.17
Net income available to common stockholders per share - diluted (1)                          $    0.30                          $    0.31                                         $    0.56                                                              $    2.15
                                                                                                                                                                                                                                                    
Funds From Operations (1)(2)(3)                                                                           $  88,767                          $  82,722                                         $ 170,701                                                              $ 160,915
                                                                                                                                                                                                                                                    
Weighted average common shares/units outstanding - basic (4)                                   101,551                             95,966                                           101,219                                                                 95,642
Weighted average common shares/units outstanding - diluted (5)                                 102,103                             96,581                                           101,812                                                                 96,209
                                                                                                                                                                                                                                                    
Funds From Operations per common share/unit - basic (3)                                      $    0.87                          $    0.86                                         $    1.69                                                              $    1.68
Funds From Operations per common share/unit - diluted (3)                                    $    0.87                          $    0.86                                         $    1.68                                                              $    1.67
                                                                                                                                                                                                                                                    
Common shares outstanding at end of period                                                                                                                                                        98,351                                                                 92,255
Common partnership units outstanding at end of period                                                                                                                           2,077                            2,631  
                                                                                                                                                                            -------------------- ------- --------------------                      -------------------- ------- --------------------
    Total common shares and units outstanding at end of period                                                                                                                                   100,428                                                                 94,886
                                                                                                                                                                                                                                                    
                                                                                                                                                                                               June 30, 2017                                                          June 30, 2016
                                                                                                                                                                            --------------------------------------------------                     --------------------------------------------------
Stabilized office portfolio occupancy rates: (6)
    Los Angeles and Ventura Counties                                                                                                                                                                91.2 %                                                                 94.2 %
    Orange County                                                                                                                                                                                   94.7 %                                                                 97.8 %
    San Diego County                                                                                                                                                                                93.5 %                                                                 89.0 %
    San Francisco Bay Area                                                                                                                                                                          95.1 %                                                                 98.7 %
    Greater Seattle                                                                                                                                                              97.0 %                                              98.1 %
                                                                                                                                                                            -------------------- ------- --------------------                      -------------------- ------- --------------------
        Weighted average total                                                                                                                                                                      93.9 %                                                                 95.5 %
                                                                                                                                                                                                                                                    
Total square feet of stabilized office properties owned at end of
period: (6)
    Los Angeles and Ventura Counties                                                                                                                                                               4,181                                                                  3,619
    Orange County                                                                                                                                                                                    272                                                                    272
    San Diego County                                                                                                                                                                               2,718                                                                  2,711
    San Francisco Bay Area                                                                                                                                                                         5,158                                                                  4,992
    Greater Seattle                                                                                                                                                             2,066                            2,066  
                                                                                                                                                                            -------------------- ------- --------------------                      -------------------- ------- --------------------
        Total                                                                                                                                                                                     14,395                                                                 13,660
________________________
(1)        Net income available to common stockholders for the six months ended
                              June 30, 2017 and 2016 includes gains on sales of depreciable
                              operating properties of $2.3 million and $146.0 million,
                              respectively. Net income available to common stockholders and Funds
                              From Operations for the three and six months ended June 30, 2016
                              includes a loss on sale of land of $0.3 million.
(2)                           Reconciliation of Net income available to common stockholders to
                              Funds From Operations available to common stockholders and
                              unitholders and management statement on Funds From Operations are
                              included after the Consolidated Statements of Operations.
(3)                           Reported amounts are attributable to common stockholders, common
                              unitholders, and restricted stock unitholders.
(4)                           Calculated based on weighted average shares outstanding including
                              participating share-based awards (i.e. nonvested stock and certain
                              time based restricted stock units) and assuming the exchange of all
                              common limited partnership units outstanding.
(5)                           Calculated based on weighted average shares outstanding including
                              participating and non-participating share-based awards (i.e.
                              nonvested stock and time based restricted stock units), dilutive
                              impact of stock options and contingently issuable shares and
                              assuming the exchange of all common limited partnership units
                              outstanding.
(6)                           Occupancy percentages and total square feet reported are based on
                              the company’s stabilized office portfolio for the periods presented.
                              Occupancy percentages and total square feet shown for June 30, 2016
                              include the office properties that were sold subsequent to June 30,
                              2016.
 
                                                                                                    KILROY REALTY CORPORATION
                                                                                                   CONSOLIDATED BALANCE SHEETS
                                                                                                         (in thousands)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                 June 30, 2017                                          December 31, 2016
                                                                                              ---------------------------------------------------------                     -----------------------------------------------------
                                                                                                                     (unaudited)
ASSETS
------------------------------------------------------------------------
REAL ESTATE ASSETS:
    Land and improvements                                                                                        $      1,108,971                                                              $  1,108,971
    Buildings and improvements                                                                                          4,983,638                                                                 4,938,250
    Undeveloped land and construction in progress                                                    1,183,618                           1,013,533  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
        Total real estate assets held for investment                                                                    7,276,227                                                                 7,060,754
    Accumulated depreciation and amortization                                                       (1,234,079 )                                           (1,139,853 )
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
        Total real estate assets held for investment, net                                                               6,042,148                                                                 5,920,901
                                                                                                                                                                             
Real estate assets and other assets held for sale, net                                                             --                                                                     9,417
Cash and cash equivalents                                                                                                 387,616                                                                   193,418
Restricted cash                                                                                                             8,249                                                                    56,711
Marketable securities                                                                                                      16,010                                                                    14,773
Current receivables, net                                                                                                   13,703                                                                    13,460
Deferred rent receivables, net                                                                                            233,427                                                                   218,977
Deferred leasing costs and acquisition-related intangible assets, net                                                     195,320                                                                   208,368
Prepaid expenses and other assets, net                                                                  98,894                              70,608  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
        TOTAL ASSETS                                                                                             $      6,995,367                                           $  6,706,633  
                                                                                              ==================== ============== ====================                      ==================== ========== ====================
 
LIABILITIES AND EQUITY
------------------------------------------------------------------------
LIABILITIES:
    Secured debt, net                                                                                            $        467,758                                                              $    472,772
    Unsecured debt, net                                                                                                 2,097,083                                                                 1,847,351
    Accounts payable, accrued expenses and other liabilities                                                              219,483                                                                   202,391
    Accrued dividends and distributions                                                                                    44,105                                                                   222,306
    Deferred revenue and acquisition-related intangible liabilities, net                                                  148,729                                                                   150,360
    Rents received in advance and tenant security deposits                                                                 55,738                                                                    52,080
    Liabilities and deferred revenue of real estate assets held for sale                        --                                  56  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
        Total liabilities                                                                            3,032,896                           2,947,316  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
                                                                                                                                                                             
EQUITY:
    Stockholders’ Equity
        6.875% Series G Cumulative Redeemable Preferred stock                                                      --                                                                    96,155
        6.375% Series H Cumulative Redeemable Preferred stock                                                              96,256                                                                    96,256
        Common stock                                                                                                          984                                                                       932
        Additional paid-in capital                                                                                      3,792,028                                                                 3,457,649
        Distributions in excess of earnings                                                           (132,799 )                                             (107,997 )
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
            Total stockholders’ equity                                                       3,756,469                                                                 3,542,995
    Noncontrolling Interests
        Common units of the Operating Partnership                                                                          77,296                                                                    85,590
        Noncontrolling interests in consolidated property partnerships                                 128,706                             130,732  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
            Total noncontrolling interests                                                             206,002                             216,322  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
            Total equity                                                                             3,962,471                           3,759,317  
                                                                                              -------------------- -------------- --------------------                      -------------------- ---------- --------------------
        TOTAL LIABILITIES AND EQUITY                                                                             $      6,995,367                                           $  6,706,633  
                                                                                              ==================== ============== ====================                      ==================== ========== ====================
 
                                                                                                                                                                                      KILROY REALTY CORPORATION
                                                                                                                                                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                                                                          (unaudited, in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                                                     Three Months Ended June 30,                                                                                                               Six Months Ended June 30,
                                                                                                  ---------------------------------------------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         2017                 2016                                    2017                 2016       
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
REVENUES
    Rental income                                                                                                    $        158,925                                                              $        143,653                                                              $        315,573                                                              $        277,408
    Tenant reimbursements                                                                                                      19,267                                                                        16,138                                                                        38,563                                                                        27,542
    Other property income                                                                                    2,406                                     342                                   5,770                                     629  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
        Total revenues                                                                                     180,598                                 160,133                                 359,906                                 305,579  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                             
EXPENSES
    Property expenses                                                                                                          33,304                                                                        29,221                                                                        64,545                                                                        55,186
    Real estate taxes                                                                                                          16,543                                                                        13,845                                                                        34,507                                                                        24,877
    Provision for bad debts                                                                                                       409                                                                --                                                                         1,707                                                                --
    Ground leases                                                                                                               1,547                                                                           768                                                                         3,189                                                                         1,597
    General and administrative expenses                                                                                        14,303                                                                        13,979                                                                        29,236                                                                        27,416
    Acquisition-related expenses                                                                                       --                                                                           714                                                                --                                                                           776
    Depreciation and amortization                                                                           62,251                                  53,346                                 123,170                                 103,786  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
        Total expenses                                                                                     128,357                                 111,873                                 256,354                                 213,638  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                             
OTHER (EXPENSES) INCOME
    Interest income and other net investment gains                                                                              1,038                                                                           311                                                                         2,103                                                                           582
    Interest expense                                                                                       (17,973 )                                                  (14,384 )                                                  (35,325 )                                                  (26,213 )
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
        Total other (expenses) income                                                                                         (16,935 )                                                                     (14,073 )                                                                     (33,222 )                                                                     (25,631 )
                                                                                                                                                                                                                                                                                                                                             
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE                                                             35,306                                                                        34,187                                                                        70,330                                                                        66,310
    Net loss on sale of land                                                                                           --                                                                          (295 )                                                              --                                                                          (295 )
    Gains on sale of depreciable operating properties                                               --                          --                                   2,257                                 145,990  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
NET INCOME                                                                                                  35,306                                  33,892                                  72,587                                 212,005  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                             
    Net income attributable to noncontrolling common units of the                                                                (616 )                                                                        (829 )                                                                      (1,239 )                                                                      (4,439 )
    Operating Partnership
    Net income attributable to noncontrolling interests in consolidated                                     (3,242 )                                                     (216 )                                                   (6,375 )                                                     (411 )
    property partnerships
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
        Total income attributable to noncontrolling interests                                               (3,858 )                                                   (1,045 )                                                   (7,614 )                                                   (4,850 )
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                             
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION                                                                           31,448                                                                        32,847                                                                        64,973                                                                       207,155
                                                                                                                                                                                                                                                                                                                                             
    Preferred dividends                                                                                                        (1,615 )                                                                      (3,312 )                                                                      (4,966 )                                                                      (6,625 )
    Original issuance costs of redeemed preferred stock                                             --                          --                                  (3,845 )                                           --  
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
        Total preferred dividends                                                                           (1,615 )                                                   (3,312 )                                                   (8,811 )                                                   (6,625 )
                                                                                                  -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS                                                                          $         29,833                                           $         29,535                                           $         56,162                                           $        200,530  
                                                                                                  ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                             
Weighted average common shares outstanding - basic                                                                98,275                                                                        92,210                                                                        97,834                                                                        92,217
Weighted average common shares outstanding - diluted                                                              98,827                                                                        92,825                                                                        98,427                                                                        92,784
                                                                                                                                                                                                                                                                                                                                             
Net income available to common stockholders per share - basic                                           $           0.30                                           $           0.32                                           $           0.56                                           $           2.17  
                                                                                                  ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
Net income available to common stockholders per share - diluted                                         $           0.30                                           $           0.31                                           $           0.56                                           $           2.15  
                                                                                                  ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
 
                                                                                                                                                                               KILROY REALTY CORPORATION
                                                                                                                                                                                 FUNDS FROM OPERATIONS
                                                                                                                                                                   (unaudited, in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                                                    Three Months Ended June 30,                                                                                                         Six Months Ended June 30,
                                                                                                 ---------------------------------------------------------------------------------------------------------------------------------------                     --------------------------------------------------------------------------------------------------------------------------
                                                                                                        2017                 2016                                 2017          2016    
                                                                                                 -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------- --------------------
Net income available to common stockholders                                                                         $         29,833                                                              $         29,535                                                              $  56,162                                                              $  200,530
    Adjustments:
        Net income attributable to noncontrolling common units of the                                                            616                                                                           829                                                                  1,239                                                                   4,439
        Operating Partnership
        Net income attributable to noncontrolling interests in consolidated                                                    3,242                                                                           216                                                                  6,375                                                                     411
        property partnerships
        Depreciation and amortization of real estate assets                                                                   61,000                                                                        52,463                                                                120,734                                                                 102,127
        Gains on sales of depreciable real estate                                                                     --                                                                --                                                                 (2,257 )                                                              (145,990 )
        Funds From Operations attributable to noncontrolling interests in                                  (5,924 )                                                     (321 )                                           (11,552 )                                               (602 )
        consolidated property partnerships
                                                                                                 -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------- --------------------
Funds From Operations(1)(2)(3)                                                                                      $         88,767                                           $         82,722                                           $ 170,701                                           $  160,915  
                                                                                                 ==================== ============== ====================                      ==================== ============== ====================                      ==================== ======= ====================                      ==================== ======== ====================
                                                                                                                                                                                                                                                                                                                                     
Weighted average common shares/units outstanding - basic (4)                                                    101,551                                                                        95,966                                                                101,219                                                                  95,642
Weighted average common shares/units outstanding - diluted (5)                                                  102,103                                                                        96,581                                                                101,812                                                                  96,209
                                                                                                                                                                                                                                                                                                                                     
Funds From Operations per common share/unit - basic (2)                                                $           0.87                                           $           0.86                                           $    1.69                                           $     1.68  
                                                                                                 ==================== ============== ====================                      ==================== ============== ====================                      ==================== ======= ====================                      ==================== ======== ====================
Funds From Operations per common share/unit - diluted (2)                                              $           0.87                                           $           0.86                                           $    1.68                                           $     1.67  
                                                                                                 ==================== ============== ====================                      ==================== ============== ====================                      ==================== ======= ====================                      ==================== ======== ====================
________________________
(1)        We calculate Funds From Operations available to common stockholders
                              and common unitholders ("FFO") in accordance with the White Paper on
                              FFO approved by the Board of Governors of NAREIT. The White Paper
                              defines FFO as net income or loss calculated in accordance with
                              GAAP, excluding extraordinary items, as defined by GAAP, gains and
                              losses from sales of depreciable real estate and impairment
                              write-downs associated with depreciable real estate, 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. Our calculation of FFO includes the amortization of
                              deferred revenue related to tenant-funded tenant improvements and
                              excludes the depreciation of the related tenant improvement assets.
                              We also add back net income attributable to noncontrolling common
                              units of the Operating Partnership because we report FFO
                              attributable to common stockholders and common unitholders.
                               
                              We believe that FFO is a useful supplemental measure of our
                              operating performance. The exclusion from FFO of gains and losses
                              from the sale of operating real estate assets allows investors and
                              analysts to readily identify the operating results of the assets
                              that form the core of our activity and assists in comparing those
                              operating results between periods. Also, because FFO is generally
                              recognized as the industry standard for reporting the operations of
                              REITs, it facilitates comparisons of operating performance to other
                              REITs. However, other REITs may use different methodologies to
                              calculate FFO, and accordingly, our FFO may not be comparable to all
                              other REITs.
                               
                              Implicit in historical cost accounting for real estate assets in
                              accordance with GAAP is the assumption that the value of real estate
                              assets diminishes predictably over time. Since real estate values
                              have historically risen or fallen with market conditions, many
                              industry investors and analysts have considered presentations of
                              operating results for real estate companies using historical cost
                              accounting alone to be insufficient. Because FFO excludes
                              depreciation and amortization of real estate assets, we believe that
                              FFO along with the required GAAP presentations provides a more
                              complete measurement of our performance relative to our competitors
                              and a more appropriate basis on which to make decisions involving
                              operating, financing and investing activities than the required GAAP
                              presentations alone would provide.
                               
                              However, FFO should not be viewed as an alternative measure of our
                              operating performance because 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 our properties, which are significant economic costs
                              and could materially impact our results from operations.
                               
(2)                           Reported amounts are attributable to common stockholders, common
                              unitholders, and restricted stock unitholders.
                               
(3)                           FFO available to common stockholders and unitholders includes
                              amortization of deferred revenue related to tenant-funded tenant
                              improvements of $4.5 million and $3.2 million for the three months
                              ended June 30, 2017 and 2016, respectively, and $8.2 million and
                              $6.1 million for the six months ended June 30, 2017 and 2016,
                              respectively.
                               
(4)                           Calculated based on weighted average shares outstanding including
                              participating share-based awards (i.e. nonvested stock and certain
                              time based restricted stock units) and assuming the exchange of all
                              common limited partnership units outstanding.
                               
(5)                           Calculated based on weighted average shares outstanding including
                              participating and non-participating share-based awards (i.e.
                              nonvested stock and time based restricted stock units), dilutive
                              impact of stock options and contingently issuable shares and
                              assuming the exchange of all common limited partnership units
                              outstanding.
 
                                                                                                 KILROY REALTY CORPORATION
                                                                                        NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
                                                                                                / FFO GUIDANCE AND OUTLOOK
                                                                                     (unaudited, in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                                          Full Year Range at June 30, 2017
                                                                                                 -------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Low End                                            High End
Net income available to common stockholders per share - diluted                                                     $    1.15                                                              $    1.25
                                                                                                                                                                         
Weighted average common shares outstanding - diluted(1)                                                               100,000                                                                100,000
                                                                                                                                                                         
Net income available to common stockholders                                                                         $ 115,000                                                              $ 125,000
    Adjustments:
        Net income attributable to noncontrolling common units of the                                                   2,500                                                                  2,900
        Operating Partnership
        Net income attributable to noncontrolling interests in consolidated                                            12,500                                                                 14,500
        property partnerships
        Depreciation and amortization of real estate assets                                                           235,500                                                                235,500
        Gains on sales of depreciable real estate                                                                      (2,300 )                                                               (2,300 )
        Funds From Operations attributable to noncontrolling interests in                          (22,000 )                                           (24,000 )
        consolidated property partnerships
                                                                                                 -------------------- ------- --------------------                      -------------------- ------- --------------------
Funds From Operations(2)(3)                                                                                         $ 341,200                                           $ 351,600  
                                                                                                 ==================== ======= ====================                      ==================== ======= ====================
                                                                                                                                                                         
Weighted average common shares/units outstanding - diluted (3)                                           102,000                                                                102,000
                                                                                                                                                                         
Funds From Operations per common share/unit - diluted (2)(3)                                           $    3.35                                           $    3.45  
                                                                                                 ==================== ======= ====================                      ==================== ======= ====================
________________________
(1)        Calculated based on estimated weighted average shares outstanding
                              including participating share-based awards (i.e. nonvested stock and
                              certain time based restricted stock units).
                               
(2)                           See management statement for FFO on previous page.
                               
(3)                           Calculated based on estimated weighted average shares outstanding
                              including participating share-based awards (i.e. nonvested stock and
                              certain time based restricted stock units) and assuming the exchange
                              of all estimated common limited partnership units outstanding.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170726006403r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20170726006403/en/

SOURCE: Kilroy Realty Corporation

Kilroy Realty Corporation 
Tyler H. Rose 
Executive Vice President and Chief Financial Officer 
(310) 481-8484 
or 
Michelle Ngo 
Senior Vice President and Treasurer 
(310) 481-8581


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