10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 1-12675 (Kilroy Realty Corporation)

Commission File Number: 000-54005 (Kilroy Realty, L.P.)

KILROY REALTY CORPORATION

KILROY REALTY, L.P.

(Exact name of registrant as specified in its charter)

Kilroy Realty Corporation	Maryland	95-4598246
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Kilroy Realty, L.P.	Delaware	95-4612685
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064
(Address of principal executive offices) (Zip Code)
(310) 481-8400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    

Kilroy Realty Corporation    Yes  þ    No   o

Kilroy Realty, L. P.         Yes  þ    No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

Kilroy Realty Corporation     Yes  þ    No   o

Kilroy Realty, L.P.         Yes  þ    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Kilroy Realty Corporation
Large accelerated filer     þ	Accelerated filer     o	Non-accelerated filer     o	Smaller reporting company     o
(Do not check if a smaller reporting company)
Kilroy Realty, L.P.
Large accelerated filer     o	Accelerated filer     o	Non-accelerated filer     þ	Smaller reporting company     o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Kilroy Realty Corporation Yes  o     No   þ

Kilroy Realty, L.P. Yes  o     No   þ

As of October 24, 2014, 83,956,738 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2014 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidated subsidiaries.

The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of September 30, 2014, the Company owned an approximate 97.9% common general partnership interest in the Operating Partnership. The remaining approximate 2.1% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings and cause changes in its line of business, capital structure and distribution policies.

There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company is required to contribute to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership interest.

Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The Operating Partnership’s financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P., a Delaware limited partnership (the “Finance Partnership”). This noncontrolling interest represents the Company’s 1% indirect general partnership interest in the Finance Partnership, which is directly held by Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company. The differences between stockholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership, and in the Operating Partnership’s noncontrolling interest in the Finance Partnership.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:

• Combined reports better reflect how management and the analyst community view the business as a single operating unit;

• Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

• Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

• Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

• consolidated financial statements;

• the following notes to the consolidated financial statements:

◦ Note 5, Secured and Unsecured Debt of the Operating Partnership;

◦ Note 6, Noncontrolling Interests on the Company’s Consolidated Financial Statements;

i

◦ Note 7, Stockholders’ Equity of the Company;

◦ Note 8, Partners’ Capital of the Operating Partnership;

◦ Note 14, Net Income Available to Common Stockholders Per Share of the Company; and

◦ Note 15, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;

• “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

◦ —Liquidity and Capital Resources of the Company;” and

◦ —Liquidity and Capital Resources of the Operating Partnership.”

This report also includes separate sections under Part I, Item 4. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

ii

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION	1
	Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	1
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2014 and 2013	2
	Consolidated Statements of Equity for the Nine Months ended September 30, 2014 and 2013	3
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2014 and 2013	4
Item 1.	FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY, L.P.	6
	Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	6
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2014 and 2013	7
	Consolidated Statements of Equity for the Nine Months ended September 30, 2014 and 2013	8
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2014 and 2013	9
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	57
Item 4.	CONTROLS AND PROCEDURES (KILROY REALTY CORPORATION AND KILROY REALTY, L.P.)	58
	PART II – OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	59
Item 1A.	RISK FACTORS	59
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	59
Item 3.	DEFAULTS UPON SENIOR SECURITIES	59
Item 4.	MINE SAFETY DISCLOSURES	59
Item 5.	OTHER INFORMATION	59
Item 6.	EXHIBITS	60
SIGNATURES		61

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share data)

	September 30, 2014			December 31, 2013
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	757,036		$	657,491
Buildings and improvements (Note 2)	3,882,015			3,590,699
Undeveloped land and construction in progress (Note 2)	1,112,046			1,016,757
Total real estate assets held for investment	5,751,097			5,264,947
Accumulated depreciation and amortization	(912,623		)	(818,957		)
Total real estate assets held for investment, net ($98,121 and $234,532 of VIE, respectively, Note 1)	4,838,474			4,445,990
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 13)	49,815			213,100
CASH AND CASH EQUIVALENTS	200,431			35,377
RESTRICTED CASH (Notes 1 and 13)	17,487			49,780
MARKETABLE SECURITIES (Note 11)	12,076			10,008
CURRENT RECEIVABLES, NET (Note 4)	6,443			10,743
DEFERRED RENT RECEIVABLES, NET (Note 4)	139,910			127,123
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	183,057			186,622
DEFERRED FINANCING COSTS, NET	19,373			16,502
PREPAID EXPENSES AND OTHER ASSETS, NET	20,398			15,783
TOTAL ASSETS	$	5,487,464		$	5,111,028
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt (Notes 5 and 11)	$	549,896		$	560,434
Exchangeable senior notes, net (Notes 5 and 11)	135,049			168,372
Unsecured debt, net (Notes 5 and 11)	1,743,962			1,431,132
Unsecured line of credit (Notes 5 and 11)	—			45,000
Accounts payable, accrued expenses and other liabilities	243,602			198,467
Accrued distributions (Note 16)	31,897			31,490
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	114,504			101,286
Rents received in advance and tenant security deposits	45,086			44,240
Liabilities of real estate assets held for sale (Note 13)	3,099			14,447
Total liabilities	2,867,095			2,594,868
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Stockholders’ Equity (Note 7):
Preferred stock, $.01 par value, 30,000,000 shares authorized:
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference)	96,155			96,155
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference)	96,256			96,256
Common stock, $.01 par value, 150,000,000 shares authorized, 83,388,220 and 82,153,944 shares issued and outstanding, respectively	834			822
Additional paid-in capital	2,530,282			2,478,975
Distributions in excess of earnings	(159,799		)	(210,896		)
Total stockholders’ equity	2,563,728			2,461,312
Noncontrolling Interests:
Common units of the Operating Partnership (Note 6)	51,419			49,963
Noncontrolling interest in consolidated subsidiary (Notes 1 and 6)	5,222			4,885
Total noncontrolling interests	56,641			54,848
Total equity	2,620,369			2,516,160
TOTAL LIABILITIES AND EQUITY	$	5,487,464		$	5,111,028

See accompanying notes to consolidated financial statements.

1

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
REVENUES
Rental income	$	115,221		$	103,354		$	338,911		$	303,573
Tenant reimbursements	11,346			9,583			33,399			28,350
Other property income (Note 12)	2,457			608			7,650			6,584
Total revenues	129,024			113,545			379,960			338,507
EXPENSES
Property expenses	25,801			24,470			75,448			69,895
Real estate taxes	11,008			10,088			32,728			29,129
Provision for bad debts	58			101			58			196
Ground leases	771			929			2,306			2,665
General and administrative expenses	11,138			10,226			33,806			29,750
Acquisition-related expenses	431			568			1,268			1,387
Depreciation and amortization	50,032			45,804			148,647			138,652
Total expenses	99,239			92,186			294,261			271,674
OTHER (EXPENSES) INCOME
Interest income and other net investment gains/(losses) (Note 11)	(9		)	673			587			1,084
Interest expense (Note 5)	(16,608		)	(18,853		)	(49,880		)	(58,021		)
Total other (expenses) income	(16,617		)	(18,180		)	(49,293		)	(56,937		)
INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND	13,168			3,179			36,406			9,896
Gain on sale of land (Note 13)	—			—			3,490			—
INCOME FROM CONTINUING OPERATIONS	13,168			3,179			39,896			9,896
DISCONTINUED OPERATIONS (Note 13)
Income from discontinued operations	548			5,848			2,091			11,199
Gains on dispositions of discontinued operations	5,587			—			110,391			423
Total income from discontinued operations	6,135			5,848			112,482			11,622
NET INCOME	19,303			9,027			152,378			21,518
Net income attributable to noncontrolling common units of the Operating Partnership	(321		)	(131		)	(3,011		)	(266		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	18,982			8,896			149,367			21,252
PREFERRED DIVIDENDS	(3,313		)	(3,312		)	(9,938		)	(9,938		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	15,669		$	5,584		$	139,429		$	11,314
Income (loss) from continuing operations available to common stockholders per common share – basic (Note 14)	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income (loss) from continuing operations available to common stockholders per common share – diluted (Note 14)	$	0.11		$	0.00		$	0.33		$	(0.02	)
Net income available to common stockholders per share – basic (Note 14)	$	0.18		$	0.07		$	1.67		$	0.13
Net income available to common stockholders per share – diluted (Note 14)	$	0.18		$	0.07		$	1.63		$	0.13
Weighted average common shares outstanding – basic (Note 14)	83,161,323			76,768,893			82,525,033			75,750,822
Weighted average common shares outstanding – diluted (Note 14)	85,110,456			76,768,893			84,622,622			75,750,822
Dividends declared per common share	$	0.35		$	0.35		$	1.05		$	1.05

See accompanying notes to consolidated financial statements.

2

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in thousands, except share and per share/unit data)

			Common Stock										Total Stock- holders’ Equity			Noncontrolling Interests			Total Equity
	Preferred Stock		Number of Shares		Common Stock		Additional Paid-in Capital			Distributions in Excess of Earnings
BALANCE AS OF DECEMBER 31, 2012	$	192,411	74,926,981		$	749	$	2,126,005		$	(129,535	)	$	2,189,630		$	46,303		$	2,235,933
Net income										21,252			21,252			266			21,518
Issuance of common stock			7,215,838		72		349,879						349,951						349,951
Issuance of share-based compensation awards			—				1,075						1,075						1,075
Noncash amortization of share-based compensation							7,096						7,096						7,096
Repurchase of common stock and restricted stock units			(34,164	)			(1,803		)				(1,803		)				(1,803		)
Settlement of restricted stock units for shares of common stock			4,363				(10		)				(10		)				(10		)
Exercise of stock options, net			473				128						128						128
Adjustment for noncontrolling interest							(5,946		)				(5,946		)	5,946			—
Contribution by noncontrolling interest in consolidated subsidiary																4,885			4,885
Preferred dividends										(9,938		)	(9,938		)				(9,938		)
Dividends declared per common share and common unit ($1.05 per share/unit)										(82,827		)	(82,827		)	(1,914		)	(84,741		)
BALANCE AS OF SEPTEMBER 30, 2013	$	192,411	82,113,491		$	821	$	2,476,424		$	(201,048	)	$	2,468,608		$	55,486		$	2,524,094

			Common Stock											Total Stock- holders’ Equity			Noncontrolling Interests			Total Equity
	Preferred Stock			Number of Shares		Common Stock		Additional Paid-in Capital			Distributions in Excess of Earnings
BALANCE AS OF DECEMBER 31, 2013	$	192,411		82,153,944		$	822	$	2,478,975		$	(210,896	)	$	2,461,312		$	54,848		$	2,516,160
Net income											149,367			149,367			3,011			152,378
Issuance of common stock (Note 7)				370,700		4		22,132						22,136						22,136
Issuance of share-based compensation awards				—				1,281						1,281						1,281
Noncash amortization of share-based compensation								10,345						10,345						10,345
Exercise of stock options (Note 9)				482,000		4		20,533						20,537						20,537
Repurchase of common stock, stock options and restricted stock units				(48,017	)			(2,861		)				(2,861		)				(2,861		)
Settlement of restricted stock units for shares of common stock				108,529				—						—						—
Common shares issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5)				431,270		4		219						223						223
Common shares received in connection with capped call option transactions (Note 5)				(111,206	)									—						—
Exchange of common units of the Operating Partnership				1,000				28						28			(28		)	—
Adjustment for noncontrolling interest								(370		)				(370		)	370			—
Contribution by noncontrolling interest in consolidated subsidiary																	336			336
Preferred dividends											(9,938		)	(9,938		)				(9,938		)
Dividends declared per common share and common unit ($1.05 per share/unit)											(88,332		)	(88,332		)	(1,896		)	(90,228		)
BALANCE AS OF SEPTEMBER 30, 2014	$	192,411		83,388,220		$	834	$	2,530,282		$	(159,799	)	$	2,563,728		$	56,641		$	2,620,369

See accompanying notes to consolidated financial statements.

3

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	152,378		$	21,518
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	148,878			148,982
Increase in provision for bad debts	58			196
Depreciation of furniture, fixtures and equipment	1,731			1,363
Noncash amortization of share-based compensation awards	8,817			6,454
Noncash amortization of deferred financing costs and debt discounts and premiums	3,563			4,047
Noncash amortization of net below market rents (Note 3)	(6,216		)	(6,015		)
Gains on dispositions of discontinued operations (Note 13)	(110,391		)	(423		)
Gain on sale of land (Note 13)	(3,490		)	—
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,695		)	(7,585		)
Straight-line rents	(15,245		)	(18,188		)
Net change in other operating assets	(795		)	(6,435		)
Net change in other operating liabilities	25,671			42,844
Insurance proceeds received for property damage	—			(448		)
Net cash provided by operating activities	197,264			186,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(106,125		)	(202,682		)
Expenditures for operating properties	(93,977		)	(83,991		)
Expenditures for development and redevelopment properties and undeveloped land	(292,803		)	(222,192		)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(97,727		)	(13,269		)
Net proceeds received from dispositions of operating properties and land (Note 13)	368,381			14,409
Insurance proceeds received from property damage	—			448
Decrease (increase) in acquisition-related deposits	1,000			(4,000		)
Decrease in restricted cash (Notes 1 and 13)	32,293			229,613
Net cash used in investing activities	(188,958		)	(281,664		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock (Note 7)	22,136			349,951
Borrowings on unsecured line of credit	365,000			10,000
Repayments on unsecured line of credit	(410,000		)	(195,000		)
Principal payments on secured debt	(7,315		)	(91,298		)
Proceeds from the issuance of unsecured debt (Note 5)	395,528			299,901
Repayments of unsecured debt (Note 5)	(83,000		)	—
Repayments for early redemption of exchangeable senior notes (Note 5)	(37,092		)	—
Financing costs	(8,043		)	(3,975		)
Repurchase of common stock and restricted stock units	(2,861		)	(1,813		)
Proceeds from exercise of stock options (Note 9)	20,537			128
Contributions from noncontrolling interests in consolidated subsidiary	336			—
Dividends and distributions paid to common stockholders and common unitholders	(88,540		)	(82,152		)
Dividends and distributions paid to preferred stockholders and preferred unitholders	(9,938		)	(9,938		)
Net cash provided by financing activities	156,748			275,804
Net increase in cash and cash equivalents	165,054			180,450
Cash and cash equivalents, beginning of period	35,377			16,700
Cash and cash equivalents, end of period	$	200,431		$	197,150

4

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited; in thousands)

	Nine Months Ended September 30,
	2014		2013
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $33,533 and $23,573 as of September 30, 2014 and 2013, respectively	$	42,633	$	47,107
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	92,693	$	79,866
Tenant improvements funded directly by tenants	$	23,069	$	5,750
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net	$	2,300	$	422
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary	$	—	$	4,885
Assumption of secured debt in connection with property acquisitions	$	—	$	95,496
NONCASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders	$	30,258	$	29,378
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders	$	1,656	$	1,692
Fair value of share-based compensation awards at equity classification date (Note 9)	$	18,111	$	10,347
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$	28	$	—

See accompanying notes to consolidated financial statements.

5

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY, L.P.

KILROY REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except unit data)

	September 30, 2014			December 31, 2013
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	757,036		$	657,491
Buildings and improvements (Note 2)	3,882,015			3,590,699
Undeveloped land and construction in progress (Note 2)	1,112,046			1,016,757
Total real estate assets held for investment	5,751,097			5,264,947
Accumulated depreciation and amortization	(912,623		)	(818,957		)
Total real estate assets held for investment, net ($98,121 and $234,532 of VIE, respectively, Note 1)	4,838,474			4,445,990
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 13)	49,815			213,100
CASH AND CASH EQUIVALENTS	200,431			35,377
RESTRICTED CASH (Notes 1 and 13)	17,487			49,780
MARKETABLE SECURITIES (Note 11)	12,076			10,008
CURRENT RECEIVABLES, NET (Note 4)	6,443			10,743
DEFERRED RENT RECEIVABLES, NET (Note 4)	139,910			127,123
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	183,057			186,622
DEFERRED FINANCING COSTS, NET	19,373			16,502
PREPAID EXPENSES AND OTHER ASSETS, NET	20,398			15,783
TOTAL ASSETS	$	5,487,464		$	5,111,028
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt (Notes 5 and 11)	$	549,896		$	560,434
Exchangeable senior notes, net (Notes 5 and 11)	135,049			168,372
Unsecured debt, net (Notes 5 and 11)	1,743,962			1,431,132
Unsecured line of credit (Notes 5 and 11)	—			45,000
Accounts payable, accrued expenses and other liabilities	243,602			198,467
Accrued distributions (Note 16)	31,897			31,490
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	114,504			101,286
Rents received in advance and tenant security deposits	45,086			44,240
Liabilities of real estate assets held for sale (Note 13)	3,099			14,447
Total liabilities	2,867,095			2,594,868
COMMITMENTS AND CONTINGENCIES (Note 10)
CAPITAL:
Partners’ Capital (Note 8):
6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,155			96,155
6.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,256			96,256
Common units, 83,388,220 and 82,153,944 held by the general partner and 1,804,200 and 1,805,200 held by common limited partners issued and outstanding, respectively	2,419,033			2,315,361
Total partners’ capital	2,611,444			2,507,772
Noncontrolling interests in consolidated subsidiaries (Notes 1 and 6)	8,925			8,388
Total capital	2,620,369			2,516,160
TOTAL LIABILITIES AND CAPITAL	$	5,487,464		$	5,111,028

See accompanying notes to consolidated financial statements.

6

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except unit and per unit data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
REVENUES
Rental income	$	115,221		$	103,354		$	338,911		$	303,573
Tenant reimbursements	11,346			9,583			33,399			28,350
Other property income (Note 12)	2,457			608			7,650			6,584
Total revenues	129,024			113,545			379,960			338,507
EXPENSES
Property expenses	25,801			24,470			75,448			69,895
Real estate taxes	11,008			10,088			32,728			29,129
Provision for bad debts	58			101			58			196
Ground leases	771			929			2,306			2,665
General and administrative expenses	11,138			10,226			33,806			29,750
Acquisition-related expenses	431			568			1,268			1,387
Depreciation and amortization	50,032			45,804			148,647			138,652
Total expenses	99,239			92,186			294,261			271,674
OTHER (EXPENSES) INCOME
Interest income and other net investment gains/(losses) (Note 11)	(9		)	673			587			1,084
Interest expense (Note 5)	(16,608		)	(18,853		)	(49,880		)	(58,021		)
Total other (expenses) income	(16,617		)	(18,180		)	(49,293		)	(56,937		)
INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND	13,168			3,179			36,406			9,896
Gain on sale of land (Note 13)	—			—			3,490			—
INCOME FROM CONTINUING OPERATIONS	13,168			3,179			39,896			9,896
DISCONTINUED OPERATIONS (Note 13)
Income from discontinued operations	548			5,848			2,091			11,199
Gains on dispositions of discontinued operations	5,587			—			110,391			423
Total income from discontinued operations	6,135			5,848			112,482			11,622
NET INCOME	19,303			9,027			152,378			21,518
Net income attributable to noncontrolling interests in consolidated subsidiaries	(59		)	(47		)	(201		)	(178		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	19,244			8,980			152,177			21,340
PREFERRED DISTRIBUTIONS	(3,313		)	(3,312		)	(9,938		)	(9,938		)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS	$	15,931		$	5,668		$	142,239		$	11,402
Income (loss) from continuing operations available to common unitholders per unit – basic (Note 15)	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income (loss) from continuing operations available to common unitholders per unit – diluted (Note 15)	$	0.11		$	0.00		$	0.33		$	(0.02	)
Net income available to common unitholders per unit – basic (Note 15)	$	0.18		$	0.07		$	1.67		$	0.13
Net income available to common unitholders per unit – diluted (Note 15)	$	0.18		$	0.07		$	1.63		$	0.13
Weighted average common units outstanding – basic (Note 15)	84,965,523			78,590,396			84,329,317			77,574,907
Weighted average common units outstanding – diluted (Note 15)	86,914,656			78,590,396			86,426,906			77,574,907
Dividends declared per common unit	$	0.35		$	0.35		$	1.05		$	1.05

See accompanying notes to consolidated financial statements.

7

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(Unaudited; in thousands, except unit and per unit data)

	Partners’ Capital							Total Partners’ Capital			Noncontrolling Interests in Consolidated Subsidiaries
	Preferred Units		Number of Common Units		Common Units								Total Capital
BALANCE AS OF DECEMBER 31, 2012	$	192,411	76,753,484		$	2,040,243		$	2,232,654		$	3,279	$	2,235,933
Net income					21,340			21,340			178		21,518
Issuance of common units			7,210,838		349,951			349,951					349,951
Issuance of share-based compensation awards			—		1,075			1,075					1,075
Noncash amortization of share-based compensation					7,096			7,096					7,096
Repurchase of common units and restricted stock units			(34,164	)	(1,803		)	(1,803		)			(1,803		)
Settlement of restricted stock units			4,363		(10		)	(10		)			(10		)
Exercise of stock options, net			473		128			128					128
Contribution by noncontrolling interest in consolidated subsidiary								—			4,885		4,885
Preferred distributions					(9,938		)	(9,938		)			(9,938		)
Distributions declared per common unit ($1.05 per unit)					(84,741		)	(84,741		)			(84,741		)
BALANCE AS OF SEPTEMBER 30, 2013	$	192,411	83,934,994		$	2,323,341		$	2,515,752		$	8,342	$	2,524,094

	Partners’ Capital							Total Partners’ Capital			Noncontrolling Interests in Consolidated Subsidiaries
	Preferred Units		Number of Common Units		Common Units								Total Capital
BALANCE AS OF DECEMBER 31, 2013	$	192,411	83,959,144		$	2,315,361		$	2,507,772		$	8,388	$	2,516,160
Net income					152,177			152,177			201		152,378
Issuance of common units (Note 8)			370,700		22,136			22,136					22,136
Issuance of share-based compensation awards					1,281			1,281					1,281
Noncash amortization of share-based compensation					10,345			10,345					10,345
Exercise of stock options (Note 9)			482,000		20,537			20,537					20,537
Repurchase of common units, stock options and restricted stock units			(48,017	)	(2,861		)	(2,861		)			(2,861		)
Settlement of restricted stock units			108,529		—			—					—
Common units issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5)			431,270		223			223					223
Common units received in connection with capped call option transactions (Note 5)			(111,206	)				—					—
Contribution by noncontrolling interest in consolidated subsidiary								—			336		336
Preferred distributions					(9,938		)	(9,938		)			(9,938		)
Distributions declared per common unit ($1.05 per unit)					(90,228		)	(90,228		)			(90,228		)
BALANCE AS OF SEPTEMBER 30, 2014	$	192,411	85,192,420		$	2,419,033		$	2,611,444		$	8,925	$	2,620,369

See accompanying notes to consolidated financial statements.

8

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	152,378		$	21,518
Adjustments to reconcile net income to net cash provided by operating activities  (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	148,878			148,982
Increase in provision for bad debts	58			196
Depreciation of furniture, fixtures and equipment	1,731			1,363
Noncash amortization of share-based compensation awards	8,817			6,454
Noncash amortization of deferred financing costs and debt discounts and premiums	3,563			4,047
Noncash amortization of net below market rents (Note 3)	(6,216		)	(6,015		)
Gains on dispositions of discontinued operations (Note 13)	(110,391		)	(423		)
Gain on sale of land (Note 13)	(3,490		)	—
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,695		)	(7,585		)
Straight-line rents	(15,245		)	(18,188		)
Net change in other operating assets	(795		)	(6,435		)
Net change in other operating liabilities	25,671			42,844
Insurance proceeds received for property damage	—			(448		)
Net cash provided by operating activities	197,264			186,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(106,125		)	(202,682		)
Expenditures for operating properties	(93,977		)	(83,991		)
Expenditures for development and redevelopment properties and undeveloped land	(292,803		)	(222,192		)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(97,727		)	(13,269		)
Net proceeds received from dispositions of operating properties and land (Note 13)	368,381			14,409
Insurance proceeds received for property damage	—			448
Decrease (increase) in acquisition-related deposits	1,000			(4,000		)
Decrease in restricted cash (Notes 1 and 13)	32,293			229,613
Net cash used in investing activities	(188,958		)	(281,664		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common units (Note 8)	22,136			349,951
Borrowings on unsecured line of credit	365,000			10,000
Repayments on unsecured line of credit	(410,000		)	(195,000		)
Principal payments on secured debt	(7,315		)	(91,298		)
Proceeds from the issuance of unsecured debt (Note 5)	395,528			299,901
Repayments of unsecured debt (Note 5)	(83,000		)	—
Repayments for early redemptions of exchangeable senior notes (Note 5)	(37,092		)	—
Financing costs	(8,043		)	(3,975		)
Repurchase of common units and restricted stock units	(2,861		)	(1,813		)
Proceeds from exercise of stock options (Note 9)	20,537			128
Contributions from noncontrolling interests in consolidated subsidiary	336			—
Distributions paid to common unitholders	(88,540		)	(82,152		)
Distributions paid to preferred unitholders	(9,938		)	(9,938		)
Net cash provided by financing activities	156,748			275,804
Net increase in cash and cash equivalents	165,054			180,450
Cash and cash equivalents, beginning of period	35,377			16,700
Cash and cash equivalents, end of period	$	200,431		$	197,150

9

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited; in thousands)

	Nine Months Ended September 30,
	2014		2013
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $33,533 and $23,573 as of September 30, 2014 and 2013, respectively	$	42,633	$	47,107
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	92,693	$	79,866
Tenant improvements funded directly by tenants	$	23,069	$	5,750
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net	$	2,300	$	422
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary	$	—	$	4,885
Assumption of secured debt in connection with property acquisitions	$	—	$	95,496
NONCASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders	$	30,258	$	29,378
Accrual of distributions payable to preferred unitholders	$	1,656	$	1,692
Fair value of share-based compensation awards at equity classification date (Note 9)	$	18,111	$	10,347

See accompanying notes to consolidated financial statements.

10

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2014 and 2013

1.    Organization and Basis of Presentation

Organization

Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC.”

We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the “Operating Partnership”) and Kilroy Realty Finance Partnership, L.P. (the “Finance Partnership”). We generally conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicates otherwise, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees, and properties apply to both the Company and the Operating Partnership.

Our stabilized portfolio of operating properties was comprised of the following office properties at September 30, 2014:

	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage  Occupied
Stabilized Office Properties	105	13,486,006	526	94.1	%

Our stabilized portfolio includes all of our properties with the exception of real estate assets held for sale, undeveloped land, development and redevelopment properties currently under construction or committed for construction, and “lease-up” properties. As of September 30, 2014, our stabilized portfolio of operating properties excluded two properties that were classified as held for sale as of that date. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define “lease-up” properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. There were no operating properties in “lease-up” as of September 30, 2014. During the third quarter of 2014, we stabilized a development project in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

As of September 30, 2014, the following properties were excluded from our stabilized portfolio:

	Number of Properties/Projects	Estimated Rentable Square Feet
Properties Held for Sale (1)	2	228,788
Development projects under construction (2)(3)	5	2,000,000

_______________

(1) Includes two properties, one located in Orange, California and the other in the San Rafael submarket of San Francisco, California. For additional information see Note 13.

(2) Estimated rentable square feet upon completion.

(3) During the third quarter of 2014, we stabilized a development property in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

As of September 30, 2014, all of our properties and development and redevelopment projects and all of our business was conducted in the state of California with the exception of thirteen office properties located in the state of Washington. All of our properties and development and redevelopment projects are 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary (see Note 6).

11

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of September 30, 2014, the Company owned a 97.9% common general partnership interest in the Operating Partnership. The remaining 2.1% common limited partnership interest in the Operating Partnership as of September 30, 2014 was owned by non-affiliated investors and certain of our executive officers and directors (see Note 6). Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement”) (see Note 6).

Kilroy Realty Finance, Inc., which is a wholly owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of the Operating Partnership, is the entity through which we generally conduct substantially all of our development activities. With the exception of the Operating Partnership and Redwood City Partners, LLC, all of our subsidiaries are wholly owned.

Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all of our wholly owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K/A for the year ended December 31, 2013.

Certain amounts in the consolidated statements of operations for prior periods have been reclassified to reflect the activity of discontinued operations.

Variable Interest Entities

At September 30, 2014, the consolidated financial statements of the Company and the Operating Partnership included one variable interest entity (“VIE”), in which we were deemed to be the primary beneficiary. The VIE, Redwood City Partners, LLC, was established in the second quarter of 2013 in connection with an undeveloped land acquisition. The impact of consolidating the VIE increased the Company’s total assets, liabilities and noncontrolling interests by approximately $98.5 million (of which $98.1 million related to real estate held for investment on our consolidated balance sheet), approximately $20.1 million and approximately $5.2 million, respectively, as of September 30, 2014. As of December 31, 2013, the consolidated financial statements of the Company and the Operating Partnership included four VIEs, in which we were deemed to be the primary beneficiary. One of the VIEs was Redwood City Partners, LLC and the remaining three VIEs were established during the third and fourth quarter of 2013 to facilitate potential Section 1031 Exchanges. During the three months ended March 31, 2014, the Section 1031 Exchanges were successfully completed and the three VIEs were terminated. As a result, $32.2 million of our restricted cash balance at December 31, 2013, which related to prior period disposition proceeds that were set aside to facilitate the Section 1031 Exchanges, was released from escrow. The impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests by approximately $251.8 million (of which $234.5 million related to real estate held for investment on our consolidated balance sheet), approximately $12.1 million and approximately $4.9 million, respectively, as of December 31, 2013.

12

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Recent Accounting Pronouncements

On June 19, 2014, the Financial Accounting Standards Board (“FASB”) issued their final standard to amend the accounting guidance for stock compensation tied to performance targets (Accounting Standards Update (“ASU”) No. 2014-12). The issue is the result of a consensus of the FASB Emerging Issues Task Force (Issue No. 13-D). The standard requires that a performance target that could be achieved after the requisite service period be treated as a performance condition, and as a result, this type of performance condition may delay expense recognition until achievement of the performance target is probable. The ASU is effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015, and early adoption is permitted. The Company will adopt the guidance effective January 1, 2016 and the guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On May 28, 2014, the FASB issued their final standard on revenue from contracts with customers. The guidance specifically notes that lease contracts with customers are a scope exception. The standard (ASU No. 2014-09) outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The ASU is effective for annual reporting periods (including interim periods), beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt the guidance effective January 1, 2017 and is currently assessing the impact on our consolidated financial statements and notes to our consolidated financial statements.

On April 10, 2014, the FASB issued final guidance to change the criteria for reporting discontinued operations while enhancing disclosures in this area (ASU No. 2014-08). Under the new guidance, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should be presented as discontinued operations. The guidance will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The guidance is effective for annual financial statements with fiscal years beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. The Company will adopt the guidance effective January 1, 2015 and the guidance is not anticipated to have a material impact on our consolidated financial statements and notes to our consolidated financial statements.

13

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2.    Acquisitions

Operating Properties

During the nine months ended September 30, 2014, we acquired the one operating office property listed below, from an unrelated third party. The acquisition was funded with proceeds from 2013 and 2014 dispositions (see Note 13).

Property	Date of Acquisition	Number of Buildings	Rentable Square Feet	Occupancy as of September 30, 2014	Purchase Price (in millions)
401 Terry Avenue North, Seattle, WA	March 13, 2014	1	140,605	100.0%	$	106.1

The related assets, liabilities and results of operations of the acquired property are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the acquisition date:

	Total 2014 Acquisitions
	(in thousands)
Assets
Land and improvements	$	22,500
Buildings and improvements (1)	77,046
Deferred leasing costs and acquisition-related intangible assets (2)	11,199
Total assets acquired	110,745
Liabilities
Deferred revenue and acquisition-related intangible liabilities (3)	4,620
Total liabilities assumed	4,620
Net assets and liabilities acquired	$	106,125

_______________

(1) Represents buildings, building improvements and tenant improvements.

(2) Represents in-place leases of approximately $9.3 million (with a weighted average amortization period of seven years) and leasing commissions of approximately $1.9 million (with a weighted average amortization period of seven years) at the time of the acquisition.

(3) Represents below-market leases of approximately $4.6 million (with a weighted average amortization period of seven years).

Development Project Sites

During the nine months ended September 30, 2014, we acquired one undeveloped land site listed below from an unrelated third party. The acquisition was funded with proceeds from the Company’s at-the-market stock offering program (see Note 7) and disposition proceeds (see Note 13).

Project	Date of Acquisition	Type	Purchase Price (in millions)
Kilroy Mission Bay, San Francisco, CA (1)	May 23, 2014	Land	$	95.0

_______________

(1) In connection with this acquisition, we also assumed $2.3 million in accrued liabilities which are not included in the purchase price above. As of September 30, 2014, the purchase price and assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets.

14

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3.    Deferred Leasing Costs and Acquisition-Related Intangible Assets and Liabilities, net

The following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-market ground lease obligation) as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Deferred Leasing Costs and Acquisition-Related Intangible Assets, net:
Deferred leasing costs	$	196,963		$	178,720
Accumulated amortization	(71,911		)	(63,246		)
Deferred leasing costs, net	125,052			115,474
Above-market operating leases	21,926			27,635
Accumulated amortization	(14,151		)	(14,283		)
Above-market operating leases, net	7,775			13,352
In-place leases	94,281			100,318
Accumulated amortization	(44,522		)	(42,999		)
In-place leases, net	49,759			57,319
Below-market ground lease obligation	490			490
Accumulated amortization	(19		)	(13		)
Below-market ground lease obligation, net	471			477
Total deferred leasing costs and acquisition-related intangible assets, net	$	183,057		$	186,622
Acquisition-Related Intangible Liabilities, net: (1)
Below-market operating leases	$	69,533		$	69,385
Accumulated amortization	(31,288		)	(25,706		)
Below-market operating leases, net	38,245			43,679
Above-market ground lease obligation	6,320			6,320
Accumulated amortization	(298		)	(223		)
Above-market ground lease obligation, net	6,022			6,097
Total acquisition-related intangible liabilities, net	$	44,267		$	49,776

_______________

(1) Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles, including amounts attributable to discontinued operations, for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Deferred leasing costs (1)	$	7,132		$	6,945		$	20,683		$	20,882
Above-market operating leases (2)	1,305			1,417			4,230			4,214
In-place leases (1)	5,169			7,677			17,090			22,546
Below-market ground lease obligation (3)	2			2			6			6
Below-market operating leases (4)	(2,940		)	(3,355		)	(10,054		)	(10,229		)
Above-market ground lease obligation (5)	(26		)	(25		)	(76		)	(76		)
Total	$	10,642		$	12,661		$	31,879		$	37,343

_______________

(1) The amortization of deferred leasing costs related to lease incentives is recorded to rental income and other deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.

(2) The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

(3) The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.

(4) The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.

(5) The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

15

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as of September 30, 2014 for future periods:

Year	Deferred Leasing Costs		Above-Market Operating Leases (1)		In-Place Leases		Below-Market Ground Lease Obligation (2)		Below-Market Operating Leases (3)			Above-Market Ground Lease Obligation (4)
	(in thousands)
Remaining 2014	$	6,936	$	993	$	4,274	$	2	$	(2,851	)	$	(26	)
2015	24,851		2,530		13,131		8		(9,567		)	(101		)
2016	22,045		1,503		10,080		8		(7,847		)	(101		)
2017	19,163		1,241		8,440		8		(6,780		)	(101		)
2018	15,748		831		5,532		8		(5,177		)	(101		)
Thereafter	36,309		677		8,302		437		(6,023		)	(5,592		)
Total	$	125,052	$	7,775	$	49,759	$	471	$	(38,245	)	$	(6,022	)

_______________

(1) Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

(2) Represents estimated annual amortization related to below-market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.

(3) Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

(4) Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

4.    Receivables

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Current receivables	$	8,626		$	12,866
Allowance for uncollectible tenant receivables	(2,183		)	(2,123		)
Current receivables, net	$	6,443		$	10,743

______________

(1) Excludes current receivables, net related to properties held for sale at September 30, 2014.

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Deferred rent receivables	$	141,899		$	129,198
Allowance for deferred rent receivables	(1,989		)	(2,075		)
Deferred rent receivables, net	$	139,910		$	127,123

______________

(1) Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

16

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

5.    Secured and Unsecured Debt of the Operating Partnership

Secured Debt

The following table sets forth the composition of our secured debt as of September 30, 2014 and December 31, 2013:

Type of Debt	Annual Stated Interest Rate (1)	GAAP Effective Rate (1)(2)	Maturity Date	September 30, 2014 (3)		December 31, 2013 (3)
				(in thousands)
Mortgage note payable	4.27%	4.27%	February 2018	$	131,363	$	133,117
Mortgage note payable (4)	4.48%	4.48%	July 2027	97,000		97,000
Mortgage note payable (4)	6.05%	3.50%	June 2019	90,065		92,502
Mortgage note payable	6.51%	6.51%	February 2017	66,907		67,663
Mortgage note payable (4)	5.23%	3.50%	January 2016	53,243		54,570
Mortgage note payable (4)	5.57%	3.25%	February 2016	40,611		41,654
Mortgage note payable(4)	5.09%	3.50%	August 2015	34,446		34,845
Mortgage note payable (4)	4.94%	4.00%	April 2015	26,629		27,641
Mortgage note payable	7.15%	7.15%	May 2017	7,185		8,972
Other	Various	Various	Various	2,447		2,470
Total				$	549,896	$	560,434

______________

(1) All interest rates presented are fixed-rate interest rates.

(2) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.

(3) Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

(4) The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

4.25% Exchangeable Senior Notes

The table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the “4.25% Exchangeable Notes”) outstanding as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014			December 31, 2013
	(in thousands)
Principal amount	$	135,481		$	172,500
Unamortized discount	(432		)	(4,128		)
Net carrying amount of liability component	$	135,049		$	168,372
Carrying amount of equity component (1)	$15,578			$19,835
Issuance date	November 2009
Maturity date	November 2014
Stated coupon rate (2)	4.25%
Effective interest rate (3)	7.13%
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)	27.8307
Exchange price, as adjusted (4)	$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined (4)	3,770,531			4,800,796

_______________

(1) The $15.6 million carrying amount of the equity component at September 30, 2014 represents the proportionate amount of the initial $19.8 million carrying value of the equity component allocated to the remaining $135.5 million outstanding principal balance of the 4.25% Exchangeable Notes at September 30, 2014.

(2) Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15^th and November 15^th of each year.

(3) The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.

(4) The exchange rate, exchange price and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.

17

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the nine months ended September 30, 2014, the Company settled early exchanges of the 4.25% Exchangeable Notes with an aggregate principal amount of $37.0 million. For these exchanges, the number of shares issued in excess of the exchange value was calculated on a proportionate basis for each day of a 30 trading-day observation following the exchange date. For the exchange settlements, the Company paid the noteholders a total of $37.0 million in cash for the principal amount and issued to the noteholders a total of 431,270 shares of our common stock for the excess exchange value. As a result of the exchanges, the Company exercised the equivalent proportionate amount of its capped call options and, and in connection received 111,206 shares of our common stock from the counterparties. This reduced the shares of common stock issued in connection with the exchanges to 320,064 shares.

Upon exchange of the balance of the 4.25% Exchangeable Notes at maturity, the holders will receive (i) cash up to the principal amount of the 4.25% Exchangeable Notes and (ii) to the extent the exchange value exceeds the principal amount of the 4.25% Exchangeable Notes, shares of the Company’s common stock. Any shares of common stock delivered for settlement will be based on a daily exchange value calculated on a proportionate basis for each day of a 30 trading-day observation period.

The 4.25% Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events. During the three and nine months ended September 30, 2014, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three month period ended September 30, 2014, the 4.25% Exchangeable Notes were exchangeable at the exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods.

In connection with the offering of the 4.25% Exchangeable Notes, we entered into capped call option transactions (“capped calls”) to mitigate the dilutive impact of the potential exchange of the 4.25% Exchangeable Notes. The capped calls, as amended, are separate transactions entered into by us with the relevant financial institutions, are not part of the terms of the 4.25% Exchangeable Notes, and do not affect the holders’ rights under the 4.25% Exchangeable Notes. The strike prices of the capped calls, which are subject to customary anti-dilution adjustments, correspond to the exchange prices of the applicable 4.25% Exchangeable Notes. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014		December 31, 2013
Referenced shares of common stock (1)	3,770,531		4,800,796
Exchange price, including effect of capped calls	$	42.81	$	42.81

________________________

(1) The referenced shares of common stock decreased during the nine months ended September 30, 2014 as a result of the settled exchanges of the 4.25% Exchangeable Notes totaling $37.0 million.

The capped calls are expected to terminate upon the earlier of the maturity date of the 4.25% Exchangeable Notes or upon the date upon which the 4.25% Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of the capped calls were recorded as a reduction to additional paid-in capital.

For the three and nine months ended September 30, 2014 and 2013, the per share average trading price of the Company’s common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Per share average trading price of the Company’s common stock	$62.06	$51.57	$59.27	$52.42

The 4.25% Exchangeable Notes were exchangeable as of September 30, 2014 and September 30, 2013. If the 4.25% Exchangeable Notes outstanding as of those dates were exchanged, the approximate fair value of the shares upon exchange at September 30, 2014 and 2013, using the per share average trading price presented in the table above, would have been as follows:

18

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Approximate fair value of shares upon exchange	$	229,840	$	245,200	$	223,732	$	248,000
Principal amount of the 4.25% Exchangeable Notes	135,481		172,500		135,481		172,500
Approximate fair value in excess amount of principal amount	$	94,359	$	72,700	$	88,251	$	75,500

See Notes 14 and 15 for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented.

Interest Expense for the 4.25% Exchangeable Notes

The unamortized discount on the 4.25% Exchangeable Notes is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notes based on the respective effective interest rates, before the effect of capitalized interest, for the three and nine months September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Contractual interest payments	$	1,439	$	1,833	$	4,908	$	5,498
Amortization of discount	1,004		1,116		3,337		3,291
Interest expense attributable to the 4.25% Exchangeable Notes	$	2,443	$	2,949	$	8,245	$	8,789

Unsecured Senior Notes

In July 2014, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of the initial issuance discount of $4.4 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on August 15, 2029, require semi-annual interest payments each February and August based on a stated annual interest rate of 4.250%. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings under the Operating Partnership’s revolving credit facility.

The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as of September 30, 2014 and December 31, 2013:

					Principal Amount as of
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate (1)	September 30, 2014			December 31, 2013
					(in thousands)
4.250% Unsecured Senior Notes (2)	July 2014	August 2029	4.250%	4.350%	$	400,000		$	—
Unamortized discount					(4,422		)	—
Net carrying amount					$	395,578		$	—
3.800% Unsecured Senior Notes (3)	January 2013	January 2023	3.800%	3.804%	$	300,000		$	300,000
Unamortized discount					(82		)	(90		)
Net carrying amount					$	299,918		$	299,910
4.800% Unsecured Senior Notes (4)	July 2011	July 2018	4.800%	4.827%	$	325,000		$	325,000
Unamortized discount					(283		)	(339		)
Net carrying amount					$	324,717		$	324,661
6.625% Unsecured Senior Notes (5)	May 2010	June 2020	6.625%	6.743%	$	250,000		$	250,000
Unamortized discount					(1,207		)	(1,367		)
Net carrying amount					$	248,793		$	248,633
5.000% Unsecured Senior Notes (6)	November 2010	November 2015	5.000%	5.014%	$	325,000		$	325,000
Unamortized discount					(44		)	(73		)
Net carrying amount					$	324,956		$	324,927

19

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

________________________

(1) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.

(2) Interest on the 4.250% unsecured senior notes is payable semi-annually in arrears on February 15th and August 15th of each year.

(3) Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(4) Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(5) Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.

(6) Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.

In addition to the registered unsecured senior notes listed above, we also had outstanding Series B unsecured senior notes with an aggregate principal balance of $83.0 million and effective interest rate of 6.45% as of December 31, 2013. We repaid the notes upon maturity in August 2014.

Unsecured Revolving Credit Facility and Term Loan Facility

In the second quarter of 2014, the Company amended the terms of our unsecured revolving credit facility and the Company’s $150.0 million term loan facility. The amendment increased the size of the Company’s unsecured line of credit to $600.0 million, extended the maturity to July 2019 on both the credit facility and term loan facility, reduced the annual interest rate on the unsecured revolving credit facility to LIBOR plus 1.250% and reduced the annual interest rate on the term loan facility to LIBOR plus 1.400%. The amendment did not affect the outstanding borrowings under the credit facility.

The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	—		$	45,000
Remaining borrowing capacity	600,000			455,000
Total borrowing capacity (1)	$	600,000		$	500,000
Interest rate (2)(3)	—		%	1.62		%
Facility fee-annual rate (4)	0.250%			0.300%
Maturity date	July 2019			April 2017

_______________

(1) We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $300.0 million under an accordion feature under the terms of the unsecured revolving credit facility and term loan facility.

(2) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of September 30, 2014.

(3) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.

(4) Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2014, $6.2 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.

The Company intends to borrow amounts under the unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.

The following table summarizes the balance and terms of our term loan facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	150,000		$	150,000
Interest rate	1.40		%	1.75		%
Maturity date	July 2019			March 2016

20

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Debt Covenants and Restrictions

The revolving credit facility, the term loan facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of September 30, 2014.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of September 30, 2014:

Year	(in thousands)
Remaining 2014	$	138,009
2015	395,104
2016	99,431
2017	71,748
2018	451,728
Thereafter	1,268,013
Total (1)	$	2,424,033

________________________

(1) Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $4.9 million.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2014 and 2013. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Gross interest expense	$	29,936		$	27,942		$	85,740		$	83,322
Capitalized interest and loan fees	(13,328		)	(9,089		)	(35,860		)	(25,301		)
Interest expense	$	16,608		$	18,853		$	49,880		$	58,021

6.    Noncontrolling Interests on the Company’s Consolidated Financial Statements

Common Units of the Operating Partnership

The Company owned a 97.9%, 97.8% and 97.8% common general partnership interest in the Operating Partnership as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. The remaining 2.1%, 2.2% and 2.2% common limited partnership interest as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,804,200, 1,805,200 and 1,821,503 common units outstanding held by these investors, executive officers and directors as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $107.8 millionand $90.8 million as of September 30, 2014 and December 31, 2013,

21

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.

Noncontrolling Interest in Consolidated Variable Interest Entity

The noncontrolling interest in consolidated subsidiary represents the third party equity interest in Redwood City Partners, LLC, a consolidated VIE. This noncontrolling interest was $5.2 millionand $4.9 million at September 30, 2014 and December 31, 2013, respectively.

7.    Stockholders’ Equity of the Company

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in July 2011, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $200.0 million from time to time in “at-the-market” offerings. There were no sales of our common stock under our at-the-market offering program for the three months ended September 30, 2014. The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the nine months ended September 30, 2014:

	Nine months  ended September 30, 2014
	(in millions, except share and per share data)
Shares of common stock sold during the year	370,700
Weighted average price per common share	$	61.01
Aggregate gross proceeds	$	22.6
Aggregate net proceeds after sales agent compensation	$	22.3

The proceeds from the sales were used to fund acquisitions and development and redevelopment expenditures and for general corporate purposes. Since commencement of the program, we have sold 2,553,961 shares of common stock having an aggregate gross sales price of $127.9 million. As of September 30, 2014, shares of common stock having an aggregate gross sales price of up to $72.1 million remain available to be sold under this program. Actual future sales will depend upon a variety of factors, including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

8.    Partners’ Capital of the Operating Partnership

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

	September 30, 2014		December 31, 2013		September 30, 2013
Company owned common units in the Operating Partnership	83,388,220		82,153,944		82,113,491
Company owned general partnership interest	97.9	%	97.8	%	97.8	%
Noncontrolling common units of the Operating Partnership	1,804,200		1,805,200		1,821,503
Ownership interest of noncontrolling interest	2.1	%	2.2	%	2.2	%

For a further discussion of the noncontrolling common units as of September 30, 2014 and December 31, 2013, refer to Note 6.

22

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9.    Share-Based Compensation

Stockholder Approved Equity Compensation Plans

As of September 30, 2014, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the “2006 Plan”). As of March 31, 2014, no shares were available for grant under the 2006 Plan. At our Annual Meeting of Stockholders, on May 22, 2014, stockholders approved an amendment of the 2006 Plan, which included an increase in the share limit to 7,120,000 shares. As of September 30, 2014, 728,865 shares were available for grant under the amended 2006 Plan.

2014 Share-Based Compensation Grants

On January 29, 2014, the Executive Compensation Committee of the Company’s Board of Directors awarded to certain officers of the Company under the 2006 Plan of 236,604 restricted stock units (“RSUs”), 119,098 RSUs that are subject to market and performance-based vesting requirements (the “2014 Performance-Based RSU Grant”) and 117,506 RSUs that are subject to time-based vesting requirements (the “2014 Time-Based RSU Grant”). As of the RSU grant date, an insufficient number of shares were available under the 2006 Plan to settle these RSUs in stock and the RSUs were subject to liability accounting. As discussed above, on May 22, 2014 we received stockholder approval for an increase to our share limit which resulted in a sufficient number of shares authorized by our stockholders for issuance under the 2006 Plan to cover settlement of these awards. As a result, as of May 22, 2014 given we have the ability to deliver shares to settle the RSUs, we reclassified these awards as equity awards and re-measured the fair value of the awards as of that date.

2014 Performance-Based RSU Grant

The 2014 Performance-Based RSUs are scheduled to vest at the end of a three year period based upon the achievement of pre-established levels of FFO per share (the “performance condition”) for the year ended December 31, 2014 and also based upon the average annual relative total stockholder return targets (the “market condition”) for the three year period ending December 31, 2016. The 2014 Performance-Based RSUs are also subject to a three-year service vesting provision and will cliff vest at the end of the three-year period. The number of 2014 Performance-Based RSUs ultimately earned, and therefore the compensation costs for these awards, could fluctuate from the 119,098 RSUs granted based upon the levels of achievement for both the FFO and relative stockholder return metrics. During the 2014 performance period, the estimate of the number of awards earned were evaluated quarterly based on our forecasted level of achievement of the FFO hurdle. Compensation expense for the 2014 Performance-Based RSU Grant will be recorded on a straight-line basis over the three year period.

Each 2014 Performance-Based RSU represents the right to receive one share of our common stock in the future. As of March 31, 2014, we recorded compensation expense for the award based upon the fair value at period end of $63.44, as we had an insufficient number of shares available for issuance under the 2006 Plan at that time. As discussed above, upon stockholder approval of the amended 2006 Plan on May 22, 2014, we were required to re-measure the fair value of the 2014 Performance-Based RSU Grant and record compensation expense based on the fair value at that date for the cumulative portion of the performance period that had elapsed. The total fair value of the 2014 Performance-Based RSU Grant was $7.7 million at May 22, 2014 and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The determination of the fair value of the 2014 Performance-Based RSU Grant takes into consideration the likelihood of achievement of both the performance condition and the market condition discussed above. For the nine months ended September 30, 2014, we recorded compensation expense based upon the $65.03 fair value at May 22, 2014. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:

	Fair Value Assumptions
Fair value per share at May 22, 2014	$65.03
Expected share price volatility	24.00%
Risk-free interest rate	0.61%
Remaining expected life	2.6

The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately five years as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate two and a half year remaining performance period of the RSUs and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at May 22, 2014. The expected dividend yield is estimated by examining

23

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

the average of the historical dividend yield levels over the remaining 2.6 year term of the RSUs and our current annualized dividend yield as of May 22, 2014. The expected life of the RSUs is equal to the remaining 2.6 year vesting period at May 22, 2014.

2014 Time-Based RSU Grant

The 2014 Time-Based RSUs are scheduled to vest in four equal installments beginning on January 5, 2015 through January 5, 2018. Compensation expense for the 2014 Time-Based RSUs will be recognized on a straight-line basis over the four year service vesting period. Each 2014 Time-Based RSUs represents the right to receive one share of our common stock in the future. As of March 31, 2014, we recorded compensation expense for the award based upon the fair value at period end of $51.64, because at that time an insufficient number of shares were available for issuance under the 2006 Plan. As discussed above, upon stockholder approval of the amended 2006 Plan on May 22, 2014, we were required to re-measure the fair value of the 2014 Time-Based RSU Grant and record compensation expense based on the fair value at that date, for the cumulative portion of the performance period that had elapsed. The total fair value was $7.1 million, which was based on the $60.16 closing share price of the Company’s common stock on the NYSE on May 22, 2014.

Share-Based Award Activity

During the nine months ended September 30, 2014, 482,000 non-qualified stock options were exercised and issued at an exercise price per share equal to $42.61. The total shares exercised include 22,162 common shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements and exercise price related to the non-qualified stock options exercised. We accept the return of shares at the current quoted closing share price of the Company’s common stock to satisfy tax obligations and cover the exercise price.

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $4.0 million and $2.5 million for the three months ended September 30, 2014 and 2013, respectively, and $10.3 million and $7.2 million for the nine months ended September 30, 2014 and 2013, respectively. Of the total share-based compensation costs, $0.6 million and $0.2 million was capitalized as part of real estate assets for the three months ended September 30, 2014 and 2013, respectively, and $1.5 million and $0.6 million was capitalized as part of real estate assets for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was approximately $34.4 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that is expected to be recognized over a weighted-average period of 2.8 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2014.

10.    Commitments and Contingencies

General

As of September 30, 2014, we had commitments of approximately $514.7 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and redevelopment properties.

Environmental Matters

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material adverse effect on our financial condition, results of operations and cash flow. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

24

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11.    Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets we record at fair value on a recurring basis on our consolidated financial statements are the marketable securities related to our deferred compensation plan. The following table sets forth the fair value of our marketable securities as of September 30, 2014 and December 31, 2013:

	Fair Value (Level  1) (1)
	September 30, 2014		December 31, 2013
Description	(in thousands)
Marketable securities (2)	$	12,076	$	10,008

_______________

(1) Based on quoted prices in active markets for identical securities.

(2) The marketable securities are held in a limited rabbi trust.

We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gains (losses) in the consolidated statements of operations. We adjust the related deferred compensation plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost for the period.

The following table sets forth the net gain (loss) on marketable securities recorded during the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014		2013
Description	(in thousands)
Net (loss) gain on marketable securities	$	(39	)	$	669	$	507	$	995

Financial Instruments Disclosed at Fair Value

The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2014 and December 31, 2013:

	September 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Liabilities
Secured debt (1)	$	549,896	$	557,217	$	560,434	$	568,760
Exchangeable senior notes, net (1)	135,049		135,770		168,372		178,190
Unsecured debt, net (2)	1,743,962		1,825,725		1,431,132		1,523,052
Unsecured line of credit (1)	—		—		45,000		45,012

_______________

(1) Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

(2) Fair value calculated using Level I and Level II inputs. Level I inputs are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $1,269.2 million and $1,325.0 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level I instruments as of December 31, 2013, was $873.5 million and $929.3 million, respectively. The carrying value and fair value of the Level II instruments was $474.7 million and $500.6 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level II instruments as of December 31, 2013, was $557.7 million and $593.7 million, respectively.

25

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12.    Other Significant Events

In January 2014, a tenant at one of our San Diego, California operating properties exercised an early lease termination clause as permitted under the terms of their lease. As a result, the lease which encompasses approximately 79,000 rentable square feet and was scheduled to expire in February 2020, terminated during the three months ended September 30, 2014. The total lease termination fee of $5.7 million, of which the Company recorded $2.0 million and $5.7 million during the three and nine months ended September 30, 2014, respectively, was recorded as other property income on a straight line basis through the early lease termination date. The Company received the cash payment of the lease termination fee of $5.7 million during the three months ended September 30, 2014. During the three and nine months ended September 30, 2014, the Company also recognized approximately $0.4 million and $1.3 million as a reduction to rental income due to the accelerated amortization of the deferred rent receivable and above market lease for this tenant.

13.    Discontinued Operations and Land Dispositions

Properties Held for Sale

As ofSeptember 30, 2014, the following properties were classified as held for sale:

Location	City/Submarket	Property Type	Number of Buildings	Rentable Square Feet (unaudited)
4040 Civic Center Dr, San Rafael, CA	San Rafael	Office	1	130,237
999 Town & Country Rd, Orange, CA	Orange	Office	1	98,551
Total properties held for sale			2	228,788

The major classes of assets and liabilities of the properties held for sale as of September 30, 2014 were as follows:

Real estate assets and other assets held for sale	(in thousands)
Land and improvements	$	18,077
Buildings and improvements	31,530
Total real estate held for sale	49,607
Accumulated depreciation and amortization	(5,046		)
Total real estate held for sale, net	44,561
Current receivables, net	56
Deferred rent receivables, net	1,241
Deferred leasing costs and acquisition-related intangible assets, net	3,754
Prepaid expenses and other assets, net	203
Real estate and other assets held for sale, net	$	49,815
Liabilities and deferred revenue of real estate assets held for sale
Accounts payable, accrued expenses and other liabilities	$	944
Deferred revenue and acquisition-related intangible liabilities, net	1,733
Rents received in advance and tenant security deposits	422
Liabilities and deferred revenue of real estate assets held for sale	$	3,099

Operating Property Dispositions

The following table summarizes the operating properties sold during the nine months ended September 30, 2014:

Location	Property Type	Month of Disposition	Number of Buildings	Rentable Square Feet
San Diego Properties, San Diego, CA (1)	Office	January	12	1,049,035
9785 & 9791 Towne Centre Drive, San Diego, CA	Office	June	2	126,000
111 Pacifica, Irvine, CA	Office	September	1	67,496
Total 2014 Dispositions			15	1,242,531

________________________ 

(1) The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.

26

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Discontinued Operations

Discontinued operations for the three months ended September 30, 2014 includes the income of the property sold in September 2014 and the two properties classified as held for sale at September 30, 2014. For the nine months ended September 30, 2014 and 2013, discontinued operations also included the gains on dispositions of $110.4 million related to the June 2014 office property disposition and income of the twelve operating office properties sold in January 2014. The operations related to the June 2014 office property dispositions were immaterial for classification as discontinued operations. For the three and nine months ended September 30, 2013, discontinued operations also included the income from three operating office properties that were sold during those respective periods in 2013. The following table summarizes the revenue and expense components that comprise income from discontinued operations for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Revenues:
Rental income	$	1,982	$	8,189	$	6,361	$	23,692
Tenant reimbursements	70		918		247		2,420
Other property income	6		5,151		26		5,159
Total revenues	2,058		14,258		6,634		31,271
Expenses:
Property expenses	705		2,673		1,952		5,753
Real estate taxes	196		891		628		2,626
Depreciation and amortization	609		4,846		1,963		11,693
Total expenses	1,510		8,410		4,543		20,072
Income from discontinued operations before gains on dispositions of discontinued operations	548		5,848		2,091		11,199
Gains on dispositions of discontinued operations	5,587		—		110,391		423
Total income from discontinued operations	$	6,135	$	5,848	$	112,482	$	11,622

Land Disposition

During the nine months ended September 30, 2014, the Company sold a land parcel located at 10850 Via Frontera in the Rancho Bernardo submarket of San Diego, California for a gross sales price of $33.1 million, resulting in a gain on sale of $3.5 million. The land parcel noted above did not meet the criteria for classification as discontinued operations because the parcel did not have any significant operations prior to disposal. Therefore, the gain on sale is included on our consolidated statements of operations as gain on sale of land within continuing operations.

Restricted Cash Related to Dispositions

During the nine months ended September 30, 2014, the net cash proceeds from the office properties disposed of during the period were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating Section 1031 Exchanges. During the nine months ended September 30, 2014, we successfully completed four Section 1031 Exchanges and all remaining cash proceeds related to these transactions were released from the qualified intermediaries upon completion.

As of December 31, 2013, approximately $32.2 million, respectively, of net cash proceeds related to the land and office properties disposed of during the year ended December 31, 2013 were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating Section 1031 Exchanges. The cash proceeds are included in restricted cash on the consolidated balance sheet at December 31, 2013. In February 2014, we successfully completed one of the Section 1031 Exchanges and the $32.2 million cash proceeds were released from the qualified intermediary.

27

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14.    Net Income Available to Common Stockholders Per Share of the Company

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
(Income) Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	(193		)	3			(635		)	2
Preferred dividends	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common stockholders	9,230			(580		)	28,038			(1,332		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(128		)	(134		)	(2,376		)	(268		)
Numerator for basic and diluted net income available to common stockholders	$	15,237		$	5,134		$	138,144		$	10,022
Denominator:
Basic weighted average vested shares outstanding	83,161,323			76,768,893			82,525,033			75,750,822
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested shares and common share equivalents outstanding	85,110,456			76,768,893			84,622,622			75,750,822
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.33			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.30			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

The impact of the contingently issuable shares, which consist of the 4.25% Exchangeable Notes and stock options, were considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2014 because we reported income from continuing operations attributable to common stockholders in the respective periods and the effect was dilutive. The impact of the contingently issuable shares were not considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2013 because we reported a loss from continuing operations available to common stockholders in the respective periods and the effect was anti-dilutive.

The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of September 30, 2014 because they are not included until all the necessary performance conditions have been met. The impact of our nonvested market measure-based RSUs were not included in dilutive securities as of September 30, 2013 because they were not considered contingently issuable shares as not all the necessary performance conditions were met.

28

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15.    Net Income Available to Common Unitholders Per Unit of the Operating Partnership

The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(59		)	(47		)	(201		)	(178		)
Preferred distributions	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common unitholders	9,364			(630		)	28,472			(1,512		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Numerator for basic and diluted net income available to common unitholders	$	15,499		$	5,218		$	140,954		$	10,110
Denominator:
Basic weighted average vested units outstanding	84,965,523			78,590,396			84,329,317			77,574,907
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested units and common unit equivalents outstanding	86,914,656			78,590,396			86,426,906			77,574,907
Basic earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.33			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.30			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

The impact of the contingently issuable units, which consist of the 4.25% Exchangeable Notes and stock options, were considered in our diluted earnings per unit calculation for the three and nine months ended September 30, 2014 because the Operating Partnership reported income from continuing operations attributable to common unitholders in the respective periods and the effect was dilutive. The impact of the contingently issuable shares were not considered in our diluted earnings per unit calculation for the three and nine months ended September 30, 2013 because the Operating Partnership reported a loss from continuing operations available to common unitholders in the respective periods and the effect was anti-dilutive.

The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of September 30, 2014 because they are not included until all the necessary performance conditions have been met. The impact of our nonvested market measure-based RSUs were not included in dilutive securities as of September 30, 2013 because they were not considered contingently issuable shares as not all the necessary performance conditions were met.

29

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16.    Subsequent Events

In October 2014, the Company completed the acquisition of a 1.9 acre land site in the Central SOMA submarket of San Francisco, California for approximately $27.0 million. The acquisition, which was completed through the execution of a merger transaction, was funded through the issuance of 351,476 shares of the Company’s common stock valued at approximately $21.6 million and the payment of approximately $5.4 million in cash to extinguish existing debt on the undeveloped land.

In October 2014, the Company issued 217,042 common shares under its at-the-market stock offering program at a weighted average price of $59.38 per share before selling commissions.

On October 15, 2014, aggregate dividends, distributions and dividend equivalents of $30.3 million were paid to common stockholders and common unitholders of record on September 30, 2014 and RSU holders of record on the payment date.

30

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities.

Statements contained in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements include, among other things, statements or information concerning projected future occupancy and rental rates, lease expirations, debt maturity, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, dispositions, future incentive compensation, pending, potential or proposed acquisitions and other forward-looking financial data, as well as the discussion below under the captions “—Factors That May Influence Future Results of Operations,” “—Liquidity and Capital Resource of the Company,” and “—Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. 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 forward-looking statements. For a discussion of those risk factors, see the discussion below as well as “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s and the Operating Partnership’s annual report on Form 10-K/A for the year ended December 31, 2013 and their respective other filings with the SEC. All forward-looking statements are based on information that was available and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statement 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.

Overview and Background

We are a self-administered REIT active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our properties through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. We owned a 97.9%, 97.8% and 97.8% general partnership interest in the Operating Partnership as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. All our properties are held in fee except for the eleven office buildings that are held subject to long-term ground leases for the land.

Factors That May Influence Future Results of Operations

Acquisitions. During the nine months ended September 30, 2014, we acquired one office building in greater Seattle for a total purchase price of $106.1 million. During 2013, we acquired two office buildings in greater Seattle and two office buildings in the Del Mar submarket of San Diego County for a total purchase price of approximately $296.4 million. Additionally, during the nine months ended September 30, 2014, we acquired one undeveloped land site in San Francisco for a total purchase price of $95.0 million. In October 2014, we acquired a 1.9 acre land site in the Central SOMA submarket of San Francisco, California for approximately $27.0 million. During the same period in 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood City Partners, LLC. In connection with this formation, the Company acquired a 0.35 acre land site in Redwood  City, California. We generally finance our acquisitions through proceeds from the issuance of debt and equity securities, borrowings under our revolving credit facility, proceeds from our capital recycling program and the assumption of existing debt.

31

As a component of our growth strategy, we continue to evaluate value-add acquisition opportunities (including undeveloped land, development and redevelopment opportunities and office properties). As a result, at any point in time we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence review, which may include potential acquisitions under contract. As of the date of this report, the Company is under contract on a fully leased operating property acquisition for approximately $100 million that is currently expected to close in November 2014. We remain a disciplined buyer of office properties and undeveloped land and continue to focus on value-add opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, entertainment and professional services. We cannot provide assurance that we will complete additional future acquisitions. In the future, we may enter into agreements to acquire additional properties or undeveloped land, either as wholly owned properties or through joint ventures, and those agreements typically will be subject to the satisfaction of closing conditions. We cannot provide assurance that we will enter into any agreements to acquire properties or undeveloped land or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. Costs associated with acquisitions accounted for as business combinations are expensed as incurred, and we may be unable to complete an acquisition after making a nonrefundable deposit or incurring acquisition-related costs. In addition, acquisitions are subject to various other risks and uncertainties. During the three and nine months ended September 30, 2014, we expensed approximately $0.4 million and $1.3 million, respectively, of third-party acquisition costs, and we anticipate that we may incur additional third-party acquisition costs during the remainder of 2014. We expect that during the remainder of 2014 we will continue to pursue value-add property and undeveloped land acquisitions that either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.

Capital Recycling Program. We continuously evaluate opportunities for the potential disposition of properties and undeveloped land in our portfolio with the intent of recycling the proceeds generated from the disposition of non-strategic properties or lower return assets into capital used to fund new operating and development acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes.

In connection with our capital recycling strategy, through September 30, 2014, we completed the sale of fourteen properties located in San Diego, one office property located in Irvine, and one undeveloped land parcel located in San Diego to unaffiliated third parties in four separate transactions for gross sales proceeds totaling approximately $372.4 million. During 2013, we completed the sale of three office buildings to unaffiliated third parties in three separate transactions, for gross sales proceeds totaling approximately $56.9 million. In addition, as of September 30, 2014, we classified two properties as held for sale that are located in Orange, California and in the San Rafael submarket of San Francisco, California. The transactions are anticipated to close in the fourth quarter of 2014 for total gross sales proceeds of approximately $60.2 million. The timing of any potential future disposition transactions will depend on market conditions and other factors, including but not limited to our capital needs and our ability to defer some or all of the taxable gains on the sales. We cannot assure you that we will dispose of any additional properties or that future acquisitions and/or dispositions, if any, will qualify as Section 1031 Exchanges.

Leasing Activity and Changes in Rental Rates. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affect our rental income in future periods. The following tables set forth certain information regarding leasing activity for our stabilized portfolio during the three and nine months ended September 30, 2014.

32

Information on Leases Commenced and Executed

For Leases Commenced

	1st & 2nd Generation (1)				2nd Generation (1)
	Number of Leases (2)		Rentable Square Feet (2)		TI/LC per Sq. Ft. (3)		Changes in Rents (4)(5)		Changes in Cash Rents (6)		Retention Rates (7)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
Three Months Ended September 30, 2014	38	25	390,260	313,937	$	38.03	15.4	%	(0.7	)%	53.3	%	87
Nine Months Ended September 30, 2014	83	58	829,386	718,837	33.49		13.0	%	1.3	%	48.4	%	73

For Leases Executed ⁽⁸⁾  

	1st & 2nd Generation (1)				2nd Generation (1)
	Number of Leases (2)		Rentable Square Feet (2)		TI/LC per Sq. Ft. (3)		Changes in Rents (4)(5)		Changes in Cash Rents (6)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
Three Months Ended September 30, 2014	31	25	206,552	313,937	$	37.70	15.8	%	(1.6	)%	93
Nine Months Ended September 30, 2014	82	58	577,343	718,837	35.60		14.2	%	1.8	%	79

_______________________

(1) First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream.

(2) Represents leasing activity for leases that commenced or signed at properties in the stabilized portfolio during the period, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.

(3) Tenant improvements and leasing commissions per square foot exclude tenant-funded tenant improvements.

(4) Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.

(5) Excludes commenced and executed leases of approximately 77,352 and 58,339 square feet, respectively, for the three months ended September 30, 2014 and 58,339 and 271,563 rentable square feet, respectively, for the nine months ended September 30, 2014, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison.

(6) Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.

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

(8) For the three months ended September 30, 2014, 15 new leases totaling 117,152 rentable square feet were signed but not commenced as of September 30, 2014. For the nine months ended September 30, 2014, 22 new leases totaling 270,491 rentable square feet were signed but not commenced as of September 30, 2014.

As of September 30, 2014, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operating properties are approximately 5-10% under the current average market rental rates, although individual properties within any particular submarket presently may be leased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our portfolio.

In general, market rental rates have continued to increase in the majority of our submarkets over the last several quarters. For the three and nine months ended September 30, 2014, the decrease in cash rents is primarily as a result of one tenant lease renewal from rates above market to current market rates. Excluding the one tenant lease renewal, our cash rental rates increased 6.5% and 5.4% for the three and nine months ended September 30, 2014, respectively. Our rental rates and occupancy are impacted by general economic conditions, including the pace of regional economic growth and access to capital. Therefore, we cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates. Additionally, decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have further negative effects on our future financial condition, results of operations and cash flows.

33

Scheduled Lease Expirations. The following table sets forth certain information regarding our lease expirations for our stabilized portfolio for the remainder of 2014 and the next five years.

Lease Expirations ⁽¹⁾ 

Year of Lease Expiration	Number of Expiring Leases	Total Square Feet	% of Total Leased Sq. Ft.		Annualized Base Rent (2)		% of Total Annualized Base Rent (2)		Annualized Base Rent per Sq. Ft. (2)
					(in thousands)
Remainder of 2014	30	268,967	2.2	%	$	8,291	1.9	%	$	30.83
2015	116	1,376,236	11.0	%	42,288		9.6	%	30.73
2016	84	946,611	7.6	%	26,652		6.0	%	28.16
2017	106	1,813,305	14.5	%	60,486		13.6	%	33.36
2018	60	1,305,011	10.5	%	51,421		11.7	%	39.40
2019	76	1,368,132	11.0	%	51,264		11.6	%	37.47
Total	472	7,078,262	56.8	%	$	240,402	54.4	%	$	33.96

________________________ 

(1) The information presented for all lease expiration activity reflects leasing activity through September 30, 2014 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, intercompany leases, vacant space and lease renewal options not executed as of September 30, 2014.

(2) Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”

In addition to the 0.8 million rentable square feet, or 5.9%, of currently available space in our stabilized portfolio, leases representing approximately 2.2% and 11.0% of the occupied square footage of our stabilized portfolio are scheduled to expire during 2014 and 2015, respectively. The leases scheduled to expire during the remainder of 2014 and in 2015 represent approximately 1.6 million rentable square feet or 11.5% of our total annualized base rental revenue. We believe that the weighted average cash rental rates are approximately 5-10% under the current average market rental rates for leases scheduled to expire during the remainder of 2014 and in 2015, although individual properties within any particular submarket presently may be leased either above, below, or at the current quoted market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties are located.

Completed, In-Process and Future Development Pipeline

We believe that a portion of our long-term future growth will also come from the completion of the development projects we have under construction as well as executing on our future development pipeline, subject to market conditions. We continue to increase our focus on value-add and highly accretive development opportunities and expand our future development pipeline through targeted acquisitions of development opportunities on the West Coast.

We have a proactive planning process by which we continually evaluate the size, timing, costs and scope of our development program and, as necessary, scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets. We expect to proceed in our development program with discipline and pursue opportunities with attractive economic returns, in locations with transportation and retail amenities and in markets with strong fundamentals and visible demand. We plan to develop in phases as appropriate and we strongly favor starting projects that are pre-leased.

During the quarter ended September 30, 2014, we completed construction of the following development project and added it to our stabilized portfolio:

• 555, 505 and 605 N. Mathilda Avenue, Sunnyvale, California, which we acquired in December 2012 and was 100% pre-leased to LinkedIn, Inc. This development encompassed three buildings totaling 587,429 square feet and had a total estimated investment of $300.0 million. In September 2014, the project was substantially complete and we commenced revenue recognition.

34

As of September 30, 2014, our in-process development pipeline consisted of the following five projects under construction.

• 680 and 690 E. Middlefield Road, Mountain View, California, which we acquired in May 2012. The development project, which is 100% pre-leased to Synopsys, Inc., has a total estimated investment of approximately $193.4 million and will encompass approximately 341,000 rentable square feet upon completion. Construction is currently in process and is expected to be completed in the fourth quarter of 2014.

• 350 Mission Street, SOMA, San Francisco, California, which we acquired in October 2012. The development project, which is 100% pre-leased to salesforce.com, Inc., has a total estimated investment of $276.6 million and will encompass approximately 450,000 rentable square feet upon completion. The property is expected to be LEED platinum certified, the first ground up development property in the city expected to receive this designation. Construction is currently in process and is currently expected to be completed during 2015 and the tenant is expected to occupy in phases.

• Columbia Square, Hollywood, California, which we acquired in September 2012. The project is a historical media campus located in the heart of Hollywood, two blocks from the corner of Sunset Boulevard and Vine Street. During 2013, we commenced development on approximately 685,000 rentable square feet of a mixed-use project, which encompasses office, multi-family and retail components that we plan on completing in multiple phases. The project has a total estimated investment of approximately $407.2 million. Our plan is to create a mixed-use campus that preserves the historical character while establishing a new center for entertainment and media companies. Construction is currently in process and is currently expected to be completed in three phases between the first quarter of 2015 and the second quarter of 2016.

A portion of the project will be a mix of high-end long-term rentals and extended stay apartment homes that will cater to traveling business, entertainment and creative executives and professionals. It will be the first luxury extended stay property to be located in the heart of Hollywood. Completion of the construction of this component is expected in phases during 2016.

• 333 Brannan Street, SOMA, San Francisco, California, which we acquired in July 2012. The development project is 100% pre-leased to Dropbox, has a total estimated investment of $100.2 million and is expected to encompass 185,000 rentable square feet. Construction is currently in process and is currently expected to be completed in the third quarter of 2015.

• Crossing/900, Redwood City, California, which we acquired in June 2013 with a local partner. The development project is 100% pre-leased to Box, Inc., has a has a total estimated investment of approximately $188.0 million and will encompass approximately 339,000 rentable square feet upon completion. Construction on the building is currently in process and is expected to be completed in phases between the third quarter of 2015 and the first quarter of 2017.

As of September 30, 2014, we had additional undeveloped land holdings, located in various submarkets in San Diego County, San Francisco Bay Area and Los Angeles with an aggregate cost basis of approximately $448.8 million at which we believe we could currently develop approximately 3.0 million rentable square feet. In October 2014, we commenced development of The Heights at Del Mar, a 73,000 square foot office project in the Del Mar submarket of San Diego, California with a total estimated investment of $45.0 million, which is included in the $448.8 million cost basis discussed above. In the future, we may also enter into agreements to acquire other development or redevelopment opportunities, either as wholly owned properties or through joint ventures and those agreements typically will be subject to the satisfaction of closing conditions.

This increase in our development activities could continue to cause an increase in the average development asset balances qualifying for interest and other carry cost capitalization in future periods. During the three and nine months ended September 30, 2014, we capitalized interest on in process development projects, redevelopment projects in lease-up, and development pipeline projects with an aggregate cost basis balance of approximately $1.3 billion at September 30, 2014, as it was determined these projects qualified for interest and other carry cost capitalization under GAAP. For the three and nine months ended September 30, 2014, we capitalized $13.3 million and $35.9 million, respectively, of interest to our qualifying development projects. For the three and nine months ended September 30, 2013, we capitalized $9.1 million and $25.3 million, respectively, of interest to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2014, we capitalized $2.6 million and $7.9 million, respectively, of internal costs to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2013, we capitalized $1.8 million and $5.2 million, respectively, of internal costs to our qualifying redevelopment and development projects.

35

Incentive Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for our executive officers. For 2014, the annual cash bonus program was structured to allow the Executive Compensation Committee to evaluate a variety of key quantitative and qualitative metrics at the end of the year and make a determination based on the Company’s and management’s overall performance. Our Executive Compensation Committee also grants equity incentive awards from time to time that include performance-based or market-measure based vesting requirements and/or time-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future awards may be affected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.

As of September 30, 2014, there was approximately $34.4 million of total unrecognized compensation cost related to outstanding nonvested shares of restricted common stock, RSUs and stock options issued under share-based compensation arrangements. Those costs are expected to be recognized over a weighted-average period of 2.8 years. The $34.4 million of unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued. Share-based compensation expense for potential future awards could be affected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions and other factors.

Stabilized Portfolio Information

As of September 30, 2014, our stabilized portfolio was comprised of 105 office properties encompassing an aggregate of approximately 13.5 million rentable square feet. Our stabilized portfolio includes all of our properties with the exception of undeveloped land, development and redevelopment properties currently under construction or committed for construction, “lease-up” properties and properties held-for-sale. We define lease-up properties as properties recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. Our stabilized portfolio also excludes our future development pipeline, which is comprised of nine potential development sites, representing 102.9 gross acres of undeveloped land.

At September 30, 2014, our stabilized portfolio excluded two properties classified as held for sale and five development projects currently under construction. There were no operating properties in “lease-up” as of September 30, 2014.

The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from September 30, 2013 to September 30, 2014:

	Number of Buildings		Rentable Square Feet
Total as of September 30, 2013	103		12,536,495
Acquisitions (1)	1		140,605
Completed development and redevelopment projects placed in-service	6		1,200,948
Dispositions and properties held for sale	(5	)	(422,284	)
Remeasurement	—		30,242
Total as of September 30, 2014	105		13,486,006

________________________

(1) Excludes redevelopment and development property acquisitions.

36

Occupancy Information

The following table sets forth certain information regarding our stabilized portfolio:

Stabilized Portfolio Occupancy

Region	Number of Buildings	Rentable Square Feet	Occupancy at (1)
			9/30/2014		6/30/2014		12/31/2013
Los Angeles and Ventura Counties	27	3,502,876	92.7	%	91.9	%	93.7	%
Orange County	1	271,556	97.8	%	94.1	%	92.8	%
San Diego	46	4,244,066	90.8	%	92.0	%	90.8	%
San Francisco Bay Area	18	3,279,266	98.8	%	96.7	%	94.8	%
Greater Seattle	13	2,188,242	95.2	%	95.5	%	96.7	%
Total Stabilized Portfolio	105	13,486,006	94.1	%	93.6	%	93.4	%

	Average Occupancy
	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Stabilized Portfolio(1)	94.0	%	91.4	%	93.2	%	90.9	%
Same Store Portfolio(2)	93.0	%	91.2	%	92.5	%	91.3	%

__________________________________

(1) Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented.

(2) Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2013 and still owned and stabilized as of September 30, 2014. See discussion under “Results of Operations” for additional information.

37

Significant Tenants

The following table sets forth information about our fifteen largest tenants based upon annualized rental revenues as of September 30, 2014.

Tenant Name	Annualized Base Rental Revenue ($ in thousands)		Rentable Square Feet	Percentage of Total Annualized Base Rental Revenue		Percentage of Total Rentable Square Feet
LinkedIn Corporation	$	28,270	663,239	6.4	%	5.2	%
DIRECTV, LLC	22,964		667,852	5.2	%	5.3	%
Bridgepoint Education, Inc.	15,066		322,342	3.4	%	2.5	%
Intuit, Inc.	13,489		465,812	3.1	%	3.7	%
Delta Dental of California	10,798		218,348	2.4	%	1.7	%
AMN Healthcare, Inc.	9,003		176,075	2.0	%	1.4	%
Scan Group (1)(2)	6,969		218,742	1.6	%	1.7	%
Group Health Cooperative	6,372		183,422	1.4	%	1.4	%
Neurocrine Biosciences, Inc.	6,366		140,591	1.4	%	1.1	%
Microsoft Corporation	6,250		215,997	1.4	%	1.7	%
Institute for Systems Biology	6,207		140,605	1.4	%	1.1	%
Fish & Richardson, P.C.	6,071		139,547	1.4	%	1.1	%
Pac-12 Enterprises, LLC	5,602		131,749	1.3	%	1.0	%
Splunk, Inc.	5,413		95,008	1.2	%	0.7	%
Wells Fargo Bank (1)	5,369		129,820	1.2	%	1.0	%
Total Top Fifteen Tenants	$	154,209	3,909,149	34.8	%	30.6	%

________________________

(1) The Company has entered into leases with various affiliates of the tenant.

(2) In December 2013, Scan Group renewed and expanded their lease at Kilroy Airport Center in Long Beach, California. As of September 30, 2014 revenue recognition had not commenced for the expansion premises. The annualized base rental revenue and rentable square feet presented in this table include the projected annualized base rental revenue of approximately $1.6 million and rentable square feet of approximately 50,000 for the expansion premises.

Current Regional Information

We have generally seen rental rates stabilize and continue to improve in many of our submarkets. We have also seen vacancy rates in many of our submarkets continue to decrease.

Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized portfolio of 3.5 million rentable square feet was 92.7% occupied with approximately 256,000 available rentable square feet as of September 30, 2014 compared to 93.7% occupied with approximately 219,000 available rentable square feet as of December 31, 2013.

As of September 30, 2014, leases representing an aggregate of approximately 85,000 and 332,000 rentable square feet are scheduled to expire during the remainder of 2014 and in 2015, respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during the remainder of 2014 and in 2015 represents approximately 3.3% of our occupied rentable square feet and 3.1% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2014.

San Diego County. Our San Diego County stabilized portfolio of 4.2 million rentable square feet was 90.8% occupied with approximately 391,000 available rentable square feet as of September 30, 2014 compared to 90.8% occupied with approximately 401,000 available rentable square feet as of December 31, 2013.

As of September 30, 2014, leases representing an aggregate of approximately 43,000 and 468,000 rentable square feet are scheduled to expire during the remainder of 2014 and in 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during the remainder of 2014 and in 2015 represents approximately 4.2% of our occupied rentable square feet and 2.9% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2014.

38

San Francisco Bay Area. As of September 30, 2014, our San Francisco Bay Area stabilized portfolio of 3.3 million rentable square feet was 98.8% occupied with approximately 41,000 available rentable square feet, compared to 94.8% occupied with approximately 124,000 available rentable square feet as of December 31, 2013.

As of September 30, 2014, leases representing an aggregate of approximately 91,000 and 304,000 rentable square feet are scheduled to expire during the remainder of 2014 and in 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during the remainder of 2014 and in 2015 represents approximately 3.1% of our occupied rentable square feet and 3.4% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2014.

Greater Seattle. As of September 30, 2014, our greater Seattle stabilized portfolio of 2.2 million rentable square feet was 95.2% occupied with approximately 104,000 available rentable square feet, compared to 96.7% occupied with approximately 68,000 available rentable square feet as of December 31, 2013. As of the date of this report, we have leased approximately 45,000 square feet of the 104,000 available square feet, which is scheduled to commence during the fourth quarter.

As of September 30, 2014, leases representing an aggregate of approximately 50,000 and 249,000 rentable square feet are scheduled to expire during the remainder of 2014 and in 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during the remainder of 2014 and in 2015 represents approximately 2.4% of our occupied rentable square feet and 1.9% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2014.

Results of Operations

Net Operating Income

Management internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income from continuing operations. We define “Net Operating Income” as operating revenues (rental income, tenant reimbursements, and other property income) less operating expenses (property expenses, real estate taxes, provision for bad debts, and ground leases).

Net Operating Income from continuing operations is considered by management to be an important and appropriate supplemental performance measure to net income (loss) because we believe it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and noncash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from GAAP income (loss) from operations or net income (loss). In addition, Net Operating Income is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating Net Operating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Because of the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP income (loss) from operations or net income (loss).

Management further evaluates Net Operating Income by evaluating the performance from the following property groups:

• Same Store Properties – which includes the results of all of the office properties that were owned and included in our stabilized portfolio for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 2013 and still owned and included in the stabilized portfolio as of September 30, 2014;

• Acquisition Properties – which includes the results, from the dates of acquisition through the periods presented, for the four office buildings we acquired during 2013 and the one office building we acquired during the nine months ended September 30, 2014;

• Stabilized Development and Redevelopment Properties – which includes the results generated by two office redevelopment buildings and one office development building that were stabilized in 2013, one redevelopment property that was stabilized in 2014 following its one year lease-up period and one development property complex, comprising three office buildings, that was stabilized in the third quarter of 2014; and

• Other Properties – which includes the results of three office properties and our in-process and future development projects.

39

The following table sets forth certain information regarding the property groups within our stabilized portfolio as of September 30, 2014:

Group	# of Buildings	Rentable Square Feet
Same Store Properties	93	11,306,728
Acquisition Properties	5	679,943
Stabilized Development and Redevelopment Properties	7	1,499,335
Total Stabilized Portfolio	105	13,486,006

Comparison of the Three Months Ended September 30, 2014 to the Three Months Ended September 30, 2013

The following table summarizes our Net Operating Income from continuing operations, as defined, for our total portfolio for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,						Dollar Change			Percentage Change
	2014			2013
	($ in thousands)
Reconciliation to Net Income:
Net Operating Income, as defined	$	91,386		$	77,957		$	13,429		17.2	%
Unallocated (expense) income:
General and administrative expenses	(11,138		)	(10,226		)	(912		)	8.9
Acquisition-related expenses	(431		)	(568		)	137			(24.1	)
Depreciation and amortization	(50,032		)	(45,804		)	(4,228		)	9.2
Interest income and other net investment gains/(losses)	(9		)	673			(682		)	(101.3	)
Interest expense	(16,608		)	(18,853		)	2,245			(11.9	)
Income from continuing operations	13,168			3,179			9,989			314.2
Income from discontinued operations	6,135			5,848			287			4.9
Net income	$	19,303		$	9,027		$	10,276		113.8	%

40

The following tables summarize the Net Operating Income, as defined, for our total portfolio for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014												2013
	Same Store			Acquisition Properties		Stabilized Develop-ment & Redevel-opment		Other			Total		Same Store		Acquisition Properties			Stabilized Develop-ment & Redevel-opment			Other		Total
	(in thousands)												(in thousands)
Operating revenues:
Rental income	$	96,826		$	7,449	$	10,944	$	2		$	115,221	$	92,950	$	3,425		$	6,365		$	614	$	103,354
Tenant reimbursements	9,417			1,234		695		—			11,346		8,520		864			108			91		9,583
Other property income	2,457			—		—		—			2,457		602		6			—			—		608
Total	108,700			8,683		11,639		2			129,024		102,072		4,295			6,473			705		113,545
Property and related expenses:
Property expenses	23,375			643		1,722		61			25,801		22,741		576			1,081			72		24,470
Real estate taxes	8,887			715		1,167		239			11,008		8,782		311			677			318		10,088
Provision for bad debts	(38		)	—		96		—			58		132		(13		)	(18		)	—		101
Ground leases	734			—		37		—			771		708		—			221			—		929
Total	32,958			1,358		3,022		300			37,638		32,363		874			1,961			390		35,588
Net Operating Income (Loss), as defined	$	75,742		$	7,325	$	8,617	$	(298	)	$	91,386	$	69,709	$	3,421		$	4,512		$	315	$	77,957

	Three Months Ended September 30, 2014 as compared to the Three Months Ended September 30, 2013
	Same Store					Acquisition Properties					Stabilized Development & Redevelopment					Other					Total
	Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change
	($ in thousands)
Operating revenues:
Rental income	$	3,876		4.2	%	$	4,024		117.5	%	$	4,579		71.9	%	$	(612	)	(99.7	)%	$	11,867		11.5	%
Tenant reimbursements	897			10.5		370			42.8		587			543.5		(91		)	(100.0	)	1,763			18.4
Other property income	1,855			308.1		(6		)	(100.0	)	—			—		—			—		1,849			304.1
Total	6,628			6.5		4,388			102.2		5,166			79.8		(703		)	(99.7	)	15,479			13.6
Property and related expenses:
Property expenses	634			2.8		67			11.6		641			59.3	%	(11		)	(15.3	)	1,331			5.4
Real estate taxes	105			1.2		404			129.9		490			72.4		(79		)	(24.8	)	920			9.1
Provision for bad debts	(170		)	(128.8	)	13			(100.0	)	114			(633.3	)	—			—		(43		)	(42.6	)
Ground leases	26			3.7		—			—		(184		)	(83.3	)	—			—		(158		)	(17.0	)
Total	595			1.8		484			55.4		1,061			54.1		(90		)	(23.1	)	2,050			5.8
Net Operating Income, as defined	$	6,033		8.7	%	$	3,904		114.1	%	$	4,105		91.0	%	$	(613	)	(194.6	)%	$	13,429		17.2	%

Net Operating Income increased $13.4 million, or 17.2%, for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 primarily resulting from:

• An increase of $6.0 million attributable to the Same Store Properties primarily resulting from:

• An increase in rental income of $3.9 million primarily due to an increase in occupancy and new leases at higher rates;

• An increase in tenant reimbursements of $0.9 million primarily due to higher reimbursable property expenses and real estate taxes;

41

• An increase in other property income of $1.9 million. During the three months ended September 30, 2014 we recognized lease termination fees of $2.2 million primarily from one tenant. During the three months ended September 30, 2013 we received lease termination fees of $0.3 million; and

• A partially offsetting increase in property and related expenses of $0.6 million primarily resulting from:

• An increase of $0.6 million in property expenses primarily resulting from an increase of $0.9 million to utilities, parking expenses, and repairs and maintenance, which was partially offset by $0.3 million of lower non-recurring legal fees;

• An increase of $4.1 million attributable to the Stabilized Development and Redevelopment Properties; and

• An increase of $3.9 million attributable to the Acquisition Properties.

Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $0.9 million, or 8.9%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was primarily attributable to an increase in compensation expense primarily related to the 2014 RSU grant.

Depreciation and Amortization

Depreciation and amortization increased by $4.2 million, or 9.2%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013, primarily related to the Acquisition Properties and the Stabilized Development and Redevelopment Properties.

Interest Expense

The following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest, including capitalized debt discounts/premiums and loan cost amortization for the three months ended September 30, 2014 and 2013:

	Three Months Ended September 30,
	2014			2013			Dollar Change			Percentage Change
	(in thousands)
Gross interest expense	$	29,936		$	27,942		$	1,994		7.1	%
Capitalized interest and loan fees	(13,328		)	(9,089		)	(4,239		)	46.6	%
Interest expense	$	16,608		$	18,853		$	(2,245	)	(11.9	)%

Gross interest expense, before the effect of capitalized interest, increased $2.0 million, or 7.1%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 resulting from an increase in our average outstanding debt balances. Capitalized interest and loan fees increased $4.2 million, or 46.6%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was primarily attributable to an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.

42

Comparison of the Nine Months Ended September 30, 2014 to the Nine Months Ended September 30, 2013

The following table summarizes our Net Operating Income from continuing operations, as defined, for our total portfolio for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,						Dollar Change			Percentage Change
	2014			2013
	($ in thousands)
Reconciliation to Net Income:
Net Operating Income, as defined	$	269,420		$	236,622		$	32,798		13.9	%
Unallocated (expense) income:
General and administrative expenses	(33,806		)	(29,750		)	(4,056		)	13.6
Acquisition-related expenses	(1,268		)	(1,387		)	119			(8.6	)
Depreciation and amortization	(148,647		)	(138,652		)	(9,995		)	7.2
Interest income and other net investment gains	587			1,084			(497		)	(45.8	)
Interest expense	(49,880		)	(58,021		)	8,141			(14.0	)
Gain on sale of land	3,490			—			3,490			100.0
Income from continuing operations	39,896			9,896			30,000			303.2
Income from discontinued operations	112,482			11,622			100,860			867.8
Net income	$	152,378		$	21,518		$	130,860		608.1	%

The following tables summarize the Net Operating Income, as defined, for our total portfolio for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014												2013
	Same Store			Acquisition Properties		Stabilized Develop-ment & Redevel-opment		Other			Total		Same Store		Acquisition Properties			Stabilized Develop-ment & Redevel-opment			Other		Total
	(in thousands)
Operating revenues:
Rental income	$	287,596		$	20,891	$	29,584	$	840		$	338,911	$	275,974	$	9,204		$	15,719		$	2,676	$	303,573
Tenant reimbursements	28,323			3,534		1,425		117			33,399		25,634		1,847			543			326		28,350
Other property income	7,632			—		11		7			7,650		6,578		6			—			—		6,584
Total	323,551			24,425		31,020		964			379,960		308,186		11,057			16,262			3,002		338,507
Property and related expenses:
Property expenses	68,079			1,905		4,987		477			75,448		64,754		1,359			2,821			961		69,895
Real estate taxes	26,626			2,096		3,121		885			32,728		25,697		816			1,522			1,094		29,129
Provision for bad debts	(38		)	—		96		—			58		227		(13		)	(18		)	—		196
Ground leases	2,198			—		108		—			2,306		2,165		—			500			—		2,665
Total	96,865			4,001		8,312		1,362			110,540		92,843		2,162			4,825			2,055		101,885
Net Operating Income (Loss), as defined	$	226,686		$	20,424	$	22,708	$	(398	)	$	269,420	$	215,343	$	8,895		$	11,437		$	947	$	236,622

43

	Nine Months Ended September 30, 2014 as compared to the Nine Months Ended September 30, 2013
	Same Store					Acquisition Properties					Stabilized Development & Redevelopment					Other					Total
	Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change
	($ in thousands)
Operating revenues:
Rental income	$	11,622		4.2	%	$	11,687		127.0	%	$	13,865		88.2	%	$	(1,836	)	(68.6	)%	$	35,338		11.6	%
Tenant reimbursements	2,689			10.5		1,687			91.3		882			162.4		(209		)	(64.1	)	5,049			17.8
Other property income	1,054			16.0		(6		)	(100.0	)	11			100.0		7			100.0		1,066			16.2
Total	15,365			5.0		13,368			120.9		14,758			90.8		(2,038		)	(67.9	)	41,453			12.2
Property and related expenses:
Property expenses	3,325			5.1		546			40.2		2,166			76.8	%	(484		)	(50.4	)	5,553			7.9
Real estate taxes	929			3.6		1,280			156.9		1,599			105.1		(209		)	(19.1	)	3,599			12.4
Provision for bad debts	(265		)	(116.7	)	13			(100.0	)	114			(633.3	)	—			—		(138		)	(70.4	)
Ground leases	33			1.5		—			—		(392		)	(78.4	)	—			—		(359		)	(13.5	)
Total	4,022			4.3		1,839			85.1		3,487			72.3		(693		)	(33.7	)	8,655			8.5
Net Operating Income, as defined	$	11,343		5.3	%	$	11,529		129.6	%	$	11,271		98.5	%	$	(1,345	)	(142.0	)%	$	32,798		13.9	%

Net Operating Income increased $32.8 million, or 13.9%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily resulting from:

• An increase of $11.5 million attributable to the Acquisition Properties;

• An increase of $11.3 million attributable to the Same Store Properties primarily resulting from:

• An increase in rental income of $11.6 million primarily due to an increase in occupancy, new leases at higher rates, an increase from the amortization of tenant funded tenant improvements and an increase in parking income at various properties;

• An increase in tenant reimbursements of $2.7 million primarily due to higher reimbursable property expenses and real estate taxes;

• An increase in other property income of $1.1 million. During the nine months ended September 30, 2014 we recognized lease termination fees of $6.3 million. During the nine months ended September 30, 2013 we received a $5.2 million property damage settlement payment at one of our properties;

• A partially offsetting increase in property and related expenses of $4.0 million primarily resulting from:

• An increase of $3.3 million in property expenses primarily resulting from an increase in certain recurring operating costs of $2.3 million related to utilities, janitorial services, repairs and maintenance, and $1.0 million of non-recurring legal fees;

• An increase of $0.9 million in real estate taxes primarily as a result of higher taxes at several properties, which was partially offset by property tax refunds received in 2014 that related to prior periods; and

• An increase of $11.3 million attributable to the Stabilized Development and Redevelopment Properties.

44

Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $4.1 million, or 13.6%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily attributable to an increase in compensation expense primarily related to the 2014 RSU grant and other professional service costs.

Depreciation and Amortization

Depreciation and amortization increased by $10.0 million, or 7.2%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, primarily related to the Acquisition Properties and Stabilized Development and Redevelopment Properties.

Interest Expense

The following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest, including capitalized debt discounts/premiums and loan cost amortization for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,
	2014			2013			Dollar Change			Percentage Change
	(in thousands)
Gross interest expense	$	85,740		$	83,322		$	2,418		2.9	%
Capitalized interest and loan fees	(35,860		)	(25,301		)	(10,559		)	41.7	%
Interest expense	$	49,880		$	58,021		$	(8,141	)	(14.0	)%

Gross interest expense, before the effect of capitalized interest, increased $2.4 million, or 2.9%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 resulting from an increase in our average outstanding debt balances. Capitalized interest and loan fees increased $10.6 million, or 41.7%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily attributable to an increase in our development, which resulted in higher average asset balances qualifying for interest capitalization.

45

Liquidity and Capital Resources of the Company

In this “Liquidity and Capital Resources of the Company” section, the term the “Company” refers only to Kilroy Realty Corporation on an unconsolidated basis and excludes the Operating Partnership and all other subsidiaries.

The Company’s business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company’s source of capital. The Company believes that the Operating Partnership’s sources of working capital, specifically its cash flow from operations and borrowings available under its revolving credit facility, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its preferred and common stockholders for the next twelve months. Cash flows from operating activities generated by the Operating Partnership for the nine months ended September 30, 2014 were sufficient to cover the Company’s payment of cash dividends to its stockholders.However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital could adversely affect the Operating Partnership’s ability to make distributions to the Company, which would in turn, adversely affect the Company’s ability to pay cash dividends to its stockholders.

The Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depositary shares, warrants and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its revolving credit facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes, and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.

Distribution Requirements

The Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gain) on an annual basis to maintain qualification as a REIT for federal income tax purposes and is required to pay income tax at regular corporate rates to the extent it distributes less than 100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may be required to use borrowings under the Operating Partnership’s revolving credit facility, if necessary, to meet REIT distribution requirements and maintain its REIT status. The Company may also need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, as well as potential development of new or existing properties or acquisitions.

The Company intends to continue to make, but has not committed to make, regular quarterly cash distributions to common stockholders and common unitholders from cash flow from operating activities. All such distributions are at the discretion of the board of directors. The Company has historically distributed amounts in excess of its taxable income resulting in a return of capital to its stockholders and the Company currently believes it has the ability to maintain distributions at the 2014 levels to meet the REIT distribution requirements for 2014. In addition, to the extent that the Company cannot successfully complete Section 1031 Exchanges to defer some or all of the taxable gains related to completed or future property dispositions, the Company may choose to distribute a special dividend to avoid having to pay income taxes on such gains. The Company considers market factors and its performance in addition to REIT requirements in determining our distribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with the Company’s intention to maintain its qualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmental agency securities, certificates of deposit and interest-bearing bank deposits.

46

On September 15, 2014, the Board of Directors declared a regular quarterly cash dividend of $0.35 per share of common stock payable on October 15, 2014 to stockholders of record on September 30, 2014 and caused a $0.35 per Operating Partnership unit cash distribution to be paid in respect of the Operating Partnership’s common limited partnership interests, including those owned by the Company. The total cash quarterly dividends and distributions paid on October 15, 2014 was$29.8 million.

On September 15, 2014, the Board of Directors declared a dividend of $0.42969 per share on the Series G Preferred Stock and $0.39844 per share on the Series H Preferred Stock for the period commencing on and including August 15, 2014 and ending on and including November 16, 2014. The dividend will be payable on November 17, 2014 to Series G Preferred and Series H Preferred stockholders of record on October 31, 2014. The quarterly dividends payable on November 17, 2014 to Series G and Series H Preferred stockholders is expected to total $3.3 million.

Debt Covenants

The covenants contained within the revolving credit facility and the term loan facility prohibit the Company from paying dividends in excess of 95% of FFO.

Capitalization

As of September 30, 2014, our total debt as a percentage of total market capitalization was 31.5% and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 34.1%, which was calculated based on the closing price per share of the Company’s common stock of $59.44 on September 30, 2014 as shown in the following table:

	Shares/Units at  September 30, 2014	Aggregate Principal Amount or $ Value Equivalent		% of Total Market Capitalization
	($ in thousands)
Debt:
Unsecured Term Loan Facility (1)		$	150,000	1.9
4.25% Unsecured Exchangeable Notes due 2014 (2)		135,481		1.8
Unsecured Senior Notes due 2015 (2)		325,000		4.2
Unsecured Senior Notes due 2018 (2)		325,000		4.2
Unsecured Senior Notes due 2020 (2)		250,000		3.3
Unsecured Senior Notes due 2023 (2)		300,000		3.9
Unsecured Senior Notes due 2029 (2)		400,000		5.2
Secured debt (2)		538,552		7.0
Total debt		2,424,033		31.5
Equity and Noncontrolling Interests:
6.875% Series G Cumulative Redeemable Preferred stock (3)	4,000,000	100,000		1.3
6.375% Series H Cumulative Redeemable Preferred stock (3)	4,000,000	100,000		1.3
Common limited partnership units outstanding (4)(5)	1,804,200	107,242		1.4
Common shares outstanding (5)	83,388,220	4,956,596		64.5
Total equity and noncontrolling interests		5,263,838		68.5
Total Market Capitalization		$	7,687,871	100.0	%

________________________ 

(1) In June 2014, the Company amended the terms of its unsecured revolving credit facility and $150 million unsecured term loan facility. The amendment increased the availability under the unsecured line of credit from $500 million to $600 million, extended the maturity to July 2019 and reduced the pricing on both the unsecured revolving credit facility and unsecured term loan facility.

(2) Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of September 30, 2014. The aggregate net unamortized premiums totaled approximately $4.9 million as of September 30, 2014.

(3) Value based on $25.00 per share liquidation preference.

(4) Represents common units not owned by the Company.     

(5) Value based on closing price per share of our common stock of $59.44 as of September 30, 2014.

47

Liquidity and Capital Resources of the Operating Partnership

In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we,” “our,” and “us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the context requires.

General

Our primary liquidity sources and uses are as follows:

Liquidity Sources

• Net cash flow from operations;

• Borrowings under the Operating Partnership’s revolving credit facility and term loan facility;

• Proceeds from additional secured or unsecured debt financings;

• Proceeds from public or private issuance of debt or equity securities; and

• Proceeds from the disposition of selective assets through our capital recycling program.

Liquidity Uses

• Property or undeveloped land acquisitions;

• Property operating and corporate expenses;

• Capital expenditures, tenant improvement and leasing costs;

• Debt service and principal payments, including debt maturities;

• Distributions to common and preferred security holders;

• Development and redevelopment costs; and

• Outstanding debt repurchases.

General Strategy

Our general strategy is to maintain a conservative balance sheet with a strong credit profile and to maintain a capital structure that allows for financial flexibility and diversification of capital resources. We manage our capital structure to reflect a long-term investment approach and utilize multiple sources of capital to meet our long-term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forth above under the caption “—Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and, therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities.

Summary of 2014 Funding Transactions

We continue to be active in the capital markets to finance our acquisition and development activity and our continued desire to improve our debt maturities and lower our overall weighted average cost of capital. This was primarily a result of the following transactions:

Capital Markets / Debt Transactions

• During the nine months ended September 30, 2014, we issued and sold a total of 370,700 shares of our common stock under our at-the-market stock offering program at a weighted average price of $61.01 per share before selling commissions. The net offering proceeds (after deducting sales agent compensation) of approximately $22.3 million were contributed to the Operating Partnership (see “—Liquidity Sources” below for additional information). In October 2014, the Company issued 217,042 common shares under its at-the-market stock offering program at a weighted average price of $59.38 per share before selling commissions.

48

• In July 2014, the Operating Partnership issued unsecured senior notes in an underwritten public offering with an aggregate principal balance of $400.0 million that are scheduled to mature in August 2029. The unsecured senior notes require semi-annual interest payments each February and August based on a stated annual interest rate of 4.250%.

• During the nine months ended September 30, 2014, we settled $37.0 million of early exchanges of the 4.25% Exchangeable Notes (see Note 5 “Secured and Unsecured Debt of the Operating Partnership” to our consolidated financial statements included in this report for additional information).

• In August 2014, we repaid the Series B unsecured senior notes with an outstanding principal balance of $83.0 million upon maturity (see Note 5 “Secured and Unsecured Debt of the Operating Partnership” to our consolidated financial statements included in this report for additional information).

Capital Recycling Program

• During the nine months ended September 30, 2014, we completed the sale of fourteen properties located in San Diego, one office property located in Irvine, and one undeveloped land parcel located in San Diego to unaffiliated third parties in four separate transactions for gross sales proceeds totaling approximately $372.4 million. In addition, as of September 30, 2014, we classified two properties as held for sale that are located in Orange, California and in the San Rafael submarket of San Francisco, California. The transactions are anticipated to close in the fourth quarter of 2014 for total gross sales proceeds of approximately $60.2 million. (see “—Factors that May Influence Future Operations” included in this report for additional information).

After the effect of these aforementioned transactions, as of September 30, 2014, we had approximately $200.4 million of unrestricted cash on hand, $17.5 million of restricted cash and no outstanding borrowings on our revolving credit facility.

Liquidity Sources

We continue to be active in the capital markets to finance our acquisition and development activity and our continued desire to improve our debt maturities and lower our overall weighted average cost of capital.

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in July 2011, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $200.0 million from time to time in “at-the-market” offerings. There were no sales of common stock under our at-the market offering program during the three months ended September 30, 2014. The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the nine months ended September 30, 2014:

	Nine months  ended September 30, 2014
	(in millions, except share and per share data)
Shares of common stock sold during the year	370,700
Weighted average price per common share	$	61.01
Aggregate gross proceeds	$	22.6
Aggregate net proceeds after sales agent compensation	$	22.3

The proceeds from the sales were used to fund development and redevelopment expenditures and for general corporate purposes. Since commencement of the program, we have sold 2,553,961 shares of common stock having an aggregate gross sales price of $127.9 million. As of September 30, 2014, shares of common stock having an aggregate gross sales price of up to $72.1 million remain available to be sold under this program. Actual future sales will depend upon a variety of factors, including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program. In October 2014, the Company issued 217,042 common shares under its at-the-market stock offering program at a weighted average price of $59.38 per share before selling commissions.

49

Capital Recycling Program

In connection with our capital recycling program, we continuously evaluate opportunities for the potential disposition of properties and undeveloped land in our portfolio with the intent of recycling the proceeds generated from the disposition of non-strategic properties or lower return assets into capital used to fund new operating and development acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes.

In connection with our capital recycling strategy, through September 30, 2014, we completed the sale of fourteen properties located in San Diego, one office property located in Irvine, and one undeveloped land parcel located in San Diego to unaffiliated third parties in four separate transactions for gross sales proceeds totaling approximately $372.4 million. During 2013, we completed the sale of three office buildings to unaffiliated third parties in three separate transactions, for gross sales proceeds totaling approximately $56.9 million. In addition, as of September 30, 2014, we classified two properties as held for sale that are located in Orange, California and in the San Rafael submarket of San Francisco, California. The transactions are anticipated to close in the fourth quarter of 2014 for total gross sales proceeds of approximately $60.2 million. See “—Factors that May Influence Future Operations” for additional information.

Unsecured Revolving Credit Facility

In the second quarter of 2014, the Company amended the terms of our unsecured revolving credit facility to increase the borrowing capacity to $600.0 million, extended the maturity to July 2019 and reduced the annual interest rate to LIBOR plus 1.25%. The amendment did not affect the outstanding borrowings under the credit facility. The following table summarizes the balance and terms of our revolving credit facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	—		$	45,000
Remaining borrowing capacity	600,000			455,000
Total borrowing capacity (1)	$	600,000		$	500,000
Interest rate (2)(3)	—		%	1.62		%
Facility fee-annual rate (4)	0.250%			0.300%
Maturity date	July 2019			April 2017

_______________

(1) We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $300.0 million under an accordion feature under the terms of the revolving credit facility and term loan facility.

(2) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of September 30, 2014.

(3) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.

(4) Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2014, $6.2 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.

We intend to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.

Shelf Registration Statement

As discussed above under “—Liquidity and Capital Resources of the Company,” the Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depository shares and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its revolving credit facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

50

Exchangeable Notes, Unsecured Debt, and Secured Debt

The aggregate principal amount of our 4.25% Exchangeable Notes, unsecured debt, and secured debt of the Operating Partnership outstanding as of September 30, 2014 was as follows:

	Aggregate Principal  Amount Outstanding
	(in thousands)
Unsecured Term Loan Facility	$	150,000
4.25% Exchangeable Notes due 2014 (1)	135,481
Unsecured Senior Notes due 2015 (1)	325,000
Unsecured Senior Notes due 2018 (1)	325,000
Unsecured Senior Notes due 2020 (1)	250,000
Unsecured Senior Notes due 2023 (1)	300,000
Unsecured Senior Notes due 2029 (1)	400,000
Secured Debt(1)	538,552
Total Exchangeable Notes, Unsecured Debt, and Secured Debt	$	2,424,033

________________________

(1) Represents gross aggregate principal amount before the effect of the unamortized discounts and premiums as of September 30, 2014. The aggregate net unamortized premiums totaled approximately $4.9 million as of September 30, 2014.

Debt Composition

The composition of the Operating Partnership’s aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt as of September 30, 2014 and December 31, 2013 was as follows:

	Percentage of Total Debt				Weighted Average Interest Rate
	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Secured vs. unsecured(1):
Unsecured	77.8	%	75.1	%	4.5	%	4.6	%
Secured	22.2	%	24.9	%	5.2	%	5.2	%
Variable-rate vs. fixed-rate(1):
Variable-rate	6.2	%	8.9	%	1.6	%	1.9	%
Fixed-rate	93.8	%	91.1	%	4.9	%	5.0	%
Stated rate(1)					4.7	%	4.8	%
GAAP effective rate(2)					4.7	%	4.8	%
GAAP effective rate including debt issuance costs					4.9	%	5.1	%

________________________

(1) Excludes the impact of the amortization of any debt discounts/premiums.

(2) Includes the impact of the amortization of any debt discounts/premiums, excluding debt issuance costs.

Liquidity Uses

Contractual Obligations

The following table provides information with respect to our contractual obligations as of September 30, 2014. The table: (i) indicates the maturities and scheduled principal repayments of our secured debt, 4.25% Exchangeable Notes and unsecured debt; (ii) indicates the scheduled interest payments of our fixed-rate and variable-rate debt as of September 30, 2014; (iii) provides information about the minimum commitments due in connection with our ground lease obligations and other lease and contractual commitments; and (iv) provides estimated redevelopment and development commitments as of September 30, 2014. Note that the table does not reflect our available debt maturity extension options and reflects gross aggregate principal amounts before the effect of unamortized discounts/premiums.

51

	Payment Due by Period
	Remainder of 2014		2015-2016		2017-2018		After 2019		Total
	(in thousands)
Principal payments: secured debt (1)	$	2,528	$	169,535	$	198,476	$	168,013	$	538,552
Principal payments: 4.25% Exchangeable Notes(2)	135,481		—		—		—		135,481
Principal payments: unsecured debt(3)	—		325,000		325,000		1,100,000		1,750,000
Interest payments: fixed-rate debt(4)	26,925		181,748		138,291		286,815		633,779
Interest payments: variable-rate debt (5)	590		4,680		4,680		1,160		11,110
Ground lease obligations (6)	774		6,190		6,190		156,912		170,066
Lease and contractual commitments (7)	58,712		2,770		171		—		61,653
Redevelopment and development commitments (8)	134,000		319,000		—		—		453,000
Total	$	359,010	$	1,008,923	$	672,808	$	1,712,900	$	3,753,641

________________________

(1) Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $11.3 million as of September 30, 2014.

(2) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $0.4 million as of September 30, 2014.

(3) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $6.0 million as of September 30, 2014.

(4) As of September 30, 2014, 93.8% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates, interest payment dates and scheduled maturity dates.

(5) As of September 30, 2014, 6.2% of our debt bore interest at variable rates which was incurred under the term loan facility. The variable interest rate payments are based on LIBOR plus a spread of 1.400% as of September 30, 2014. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on outstanding principal balances as of September 30, 2014, the scheduled interest payment dates and the contractual maturity dates.

(6) Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options.

(7) Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures may fluctuate.

(8) Amounts represent commitments under signed leases for pre-leased development projects and contractual commitments for projects under construction as of September 30, 2014. The timing of these expenditures may fluctuate based on the ultimate progress of construction. We may start additional construction in 2014.

Other Liquidity Uses

Debt Maturities

As of September 30, 2014, our 4.25% Exchangeable Notes, with a remaining aggregate principal balance of $135.5 million, is scheduled to mature in November 2014. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and, therefore, we believe we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities. Furthermore, as of September 30, 2014, we had $200.4 million in cash and full availability under our $600.0 million bank line to refinance any short term maturities, including the maturing debt noted above.

Potential Future Acquisitions

During the nine months ended September 30, 2014, we acquired one office building in Washington and one undeveloped land site in California for approximately $201.1 million in cash. Additionally, in October 2014, we completed the acquisition of a 1.9 acre land site in the Central SOMA submarket of San Francisco, California for approximately $27.0 million and, as of the date of this report, we are under contract on a fully leased operating property acquisition for approximately $100 million that is currently expected to close in November 2014. During the nine months ended September 30, 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood City Partners, LLC. In connection with this formation, the Company acquired a 0.35 acre land site in Redwood  City, California. These transactions were funded through various capital raising activities and, in selected instances, the assumption of existing indebtedness. We expect to continue to monitor our target markets and to pursue the acquisition of value add office properties and development and redevelopment opportunities that add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.

52

Development and Redevelopment Opportunities

As of September 30, 2014, we had five development projects under construction. These projects have a total estimated investment of approximately $1.2 billion, of which we have incurred approximately $641.4 million and committed an additional $453.0 million as of September 30, 2014. In October, we also commenced construction of a sixth development project, The Heights at Del Mar, located in the Del Mar submarket of San Diego which has a total estimated investment of approximately $45.0 million. The project is scheduled for completion in the fourth quarter of 2015. This total estimated investment is based on market conditions and our anticipation of project approvals. Actual costs could vary depending on changes in circumstances. Ultimate timing of these expenditures may fluctuate given the ultimate progress and leasing status of the projects.

Other Potential Future Liquidity Uses

We remain a disciplined buyer of office properties and continue to focus on value add opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, entertainment and professional services. We expect that any material acquisitions or development activities will be funded with borrowings under the revolving credit facility, the public or private issuance of debt or equity securities, the disposition of assets under our capital recycling program or through the assumption of existing debt.

In addition, the amounts we are required to spend on tenant improvements and leasing costs we ultimately incur will depend on actual leasing activity. Tenant improvements and leasing costs generally fluctuate in any given period depending on factors such as the type of property, the term of the lease, the type of the lease, the involvement of external leasing agents and overall market conditions. Capital expenditures may fluctuate in any given period subject to the nature, extent and timing of improvements required to maintain or improve our properties.

Factors That May Influence Future Sources of Capital and Liquidity of the Company and the Operating Partnership

We continue to evaluate sources of financing for our business activities, including borrowings under the revolving credit facility, issuance of public and private equity securities, unsecured debt and fixed-rate secured mortgage financing and proceeds from the disposition of selective assets through our capital recycling program. However, our ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by various factors, including the state of economic conditions, the state of the credit and equity markets, significant tenant defaults, a decline in the demand for office properties, a decrease in market rental rates or market values of real estate assets in our submarkets and the amount of future borrowings. These events could result in the following:

• Decreases in our cash flows from operations, which could create further dependence on the revolving credit facility;

• An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and

• A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incur additional debt, refinance existing debt at competitive rates or comply with its existing debt obligations.

In addition to the factors noted above, the Operating Partnership’s credit ratings are subject to ongoing evaluation by credit rating agencies and may be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. In the event that the Operating Partnership’s credit ratings are downgraded, we may incur higher borrowing costs and may experience difficulty in obtaining additional financing or refinancing existing indebtedness.

53

Debt Covenants

The unsecured revolving credit facility, secured term loan facility, unsecured senior notes and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Key existing financial covenants and their covenant levels include:

Unsecured Credit Facility and Term Loan Facility (as defined in the applicable Credit Agreements):	Covenant Level	Actual Performance as of September 30, 2014
Total debt to total asset value	less than 60%	33%
Fixed charge coverage ratio	greater than 1.5x	2.5x
Unsecured debt ratio	greater than 1.67x	2.77x
Unencumbered asset pool debt service coverage	greater than 1.75x	3.54x
Unsecured Senior Notes due 2015, 2018, 2020, 2023 and 2029 (as defined in the applicable Indentures):
Total debt to total asset value	less than 60%	40%
Interest coverage	greater than 1.5x	4.9x
Secured debt to total asset value	less than 40%	9%
Unencumbered asset pool value to unsecured debt	greater than 150%	262%

For additional information regarding how the foregoing percentages and ratios are calculated under these covenants, and for the definitions of some of the terms used in the foregoing table, please see the revolving credit facility and term loan facility that we have filed with the SEC and the indenture and related officers’ certificates and forms of senior notes that we have filed with the SEC. The Operating Partnership was in compliance with all of its debt covenants as of September 30, 2014. Our current expectation is that the Operating Partnership will continue to meet the requirements of its debt covenants in both the short and long term. However, in the event of a renewed economic slowdown or continued volatility in the credit markets, there is no certainty that the Operating Partnership will be able to continue to satisfy all of the covenant requirements.

Consolidated Historical Cash Flow Summary

The following summary discussion of our consolidated historical cash flow is based on the consolidated statements of cash flows in Item 1. “Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flow for the periods presented below. The cash flow amounts shown below include the activities of discontinued operations. Our historical cash flow activity for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 is as follows:

	Nine Months Ended September 30,
	2014			2013			Dollar Change			Percentage Change
	($ in thousands)
Net cash provided by operating activities	$	197,264		$	186,310		$	10,954		5.9	%
Net cash used in investing activities	(188,958		)	(281,664		)	92,706			(32.9	)%
Net cash provided by financing activities	156,748			275,804			(119,056		)	(43.2	)%

Operating Activities

Our cash flows from operating activities depend on numerous factors including the occupancy level of our portfolio, the rental rates achieved on our leases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions and related financing activities, and other general and administrative costs. Our net cash from operating activities increased by $11.0 million, or 5.9%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily as a result of an increase in cash Net Operating Income generated from our Same Store, Acquisition and Stabilized Development and Redevelopment Portfolios. See additional information under the caption “—Results of Operations.”

54

Investing Activities

Our cash flows from investing activities is generally used to fund property, development and redevelopment acquisitions, recurring and nonrecurring capital expenditures for our operating properties, and development and redevelopment projects, net of proceeds received from property dispositions. Our net cash used in investing activities decreased by $92.7 million, or 32.9%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily as a result of the proceeds received from the disposition of fourteen properties located in San Diego, California, one office property located in Irvine, California and one undeveloped land parcel located in San Diego, California partially offset by an increase in cash paid for acquisitions and expenditures at our operating properties and development and redevelopment properties as compared to the prior year.

Financing Activities

Our cash flows from financing activities is principally impacted by our capital raising activities, net of dividends and distributions paid to common and preferred security holders. Net cash provided by financing activities decreased by $119.1 million, or 43.2%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 due primarily to a decrease in the issuance of equity for the nine months ended September 30, 2014 compared to 2013.

Off-Balance Sheet Arrangements

As of September 30, 2014 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements or obligations, including contingent obligations.

55

Non-GAAP Supplemental Financial Measure: Funds From Operations

We calculate 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 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.

The following table presents our FFO for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
	(in thousands)
Net income available to common stockholders	$	15,669		$	5,584	$	139,429		$	11,314
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership	321			131		3,011			266
Depreciation and amortization of real estate assets	49,996			50,184		148,878			148,982
Gains on dispositions of discontinued operations	(5,587		)	—		(110,391		)	(423		)
Funds From Operations(1)(2)	$	60,399		$	55,899	$	180,927		$	160,139

________________________

(1) Reported amounts are attributable to common stockholders and common unitholders.

(2) FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $2.7 million and $2.6 million for the three months ended September 30, 2014 and 2013, respectively, and $7.7 million and $7.6 million for the nine months ended September 30, 2014 and 2013, respectively.

56

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risk we face is interest rate risk. We seek to mitigate this risk by following established risk management policies and procedures. These policies include maintaining prudent amounts of debt, including a greater amount of fixed-rate debt as compared to variable-rate debt in our portfolio, and may include the periodic use of derivative instruments. As of September 30, 2014 and December 31, 2013, we did not have any interest-rate sensitive derivative assets or liabilities.

Information about our changes in interest rate risk exposures from December 31, 2013 to September 30, 2014 is incorporated herein by reference from “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership.”

Market Risk

As of September 30, 2014, approximately 6.2% of our total outstanding debt of $2.4 billion was subject to variable interest rates. The remaining 93.8% bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes.

In general, interest rate fluctuations applied to our variable-rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuations applied to our fixed-rate debt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated and need to be refinanced. However, interest rate fluctuations will impact the fair value of the fixed-rate debt instruments.

We generally determine the fair value of our secured debt, unsecured revolving credit facility, and unsecured term loan facility by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. We calculate the market rate of our revolving credit facility and unsecured term loan facility by obtaining the period-end LIBOR rate and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan-to-value ratio of the debt to the collateral. These calculations are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. We determine the fair value of the liability component of our 4.25% Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate based upon spreads for our publicly traded debt. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end of the reporting period.

As of September 30, 2014, the total outstanding balance of our variable-rate debt was comprised of borrowings on our unsecured term loan facility of $150.0 million, which was indexed to LIBOR plus a spread of 1.400% (weighted average interest rate of 1.79%). As of December 31, 2013, the total outstanding balance of our variable-rate debt was comprised of borrowings on our revolving credit facility of $45.0 million and borrowings on our unsecured term loan facility of $150.0 million, which were indexed to LIBOR plus a spread of 1.45% (weighted average interest rate of 1.62%) and 1.750% (weighted average interest rate of 1.92%), respectively. Assuming no changes in the outstanding balance of our existing variable-rate debt as of September 30, 2014, a 100 basis point increase in the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, by approximately $1.5 million. Comparatively, if interest rates were 100 basis points higher as of December 31, 2013, our projected annual interest expense, before the effect of capitalization, would have been $2.0 million higher.

The total carrying value of our fixed-rate debt, including our 4.25% Exchangeable Notes, was approximately $2.3 billion as of September 30, 2014 and $2.0 billion as of December 31, 2013, respectively. The total estimated fair value of our fixed-rate debt was approximately $2.4 billion as of September 30, 2014 and $2.1 billion as of December 31, 2013, respectively. For sensitivity purposes, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately $108.6 million, or 4.6%, as of September 30, 2014. Comparatively, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately $85.1 million, or 4.0%, as of December 31, 2013.

See Note 11 to our consolidated financial statements included in this report for additional information on the fair value of our financial assets and liabilities as of September 30, 2014 and December 31, 2013.

57

ITEM  4.CONTROLS AND PROCEDURES

Kilroy Realty Corporation

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2014, the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of that time, that disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes that occurred during the quarter covered by this report in the Company’s internal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Kilroy Realty, L.P.

The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Operating Partnership’s reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2014, the end of the period covered by this report. Based on the foregoing, the Operating Partnership’s Chief Executive Officer and Chief Financial Officer concluded, as of that time, that disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes that occurred during the quarter covered by this report in the Operating Partnership’s internal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

58

PART II – OTHER INFORMATION

ITEM  1.    LEGAL PROCEEDINGS

We and our properties are subject to routine litigation incidental to our business. These matters are generally covered by insurance. As of September 30, 2014, we are not a defendant in, and our properties are not subject to, any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect upon our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors included in the Company’s and the Operating Partnership’s annual report on Form 10-K/A for the year ended December 31, 2013.

ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities: None.

(b) Use of Proceeds from Registered Securities: None.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers:

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) that May Yet to be Purchased Under the Plans or Programs
July 1 – July 31, 2014 (1)	83,298	$	42.81	—	—
August 1 – August 31, 2014 (1)	27,908	$	42.81	—	—
September 1 – September 30, 2014	—	$	—	—	—
Total	111,206	$	42.81	—	—

_______________

(1) Purchases were made pursuant to capped call options the Company entered into in connection with the Operating Partnership’s issuance of the 4.25% Exchangeable Notes. The capped call options are not part of the terms of the 4.25% Exchangeable Notes and do not affect the holders’ rights under the 4.25% Exchangeable Notes.

ITEM  3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM  4. MINE SAFETY DISCLOSURES

None.

ITEM  5. OTHER INFORMATION

None.

59

ITEM 6. EXHIBITS

Exhibit Number	Description
3.(i)1	Kilroy Realty Corporation Articles of Restatement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2012)
3.(i)2	Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)
3.(i)3	Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)
3.(i)4	Articles Supplementary designating Kilroy Realty Corporation's 6.375% Series H Cumulative Redeemable Preferred Stock (previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)
3.(ii)1	Second Amended and Restated Bylaws of Kilroy Realty Corporation, as amended (previously filed by Kilroy Realty Corporate on Form 10-Q for the quarter ended June 30, 2014)
3.(ii)2	Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of August 15, 2012, as amended (previously filed by Kilroy Realty Corporate on Form 10-Q for the quarter ended June 30, 2014)
10.1*	Term Loan Agreement dated as of July 31, 2014
10.2*	Guaranty dated as of July 31, 2014
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation
31.3*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.
31.4*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty, L.P.
32.1*	Section 1350 Certification of Chief Executive Officer of Kilroy Realty Corporation
32.2*	Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation
32.3*	Section 1350 Certification of Chief Executive Officer of Kilroy Realty, L.P.
32.4*	Section 1350 Certification of Chief Financial Officer of Kilroy Realty, L.P.
101.1	The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Equity (unaudited), (iv) Consolidated Statements of Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to the Consolidated Financial Statements (unaudited).(1)

_______________

* Filed herewith

(1) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

60

SIGNATURES

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, thereunto duly authorized on October 29, 2014.

KILROY REALTY CORPORATION
	By:	/s/ John B. Kilroy, Jr.
		John B. Kilroy, Jr. President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Tyler H. Rose
		Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Heidi R. Roth
		Heidi R. Roth Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

61

SIGNATURES

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, thereunto duly authorized on October 29, 2014.

KILROY REALTY, L.P.
BY:	KILROY REALTY CORPORATION
	Its general partner
	By:	/s/ John B. Kilroy, Jr.
		John B. Kilroy, Jr. President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Tyler H. Rose
		Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Heidi R. Roth
		Heidi R. Roth Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

62

EX-10.1

Exhibit 10.1

TERM LOAN AGREEMENT

dated as of July 31, 2014

among

KILROY REALTY, L.P.

JPMORGAN CHASE BANK, N.A.,

as Bank and as Administrative Agent for the Banks,

J.P. MORGAN SECURITIES LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED OR ITS AFFILIATE and WELLS FARGO SECURITIES, LLC

as Joint Lead Arrangers and Joint Bookrunners,

BANK OF AMERICA, N.A.,

as Bank and Syndication Agent,

WELLS FARGO BANK, N.A., BARCLAYS BANK PLC, COMPASS BANK, PNC BANK,

NATIONAL ASSOCIATION, ROYAL BANK OF CANADA, MUFG UNION BANK, N.A.

and U.S. BANK NATIONAL ASSOCIATION,

as Banks and Co-Documentation Agents,

and

THE BANKS LISTED HEREIN

TABLE OF CONTENTS
		Page
ARTICLE I	DEFINITIONS	1
Section 1.1	Definitions	1
Section 1.2	Accounting Terms and Determinations	23
Section 1.3	Types of Borrowings	23
ARTICLE II	THE CREDITS	23
Section 2.1	Commitments to Lend	23
Section 2.2	Notice of Borrowing	24
Section 2.3	Reserved	24
Section 2.4	Notice to Banks; Funding of Loans	24
Section 2.5	Notes	25
Section 2.6	Expiration of Facility; Maturity of Loans	25
Section 2.7	Interest Rates	26
Section 2.8	Reserved	27
Section 2.9	Reserved	27
Section 2.10	Mandatory Prepayment	27
Section 2.11	Optional Prepayments	28
Section 2.12	General Provisions as to Payments	28
Section 2.13	Funding Losses	30
Section 2.14	Computation of Interest and Fees	30
Section 2.15	Method of Electing Interest Rates	30
Section 2.16	Extending Facilities	31
ARTICLE III	CONDITIONS	33
Section 3.1	Closing	33
Section 3.2	Borrowings	35
ARTICLE IV	REPRESENTATIONS AND WARRANTIES	36
Section 4.1	Existence and Power	36
Section 4.2	Power and Authority	36
Section 4.3	No Violation	36
Section 4.4	Financial Information	37
Section 4.5	Litigation	37
Section 4.6	Compliance with ERISA	37
Section 4.7	Environmental Compliance	38
Section 4.8	Taxes	39
Section 4.9	Full Disclosure	39
Section 4.10	Solvency	39
Section 4.11	Use of Proceeds; Margin Regulations	39
Section 4.12	Governmental Approvals	40
Section 4.13	Investment Company Act	40
Section 4.14	Closing Date Transactions	40
Section 4.15	Representations and Warranties in Loan Documents	40

i

TABLE OF CONTENTS (continued)
		Page
Section 4.16	Patents, Trademarks, etc	40
Section 4.17	No Default	40
Section 4.18	Licenses, etc	40
Section 4.19	Compliance with Law	41
Section 4.20	No Burdensome Restrictions	41
Section 4.21	Brokers' Fees	41
Section 4.22	Labor Matters	41
Section 4.23	Organizational Documents	41
Section 4.24	Principal Offices	41
Section 4.25	REIT Status	41
Section 4.26	Ownership of Property	41
Section 4.27	Insurance	42
Section 4.28	Anti-Corruption Laws	42
Section 4.29	Sanctions	42
ARTICLE V	AFFIRMATIVE AND NEGATIVE COVENANTS	42
Section 5.1	Information	42
Section 5.2	Payment of Obligations	45
Section 5.3	Maintenance of Property; Insurance	45
Section 5.4	Conduct of Business	45
Section 5.5	Compliance with Laws	45
Section 5.6	Inspection of Property, Books and Records	46
Section 5.7	Existence	46
Section 5.8	Financial Covenants	46
Section 5.9	Restriction on Fundamental Changes; Operation and Control	47
Section 5.10	Changes in Business	48
Section 5.11	Sale of Unencumbered Asset Pool Properties	48
Section 5.12	Fiscal Year; Fiscal Quarter	48
Section 5.13	Margin Stock	48
Section 5.14	Use of Proceeds	48
Section 5.15	General Partner Status	48
ARTICLE VI	DEFAULTS	48
Section 6.1	Events of Default	48
Section 6.2	Rights and Remedies	51
Section 6.3	Notice of Default	52
ARTICLE VII	THE ADMINISTRATIVE AGENT	52
Section 7.1	Appointment and Authorization	52
Section 7.2	Administrative Agent and Affiliates	53
Section 7.3	Action by Administrative Agent	53
Section 7.4	Consultation with Experts	54
Section 7.5	Liability of Administrative Agent	54

ii

TABLE OF CONTENTS (continued)
		Page
Section 7.6	Indemnification	54
Section 7.7	Credit Decision	55
Section 7.8	Successor Administrative Agent	55
Section 7.9	Administrative Agent's Fee	56
Section 7.10	Copies of Notices	56
ARTICLE VIII	CHANGE IN CIRCUMSTANCES	56
Section 8.1	Alternate Rate of Interest	56
Section 8.2	Illegality	56
Section 8.3	Increased Cost and Reduced Return	57
Section 8.4	Taxes	58
Section 8.5	Base Rate Loans Substituted for Affected Euro-Dollar Loans	62
Section 8.6	Mitigation Obligations; Replacement of Banks	63
ARTICLE IX	MISCELLANEOUS	64
Section 9.1	Notices	64
Section 9.2	No Waivers	65
Section 9.3	Expenses; Indemnification	65
Section 9.4	Sharing of Set-Offs	66
Section 9.5	Amendments and Waivers	67
Section 9.6	Successors and Assigns	67
Section 9.7	USA Patriot Act	70
Section 9.8	Defaulting Lenders	70
Section 9.9	Governing Law; Submission to Jurisdiction	70
Section 9.10	Marshaling; Recapture	71
Section 9.11	Counterparts; Integration; Effectiveness	71
Section 9.12	WAIVER OF JURY TRIAL	71
Section 9.13	Survival	72
Section 9.14	Domicile of Loans	72
Section 9.15	Limitation of Liability	72
Section 9.16	Severability	72
Section 9.17	Interest Rate Limitation	72
Section 9.18	Confidentiality	72

iii

Exhibit A    -    Form of Note

Exhibit B    -    Unencumbered Asset Pool Properties (Fee Interests)

Exhibit C    -    Unencumbered Asset Pool Properties (Leasehold Interests)

Exhibit D    -    Form of Assignment and Assumption Agreement

Exhibit I-1    -    Form of U.S. Tax Compliance Certificates

Exhibit I-2    -    Form of U.S. Tax Compliance Certificates

Exhibit I-3    -    Form of U.S. Tax Compliance Certificates

Exhibit I-4    -    Form of U.S. Tax Compliance Certificates

Schedule 1    -    Commitments

Schedule 4.22    -    Labor Matters

iv

TERM LOAN AGREEMENT dated as of July 31, 2014, among KILROY REALTY, L.P. (the “Borrower”), JPMORGAN CHASE BANK, N.A., as Bank and as Administrative Agent for the Banks (the “Administrative Agent”), J.P. MORGAN SECURITIES LLC, as Joint Lead Arranger and Joint Bookrunner, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED OR ITS AFFILIATE, as Joint Lead Arranger and Joint Bookrunner, WELLS FARGO SECURITIES, LLC, as Joint Lead Arranger and Joint Bookrunner, BANK OF AMERICA, N.A., as Bank and Syndication Agent, WELLS FARGO BANK, N.A., BARCLAYS BANK PLC, COMPASS BANK, PNC BANK, NATIONAL ASSOCIATION, ROYAL BANK OF CANADA, MUFG UNION BANK, N.A. and U.S. BANK NATIONAL ASSOCIATION, as Banks and Co-Documentation Agents, and the BANKS listed on the signature pages hereof (the “Banks”).

RECITALS

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1    Definitions. The following terms, as used herein, have the following meanings:

“Acquisition Property” means, as of any date of determination, any Real Property Assets acquired within such fiscal quarter and/or the immediately preceding three fiscal quarters.

“Adjusted Annual EBITDA” means, for any period, Annual EBITDA for such period, minus the sum of (a) interest income other than interest income from mortgage notes not in excess of $5,000,000 per annum, and (b) a management fee reserve in an amount equal to 3% of consolidated total revenue (after deduction of interest income of the Borrower and its subsidiaries for such period), plus the sum of (a) general and administrative expenses for such period to the extent included in Annual EBITDA and (b) actual management fees relating to Real Property for such period.

“Adjusted London Interbank Offered Rate” has the meaning set forth in Section 2.7(b).

“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. In no event shall (x) the Administrative Agent or

1

any Bank or (y) any other Person that is engaged in the business of making commercial loans (including revolving loans) in the ordinary course of business and for which the General Partner or the Borrower does not, directly or indirectly, possess the power to cause the direction of the investment policies of such Person be deemed to be an Affiliate of the Borrower.

“Agency Site” means the Electronic System established by the Administrative Agent to administer this Agreement.

“Agent Party” has the meaning set forth in Section 9.1(d)(ii).

“Agreement” means this Term Loan Agreement, as the same may from time to time hereafter be modified, supplemented or amended.

“Annual EBITDA” means, measured as of the last day of each calendar quarter (and without duplication), an amount derived from (i) total revenues relating to all Real Property Assets of the Borrower, the General Partner and their Consolidated Subsidiaries or to the Borrower’s or the General Partner’s interest in Minority Holdings for the previous four consecutive calendar quarters including the quarter then ended, on an accrual basis without giving effect to the straight-lining of rents, plus (ii) interest and other income of the Borrower, the General Partner and their Consolidated Subsidiaries, including, without limitation, real estate service revenues, for such period, plus (iii) nonrecurring extraordinary losses (including losses from the sale of Real Property Assets and/or early extinguishment of Debt or the forgiveness of Debt) for such period, plus (iv) non-cash compensation expense for such period not in excess of $15,000,000 per annum, plus (v) costs and expenses incurred during such period with respect to acquisitions consummated during such period, less (vi) total operating expenses and other expenses relating to such Real Property Assets and to the Borrower’s and the General Partner’s interest in Minority Holdings for such period (other than interest, taxes, depreciation, amortization, and other non-cash items), less (vii) total corporate operating expenses (including general overhead expenses) and other expenses of the Borrower, the General Partner, their Consolidated Subsidiaries and the Borrower’s and the General Partner’s interest in Minority Holdings (other than interest, taxes, depreciation, amortization and other non-cash items), less (viii) gains from discontinued operations and extraordinary gains or losses, for such period, and less (ix) nonrecurring extraordinary gains (including gains from the sale of Real Property Assets and/or the early extinguishment of Debt or the forgiveness of Debt) for such period. For purposes of this Agreement, Annual EBITDA shall be deemed to include only the Borrower’s pro rata share (such share being based upon the Borrower’s percentage ownership interest as shown on the Borrower’s annual audited financial statements) of the Annual EBITDA of any Person in which the Borrower, directly or indirectly, owns an interest.

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Affiliates from time to time concerning or relating to bribery or corruption

“Applicable Interest Rate” means the lesser of (x) the rate at which the interest rate applicable to any floating rate Debt could be fixed, at the time of calculation, by the Borrower entering into an unsecured interest rate swap agreement (or, if such rate is incapable of being fixed by entering into an unsecured interest rate swap agreement at the time of calculation,

2

a reasonably determined fixed rate equivalent), and (y) the rate at which the interest rate applicable to such floating rate Debt is actually capped, at the time of calculation, if the Borrower has entered into an interest rate cap agreement with respect thereto or if the documentation for such Debt contains a cap.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.

“Applicable Margin” means, with respect to each Loan, the respective percentages per annum determined, at any time, based on the range into which Borrower’s Credit Rating then falls, in accordance with the following table.

Range of Borrower’s Credit Rating*	Applicable Margin for Euro-Dollar Loans (% per annum)		Applicable Margin for Base Rate Loans (% per annum)
A-/A3 or better	0.900	%	0.000	%
BBB+/Baal	0.975	%	0.000	%
BBB/Baa2	1.150	%	0.150	%
BBB-/Baa3	1.400	%	0.400	%
<BBB-/Baa3 or unrated	1.900	%	0.900	%

* Applicable rating for purposes of determining the Applicable Margin is Borrower’s Credit Rating and if there are only two Borrower’s Credit Ratings, then it will be the higher of the two. In the event that the Borrower’s Credit Ratings are more than one level apart, the median rating will be used. If there are three Borrower’s Credit Ratings and such ratings are split, then, if the difference between the highest and lowest is one level apart, it will be the highest of the three, but if the difference is more than one level, the rating will be the average of the two highest (or if such average is not a recognized category, then the second highest rating will be used). If there is only one Borrower’s Credit Rating, the Applicable Margin shall be based on such rating.

Should Borrower (or General Partner) lose its Investment Grade Rating from both S&P and Moody’s, pricing will revert to the unrated portion of the table above. Upon reinstatement of such Investment Grade Rating from either S&P or Moody’s, pricing will revert to the rated pricing table above.

“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Bank, (b) an Affiliate of a Bank or (c) an entity or an Affiliate of an entity that administers or manages a Bank.

“Assignee” has the meaning set forth in Section 9.6(c).

“Bank” means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors.

3

“Bankruptcy Code” means Title 11 of the United States Code, entitled “Bankruptcy”, as amended from time to time, and any successor statute or statutes.

“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permits such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

“Base Rate” means, for any day, a rate per annum equal to the highest of (i) the Prime Rate, (ii) the Federal Funds Rate +.50% and (iii) one-month London Interbank Offered Rate (determined as though the interest period commenced as of the date of determination and based on the LIBO Screen Rate) + 1%. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate or the London Interbank Offered Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Rate or the London Interbank Offered Rate, respectively.

“Base Rate Borrowing” means a Borrowing comprised of Base Rate Loans.

“Base Rate Loan” means a Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to Article VIII.

“Benefit Arrangement” means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group.

“Borrower” means Kilroy Realty, L.P. and its successors.

“Borrower’s Credit Rating” means the rating assigned by the Rating Agencies to the General Partner’s or the Borrower’s senior unsecured long term indebtedness, or if no such rating is available, then the General Partner’s or the Borrower’s issuer rating.

“Borrowing” has the meaning set forth in Section 1.3.

“Capital Expenditures” means, for any period, the sum of all recurring expenditures on capital improvements (whether paid in cash or accrued as a liability) by the Borrower which are capitalized on the consolidated balance sheet of the Borrower in conformity with GAAP, but less (i) all expenditures made with respect to the acquisition by the Borrower and its Consolidated Subsidiaries of any interest in real property within nine months after the date such interest in real property is acquired and (ii) capital expenditures made from the

4

proceeds of insurance or condemnation awards (or payments in lieu thereof) or indemnity payments received during such period by Borrower or any of its Consolidated Subsidiaries from third parties.

“Cash or Cash Equivalents” means (i) cash, (ii) direct obligations of the United States Government, including, without limitation, treasury bills, notes and bonds, (iii) interest bearing or discounted obligations of Federal agencies and Government sponsored entities or pools of such instruments offered by banks rated AA or better by S&P or Aa2 by Moody’s and dealers, including, without limitation, Federal Home Loan Mortgage Corporation participation sale certificates, Government National Mortgage Association modified pass-through certificates, Federal National Mortgage Association bonds and notes, Federal Farm Credit System securities, (iv) time deposits, domestic and Eurodollar certificates of deposit, bankers acceptances, commercial paper rated at least A-1 by S&P and P-1 by Moody’s, and/or guaranteed by an Aa rating by Moody’s, an AA rating by S&P, or better rated credit, floating rate notes, other money market instruments and letters of credit each issued by banks which have a long-term debt rating of at least AA by S&P or Aa2 by Moody’s, (v) obligations of domestic corporations, including, without limitation, commercial paper, bonds, debentures, and loan participations, each of which is rated at least AA by S&P, and/or Aa2 by Moody’s, and/or unconditionally guaranteed by an AA rating by S&P, an Aa2 rating by Moody’s, or better rated credit, (vi) obligations issued by states and local governments or their agencies, rated at least MIG-1 by Moody’s and/or SP-1 by S&P and/or guaranteed by an irrevocable letter of credit of a bank with a long-term debt rating of at least AA by S&P or Aa2 by Moody’s, (vii) repurchase agreements with major banks and primary government securities dealers fully secured by U.S. Government or agency collateral equal to or exceeding the principal amount on a daily basis and held in safekeeping, (viii) real estate loan pool participations, guaranteed by an entity with an AA rating given by S&P or an Aa2 rating given by Moody’s, or better rated credit, and (ix) shares of any mutual fund that has its assets primarily invested in the types of investments referred to in clauses (i) through (v).

“Change in Law” has the meaning set forth in Section 8.3.

“Charges” has the meaning set forth in Section 9.19.

“Closing Date” has the meaning set forth in Section 3.1.

“Commitment” means, with respect to each Bank, the commitment of such Bank to make Loans, as such amount may be reduced from time to time pursuant to Sections 2.6 and 2.11(c). The initial amount of each Bank’s Commitment is set forth on Schedule 1, or in the Assignment and Assumption Agreement pursuant to which such Bank shall have assumed its Commitment.

“Commitment Percentage” means, with respect to any Bank, the percentage of the total Commitments represented by such Bank’s Commitment (or, if the Commitments have expired or terminated, the percentage of the aggregate outstanding Loans owing to such Bank).

“Communications” has the meaning set forth in Section 9.1(d)(ii).

5

“Completion of Construction” means the issuance of a temporary or permanent certificate of occupancy for the improvements under construction, permitting the use and occupancy thereof for their regular intended uses.

“Consolidated Subsidiary” means, at any date, any Subsidiary or other entity which is consolidated with the Borrower in accordance with GAAP.

“Consolidated Tangible Net Worth” means at any date the difference between (a) Total Asset Value, less (b) Total Debt.

“Contingent Obligation” as to any Person means, without duplication, (i) any guaranty of the principal of the Debt of any other Person, (ii) any contingent obligation of such Person required to be shown on such Person’s balance sheet in accordance with GAAP, and (iii) any obligation required to be disclosed in the footnotes to such Person’s financial statements, guaranteeing partially or in whole any non-recourse Debt, lease, dividend or other obligation, exclusive of contractual indemnities (including, without limitation, any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and guarantees of non-monetary obligations (other than guarantees of completion) which have not yet been called on or quantified, of such Person or of any other Person. The amount of any Contingent Obligation described in clause (iii) shall be deemed to be (a) with respect to a guaranty of interest or interest and principal, or operating income guaranty, the sum of all payments required to be made thereunder (which in the case of an operating income guaranty shall be deemed to be equal to the debt service for the note secured thereby), calculated at the Applicable Interest Rate, through (i) in the case of an interest or interest and principal guaranty, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder), or (ii) in the case of an operating income guaranty, the date through which such guaranty will remain in effect, and (b) with respect to all guarantees not covered by the preceding clause (a), an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as recorded on the balance sheet and on the footnotes to the most recent financial statements of the Borrower required to be delivered pursuant to Section 4.4 hereof. Notwithstanding anything contained herein to the contrary, guarantees of completion shall not be deemed to be Contingent Obligations unless and until a claim for payment or performance has been made thereunder, at which time any such guaranty of completion shall be deemed to be a Contingent Obligation in an amount equal to any such claim. Subject to the preceding sentence, (i) in the case of a joint and several guaranty given by such Person and another Person (but only to the extent such guaranty is recourse, directly or indirectly to the Borrower), the amount of the guaranty shall be deemed to be 100% thereof unless and only to the extent that such other Person has delivered Cash or Cash Equivalents to secure all or any part of such Person’s guaranteed obligations, (ii) in the case of joint and several guarantees given by a Person in whom the Borrower owns an interest (which guarantees are non-recourse to the Borrower), to the extent the guarantees, in the aggregate, exceed 15% of total real estate investments of such Person, the amount in excess of 15% shall be deemed to be a Contingent Obligation of the Borrower, and (iii) in the case of a guaranty (whether or not joint and several) of an obligation otherwise constituting Debt of such Person, the amount of such guaranty shall be deemed to be only that amount in excess of the amount of the obligation constituting Debt of such Person. Notwithstanding anything contained herein to

6

the contrary, “Contingent Obligations” shall not be deemed to include guarantees of Unused Commitments or of construction loans to the extent the same have not been drawn.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Corporate Credit Agreement” means that certain Amended and Restated Credit Agreement dated as of June 23, 2014 among the Borrower (in its capacity as borrower thereunder), the Corporate Credit Agreement Banks party thereto, JPMorgan Chase Bank, N.A., as Corporate Credit Agreement Administrative Agent for the Corporate Credit Agreement Banks; J.P. Morgan Securities LLC, as Joint Lead Arranger and Joint Bookrunner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arranger and Joint Bookrunner, Wells Fargo Securities, LLC, as Joint Lead Arranger and Joint Bookrunner, and Bank of America, N.A., as Syndication Agent; .

“Corporate Credit Agreement Administrative Agent” means JPMorgan Chase Bank, N.A., or successor administrative agent under the Corporate Credit Agreement.

“Corporate Credit Agreement Banks” means the banks party to the Corporate Credit Agreement from time to time.

“Credit Party” means the Administrative Agent or any other Bank.

“Debt” of any Person (including Minority Holdings) means, without duplication, (A) (i) the face amount of all indebtedness of such Person for borrowed money or for the deferred purchase price of property or any asset and, (ii) the face amount of all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument (whether or not disbursed in full in the case of a construction loan), (B) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (C) as shown on such Person’s balance sheet, all Contingent Obligations of such Person, (D) all “mark to market” liabilities of such Person under any interest rate protection agreement (including, without limitation, any interest rate swaps, caps, floors, collars and similar agreements) or other hedging agreements and currency swaps and foreign exchange contracts or similar agreements. For purposes of this Agreement, Debt (other than Contingent Obligations) of the Borrower shall be deemed to include only the Borrower’s pro rata share (such share being based upon the Borrower’s percentage ownership interest as shown on the Borrower’s annual audited financial statements) of the Debt of any Person in which the Borrower, directly or indirectly, owns an interest, provided that such Debt is nonrecourse, both directly and indirectly, to the Borrower.

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means any Bank that (a) has failed, within two Domestic Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans or (ii)

7

pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Bank notifies the Administrative Agent in writing that such failure is the result of such Bank’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Bank’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Domestic Business Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Bank that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, provided that such Bank shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of a Bankruptcy Event.

“Development Properties” means any Real Property Assets which are 100% owned in fee (or leasehold pursuant to a Financeable Ground Lease) by the Borrower, the General Partner or any of their Consolidated Subsidiaries and which are not subject to any Lien (other than Permitted Liens), and which are under development or redevelopment, provided that Real Property Assets shall cease to be Development Properties as of the earlier to occur of (a) the date which is eighteen (18) months after Completion of Construction thereof, and (b) the first fiscal quarter in which the occupancy rate of the applicable Development Property has averaged eighty-five percent (85%) or more.

“Dollar” and “$” mean dollars which are the lawful money of the United States.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City and Los Angeles are authorized by law to close.

“Domestic Lending Office” means, as to each Bank, its office located within the United States at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office within the United States as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent; provided that no Bank shall be permitted to change its Domestic Lending Office if as a result of such change either (i) pursuant to the provisions of Section 8.1 or Section 8.2, Borrower would be unable to maintain any Loans as Euro-Dollar Loans; or (ii) Borrower would be required to make any payment to such Bank pursuant to the provisions of Section 8.3 or Section 8.4.

“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a person with the intent to sign, authenticate or accept such contract or record.

8

“Electronic System” means any electronic system, including e-mail, e-fax, Intralinks®, ClearPar®, Debt Domain, Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent or any of its respective Related Persons or any other Person, providing for access to data protected by passcodes or other security system.

“Eligible Assignee” means (a) a Lender (other than a Defaulting Lender) or any Affiliate or Approved Fund thereof or (b) one or more banks, finance companies, insurance or other financial institutions which (1) has (or, in the case of a bank which is a subsidiary, such bank’s parent has) a rating of its senior debt obligations of not less than Baa-1 by Moody’s or a comparable rating by a rating agency acceptable to Administrative Agent, and (2) has total assets in excess of Ten Billion Dollars ($10,000,000,000).

“Environmental Affiliate” means any partnership, or joint venture, trust or corporation in which an equity interest is owned by the Borrower, either directly or indirectly.

“Environmental Approvals” means any permit, license, approval, ruling, variance, exemption or other authorization required under applicable Environmental Laws by a court or governmental agency having jurisdiction.

“Environmental Claim” means, with respect to any Person, any notice, claim, demand or similar communication (written or oral) by any other Person alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damage, property damage, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by such Person or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law, in each case as to which could reasonably be expected to have a Material Adverse Effect.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Material of Environmental Concern or hazardous wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Material of Environmental Concern or hazardous wastes or the clean-up or other remediation thereof.

“Environmental Report” has the meaning set forth in Section 4.7.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

“ERISA Group” means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under

9

common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code.

“Euro-Dollar Borrowing” has the meaning set forth in Section 1.3.

“Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London.

“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent; provided that no Bank shall be permitted to change its Euro-Dollar Lending Office if as a result of such change either (i) pursuant to the provisions of Section 8.1 or Section 8.2, Borrower would be unable to maintain any Loans as Euro-Dollar Loans; or (ii) Borrower would be required make any payment to such Bank pursuant to the provisions of Sections 8.3 or Section 8.4.

“Euro-Dollar Loan” means a Loan to be made by a Bank as a Loan bearing interest at the Adjusted London Interbank Offered Rate in accordance with the applicable Notice of Borrowing or Notice of Interest Rate Election.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.7(b).

“Event of Default” has the meaning set forth in Section 6.1.

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Bank, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Recipient with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Recipient acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 8.6(b)) or (ii) in the case of a Bank, such Bank changes its lending office, except in each case to the extent that, pursuant to Section 8.4, amounts with respect to such Taxes were payable either to such Bank’s assignor immediately before such Bank acquired the applicable interest in a Loan or Commitment or to such Bank immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 8.4(f) and (d) any U.S. Federal withholding Taxes imposed under FATCA.

“Existing Loan Facility” has the meaning set forth in Section 2.16(a).

“Extended Loans” has the meaning set forth in Section 2.16(a).

10

“Extending Lender” has the meaning set forth in Section 2.16(b).

“Extension” has the meaning set forth in Section 2.16(a).

“Extension Election” has the meaning set forth in Section 2.16(b).

“Extension Request” has the meaning set forth in Section 2.16(a).

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code, as all of the same may be modified or qualified by any applicable intergovernmental agreement within the meaning of Sections 1.1471-1(b) and 1.1471-1T(b) of the United States Treasury Regulations; provided, that if the definition of FATCA as generally accepted by major financial institutions in the REIT finance market shall change, the Banks agree to act in good faith to amend this definition so that it is consistent with such accepted definition.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average of the rates, quoted to the Administrative Agent from at least three federal funds brokers of recognized standing selected by the Administrative Agent, on such day on such transactions as determined by the Administrative Agent.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System as constituted from time to time.

“FFO” means “funds from operations,” defined to mean net income (or loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructurings and sales of properties, plus depreciation and amortization, after adjustments for Minority Holdings. Adjustments for Minority Holdings will be calculated to reflect FFO on the same basis as above.

“Financeable Ground Lease” means either (x) a ground lease reasonably satisfactory to the Required Banks, or (y) a ground lease which provides (i) for a remaining term of not less than 25 years (including options and renewals), (ii) that the ground lease will not be terminated until any leasehold mortgagee shall have received notice of a default and has had a reasonable opportunity to cure the same or complete foreclosure, and has failed to do so, (iii) for a new lease on substantially the same terms to any leasehold mortgagee recognized under such ground lease as tenant if the ground lease is terminated for any reason, (iv) for non-merger of the

11

fee and leasehold estates, and (v) transferability of the tenant’s interest under the ground lease, subject only to the landlord’s reasonable approval. Notwithstanding the foregoing, it is hereby agreed that the ground lease with respect to the Real Property Asset commonly known as “Kilroy Airport Center, Long Beach, California”, shall be deemed to be a “Financeable Ground Lease”.

“Fitch” means Fitch, Inc. or any successor thereto.

“FMV Cap Rate” means 6.00%.

“Foreign Bank” means (a) if the Borrower is a U.S. Person, a Bank that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Bank that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.

“GAAP” means generally accepted accounting principles in the United States recognized as such in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession within the United States, which are applicable to the circumstances as of the date of determination.

“General Partner” means Kilroy Realty Corporation, a Maryland corporation.

“Governmental Authority” means any Federal, state or local government or any other political subdivision thereof or agency exercising executive, legislative, judicial, regulatory or administrative functions having jurisdiction over the Borrower or any Real Property Asset.

“Group of Loans” means, at any time, a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time, or (ii) all Loans which are Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.2 or 8.4, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

“Guaranty” means the Guaranty of Payment, of even date herewith, made by the General Partner.

“Impacted Interest Period” has the meaning set forth in Section 2.7(b).

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a) hereof, Other Taxes.

“Indemnitee” has the meaning set forth in Section 9.3(b).

“Interest Period” means: (i) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing or of any Notice of Interest Rate Election with respect to such Borrowing and ending one, two, three, six or, if available from all of the Banks, twelve months thereafter (or a period of seven (7) days, not more frequently than twice in

12

any calendar quarter, unless any Bank has previously advised the Administrative Agent and the Borrower that it does not accept, in its sole discretion, the Offered Rate), as the Borrower may elect in the applicable Notice of Borrowing or Notice of Interest Rate Election; provided that:

(a)    any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;

(b)    any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and

(c)    any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity Date.

(ii)    with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing or Notice of Interest Rate Election and ending 30 days thereafter; provided that any Interest Period which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and provided that any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period for which the LIBO Screen Rate is available for U.S. Dollars that is shorter than the Impacted Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which that Screen Rate is available for U.S. Dollars) that exceeds the Impacted Interest Period, in each case, at such time.

“IntraLinks” means an electronic service provider that provides a secure means to post information via the internet, at all times accessible by the Administrative Agent and the Banks.

“Investment Grade Rating” means a rating for a Person’s senior long-term unsecured debt, or if no such rating has been issued, a “shadow” rating, of BBB- or better from S&P, and a rating or “shadow” rating of Baa3 or better from Moody’s or a rating or “shadow” rating equivalent to the foregoing from Fitch. Any such “shadow” rating shall be evidenced by a letter from the applicable Rating Agency or by such other evidence as may be reasonably acceptable to the Administrative Agent (as to any such other evidence, the Administrative Agent shall present the same to, and discuss the same with, the Banks).

13

“Joint Bookrunner” shall mean each of J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its Affiliate and Wells Fargo Securities, LLC in their respective capacities as joint bookrunner, and their respective successors in such capacity.

“Joint Lead Arranger” shall mean each of J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its Affiliate and Wells Fargo Securities, LLC in their respective capacities as joint lead arranger, and their respective successors in such capacity.

“Last Day of the Delayed Draw Period” has the meaning provided in Section 2.1.

“LIBO Screen Rate” has the meaning set forth in Section 2.7(b).

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, each of the Borrower and any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a loan made by a Bank pursuant to Section 2.1 and including Extended Loans; provided that, if any such Loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Loan Amount” means Fifty Million and 00/100 Dollars ($50,000,000).

“Loan Documents” means this Agreement, the Notes, the Guaranty and any related documents.

“Loan Commitment Expiry Date” has the meaning set forth in Section 2.1.

“Loan Extension Amendment” has the meaning set forth in Section 2.16(c).

“Loan Facility” means the Commitments and the Loans made thereunder.

“London Interbank Offered Rate” has the meaning set forth in Section 2.7(b).

“Margin Stock” shall have the meaning provided such term in Regulation U, Regulation T and Regulation X of the Federal Reserve Board.

“Material Adverse Effect” means a material adverse effect upon (i) the business, operations, properties or assets of the Borrower or (ii) the ability of the Borrower to perform its obligations hereunder in all material respects, including to pay interest and principal.

“Material of Environmental Concern” means and includes pollutants, contaminants, hazardous wastes, and toxic, radioactive, caustic or otherwise hazardous

14

substances, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

“Material Plan” means at any time a Plan having aggregate Unfunded Liabilities in excess of $5,000,000.

“MaterialSubsidiary” means any Subsidiary of the Borrower and/or the General Partner to which 10% or more of Total Asset Value is attributable.

“Maturity Date” means July 1, 2019, subject to extension (with respect to Extended Loans only) as provided in Section 2.16.

“Maximum Rate” has the meaning set forth in Section 9.19.

“Minority Holdings” means partnerships, limited liability companies and corporations held or owned by the Borrower which are not consolidated with the Borrower on its financial statements.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Multiemployer Plan” means at any time a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period.

“Net Offering Proceeds” means all cash received by the Borrower or the General Partner as a result of the sale of common shares of beneficial interest, preferred shares of beneficial interest (including perpetual preferred), partnership interests, limited liability company interests, or other ownership or equity interests in the Borrower or the General Partner (or evidence of indebtedness of the Borrower or the General Partner convertible into any of the foregoing) less customary costs and discounts of issuance paid by the Borrower or the General Partner, as the case may be.

“New Acquisition” shall mean any Real Property Asset acquired after the date hereof.

“Non-Recourse Debt” means Debt of the Borrower or the General Partner on a consolidated basis for which the right of recovery of the obligee thereof is limited to recourse against the Real Property Assets securing such Debt (subject to such limited exceptions to the non-recourse nature of such Debt such as fraud, misappropriation, misapplication and environmental indemnities, as are usual and customary in like transactions at the time of the incurrence of such Debt).

“Notes” means, collectively, the promissory notes of the Borrower, each substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

15

“Notice of Borrowing” has the meaning set forth in Section 2.2.

“Notice of Interest Rate Election” has the meaning set forth in Section 2.15(a).

“Obligations” means all obligations, liabilities and indebtedness of every nature of the Borrower from time to time owing to any Bank under or in connection with this Agreement or any other Loan Document, including, without limitation, the outstanding principal amount of the Loans at such time.

“Offered Rate” means a rate per annum quoted by the Administrative Agent, plus the Applicable Margin for Euro-Dollar Loans, for an Interest Period of seven (7) days.

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 8.6).

“Outstanding Balance” means the aggregate outstanding and unpaid principal balance of all Loans.

“Parent” means, with respect to any Bank, any Person as to which such Bank is, directly or indirectly, a subsidiary.

“Participant Register” has the meaning set forth in Section 9.6(b).

“Participant” has the meaning set forth in Section 9.6(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Liens” means (a) Liens in favor of the Borrower or the General Partner on all or any part of the assets of Subsidiaries of the Borrower or the General Partner, as applicable, provided that (i) the Debt to which such Lien relates is held by the Borrower, (ii) such Debt is not otherwise pledged or encumbered, and (iii) no more than 5% of the Unencumbered Asset Pool Properties Value may be subject to any such Liens; (b) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds, completion bonds, government contracts or other obligations of a like nature, including Liens in connection with workers’ compensation, unemployment insurance and other types of statutory obligations or to secure the performance of tenders, bids, leases, contracts (other than for the

16

repayment of Debt) and other similar obligations incurred in the ordinary course of business; (c) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (d) Liens on property of the Borrower, the General Partner or any Subsidiary thereof in favor of the Federal or any state government to secure certain payments pursuant to any contract, statute or regulation; (e) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights of way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower, the General Partner or any Subsidiary thereof and which do not materially detract from the value of the property to which they attach or materially impair the use thereof by the Borrower, the General Partner or any Subsidiary thereof; (f) statutory Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other Liens imposed by law and arising in the ordinary course of business, for sums due and payable which are not then past due (or which, if past due, are being contested in good faith and with respect to which adequate reserves are being maintained to the extent required by GAAP); (g) Liens not otherwise permitted by this definition and incurred in the ordinary course of business of any or all of the Borrower, the General Partner or any Subsidiary thereof with respect to obligations which do not exceed $500,000 in principal amount in the aggregate at any one time outstanding; and (h) the interests of lessees and lessors under leases of real or personal property made in the ordinary course of business which would not have a Material Adverse Effect.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan (within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

“Prime Rate” means the rate of interest publicly announced by the Administrative Agent in New York City from time to time as its Prime Rate.

“Quotation Date” has the meaning set forth in Section 2.7(b).

“Rating Agencies” means, collectively, S&P, Moody’s and Fitch.

“Real Property Assets” means as of any time, the real property assets owned directly or indirectly by the Borrower, the General Partner and/or their Consolidated Subsidiaries at such time, and “Real Property Asset” means any one of them.

17

“Recipient” means (a) the Administrative Agent and (b) any Bank, as applicable.

“Recourse Debt” shall mean Debt of the Borrower, the General Partner or any Consolidated Subsidiary that is not Non-Recourse Debt.

“Register” has the meaning set forth in Section 9.6(g).

“Regulation T” means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Regulation X” means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Regulatory Change” has the meaning set forth in Section 8.3(a).

“REIT” has the meaning set forth in Section 3.1(o).

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“Release” means any release, spill, emission, leaking, pumping, pouring, dumping, emptying, deposit, discharge, leaching or migration.

“Required Banks” means, at any time, Banks having at least fifty-one percent (51%) of the aggregate amount of (a) the unused Commitments (if any) plus (b) the outstanding Loans; provided, however, that no Defaulting Lender shall be permitted to vote on any matter requiring the vote of the Required Banks and for purposes of determining the Required Banks, the Commitment of such Bank or the unpaid principal amount of Loans evidenced by Notes held by such Bank, as applicable, shall not be counted.

“S&P” means Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Sanctions” means, with respect to any country, territory or Person, any international economic sanction administered or enforced by the United States Government (including, without limitation, the Office of Foreign Assets Control of the United States Department of the Treasury), the United Nations Security Council, the European Union, and Her Majesty’s Treasury of the United Kingdom, in each case to the extent applicable to such country, territory or Person.

“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions.

18

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, the U.S. Department of Commerce or the U.S. Department of the Treasury or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.

“Secured Debt” means all Debt secured by a Lien on real property.

“Separate Parcel” means a Real Property Asset that is a single, legally subdivided, separately zoned parcel that can be legally transferred or conveyed separate and distinct from any other Real Property Asset without benefit of any other Real Property Asset.

“Solvent” means, with respect to any Person, that the fair saleable value of such Person’s assets exceeds the Debts of such Person.

“Subsidiary” means any corporation or other entity of which securities or other ownership interests representing either (i) ordinary voting power to elect a majority of the board of directors or other persons performing similar functions or (ii) a majority of the economic interest therein, are at the time directly or indirectly owned by the Borrower.

“Syndication Agent” means Bank of America, N.A., in its capacity as syndication agent for the Banks, and its successors in such capacity.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Total Asset Value” means, the sum of (v) with respect to each Real Property Asset (excluding Acquisition Properties) for which there is a valid certificate of occupancy or a representation from the Borrower that it is legally permitted to occupy such Real Property Asset and is not less than 85% leased and occupied as of the last day of the applicable fiscal quarter, the quotient of (i) Adjusted Annual EBITDA (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) with respect thereto for the previous four (4) consecutive quarters (or, if (A) owned for less than four (4) quarters, the Adjusted Annual EBITDA (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) for such period, annualized, or (B) 85% leased and occupied for less than a full fiscal quarter, the Adjusted Annual EBITDA (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) for the period so leased and occupied (whether or not owned for the previous four (4) fiscal quarters), annualized), including the quarter then ended, but less reserves for Capital Expenditures of (A) $0.30 per square foot per annum for each Real Property Asset that is an office property, and (B) $0.15 per square foot per annum for each Real Property Asset that is an industrial property, divided by (ii) the FMV Cap Rate, (w) with respect to each Real Property Asset (excluding Acquisition Properties) for which there is a valid certificate of occupancy or a representation from the Borrower that it is lawfully permitted to occupy such Real Property

19

Asset but which is or has been less than 85% leased or occupied for four full consecutive fiscal quarters, an amount equal to 75% of the book value thereof, net of impairment charges, provided, however, that if any such Real Property Asset shall remain less than 85% leased or occupied for more than 24 consecutive months, then the value thereof shall be equal to 50% of book value, (x) with respect to each Acquisition Property, 100% of its book value (after any impairments), unless the Borrower has made a one-time election to value such Real Estate Asset in accordance with clause (v) or (w) hereof, (y) with respect to land and Development Properties, the lesser of (i) the cost actually paid by the Borrower, the General Partner or any of their Subsidiaries, and (ii) the market value, each as determined in accordance with GAAP, of such land or Development Properties, and (z) Unrestricted Cash or Cash Equivalents of the Borrower, the General Partner and their Subsidiaries as of the date of determination; provided that for purposes of determining Total Asset Value, the aggregate contributions to Total Asset Value from investments in land and Development Properties and from the Borrower’s and the General Partner’s interests in any joint venture, whether consolidated or unconsolidated, shall not exceed 30% of Total Asset Value.

“Total Debt” means the sum of the balance sheet amount of all Debt of the Borrower, the General Partner and their Consolidated Subsidiaries. Total Debt shall not be determined in accordance with GAAP, but instead shall be equal to the sum of the stated principal amount of each item of Debt.

“Total Debt Ratio” means the ratio, as of the date of determination, of (i) the sum of (x) the Total Debt of the Borrower, the General Partner and their Consolidated Subsidiaries and (y) the Borrower’s and the General Partner’s pro rata share of the Total Debt of any Minority Holdings of the Borrower or the General Partner to (ii) Total Asset Value.

“Total Debt Service” means, as of the last day of each calendar quarter, an amount equal to the sum of (i) interest (whether accrued, paid or capitalized) payable by Borrower on its Debt for the previous four consecutive quarters including the quarter then ended, plus (ii) scheduled payments of principal on such Debt, whether or not paid by the Borrower (excluding balloon payments) for the previous four consecutive quarters including the quarter then ended, plus (iii) the Borrower’s and the General Partner’s pro rata share of the Total Debt Service of any Minority Holdings of the Borrower or the General Partner.

“Unencumbered Asset Pool Net Operating Cash Flow” means, as of any date of determination the Adjusted Annual EBITDA attributable to the Unencumbered Asset Pool Properties. Notwithstanding the foregoing, with respect to any Unencumbered Asset Pool Property owned by the Borrower, the General Partner or any of their Consolidated Subsidiaries for a period of less four (4) fiscal quarters, Unencumbered Asset Pool Net Operating Cash Flow shall be determined in a manner consistent with the foregoing calculation utilizing annualized Adjusted Annual EBITDA for the relevant period of the Borrower’s, the General Partner’s or any of their Consolidated Subsidiaries’ ownership of such Unencumbered Asset Pool Property.

“Unencumbered Asset Pool Properties” means, as of any date, the Real Property Assets listed in Exhibit B and Exhibit C attached hereto and made a part hereof, together with all Real Property Assets which have become part of the Unencumbered Asset Pool Properties as of such date, each of which is:

20

(i)    located in the United States;

(ii)    100% owned in fee (or leasehold pursuant to a Financeable Ground Lease in the case of assets listed on Exhibit C as leaseholds) by (x) the Borrower or (y) a wholly-owned direct or indirect Subsidiary of the Borrower and/or the General Partner that is not liable for any Debt and is not the subject of a Bankruptcy Event;

(iii)    either (individually or when combined with any other Real Property Asset in a mixed-use complex) a completed industrial property or primarily a completed office property which may have secondary uses or is part of a mixed-use complex or a Development Property which will be either an industrial or office property or a mortgage note;

(iv)    not subject to any Lien (other than Permitted Liens);

(v)    in the case of a Real Property Asset owned or leased by a wholly-owned Subsidiary, not subject to any agreement or arrangement by which the direct or indirect equity interests in such Subsidiary are subject to any Lien (other than Permitted Liens); and

(vi)    not subject to any agreement or arrangement that prohibits or restricts the creation or assumption of any Lien on the assets of, or equity interests in, the Borrower or Subsidiary that owns or leases such Real Property Asset.

“Unencumbered Asset Pool Properties Value” means the sum of:

(i)    with respect to the Unencumbered Asset Pool Properties (excluding Acquisition Properties) for which there is a valid certificate of occupancy or a representation from the Borrower that it is legally permitted to occupy such Real Property Asset and which is not less than 85% leased and occupied as of the last day of the applicable fiscal quarter, the quotient of (x) the Unencumbered Asset Pool Net Operating Cash Flow (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) with respect thereto for the previous four (4) consecutive quarters (or if (A) owned for less than four (4) quarters, the Unencumbered Asset Pool Net Operating Cash Flow (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) for such period, annualized, or (B) 85% leased and occupied for less than a full fiscal quarter, the Unencumbered Asset Pool Net Operating Cash Flow (calculated after giving effect to any required free rent periods by calculating the average cash rent over the term of the lease during such free rent periods) for the period so leased and occupied (whether or not owned for the previous four (4) fiscal quarters), annualized), including the quarter then ended, but less reserves for Capital Expenditures of (A) $0.30 per square foot per annum for each Unencumbered Asset Pool Property that is an office property, and (B) $0.15 per square foot per annum for each Unencumbered Asset Pool Property that is an industrial property, divided by (y) the FMV Cap Rate, provided, however, that if any such Unencumbered Asset Pool Property shall have been less than 85% leased and occupied for four (4) full consecutive fiscal quarters, then the value thereof shall be equal to an amount equal to 75% of the book value thereof, net of impairment charges, provided, however, that if any such Real Property Asset shall remain less than 85%

21

leased or occupied for more than 24 consecutive months, then the value thereof shall be equal to 50% of book value; and

(ii)    with respect to the Unencumbered Asset Pool Properties which are Development Properties or mortgage notes, fifty percent (50%) of (A) in the case of Development Properties, the lesser of (A) the cost actually paid by the Borrower, the General Partner or any of their Subsidiaries, and (B) the market value, each as determined in accordance with GAAP, of such Development Properties, and (B) in the case of mortgage notes, the book value thereof, determined in accordance with GAAP, provided that the value attributable to Development Properties and mortgage notes, in the aggregate shall not at any time exceed 15% of Unencumbered Asset Pool Properties Value; and

(iii)     with respect to the Unencumbered Asset Pool Properties which are Acquisition Properties, 100% of book value (after any impairments) of such Acquisition Properties, unless the Borrower has made a one-time election to value such Real Estate Asset in accordance with clause (i) of this definition; and

(iv)    Unrestricted Cash or Cash Equivalents of the Borrower, the General Partner and their Subsidiaries as of the date of determination.

“Unfunded Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

“United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

“Unrestricted Cash or Cash Equivalents” means Cash or Cash Equivalents, including the cash proceeds of any like-kind exchange under Section 1031 of the Internal Revenue Code, that is not subject to any pledge, lien or control agreement, less (i) $35,000,000, (ii) amounts normally and customarily set aside by Borrower for operating, capital and interest reserves, and (iii) amounts placed with third parties as deposits or security for contractual obligations.

“Unsecured Debt” means Debt not secured by a Lien on real property.

“Unsecured Debt Ratio” means, as of any date of determination, the ratio of the Unencumbered Asset Pool Properties Value as of the date of determination to the aggregate amount of Unsecured Debt of the Borrower, the General Partner and their Consolidated Subsidiaries outstanding as of such date of determination.

“Unsecured Debt Service” means, for any calendar quarter, the interest actually payable (or accrued) on the Loans and all other Unsecured Debt.

22

“Unused Commitments” means an amount equal to all unadvanced funds (other than unadvanced funds in connection with any construction loan) which any third party is obligated to advance to the Borrower or otherwise, pursuant to any Loan Document, written instrument or otherwise.

“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“U.S. Tax Compliance Certificate” has the meaning set forth in Section 8.4(f)(ii)(B)(3).

Section 1.2    Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower delivered to the Administrative Agent and the Banks; provided that, if the Borrower notifies the Administrative Agent and the Banks that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower’s compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks.

Section 1.3    Types of Borrowings. The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article II on the same date, all of which Loans are of the same type (subject to Article VIII) and, except in the case of Base Rate Loans, have the same Interest Period. Borrowings are classified for purposes of this Agreement by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro-Dollar Loans).

ARTICLE II

THE CREDITS

Section 2.1    Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower pursuant to this Section from time to time in an amount equal to its Commitment. The aggregate amount of Loans to be made hereunder shall not exceed the Loan Amount. Each Borrowing under this Section shall be in an aggregate principal amount of at least $2,500,000, or an integral multiple of $500,000 in excess thereof and shall be made from the several Banks ratably in proportion to their respective Commitments. Subject to the terms and conditions set forth herein, each Bank agrees to make Loans to the Borrower in up to five (5) Borrowings made on the date (that is on or after the Closing Date and on or before the Loan Commitment Expiry Date) and in the principal amount requested by the Borrower in accordance with this Section 2.1 so long as such

23

requested amount does not result in (i) the aggregate principal amount of the Loans made by such Bank exceeding its Commitment or (ii) the aggregate principal amount of all Loans made by the Banks exceeding the total Loan Amount. The Commitments of the Banks to make the Loans shall expire on the earliest of (a) the date specified in Section 3.2(a) in the event that the conditions set forth in Section 3.1 are not satisfied (or waived pursuant to Section 9.5) at or prior to 5:00 p.m. New York City time on such date, (b) the date on which the aggregate principal amount of Borrowings of Loans equals the aggregate Commitments of all Banks, or (c) the date which is ninety (90) days following the Closing Date (such earliest date, the “Loan Commitment Expiry Date”, and the earlier of clauses (b) and (c), the “Last Day of the Delayed Draw Period”). Any portion of the Loans that is repaid may not be reborrowed.

Section 2.2    Notice of Borrowing. The Borrower shall give the Administrative Agent notice (a “Notice of Borrowing”) not later than 2:00 p.m. (New York City time) (x) one Domestic Business Day before each Base Rate Borrowing, (y) three (3) Euro-Dollar Business Days before each Euro-Dollar Borrowing, or (z) three (3) Domestic Business Days before each Borrowing bearing interest at the Offered Rate, specifying:

(1)    the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Borrowing bearing interest at the Offered Rate or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,

(2)    the aggregate amount of such Borrowing,

(3)    whether the Loans comprising such Borrowing are to be Base Rate Loans, Loans bearing interest at the Offered Rate or Euro-Dollar Loans,

(4)    in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period,

(5)    the intended use for the proceeds of such Borrowing, and

(6)    that no Default or Event of Default has occurred or is continuing.

Section 2.3    Reserved.

Section 2.4    Notice to Banks; Funding of Loans.

(a)    Upon receipt of a Notice of Borrowing, the Administrative Agent shall notify each Bank on the same day as it receives the Notice of Borrowing of the contents thereof and of such Bank’s share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b)    Not later than 2:00 P.M. (New York City time) on the date of each Borrowing, each Bank shall make available its share of such Borrowing, in Federal or other

24

funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.1. The Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent’s aforesaid address.

(c)    Reserved.

(d)    Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank’s share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.4 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

Section 2.5    Notes.

(a)    At the request of any Bank, its Loans shall be evidenced by a Note, which shall be payable to each Bank for the account of its Applicable Lending Office in an amount equal to each such Bank’s Commitment.

(b)    Reserved.

(c)    Upon receipt of each Bank’s Note, the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

(d)    There shall be no more than five (5) Euro-Dollar Borrowings, outstanding at any one time pursuant to this Agreement.

Section 2.6    Expiration of Facility; Maturity of Loans. The Commitments shall terminate on the Loan Commitment Expiry Date. The Loans shall mature, and the principal amount thereof shall be due and payable, on the Maturity Date.

25

Section 2.7    Interest Rates.

(a)    Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Applicable Margin for Base Rate Loans plus the Base Rate for such day. Such interest shall be payable in arrears for each Interest Period on the last day thereof.

(b)    Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for Euro-Dollar Loans plus the Adjusted London Interbank Offered Rate for such day. Such interest shall be payable in arrears for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.

“Adjusted London Interbank Offered Rate” applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

The “London Interbank Offered Rate” applicable to a particular Interest Period shall mean the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for U.S. Dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; in each case the “LIBO Screen Rate”) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that, if the LIBO Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement and provided, further, if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted Interest Period”) with respect to U.S. Dollars then the London Interbank Offered Rate shall be the Interpolated Rate, provided, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

26

The “Quotation Date” means, in relation to any period for which an interest rate is to be determined, two (2) Euro-Dollar Business Days before the first day of that period, unless market practice differs in the relevant interbank market for a currency, in which case the Quotation Date for that currency will be determined by the Administrative Agent in accordance with market practice in the London interbank market (and if quotations would normally be given by leading banks in the London interbank market on more than one day, the Quotation Date will be the last of those days).

(c)    Reserved.

(d)    Interest on all Loans bearing interest at the Offered Rate shall be payable for each applicable Interest Period on the last day thereof.

(e)    In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal amount of the Loans, and, to the extent permitted by law, overdue interest in respect of all Loans, shall bear interest at the annual rate of the sum of the Base Rate and two percent (2%).

(f)    The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.

Section 2.8    Reserved.

Section 2.9    Reserved.

Section 2.10    Mandatory Prepayment. (a) In the event that an Unencumbered Asset Pool Property (or any Separate Parcel that originally formed a part of an Unencumbered Asset Pool Property) is sold, transferred or released from the restrictions of Section 5.11 hereof, the Borrower shall, simultaneously with such sale, transfer or release, prepay (A) the Loans and/or (B) to the Corporate Credit Agreement Administrative Agent for the accounts of the Corporate Credit Agreement Banks under the Corporate Credit Agreement in an amount equal to 100% of the net proceeds of such sale or transfer, in the event of a sale or transfer, or such lesser amount as shall be required for the Borrower to remain in compliance with this Agreement, in the event of such a sale, transfer or release. Notwithstanding the foregoing, a simultaneous like-kind exchange under Section 1031 of the Internal Revenue Code will not be subject to the provisions of this Section 2.10(a), provided that the exchanged property has qualified as a New Acquisition and any cash “boot” associated therewith shall be applied to prepayment of the Loans or such lesser amount of such cash “boot” as shall be required for the Borrower to remain in compliance with this Agreement. Sale of an Unencumbered Asset Pool Property (or any Separate Parcel that originally formed a part of an Unencumbered Asset Pool Property) in violation of this Section 2.10 shall constitute an Event of Default.

(b)    In the event that the Unsecured Debt Ratio is not maintained as of the last day of a calendar quarter, either (i) the Borrower will add a Real Property Asset to the Unencumbered Asset Pool Properties in accordance with this Agreement which, on a proforma basis (i.e. the Unsecured Debt Ratio shall be recalculated to include such Real Property Asset as

27

though the same had been an Unencumbered Asset Pool Property for the entire applicable period) would result in compliance with the Unsecured Debt Ratio, or (ii) the Borrower shall prepay (A) to the Administrative Agent, for the account of the Banks and/or (B) to the Corporate Credit Agreement Administrative Agent for the accounts of the Corporate Credit Agreement Banks under the Corporate Credit Agreement, an aggregate amount necessary to cause the Unsecured Debt Ratio to be in compliance within ninety (90) days of the date on which the Unsecured Debt Ratio failed to be maintained. Failure by the Borrower to comply with the Unsecured Debt Ratio within ninety (90) days of the date of such non-compliance shall be an Event of Default.

Section 2.11    Optional Prepayments.

(a)    The Borrower may, upon at least one Domestic Business Day’s notice to the Administrative Agent, prepay to the Administrative Agent, for the account of the Banks, any Base Rate Borrowing or Loans bearing interest at the Offered Rate in whole at any time, or from time to time in part in amounts aggregating One Million Dollars ($1,000,000), or an integral multiple of One Million Dollars ($1,000,000) in excess thereof or, if less, the outstanding principal balance, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment.

(b)    Except as provided in Section 8.2, the Borrower may not prepay all or any portion of the principal amount of any Euro-Dollar Loan prior to the maturity thereof unless the Borrower shall also pay any applicable expenses pursuant to Section 2.13. Any such prepayment shall be upon at least one (1) Euro-Dollar Business Day’s notice to the Administrative Agent, and the Administrative Agent shall notify the Banks of receipt of any such notice on the same Euro-Dollar Business Day as received by it. Any notice of prepayment delivered pursuant to this Section 2.11(b) shall set forth the amount of such prepayment which is applicable to any Loan made for working capital purposes. Each such optional prepayment shall be in the amounts set forth in Section 2.11(a) above and shall be applied to prepay ratably the Loans of the Banks included in such Borrowing.

(c)    The Borrower may at any time and from time to time cancel all or any part of the unused Commitments in amounts aggregating One Million Dollars ($1,000,000), or an integral multiple of One Million Dollars ($1,000,000) in excess thereof, upon at least three (3) Domestic Business Days’ notice to Administrative Agent and such Banks, whereupon, all or such portion of the Commitments shall terminate as to such Banks, pro rata on the date set forth in such notice of cancellation.

(d)    Any amounts so prepaid pursuant to this Section 2.11may not be reborrowed.

Section 2.12    General Provisions as to Payments.

(a)    The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 3:00 p.m. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.1. The Administrative Agent will distribute to each

28

Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks on the same day as received by the Administrative Agent if received by the Administrative Agent by 3:00 p.m. (New York City time), or, if received by the Administrative Agent after 3:00 p.m. (New York City time), on the immediately following Domestic Business Day. If the Administrative Agent shall fail to distribute to a Bank its ratable share of a payment on the same day it is received or the immediately following Domestic Business Day, as applicable in accordance with the immediately preceding sentence, the Administrative Agent shall pay to such Bank the interest accrued on such payment at the Federal Funds Rate, commencing on the day the Administrative Agent should have made the payment to such Bank and ending on the day prior to the date payment is actually made. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made prorata according to the respective outstanding principal amounts of the Loans then held by each Bank.

(b)    Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.

(c)    All payments made on the Loans shall be credited, to the extent of the amount thereof, in the following manner, in each case ratably among the parties entitled thereto in accordance with the amounts then due to such party: (a) first, against all costs, expenses and other fees (including reasonable attorneys’ fees) arising under the terms hereof, of which, if no Event of Default shall have occurred and be continuing, the Borrower has received notice pursuant to the terms hereof, (b) second, against the amount of interest accrued and unpaid on the Loans as of the date of such payment, (c) third, against all principal due and owing on the Loans as of the date of such payment, and (d) fourth, to all other amounts constituting any portion of the Obligations.

(d)    If any Bank is a Defaulting Lender, then the Administrative Agent may (or at the request of the Borrower, shall), in its discretion and notwithstanding any contrary provision hereof, (i) apply any amounts thereafter received by the Administrative Agent for the account of such Bank for the benefit of the Administrative Agent, to satisfy such Bank’s

29

obligations to it hereunder until such Bank is not a Defaulting Lender, and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Bank hereunder, in the case of each of clauses (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.

Section 2.13    Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan (pursuant to Article II, VI or VIII or otherwise, and specifically including any payments made pursuant to Sections 2.10 or 2.11) on any day other than the last day of the Interest Period applicable thereto, or if the Borrower fails to borrow any Euro-Dollar Loans, after notice has been given to any Bank in accordance with Section 2.4(a), or to prepay any Euro-Dollar Loans, after notice has been given to any Bank in accordance with Section 2.11(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing Participant in the related Loan; provided that no Participant shall be entitled to receive more than the Bank, with respect to which such Participant is a Participant, would be entitled to receive under this Section 2.13), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense and the calculation thereof, which certificate shall be conclusive in the absence of manifest error.

Section 2.14    Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.15    Method of Electing Interest Rates.

(a)    The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article VIII), as follows:

(i)    if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans or Loans bearing interest at the Offered Rate as of any Euro-Dollar Business Day;

(ii)    if such Loans are Euro-Dollar Loans or Loans bearing interest at the Offered Rate, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Administrative Agent at least three (3) Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be

30

continued as Base Rate Loans, in which case such notice shall be delivered to the Administrative Agent no later than 2:00 p.m. (New York City time) at least one (1) Domestic Business Day before such continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group, (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $1,000,000 or any larger multiple of $1,000,000, (iii) there shall be no more than five (5) Borrowings, comprised of Euro-Dollar Loans outstanding at any time under this Agreement, (iv) no Loan may be continued as, or converted into, a Euro-Dollar Loan when any Event of Default has occurred and is continuing, and (v) no Interest Period shall extend beyond the Maturity Date.

(b)    Each Notice of Interest Rate Election shall specify:

(i)    the Group of Loans (or portion thereof) to which such notice applies;

(ii)    the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above;

(iii)    if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration of the initial Interest Period applicable thereto; and

(iv)    if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period.

(c)    Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Administrative Agent shall notify each Bank on the same day as it receives such Notice of Interest Rate Election of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Administrative Agent for any Group of Euro-Dollar Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto.

Section 2.16    Extending Facilities.

(a)    The Borrower may at any time and from time to time request that all or any portion of the Loans with a like maturity date (an “Existing Loan Facility”) be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Loans, and to otherwise modify the terms of such Loans to the extent not prohibited in this Section 2.16 (any such Loans which have been so converted, “Extended Loans”) and to provide for other terms consistent with this Section 2.16 (an “Extension”). Any such request shall be made on a pro rata basis and on the same terms to each Bank. In order to establish any Extended

31

Loans, the Borrower shall provide a notice to the Administrative Agent (who shall provide a copy of such notice to each of the Banks) (an “Extension Request”) setting forth the proposed terms of the Extended Loans to be established, provided that:

(i)    all or any of the scheduled amortization payments of principal of the Extended Loans (including the maturity date) may be delayed to later dates than the scheduled amortization payments of principal (including the maturity date) of the Loans of the Existing Loan Facility to the extent provided in the applicable Loan Extension Amendment;

(ii)    the interest margins with respect to the Extended Loans may be different than the interest margins for the Loans under the Existing Loan Facility, and upfront fees may be paid to the Extending Lenders, in each case, to the extent provided in the applicable Loan Extension Amendment;

(iii)    the Loan Extension Amendment may provide for other covenants and terms that apply solely to any period after the latest applicable Maturity Date of the Loans being converted as in effect on the effective date of the Loan Extension Amendment immediately prior to the establishment of such Extended Loans; or

(iv)    no Extended Loans may be optionally prepaid prior to the date on which the Loans under the Existing Loan Facility from which they were converted are repaid in full unless such optional prepayment is accompanied by a pro rata optional prepayment of the Loans under such Existing Loan Facility.

Any Extended Loans converted pursuant to any Loan Extension Amendment shall be designated a separate tranche of Extended Loans for all purposes of this Agreement; provided that any Extended Loans converted from an Existing Loan Facility may, to the extent provided in the applicable Loan Extension Amendment, be designated as an increase in any previously established tranche of Loans or Commitments with respect to such Existing Loan Facility. Any Extended Loans shall constitute a separate tranche of Loans from the tranche of Loans from which there were converted. No Extension shall constitute a voluntary or mandatory prepayment for purpose of Sections 2.10 and 2.11. Each Extension shall become effective only with respect to the Loans of the Banks that accept an Extension Request.

(b)    The Borrower shall provide the applicable Extension Request at least ten (10) Business Daysprior to the date on which Banks under the Existing Loan Facility are requested to respond. No Extension Request is required to be in any minimum amount or increment; provided that the Borrower may specify as a condition to consummating any such Extension that a minimum amount (to be specified in the applicable Extension Request) of Loans be tendered (subject to waiver by the Borrower in its sole discretion). No Bank shall have any obligation to agree to have any of its Loans of any Existing Loan Facility converted into Extended Loans pursuant to any Extension Request. Any Bank (an “Extending Lender”) wishing in its sole and individual discretion to have all or any portion of its Loans under the Existing Loan Facility subject to such Extension Request converted into Extended Loans shall notify the Administrative Agent (an “Extension Election”) on or prior to the date specified in such Extension Request of the amount of its Loans under the Existing Loan Facility which is has

32

elected to request be converted into Extended Loans. In the event that the aggregate amount of Loans under the Existing Loan Facility subject to Extension Elections exceeds the amount of Extended Loans requested pursuant to the Extension Request, Loans subject to Extension Elections shall be converted to Extended Loans on a pro rata basis based on the amount of Loans, included in such Extension Election. It shall be a condition precedent to the effectiveness of any Extension that no Default or Event of Default shall exist on the date of the Extension Request and on the date of the Extension.

(c)    Each tranche of Extended Loans shall be established pursuant to an amendment (a “Loan Extension Amendment”) to this Agreement among the Borrower, the Administrative Agent and each Extending Lender providing an Extended Loan thereunder which shall be consistent with the provisions set forth in paragraph (a) above (but which shall not require the consent of any other Bank) and which may include such technical amendments to this Agreement as may be necessary or appropriate in the reasonable opinion of the Administrative Agent and the Borrower. Each Loan Extension Amendment shall be binding on the Banks, the General Partner and the other parties hereto. In connection with any Loan Extension Amendment, the Borrower shall deliver a reaffirmation of the Guaranty from the General Partner and such resolutions, certificates, opinions of counsel (including in-house opinions in lieu of opinions of outside counsel) and other documents in connection therewith as may be reasonably requested by the Administrative Agent.

(d)    This Section 2.16 shall supersede any provisions in Sections 9.4 or 9.5 to the contrary.

ARTICLE III

CONDITIONS

Section 3.1    Closing. The closing hereunder shall occur on the date (the “Closing Date”) when each of the following conditions is satisfied (or waived by the Administrative Agent and the Required Banks, such waiver to be evidenced by the continuation or funding after the date hereof of Loans and notice of such waiver to be given to the Banks by the Administrative Agent), each document to be dated the Closing Date unless otherwise indicated:

(a)    the Borrower shall have executed and delivered to the Administrative Agent a Note for the account of each Bank that shall have requested the same, dated on or before the Closing Date complying with the provisions of Section 2.5;

(b)    the Borrower shall have executed and delivered to the Administrative Agent a duly executed original of this Agreement;

(c)    the General Partner shall have executed and delivered to the Administrative Agent a duly executed original of the Guaranty;

(d)    the Administrative Agent shall have received an opinion of Latham & Watkins LLP, counsel for the Borrower and the General Partner, reasonably acceptable to the Administrative Agent, the Banks and their counsel;

33

(e)    the Administrative Agent shall have received all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the General Partner, the authority for and the validity of this Agreement and the other Loan Documents, and any other matters relevant hereto, all in form and substance reasonably satisfactory to the Administrative Agent. Such documentation shall include, without limitation, the articles of incorporation and by-laws or the partnership agreement and limited partnership certificate, as applicable, of the Borrower and the General Partner, as amended, modified or supplemented to the Closing Date, each certified to be true, correct and complete by a senior officer of the Borrower or the General Partner, as the case may be, as of the Closing Date, together with a good standing certificate from the Secretary of State (or the equivalent thereof) of the State of Delaware with respect to the Borrower and of the State of Maryland with respect to the General Partner, and a good standing certificate from the Secretary of State (or the equivalent thereof) of each other State in which the Borrower and the General Partner is required to be qualified to transact business, each to be dated not more than forty-five (45) days prior to the Closing Date;

(f)    the Administrative Agent shall have received all certificates, agreements and other documents and papers referred to in this Section 3.1 and Section 3.2, unless otherwise specified, in sufficient counterparts, reasonably satisfactory in form and substance to the Administrative Agent in its sole discretion;

(g)    the Borrower and the General Partner shall have taken all actions required to authorize the execution and delivery of this Agreement and the other Loan Documents and the performance thereof by the Borrower and the General Partner;

(h)    the Administrative Agent and the Banks shall have received an unaudited consolidated balance sheet and income statement of the Borrower for the fiscal quarter ended March 31, 2014;

(i)    the Administrative Agent shall be satisfied that neither the Borrower nor the General Partner is subject to any present or contingent environmental liability which could reasonably be expected to have a Material Adverse Effect;

(j)    if any Loans are to be made on the Closing Date, the Administrative Agent shall have received wire transfer instructions in connection with such Loans;

(k)    the Administrative Agent shall have received, for its and any other Bank’s account, all fees due and payable pursuant to this Agreement, and the reasonable fees and expenses accrued through the Closing Date of Bingham McCutchen LLP;

(l)    the Administrative Agent shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by the Borrower, and the validity and enforceability against the Borrower, of the Loan Documents, or in connection with any of the transactions contemplated thereby to occur on or prior to the Closing Date, and such consents, licenses and approvals shall be in full force and effect;

34

(m)    the representations and warranties of the Borrower contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date both before and after giving effect to the making of any Loans;

(n)    receipt by the Administrative Agent and the Banks of a certificate of the chief financial officer, treasurer or the chief accounting officer of the Borrower certifying that the Borrower is in compliance with all covenants of the Borrower contained in this Agreement, including, without limitation, the requirements of Section 5.8, as of the Closing Date; and

(o)    the General Partner shall intend to continue to qualify as a real estate investment trust under Section 856 of the Internal Revenue Code (a “REIT”).

The Administrative Agent shall promptly notify the Borrower and the Banks of the Closing Date, and such notice shall be conclusive and binding on all parties hereto.

Section 3.2    Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions:

(a)    the Closing Date shall have occurred on or prior to July 31, 2014;

(b)    receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.2;

(c)    immediately after such Borrowing, the Outstanding Balance will not exceed the Loan Amount and with respect to each Bank, such Bank’s pro rata portion of the Loans will not exceed such Bank’s Commitment;

(d)    immediately before and after such Borrowing, no Default or Event of Default shall have occurred and be continuing both before and after giving effect to the making of such Loans;

(e)    the representations and warranties of the Borrower contained in this Agreement (other than representations and warranties which speak as of a specific date) shall be true and correct in all material respects on and as of the date of such Borrowing both before and after giving effect to the making of such Loans;

(f)    no law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending or threatened, which does or, with respect to any threatened litigation, seeks to enjoin, prohibit or restrain, the making or repayment of the Loans, or any participations therein or the consummation of the transactions contemplated hereby; and

(g)    no event, act or condition shall have occurred after the Closing Date which, in the reasonable judgment of the Administrative Agent or the Required Banks, as the case may be, has had or is likely to have a Material Adverse Effect.

Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c) through (f) of this Section

35

(except that with respect to clause (f), such representation and warranty shall be deemed to be limited to laws, regulations, orders, judgments, decrees and litigation affecting the Borrower and not solely the Banks).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

In order to induce the Administrative Agent and each of the other Banks which may become a party to this Agreement to make the Loans, the Borrower makes the following representations and warranties. Such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the other Loan Documents and the making of the Loans.

Section 4.1    Existence and Power. The Borrower is duly organized, validly existing and in good standing as a limited partnership under the laws of the State of Delaware and has all powers and all material governmental licenses, authorizations, consents and approvals required to own its property and assets and carry on its business as now conducted or as it presently proposes to conduct and has been duly qualified and is in good standing in every jurisdiction in which the failure to be so qualified and/or in good standing is likely to have a Material Adverse Effect.

Section 4.2    Power and Authority. The Borrower has the organizational power and authority to execute, deliver and carry out the terms and provisions of each of the Loan Documents to which it is a party and has taken all necessary action to authorize the execution and delivery on behalf of the Borrower and the performance by the Borrower of such Loan Documents. The Borrower has duly executed and delivered each Loan Document to which it is a party, and each such Loan Document constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable insolvency, bankruptcy or other laws affecting creditors rights generally, or general principles of equity, whether such enforceability is considered in a proceeding in equity or at law.

Section 4.3    No Violation. Neither the execution, delivery or performance by or on behalf of the Borrower of the Loan Documents, nor compliance by the Borrower with the terms and provisions thereof nor the consummation of the transactions contemplated by the Loan Documents, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to Borrower except to the extent such contravention is not likely to have a Material Adverse Effect, or (ii) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower pursuant to the terms of any material indenture, mortgage, deed of trust, or other agreement or other instrument to which the Borrower (or of any partnership of which the Borrower is a partner) is a party or by which it or any of its property or assets is bound or to which it is subject except to the extent such conflict or breach is not likely to have a Material Adverse Effect, or (iii) will conflict with or result in a breach of any organizational document of any Subsidiary, the

36

certificate of limited partnership, partnership agreement or other organizational document of Borrower, or the General Partner’s articles of incorporation or by-laws.

Section 4.4    Financial Information.

(a)    The audited consolidated balance sheets and statements of income of the Borrower and the General Partner as of December 31, 2013 and the unaudited balance sheets and statements of income of the Borrower and the General Partner as of March 31, 2014 fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and the General Partner as of such date and their consolidated results of operations for such fiscal periods.

(b)    Since December 31, 2013, except as disclosed in public filings with the Securities and Exchange Commission (i) there has been no material adverse change in the business, financial position or results of operations of the Borrower or the General Partner and (ii) except as previously disclosed to the Administrative Agent and to the Banks, neither the Borrower nor the General Partner has incurred any material indebtedness or guaranty.

Section 4.5    Litigation.

(a)    There is no action, suit or proceeding pending against, or to the knowledge of the Borrower, threatened against or affecting, (i) the Borrower, the General Partner or any of their Subsidiaries, (ii) the Loan Documents or any of the transactions contemplated by the Loan Documents or (iii) any of their assets, in any case before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement or the other Loan Documents.

(b)    There are no final nonappealable judgments or decrees in an aggregate amount of One Million Dollars ($1,000,000) or more entered by a court or courts of competent jurisdiction against the Borrower or the General Partner (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing).

Section 4.6    Compliance with ERISA.

(a)    Except as previously disclosed to the Administrative Agent in writing as of the Closing Date, each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

37

(b)    Except for each “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) that is maintained, participated in or contributed to, by one or more members of the ERISA Group, no member of the ERISA Group is a “party in interest” (as such term is defined in Section 3(14) of ERISA or a “disqualified person” (as such term is defined in Section 4975(e)(2) of the Internal Revenue Code) with respect to any funded employee benefit plan and none of the assets of any such plans have been invested in a manner that would cause the transactions contemplated by the Loan Documents to constitute a nonexempt prohibited transaction (as such term is defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA).

Section 4.7    Environmental Compliance. To the best of Borrower’s knowledge, except as set forth in the Phase I environmental report(s) delivered to and accepted by the Administrative Agent with respect to each of the Unencumbered Asset Pool Properties (as supplemented or amended, the “Environmental Reports”), (i) there are in effect all Environmental Approvals which are required to be obtained under all Environmental Laws with respect to such Property, except for such Environmental Approvals the absence of which would not have a Material Adverse Effect, (ii) the Borrower is in compliance in all material respects with the terms and conditions of all such Environmental Approvals, and is also in compliance in all material respects with all other Environmental Laws or any plan, order, decree, judgment, injunction, notice or demand letter issued, entered or approved thereunder, except to the extent failure to comply would not have a Material Adverse Effect.

Except as set forth in the Environmental Reports or otherwise disclosed in writing to the Administrative Agent as of the Closing Date or with respect to a New Acquisition, as of the date of such New Acquisition, to Borrower’s actual knowledge:

(i)    There are no Environmental Claims or investigations pending or threatened by any Governmental Authority with respect to any alleged failure by the Borrower to have any Environmental Approval required in connection with the conduct of the business of the Borrower on any of the Unencumbered Asset Pool Properties, or with respect to any generation, treatment, storage, recycling, transportation, Release or disposal of any Material of Environmental Concern generated by the Borrower or any lessee on any of the Unencumbered Asset Pool Properties;

(ii)    No Material of Environmental Concern has been Released at the Property to an extent that it may reasonably be expected to have a Material Adverse Effect;

(iii)    No PCB (in amounts or concentrations which exceed those set by applicable Environmental Laws) is present at any of the Unencumbered Asset Pool Properties;

(iv)    No friable asbestos is present at any of the Unencumbered Asset Pool Properties;

(v)    There are no underground storage tanks for Material of Environmental Concern, active or abandoned, at any of the Unencumbered Asset Pool

38

Properties;

(vi)    No Environmental Claims have been filed with a Governmental Authority with respect to any of the Unencumbered Asset Pool Properties, and none of the Unencumbered Asset Pool Properties is listed or proposed for listing on the National Priority List promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of sites requiring investigation or clean-up;

(vii)    There are no Liens arising under or pursuant to any Environmental Laws on any of the Unencumbered Asset Pool Properties, and no government actions have been taken or are in process which could subject any of the Unencumbered Asset Pool Properties to such Liens; and

(viii)    There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or which are in the possession of, the Borrower in relation to any of the Unencumbered Asset Pool Properties which have not been made available to the Administrative Agent.

Section 4.8    Taxes. The initial tax year of the Borrower for federal income tax purposes was 1996. The federal income tax returns of the Borrower and its Consolidated Subsidiaries for the fiscal year ended December 31, 2012 have been filed. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary except those being contested in good faith. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

Section 4.9    Full Disclosure. All information heretofore furnished by the Borrower to the Administrative Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts known to the Borrower which materially and adversely affect or are likely to materially and adversely affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower considered as one enterprise or the ability of the Borrower to perform its obligations under this Agreement or the other Loan Documents.

Section 4.10    Solvency. On the Closing Date and after giving effect to the transactions contemplated by the Loan Documents occurring on the Closing Date, the Borrower is Solvent.

Section 4.11    Use of Proceeds; Margin Regulations. All proceeds of the Loans will be used by the Borrower only in accordance with the provisions hereof. No part of the proceeds of any Loan will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof will violate or be inconsistent with the

39

provisions of Regulations T, U or X of the Federal Reserve Board.

Section 4.12    Governmental Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of any Loan Document or the consummation of any of the transactions contemplated thereby other than those that have already been duly made or obtained and remain in full force and effect.

Section 4.13    Investment Company Act. The Borrower is not (x) an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended or (y) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

Section 4.14    Closing Date Transactions. On the Closing Date and immediately prior to or concurrently with the making of the Loans, the transactions (other than the making of the Loans) intended to be consummated on the Closing Date will have been consummated in accordance with all applicable laws. On or prior to the Closing Date, all consents and approvals of, and filings and registrations with, and all other actions by, any Person required in order to make or consummate such transactions have been obtained, given, filed or taken and are in full force and effect.

Section 4.15    Representations and Warranties in Loan Documents. All representations and warranties made by the Borrower in the Loan Documents are true and correct in all material respects.

Section 4.16    Patents, Trademarks, etc. The Borrower has obtained and holds in full force and effect all patents, trademarks, service marks, trade names, copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted, the impairment of which is likely to have a Material Adverse Effect. To the Borrower’s knowledge, no material product, process, method, substance, part or other material presently sold by or employed by the Borrower in connection with such business infringes any patent, trademark, service mark, trade name, copyright, license or other such right owned by any other Person. There is not pending or, to the Borrower’s knowledge, threatened any claim or litigation against or affecting the Borrower contesting its right to sell or use any such product, process, method, substance, part or other material.

Section 4.17    No Default. No Default or Event of Default exists under or with respect to any Loan Document. The Borrower is not in default in any material respect beyond any applicable grace period under or with respect to any other material agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect, the existence of which default is likely (to the extent that the Borrower can now reasonably foresee) to result in a Material Adverse Effect.

Section 4.18    Licenses, etc. The Borrower has obtained and holds in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other consents and approvals which are necessary

40

for the operation of its businesses as presently conducted, the absence of which is likely (to the extent that the Borrower can now reasonably foresee) to have a Material Adverse Effect.

Section 4.19    Compliance With Law. The Borrower is in compliance with all laws, rules, regulations, orders, judgments, writs and decrees, including, without limitation, all building and zoning ordinances and codes, the failure to comply with which is likely (to the extent that the Borrower can now reasonably foresee) to have a Material Adverse Effect.

Section 4.20    No Burdensome Restrictions. The Borrower is not a party to any agreement or instrument or subject to any other obligation or any charter or corporate or partnership restriction, as the case may be, which, individually or in the aggregate, is likely (to the extent that the Borrower can now reasonably foresee) to have a Material Adverse Effect.

Section 4.21    Brokers’ Fees. The Borrower has not dealt with any broker or finder with respect to the transactions contemplated by the Loan Documents (except with respect to the acquisition or disposition of Real Property Assets) or otherwise in connection with this Agreement (it being understood that J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its Affiliates, and Wells Fargo Securities, LLC, have acted as arrangers for the Loan Facility and the fees and expenses of which shall be paid by Borrower), and the Borrower has not done any acts, had any negotiations or conversation, or made any agreements or promises which will in any way create or give rise to any obligation or liability for the payment by the Borrower of any brokerage fee, charge, commission or other compensation to any party with respect to the transactions contemplated by the Loan Documents (except with respect to the acquisition or disposition of Real Property Assets), other than the fees payable hereunder.

Section 4.22    Labor Matters. Except as set forth on Schedule 4.22 attached hereto and made a part hereof, there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower and the Borrower has not suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five (5) years.

Section 4.23    Organizational Documents. The documents delivered pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the organizational documents (together with all amendments and modifications thereof) of the Borrower. The Borrower represents that it has delivered to the Administrative Agent true, correct and complete copies of each of the documents set forth in this Section 4.23.

Section 4.24    Principal Offices. The principal office, chief executive office and principal place of business of the Borrower is 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.

Section 4.25    REIT Status. For the fiscal year ended December 31, 2013, the General Partner qualified, and the General Partner intends to continue to qualify, as a REIT.

Section 4.26    Ownership of Property. The Borrower and/or the General Partner, directly or indirectly, owns fee simple title to or a ground leasehold interest in each of the Unencumbered Asset Pool Properties.

41

Section 4.27    Insurance. The Borrower or its tenants, as applicable, currently maintains insurance at 100% replacement cost insurance coverage in respect of each of the Real Property Assets, as well as comprehensive general liability insurance (including “builders’ risk”) against claims for personal, and bodily injury and/or death, to one or more persons, or property damage, as well as workers’ compensation insurance, in each case with respect to the Real Property Assets with insurers having an A.M. Best policyholders’ rating of not less than A-VIII in amounts that prudent owner of assets such as the Real Property Assets would maintain.

Section 4.28    Anti-Corruption Laws. None of the Borrower, any Subsidiary of the Borrower, or, to the knowledge of the chief executive officer, chief financial officer or general counsel of the Borrower, any director, officer or employee thereof is currently in violation of any Anti-Corruption Laws.

Section 4.29    Sanctions. None of the Borrower, any Subsidiary of the Borrower, or, to the knowledge of the chief executive officer, chief financial officer or general counsel of the Borrower, any director, officer or employee thereof is an individual or entity currently the subject of any Sanctions or in violation of any Sanctions, nor is the Borrower or any Subsidiary of the Borrower located, organized or resident in a Sanctioned Country.

ARTICLE V

AFFIRMATIVE AND NEGATIVE COVENANTS

The Borrower covenants and agrees that, so long as any Bank has any unfunded Commitment or Loan hereunder or any Obligations remain unpaid:

Section 5.1    Information. The Borrower will deliver:

(a)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks), as soon as available and in any event within 105 days after the end of each fiscal year of the Borrower, an audited consolidated balance sheet of the Borrower as of the end of such fiscal year and the related consolidated statements of cash flow and operations for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, audited by Deloitte & Touche or other independent public accountants of similar standing;

(b)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks), as soon as available and in any event within sixty (60) days after the end of each quarter of each fiscal year (other than the last quarter in any fiscal year) of the Borrower, a statement of the Borrower, prepared in accordance with GAAP, setting forth the operating income and operating expenses of the Borrower, in sufficient detail so as to calculate Unencumbered Asset Pool Net Operating Cash Flow of the Borrower for the immediately preceding quarter;

(c)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks), simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer, controller, treasurer or vice president-corporate finance of the Borrower (i) setting forth

42

in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 5.8 on the date of such financial statements;(ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; and (iii) certifying (x) that such financial statements fairly present the financial condition and the results of operations of the Borrower as of the dates and for the periods indicated, in accordance with GAAP, subject, in the case of interim financial statements, to normal year-end adjustments, and (y) that such officer has reviewed the terms of the Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the business and condition of the Borrower during the period beginning on the date through which the last such review was made pursuant to this Section 5.1(c) and ending on a date not more than ten (10) Domestic Business Days prior to the date of such delivery and that on the basis of such review of the Loan Documents and the business and condition of the Borrower, to the best knowledge of such officer, no Default or Event of Default under any other provision of Section 6.1 occurred or, if any such Default or Event of Default has occurred, specifying the nature and extent thereof and, if continuing, the action the Borrower proposes to take in respect thereof;

(d)    to the Administrative Agent and to each of the Banks, (i) within five (5) days after the president, chief financial officer, treasurer, controller or other executive officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the president of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; and (ii) promptly and in any event within ten (10) days after the Borrower obtains knowledge thereof, notice of (x) any litigation or governmental proceeding pending or threatened against the Borrower which is likely to individually or in the aggregate, result in a Material Adverse Effect, and (y) any other event, act or condition which is likely to result in a Material Adverse Effect;

(e)    to the Administrative Agent and to each of the Banks, if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details

43

as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take;

(f)    to the Administrative Agent and to each of the Banks, promptly and in any event within five (5) Domestic Business Days after the Borrower obtains actual knowledge of any of the following events, a certificate of the Borrower executed by an officer of the Borrower specifying the nature of such condition and the Borrower’s, and if the Borrower has actual knowledge thereof, the Environmental Affiliate’s proposed initial response thereto: (i) the receipt by the Borrower, or, if the Borrower has actual knowledge thereof, any of the Environmental Affiliates, of any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Borrower, or, if the Borrower has actual knowledge thereof, any of the Environmental Affiliates, is not in compliance with applicable Environmental Laws, and such noncompliance is likely to have a Material Adverse Effect, (ii) the Borrower shall obtain actual knowledge that there exists any Environmental Claim which is likely to have a Material Adverse Effect pending or threatened against the Borrower or any Environmental Affiliate or (iii) the Borrower obtains actual knowledge of any release, emission, discharge or disposal of any Material of Environmental Concern that is likely to form the basis of any Environmental Claim against the Borrower or any Environmental Affiliate;

(g)    to the Administrative Agent and to each of the Banks, promptly and in any event within five (5) Domestic Business Days after receipt of any material notices or correspondence from any company or agent for any company providing insurance coverage to the Borrower relating to any material loss or loss of the Borrower with respect to any of the Unencumbered Asset Pool Properties, copies of such notices and correspondence; and

(h)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks or posting to the internet website of the General Partner), promptly upon the mailing thereof to the shareholders or partners of the Borrower, copies of all financial statements, reports and proxy statements so mailed;

(i)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks or posting to the internet website of the General Partner), promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission;

(j)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks), simultaneously with delivery of the information required by Sections 5.1(a) and (b), a statement of Unencumbered Asset Pool Net Operating Cash Flow with respect to each Unencumbered Asset Pool Property and a list of all Unencumbered Asset Pool Properties; and

(k)    to the Administrative Agent and to each of the Banks (which delivery may be made electronically, including via IntraLinks), from time to time such additional information

44

regarding the financial position or business of the Borrower as the Administrative Agent, at the request of any Bank, may reasonably request.

Section 5.2    Payment of Obligations. The Borrower will pay and discharge, at or before maturity, all its material obligations and liabilities including, without limitation, any obligation pursuant to any agreement by which it or any of its properties is bound and any tax liabilities, in any case, where failure to do so will likely result in a Material Adverse Effect except (i) such tax liabilities may be contested in good faith by appropriate proceedings, and the Borrower will maintain in accordance with GAAP, appropriate reserves for the accrual of any of the same; or (ii) such obligation or liability as may be contested in good faith by appropriate proceedings.

Section 5.3    Maintenance of Property; Insurance.

(a)    The Borrower will keep each of the Unencumbered Asset Pool Properties in good repair, working order and condition, subject to ordinary wear and tear.

(b)    The Borrower shall (a) maintain insurance as specified in Section 4.27 hereof with insurers meeting the qualifications described therein, which insurance shall in any event not provide for materially less coverage than the insurance in effect on the Closing Date, and (b) furnish to each Bank, or use reasonable efforts to obtain from a tenant, if applicable, from time to time, upon written request, copies of the policies under which such insurance is issued, certificates of insurance and such other information relating to such insurance as such Bank may reasonably request. The Borrower will deliver to the Banks (i) upon request of any Bank through the Administrative Agent from time to time, full information as to the insurance carried, (ii) within five (5) days of receipt of notice from any insurer, a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement and (iii) forthwith, notice of any cancellation or nonrenewal of coverage by the Borrower.

Section 5.4    Conduct of Business. The Borrower’s primary business will continue to be acquiring, owning, operating, managing, developing (to the extent permitted in this Agreement), and leasing office and industrial properties.

Section 5.5    Compliance with Laws. (a) The Borrower will comply in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws, all zoning and building codes and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings.

(b)    In the ordinary course of its business and at such times as the Borrower reasonably deems appropriate, the Borrower shall conduct periodic reviews of the effect of Environmental Laws on its business, operations and properties, in the course of which it shall use commercially reasonable efforts to identify and evaluate applicable liabilities and costs (including, without limitation, any capital or operating expenditures required as a matter of Environmental Law for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required as a matter of Environmental Law to achieve or maintain compliance with Environmental Law or as a condition of any license, permit or contract

45

to which the Borrower is a party or a beneficiary, any related constraints on operating activities, including, without limitation, any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Materials of Environmental Concern, and any actual or potential liabilities to third parties, including, without limitation, employees, and any related costs and expenses). The Borrower shall notify the Administrative Agent immediately if, on the basis of any such review, the Borrower has reasonably concluded that such associated potential liabilities and costs, including, without limitation, the costs of compliance with Environmental Laws, could reasonably be expected to have a Material Adverse Effect.

Section 5.6    Inspection of Property, Books and Records. The Borrower will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit representatives of any Bank at such Bank’s expense to visit and inspect any of its properties to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers and employees, all at such reasonable times, upon reasonable notice, but in no event more than once each fiscal year unless an Event of Default has occurred and is continuing, then as often as may reasonably be desired.

Section 5.7    Existence.

(a)    The Borrower shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence or its partnership existence, as applicable.

(b)    The Borrower shall do or cause to be done all things necessary to preserve and keep in full force and effect its patents, trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals the nonexistence of which is likely to have a Material Adverse Effect.

Section 5.8    Financial Covenants.

(a)    Total Debt to Total Asset Value. As of the last day of each calendar quarter, the Total Debt Ratio will not be greater than 60%; provided, however, with respect to any period in which the Borrower or any of its Consolidated Subsidiaries have acquired a Real Property Asset (or multiple Real Property Assets in a single transaction) for a price of more than $150,000,000, Total Debt to Total Asset Value for such quarter and the next succeeding quarter may increase to 65%, provided such ratio does not exceed 60% thereafter.

(b)    Fixed Charge Coverage. As of the last day of each calendar quarter, the ratio of (x) Annual EBITDA, less reserves for Capital Expenditures of (i) $.30 per square foot per annum for each Real Property Asset that is an office property and (ii) $.15 per square foot per annum for each Real Property Asset that is an industrial property, to (y) the sum of (i) Total Debt Service and (ii) dividends or other payments payable by the General Partner with respect to any preferred stock issued by the General Partner and distributions or other payments payable by the Borrower with respect to any preferred partnership units of the Borrower, will not be less than 1.5:1.0.

46

(c)    Limitation on Secured Debt. Secured Debt of the Borrower, the General Partner and their Consolidated Subsidiaries, which for purposes hereof shall be deemed to include the Borrower’s and the General Partner’s pro rata share of the Secured Debt of any Minority Holdings of the Borrower or the General Partner, shall at no time exceed thirty percent (30%) of Total Asset Value.

(d)    Unsecured Debt Ratio. As of each of (x) the last day of each calendar quarter, and (y) any Borrowing, the Unsecured Debt Ratio shall not be less than 1.67:1.0.

(e)    Unencumbered Asset Pool Debt Service Coverage. As of the last day of each calendar quarter and as of the date of any sale or secured financing of any Unencumbered Asset Pool Property, the ratio of (i) Unencumbered Asset Pool Net Operating Cash Flow to (ii) Unsecured Debt Service will not be less than 1.75:1.0.

(f)    Dividends. The Borrower will not, as determined on an aggregate annual basis, pay any partnership distributions in excess of the greater of (i) 95% of its consolidated FFO for such year, and (ii) an amount which results in distributions to the General Partner (excluding therefrom any preferred partnership distributions to the extent the same have been deducted from consolidated FFO for such year) in an amount sufficient to permit the General Partner to pay dividends to its shareholders which it reasonably believes are necessary for it to (A) maintain its qualification as a REIT for federal and state income tax purposes, and (B) avoid the payment of federal or state income or excise tax. During the continuance of an Event of Default under Section 6.1(a), the Borrower shall make only those partnership distributions which result in distributions to the General Partner in an amount sufficient to permit the General Partner to pay dividends to its shareholders which it reasonably believes are necessary to maintain its status as a REIT for federal and state income tax purposes. Notwithstanding anything herein to the contrary, in connection with a proposed acquisition, the Borrower shall be permitted to distribute the proceeds of the Loans to the General Partner.

(g)    Minimum Consolidated Tangible Net Worth. The Consolidated Tangible Net Worth will at no time be less than the sum of (i) $2,200,000,000 plus (ii) 75% of all Net Offering Proceeds received from and after December 31, 2013.

Section 5.9    Restriction on Fundamental Changes; Operation and Control. (a) The Borrower shall not enter into any merger or consolidation, unless the Borrower is the surviving entity, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, any substantial part of the business or property of the Borrower and its Subsidiaries, taken as a whole, whether now or hereafter acquired, hold an interest in any subsidiary which is not controlled by the Borrower or the General Partner or enter into other business lines, without the prior written consent of the Administrative Agent, which consent shall not be given unless the Required Banks so consent.

(b)    The Borrower shall not amend its articles of incorporation, by-laws or agreement of limited partnership, as applicable, in any material respect which is reasonably likely to have an adverse effect on the Banks, without the Administrative Agent’s consent, which shall not be unreasonably withheld or delayed.

47

Section 5.10    Changes in Business. The Borrower shall not enter into any business which is substantially different from that conducted by the Borrower on the Closing Date after giving effect to the transactions contemplated by the Loan Documents.

Section 5.11    Sale of Unencumbered Asset Pool Properties. Concurrent with the sale or transfer of any Unencumbered Asset Pool Property that exceeds fifteen percent (15%) of the Unencumbered Asset Pool Properties Value, the Borrower shall (i) deliver written notice to the Administrative Agent, (ii) deliver to the Administrative Agent a certificate from its chief financial officer, chief accounting officer, vice president or other duly authorized officer certifying that at the time of such sale or other disposal (based on pro-forma calculations for the previous period assuming that such Unencumbered Asset Pool Property was not a Unencumbered Asset Pool Property for the relevant period) all of the covenants contained in Section 5.8 are and after giving effect to the transaction shall continue to be true and accurate in all respects, and (iii) pay to the Administrative Agent an amount equal to that, if any, required pursuant to Section 2.10(a). In the event that a Separate Parcel that originally formed a part of a Unencumbered Asset Pool Property is to be sold or transferred, the value of the remaining portion of the Unencumbered Asset Pool Property will be determined by Administrative Agent at the time of sale or transfer in its sole discretion.

Section 5.12    Fiscal Year; Fiscal Quarter. The Borrower shall not change its fiscal year or any of its fiscal quarters without the Administrative Agent’s prior written consent, which consent shall not be unreasonably withheld or delayed.

Section 5.13    Margin Stock. None of the proceeds of the Loans will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock.

Section 5.14    Use of Proceeds. The Borrower shall use the proceeds of the Loans for its general business purposes, including, for the avoidance of doubt, in connection with a proposed acquisition, a redemption of the Borrower’s partnership units issued to the General Partner. The Borrower shall not, directly or indirectly, use any part of the proceeds of any Loans or lend, contribute or otherwise make available such proceeds to any Person, to fund or finance any activities or business of any Person, or in any Sanctioned Country, that, at the time of such funding, is known by the chief executive officer, chief financial officer or general counsel of the Borrower to be the subject of Sanctions, or in any other manner that will result in a violation by any Person of Sanctions, including, without limitation, any party hereto.

Section 5.15    General Partner Status. The General Partner shall at all times (i) maintain its status as a self-directed and self-administered REIT, and (ii) remain a publicly traded company listed on the New York Stock Exchange.

ARTICLE VI

DEFAULTS

Section 6.1    Events of Default. Each of the following shall constitute an event of default under this Agreement (an “Event of Default”):

48

(a)    (i) the Borrower shall fail to pay when due any principal of any Loan, or (ii) the Borrower shall fail to pay when due any interest on any Loan, any fees or any amounts payable hereunder within three (3) Domestic Business Days after the same is due;

(b)    the Borrower shall fail to observe or perform any covenant contained in Section 5.7(a) (with respect to the Borrower’s existence) or Sections 5.8 to 5.15, inclusive, subject to any applicable grace periods set forth therein;

(c)    the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Administrative Agent;

(d)    any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made);

(e)    the Borrower, the General Partner or any Material Subsidiary shall default in the payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) of any amount owing in respect of any Recourse Debt or Debt guaranteed by the Borrower, the General Partner or such Material Subsidiary (other than the Obligations) in an aggregate principal amount of more than $50,000,000 and such default shall continue beyond the giving of any required notice and the expiration of any applicable grace period (as the same may be extended by the applicable lender) and such default shall not be waived by the applicable lender (which waiver shall serve to reinstate the applicable loan), or the Borrower, the General Partner or any Material Subsidiary shall default in the performance or observance of any obligation or condition with respect to any such Debt or any other event shall occur or condition exist beyond the giving of any required notice and the expiration of any applicable grace period (as the same may be extended by the applicable lender), if in any such case as a result of such default, event or condition, the lender (including the holder or holders thereof, or any trustee or agent for such holders) of any such Debt shall accelerate the maturity of any such Debt or shall be permitted (without any further requirement of notice or lapse of time), to accelerate the maturity of any such Debt and such default shall not be waived by the applicable lender (which waiver shall serve to reinstate the applicable loan), or any such Debt shall become or be declared to be due and payable prior to its stated maturity other than as a result of a regularly scheduled payment;

(f)    the Borrower, the General Partner or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

49

(g)    an involuntary case or other proceeding shall be commenced against the Borrower, the General Partner or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower, the General Partner or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

(h)    the Borrower shall default in its obligations under any Loan Document other than this Agreement beyond any applicable notice and grace periods;

(i)    the General Partner shall default in its obligations under the Guaranty beyond any applicable notice and grace periods;

(j)    any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it shall have become liable to pay under Title IV of ERISA, or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing, or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan, or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated, or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $1,000,000;

(k)    one or more final nonappealable judgments or decrees in an aggregate amount of $10,000,000 as of such date shall be entered by a court or courts of competent jurisdiction against the Borrower or the General Partner (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (i) any such judgments or decrees shall not be stayed, discharged, paid, bonded or vacated within thirty (30) days (or bonded, vacated or satisfied within thirty (30) after any stay is lifted) or (ii) enforcement proceedings shall be commenced by any creditor on any such judgments or decrees;

(l)    (i) any Environmental Claim shall have been asserted against the Borrower or any Environmental Affiliate, (ii) any release, emission, discharge or disposal of any Material of Environmental Concern shall have occurred, and such event is reasonably likely to form the basis of an Environmental Claim against the Borrower or any Environmental Affiliate, or (iii) the Borrower or the Environmental Affiliates shall have failed to obtain any Environmental Approval necessary for the ownership, or operation of its business, property or assets or any such Environmental Approval shall be revoked, terminated, or otherwise cease to be in full force and effect, in the case of clauses (i), (ii) or (iii) above, if the existence of such condition has had or is reasonably likely to have a Material Adverse Effect;

50

(m)    (i) during any consecutive twenty-four (24) month period commencing on or after the date hereof, individuals who at the beginning of such period constituted the Board of Directors of the General Partner of the Borrower (together with any new directors whose election by the Board of Directors or whose nomination for election by the General Partner stockholders was approved by a vote of at least a majority of the members of the Board of Directors then in the office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office, except for any such change resulting from (x) death or disability of any such member, (y) satisfaction of any requirement for the majority of the members of the Board of Directors of the General Partner to qualify under applicable law as independent directors, or (z) the replacement of any member of the Board of Directors who is an officer or employee of the General Partner with any other officer or employee of the General Partner or its Affiliate; or (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of equity interests representing more than thirty-five percent (35%) of the aggregate ordinary voting power represented by the issued and outstanding equity interests of the General Partner;

(n)    the General Partner shall cease at any time to qualify as a REIT; and

(o)    at any time, for any reason, the Borrower or the General Partner seeks to repudiate its obligations under any Loan Document.

Section 6.2    Rights and Remedies. (a) Upon the occurrence of any Event of Default described in Sections 6.1(f) or (g), the unpaid principal amount of, and any and all accrued interest on, the Loans and any and all accrued fees and other Obligations hereunder shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentment, demand, or protest or other notices or requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Administrative Agent may, and at the request of the Required Banks shall, exercise any of its rights and remedies hereunder and by written notice to the Borrower, declare the Commitment(s) of each Bank to make Loans to be terminated whereupon the same shall forthwith terminate, declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and any and all accrued fees and other Obligations hereunder to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind other than as provided in the Loan Documents (including, without limitation, valuation and appraisement, diligence, presentment, and notice of intent to demand or accelerate), all of which are hereby expressly waived by the Borrower.

(b)    Notwithstanding the foregoing, upon the occurrence and during the continuance of any Event of Default other than any Event of Default described in Sections 6.1(f) or (g), the Administrative Agent shall not exercise any of its rights and remedies hereunder nor declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans

51

and any and all accrued fees and other Obligations hereunder to be immediately due and payable, until such time as the Administrative Agent shall have delivered a notice to the Banks specifying the Event of Default which has occurred and whether Administrative Agent recommends the acceleration of the Obligations due hereunder or the exercise of other remedies hereunder. The Banks shall notify the Administrative Agent if they approve or disapprove of the acceleration of the Obligations due hereunder or the exercise of such other remedy recommended by Administrative Agent within five (5) Domestic Business Days after receipt of such notice. If any Bank shall not respond within such five (5) Domestic Business Day period, then such Bank shall be deemed to have accepted Administrative Agent’s recommendation for acceleration of the Obligations due hereunder or the exercise of such other remedy. Regardless of the Administrative Agent’s recommendation, if the Required Banks shall approve the acceleration of the Obligations due hereunder or the exercise of such other remedy, then Administrative Agent shall declare the Commitment(s) of each Bank to make Loans to be terminated whereupon the same shall forthwith terminate and declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and any and all accrued fees and other Obligations hereunder to be immediately due and payable or exercise such other remedy approved by the Required Banks. If the Required Banks shall neither approve nor disapprove the acceleration of the Obligations due hereunder or such other remedy recommended by Administrative Agent, then Administrative Agent may accelerate the Obligations due hereunder or exercise any of its rights and remedies hereunder in its sole discretion. If the Required Banks shall disapprove the acceleration of the Obligations due hereunder or the exercise of such other remedy recommended by Administrative Agent, but approve of another remedy, then to the extent permitted hereunder, Administrative Agent shall exercise such remedy. In the event the Administrative Agent exercises any remedy provided in any of the Loan Documents, the Administrative Agent shall act as a collateral agent for the Banks.

(c)    Notwithstanding the foregoing, if in Administrative Agent’s sole judgment, immediate action is required after an Event of Default has occurred to prevent loss to the Banks, the Administrative Agent may exercise any of its rights and remedies pursuant to this Agreement, including, without limitation, acceleration of the Obligations hereunder, without the prior consent of the Required Banks provided that the Administrative Agent has notified the Banks of its intention so to exercise such rights and remedies and within 48 hours (such hours being counted only on Domestic Business Days) thereafter the Required Banks have not instructed the Administrative Agent to the contrary.

Section 6.3    Notice of Default. If the Administrative Agent shall not already have given any notice to the Borrower under Section 6.1, the Administrative Agent shall give notice to the Borrower under Section 6.1 promptly upon being requested to do so by the Required Banks and shall thereupon notify all the Banks thereof.

ARTICLE VII

THE ADMINISTRATIVE AGENT

Section 7.1    Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the

52

Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. Except as otherwise expressly permitted by this Agreement or with the prior written consent of the Administrative Agent, only the Administrative Agent (and not one or more of the Banks) shall have the authority to deal directly with the Borrower under this Agreement and each Bank acknowledges that all notices, demands or requests from such Bank to Borrower must be forwarded to the Administrative Agent for delivery to the Borrower. Each Bank acknowledges that, except as otherwise expressly set forth in this Agreement, the Borrower has no obligation to act or refrain from acting on instructions or demands of one or more Banks absent written instructions from Administrative Agent in accordance with its rights and authority hereunder.

Section 7.2    Administrative Agent and Affiliates. JPMorgan Chase Bank, N.A. shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and JPMorgan Chase Bank, N.A. and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder, and the term “Bank” and “Banks” shall include JPMorgan Chase Bank, N.A. in its individual capacity.

Section 7.3    Action by Administrative Agent. (1) The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. The Administrative Agent shall not have by reason of the execution and delivery of the Loan Documents to which it is a party, the performance of any of its obligations thereunder, or by the use of the term “Administrative Agent”, a fiduciary relationship in respect of any Bank or the Borrower.

(b)    The Administrative Agent shall promptly forward, or make available by Intralinks or other internet access system, to each Bank tangible or electronic copies, or notify (in writing or electronically and, if electronically, the Administrative Agent will also transmit a fax indicating that the information in question is being transmitted electronically) each Bank as to the contents, of all notices, financial statements and other significant materials and communications received from the Borrower pursuant to the terms of this Agreement or any other Loan Document and, in the event that the Borrower fails to pay when due the principal of or interest on any Loan, the Administrative Agent shall promptly give notice thereof to the Banks. As to any matters not expressly provided for by the Loan Documents, the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all the Banks; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law. If the Borrower shall have made any payment of principal of and interest on the Loans or any other amount due hereunder in accordance with Article II hereof and the Administrative Agent shall not have distributed to each Bank its proper share of such payment on the date on which such payment shall be received (other than as a result of any shutdown of or disturbance in any payment system or any other event or circumstance beyond the reasonable control of the Administrative Agent), then the Administrative Agent shall pay such proper share

53

to such Bank together with interest thereon at the Federal Funds Rate for each day from the date such payment shall have been received from the Borrower until the date such amount is paid by the Administrative Agent to such Bank. If any Bank transfers funds to the Administrative Agent in anticipation of the making of a Loan that is subsequently not made, then the Administrative Agent agrees to repay such funds to such Bank upon the receipt of a notice from such Bank requesting the repayment of such funds, together with interest thereon at the Federal Funds Rate for each day from the date which is the day upon which Administrative Agent shall have received a notice from such bank requesting the repayment of such funds until the date such amount is paid by the Administrative Agent to such Bank.

Section 7.4    Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 7.5    Liability of Administrative Agent. Neither the Administrative Agent nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or, where required by the terms of this Agreement, all of the Banks, or (ii) in the absence of its own gross negligence or willful misconduct. Except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any Default (other than a Default under Section 6.1(a) with respect to the payment of principal or interest) unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Bank. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder or the contents of any report or certificate delivered hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the other Loan Documents or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be sent by electronic means) believed by it in good faith to be genuine or to be signed by the proper party or parties. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it in good faith to be made by the proper Person, and shall not incur any liability for relying thereon.

Section 7.6    Indemnification. Each Bank shall, ratably in accordance with its Commitment Percentage, indemnify the Administrative Agent, their Affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct as finally determined by a court of competent jurisdiction) that such indemnitees

54

may suffer or incur as a result of, or in connection with, the Administrative Agent’s capacity as Administrative Agent in connection with this Agreement, the other Loan Documents or any action taken or omitted by such indemnitees in accordance with this Agreement, including any amounts that the Borrower fails to pay under Section 9.3(a).

Section 7.7    Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.8    Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. In addition, if the Administrative Agent at any time shall have been finally determined to have committed gross negligence or willful misconduct in connection with its performance of its duties as Administrative Agent hereunder or if the Commitment of the Administrative Agent, in its capacity as a Bank, inclusive of participations, shall be less than $10,000,000, then, upon notice from the Required Banks, the Administrative Agent shall resign. Upon any such resignation, the Required Banks shall have the right to appoint a successor Administrative Agent with the consent of the Borrower (which consent will not be unreasonably withheld or delayed); provided that the consent of the Borrower shall not be required if an Event of Default shall have occurred and be continuing. If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, with the reasonable approval of the Borrower provided that no Event of Default shall have occurred and be outstanding, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000, total assets of at least $25,000,000,000 and a long-term senior unsecured indebtedness rating of BBB+ or better by S&P (if rated by S&P) and Baa1 by Moody’s (if rated by Moody’s). Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder first accruing or arising after the effective date of such retirement. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent.

If, at any time, the Administrative Agent shall no longer have any Commitment or hold outstanding Loans under this Agreement, the Administrative Agent shall give notice of its offer to resign to the Banks and the Borrower. Upon any such offer of resignation, the Required Banks shall have the right to appoint a successor Administrative Agent or to retain the Administrative Agent with the consent of the Borrower; provided that the consent of the Borrower shall not be required if an Event of Default shall have occurred and be continuing.

55

Section 7.9    Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent.

Section 7.10    Copies of Notices. The Administrative Agent shall deliver to each Bank a copy of any notice sent to the Borrower by the Administrative Agent in connection with the performance of its duties as the Administrative Agent hereunder; and the Administrative Agent shall deliver to each Bank a copy of any notice sent to the Administrative Agent by the Borrower in connection with any Default or Event of Default hereunder.

ARTICLE VIII

CHANGE IN CIRCUMSTANCES

Section 8.1    Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Euro-Dollar Borrowing:

(a)    the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted London Interbank Offered Rate or the London Interbank Offered Rate, as applicable, for such Interest Period; or

(b)    the Administrative Agent is advised by the Required Banks that the Adjusted London Interbank Offered Rate or the London Interbank Offered Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Banks (or Bank) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the Banks by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Banks that the circumstances giving rise to such notice no longer exist, (i) any Notice of Interest Rate Election that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Euro-Dollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Euro-Dollar Borrowing, such Borrowing shall be made as an Base Rate Borrowing.

Section 8.2    Illegality. If, after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any existing applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans, and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the

56

obligation of such Bank to make or convert Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan.

Section 8.3    Increased Cost and Reduced Return.

(a)    If, after the date hereof, in the case of any Loan or any obligation to make Loans, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule, directive, decision or regulation, or any change in the interpretation, re-interpretation, application or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (“Change in Law”), or compliance by any Bank (or its Applicable Lending Office) with any request, decision or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System (but excluding with respect to any Euro-Dollar Loan any such requirement reflected in an applicable Euro-Dollar Reserve Percentage)), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Note, or its obligation to make Euro-Dollar Loans, and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), which demand shall be accompanied by a certificate showing, in reasonable detail, the calculation of such amount or amounts, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. For purposes hereof, all requests, rules, guidelines or directives in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act shall be deemed to be a change after the date hereof regardless of the date enacted, implemented, adopted or issued and all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) or the United States financial regulatory authorities, in each case pursuant to Basel III shall be deemed to be such a change regardless of the date adopted, issued, promulgated or implemented (each a “Regulatory Change”), provided, however, that if the applicable Bank shall have implemented changes prior to the Closing Date in response to any such requests, rules, guidelines or directives, then the same shall not be deemed to be a change after the date hereof or with respect to such Bank.

57

(b)    If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital or liquidity requirements, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital or liquidity requirements (whether or not having the force of law) of any such authority, central bank or comparable agency, including any Regulatory Change, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital or liquidity requirements) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), which demand shall be accompanied by a certificate showing, in reasonable detail, the calculation of such amount or amounts, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.

(c)    Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section (although failure or delay on the part of any Bank to provide such notice or to demand compensation pursuant to this Section, after receiving notice of increased cost or reduced rate of return, shall not constitute a waiver of such Bank’s right to demand such compensation unless such failure materially prejudices Borrower’s rights hereunder) and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

Section 8.4    Taxes.

(a)    Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 8.4) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

58

(b)    Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.

(c)    Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 8.4, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(d)    Indemnification by the Borrower. Without duplication of Sections 8.4(a) or (b) above, the Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Bank (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Bank, shall be conclusive absent manifest error. The Administrative Agent shall reasonably cooperate, at its sole discretion and at no cost to the Administrative Agent or the Banks, with efforts by Borrower to recover any Taxes or Other Taxes which Borrower reasonably believes were incorrectly or illegally imposed.

(e)    Indemnification by the Banks. Each Bank shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Bank (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Bank’s failure to comply with the provisions of Section 9.6(b) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Bank, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Bank by the Administrative Agent shall be conclusive absent manifest error. Each Bank hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Bank under any Loan Document or otherwise payable by the Administrative Agent to the Bank from any other source against any amount due to the Administrative Agent under this paragraph (e).

(f)    Status of Banks. (i) The Administrative Agent or any Bank that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, the Administrative Agent or any Bank, if reasonably requested by the Borrower or

59

the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Recipient is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 8.4(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Recipient’s reasonable judgment such completion, execution or submission would subject such Recipient to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Recipient.

(ii)    Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,

(A)    the Administrative Agent and any Bank that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which the Administrative Agent becomes the Administrative Agent under this Agreement or such Bank becomes a Bank under this Agreement, as applicable, (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Administrative Agent or Bank, as applicable is exempt from U.S. federal backup withholding tax;

(B)    any Foreign Bank shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Bank becomes a Bank under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(1)    in the case of a Foreign Bank claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN (or applicable successor form) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN (or applicable successor form) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2)    executed originals of IRS Form W-8ECI;

(3)    in the case of a Foreign Bank claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit I-1 to the effect that such Foreign Bank is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign

60

corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN (or applicable successor form); or

(4)    to the extent a Foreign Bank is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN (or applicable successor form), a U.S. Tax Compliance Certificate substantially in the form of Exhibit I-2 or Exhibit I-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Bank is a partnership and one or more direct or indirect partners of such Foreign Bank are claiming the portfolio interest exemption, such Foreign Bank may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit I-4 on behalf of each such direct and indirect partner;

(C)    any Foreign Bank shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Bank becomes a Bank under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

(D)    if a payment made to a Recipient under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Recipient were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Recipient shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Recipient has complied with such Recipient’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Recipient agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

61

(g)    Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 8.4 (including by the payment of additional amounts pursuant to this Section 8.4), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 8.4 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(h)    Survival. Each party’s obligations under this Section 8.4 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Bank, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

(i)    Defined Terms. For purposes of this Section 8.4, the term “applicable law” includes FATCA.

Section 8.5    Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make, or convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Sections 8.1 or 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five (5) Euro-Dollar Business Days’ prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist:

(a)    all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and

(b)    after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

62

Section 8.6    Mitigation Obligations; Replacement of Banks. (a) If any Bank requests compensation under Section 8.3, or if the Borrower is required to pay any additional amount to any Bank or any Governmental Authority for the account of any Bank pursuant to Section 8.4, then such Bank shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Bank, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 8.3 or 8.4, as the case may be, in the future and (ii) would not subject such Bank to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Bank. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation or assignment.

(b)    If (w) any Bank is unable to make, maintain or fund its Eurodollar Loans or pursuant to Section 8.2 for a period of ten (10) consecutive days, or (x) any Bank requests compensation under Section 8.3, or if the Borrower is required to pay any additional amount to any Bank or any Governmental Authority for the account of any Bank pursuant to Section 8.4, or (y) if any Bank becomes a Defaulting Lender, or (z) any Bank has refused to consent to any proposed amendment, modification, waiver, termination or consent with respect to any provision of this Agreement or any other Loan Document that, pursuant to Section 9.5, requires the consent of all Banks or of all Banks affected thereby and with respect to which Banks constituting the Required Banks have consented to such proposed amendment, modification, waiver, termination or consent, then the Borrower may, at its sole expense and effort, upon notice to such Bank and the Administrative Agent, require such Bank to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.6), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld or delayed (provided that no such consent shall be required for an assignment to any Bank so long as, after giving effect to such assignment, such Bank’s Commitment Percentage does not exceed 25%), (ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Unreimbursed Obligations accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section 8.3 or payments required to be made pursuant to Section 8.4, such assignment will result in a reduction in such compensation or payments and (iv) in the case of any such assignment resulting from a Bank’s refusal to consent to a proposed amendment, modification, waiver, termination or consent, the assignee shall approve the proposed amendment, modification, waiver, termination or consent. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

63

ARTICLE IX

MISCELLANEOUS

Section 9.1    Notices. (a) All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Administrative Agent, at its address or telecopy number set forth on the signature pages hereof, together with copies thereof, in the case of the Borrower, to Latham & Watkins LLP, 355 S. Grand Avenue, Los Angeles, CA 90071, Attention: Glen B. Collyer, Esq., Telephone: (213) 485-1234, Telecopy: (213) 891-8763, and in the case of the Administrative Agent, to JPMorgan Chase Bank, N.A., 500 Stanton Christiana Road, Ops 2, Newark, DE 19713, Attention: Brittany Duffy, Telephone: (302) 634-8814, Telecopy number: (302) 634-4733, with a copy to: JPMorgan Chase Bank, N.A., 383 Madison Avenue, Floor 24, New York, NY 10179, Attention: Nadeige Charles, Telephone: (212) 622-4522, Telecopy number: (212) 270-2157, and to Bingham McCutchen LLP, One Federal Street, Boston, Massachusetts 02110, Attention: Stephen Miklus, Esq., Telephone: (617) 951-8364, Telecopy: (617) 951-8736, (y) in the case of any Bank, at its address or telecopy number set forth on the signature pages hereof or in its Administrative Questionnaire, or (z) in the case of any party, such other address or telecopy number as such party may hereafter specify for the purpose by notice to the Administrative Agent, the Banks and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article II or Article VIII shall not be effective until received.

(b)    Notices and other communications to the Banks hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Bank. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

64

(c)    Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.

(d)     Electronic Systems.

(i)    Each Credit Party agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the other Banks by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.

(ii)    Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy     of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower or the other Credit Parties, any Bank, or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s, any Credit Party’s or the Administrative Agent’s transmission of communications through an Electronic System. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Credit Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Bank means of electronic communications pursuant to this Section, including through an Electronic System.

Section 9.2    No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.3    Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent (including, without limitation, reasonable fees and disbursements of special counsel to the Administrative Agent, local counsel for the Administrative Agent, and travel, site visits, third party reports (including Appraisals), mortgage recording taxes, environmental and engineering expenses), in connection with the preparation and administration of this Agreement, the Loan Documents and the documents and instruments referred to therein, the syndication of the Loans, any waiver or consent hereunder or any amendment or modification hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Administrative Agent and each Bank, including, without limitation, reasonable fees and disbursements of counsel for the Administrative Agent and each Bank, in connection with the enforcement of the Loan

65

Documents and the instruments referred to therein and such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom, including all such expenses incurred during any workout or restructuring; provided, however, that in no event shall the Borrower be required to pay for the attorneys’ fees and disbursements of more than one counsel to the Administrative Agent and the Banks unless there is a legal conflict of interest.

(b)    The Borrower agrees to indemnify the Administrative Agent and each Bank, their respective Affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel and settlements and settlement costs, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) and whether or not brought by the Borrower, the General Partner or any Affiliate of the Borrower, that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to or by reason of, (i) any of the transactions contemplated by the Loan Documents or the execution, delivery or performance of any Loan Document (including, without limitation, the Borrower’s actual or proposed use of proceeds of the Loans, whether or not in compliance with the provisions hereof), (ii) any violation by the Borrower or the Environmental Affiliates of any applicable Environmental Law, (iii) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by the Borrower or any of the Environmental Affiliates, including, without limitation, all on-site and off-site activities involving Material of Environmental Concern, (iv) the breach of any environmental representation or warranty set forth herein, (v) the grant to the Administrative Agent and the Banks of any Lien in any property or assets of the Borrower or any stock or other equity interest in the Borrower, and (vi) the exercise by the Administrative Agent and the Banks of their rights and remedies (including, without limitation, foreclosure) under any agreements creating any such Lien (but excluding in each case, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements incurred solely by reason of (y) the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction or (z) any investigative, administrative or judicial proceeding imposed or asserted against any Indemnitee by any bank regulatory agency or by any equity holder of such Indemnitee). The Borrower’s obligations under this Section shall survive the termination of this Agreement and the payment of the Obligations. This Section 9.3(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

Section 9.4    Sharing of Set-Offs. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, time or demand, provisional or final), other than deposits held for the benefit of third parties, and any other indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of the

66

Borrower against and on account of the Obligations of the Borrower then due and payable to such Bank under this Agreement or under any of the other Loan Documents, including, without limitation, all interests in Obligations purchased by such Bank. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Note held by it, in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that (x) nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, (y) the provisions of this Section shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Bank as consideration for the assignment of or sale of a participation in any of its Loans or Commitments to any assignee or participant and (z) the provisions of this Section shall not be construed to apply to any Extension made in accordance with Section 2.16. The Borrower agrees, to the fullest extent that it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.

Section 9.5    Amendments and Waivers. Any provision of this Agreement (including any of the financial covenants given by the Borrower pursuant to Section 5.8), the Notes or other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks, (and, if the rights or duties of the Administrative Agent are affected thereby (including pursuant to Section 2.16, Article VII or Section 9.8), by the Administrative Agent; provided that no such amendment or waiver shall (a) increase the Commitment of any Bank, unless signed by such Bank, (b) reduce the principal of or rate of interest on any Loan or any fees specified herein, unless signed by each Bank affected thereby, (c) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any reduction or termination of any Commitment, unless signed by each Bank affected thereby (notwithstanding the foregoing, however, it is agreed that only the consent of the extending Banks shall be required for an Extension in accordance with Section 2.16), (d) release the Guaranty or otherwise release any other collateral, unless signed by each Bank affected thereby, (e) subordinate the Loans to any other Debt, unless signed by each Bank affected thereby, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section 9.5 or any other provision of this Agreement, unless signed by each Bank affected thereby, (g) change Section 2.12(c) or Section 9.4 in a manner that would alter the pro rata sharing of payments required thereby, unless signed by each Bank affected thereby or (h) change this Section 9.5, unless signed by each Bank affected thereby.

Section 9.6    Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors

67

and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement or the other Loan Documents without the prior written consent of all Banks (and any attempted assignment or transfer by the Borrower without such consent shall be void).

(b)    Any Bank may at any time grant to one or more banks or other entities, other than the Borrower and its Affiliates (each a “Participant”) participating interests in any or all of its Commitments or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (a), (b), (c) or (d) of Section 9.5 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest (subject to the requirements and limitations therein, including the requirements under Section 8.4(d)(iii) (it being understood that the documentation required under Section 8.4(d)(iii) shall be delivered to the participating Bank)) to the same extent as if it were a Bank and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided that such Participant (i) agrees to be subject to the provisions of Sections 8.6 as if it were an assignee under paragraph (c) of this Section; and (ii) shall not be entitled to receive any greater payment under Sections 8.3 or 8.4, with respect to any participation, than its participating Bank would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). Each Bank that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Bank shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Bank shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

68

(c)    Any Bank may at any time assign to one or more Eligible Assignees (each an “Assignee”) all, or a proportionate part of all, of its rights and obligations under this Agreement, the Notes and the other Loan Documents, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D attached hereto executed by such Assignee and such transferor Bank, with (and subject to) the prior written consent of (x) the Administrative Agent, which consent shall not be unreasonably withheld or delayed, provided that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Loan to a Bank, an Affiliate of a Bank or an Approved Fund, and, (y) provided no Event of Default shall have occurred and be continuing, the Borrower, which consent shall not be unreasonably withheld or delayed, provided further, however, that no such consent by the Borrower shall be required in the case of an assignment to another Bank, an Affiliate of a Bank or an Approved Fund, and the Borrower shall be deemed to have consented to an assignment unless it shall have objected thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof. Notwithstanding anything to the contrary contained herein, no Bank may assign or participate its interest to (x) the Borrower and its Affiliates, (y) a natural person or (z) a Defaulting Lender. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Bank's rights and obligations under this Agreement. The assignee, if it shall not be a Bank, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon execution and delivery (and acceptance and recording in the Register by the Administrative Agent) of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note or Notes are issued to the Assignee. In connection with any such assignment (except for an assignment by a Bank to its Affiliate), the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. The Assignee shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4.

(d)    Reserved.

(e)    Any Bank may at any time assign or pledge all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank or other central bank having jurisdiction over such Bank. No such assignment shall release the transferor Bank from its obligations hereunder or substitute any such assignee or pledgee for such Bank as a party hereto.

(f)    No Assignee, Participant or other transferee of any Bank’s rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain

69

circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

(g)    The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Banks shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice.

Section 9.7    USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

Section 9.8    Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Bank becomes a Defaulting Lender, then the following provisions shall apply for so long as such Bank is a Defaulting Lender:

(a)    Reserved.

(b)    the Loans of such Defaulting Lender shall not be included in determining whether all Banks or the Required Banks have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 9.5, except that the Defaulting Lender’s consent shall be required in connection with any increase in such Defaulting Lender’s Commitment(s) pursuant to Section 9.5(b)(i), any amendment pursuant to Section 9.5(b)(ii) affecting its Loans or pursuant to Section 9.5(z)), provided that any waiver, amendment or modification requiring the consent of all Banks or each affected Bank which affects such Defaulting Lender differently than other affected Banks shall require the consent of such Defaulting Lender;

Section 9.9    Governing Law; Submission to Jurisdiction.

(a)    THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW THAT WOULD CAUSE THE APPLICATION OF ANY LAW OTHER THAN THE STATE OF NEW YORK).

(b)    Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower

70

hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. The Borrower irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the hand delivery, or mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address set forth below. The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Administrative Agent, any Bank or any holder of a Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction.

Section 9.10    Marshaling; Recapture. Neither the Administrative Agent nor any Bank shall be under any obligation to marshal any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent any Bank receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Borrower to such Bank as of the date such initial payment, reduction or satisfaction occurred.

Section 9.11    Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf, or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.12    WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE

71

BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 9.13    Survival. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the other Loan Documents and the making and repayment of the Loans hereunder.

Section 9.14    Domicile of Loans. Subject to the provisions of Article VIII, each Bank may transfer and carry its Loans at, to or for the account of any domestic or foreign branch office, subsidiary or Affiliate of such Bank.

Section 9.15    Limitation of Liability. No claim may be made by the Borrower or any other Person against the Administrative Agent or any Bank or the Affiliates, directors, officers, employees, attorneys or agent of any of them for any special, indirect consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or by the other Loan Documents, or any act, omission or event occurring in connection therewith; and the Borrower hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 9.16    Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 9.17    Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Bank holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Bank in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Bank.

Section 9.18    Confidentiality. Each of the Administrative and the Banks agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and such Persons shall either agree or have a legal obligation to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as

72

the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the prior written consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Bank on a non-confidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Bank on a non-confidential basis prior to disclosure by the Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

[Signature pages to follow]

73

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BORROWER:

	KILROY REALTY, L.P., a Delaware limited partnership
By:	Kilroy Realty Corporation, a Maryland corporation, its general partner
By:	/s/ Tyler H. Rose
	Name: Tyler H. Rose Title:   Executive Vice President, Chief Financial Officer and Secretary
By:	/s/ Michelle Ngo
	Name: Michelle Ngo Title:   Senior Vice President and Treasurer
	Kilroy Realty, L.P.
	12200 West Olympic Boulevard, Suite 200
	Los Angeles, California 90064
	Attn: Tyler Rose and Michelle Ngo
	Telephone number: (310) 481-8400
	Telecopy number: (310) 481-6580

[Signature Page - Term Loan Agreement (Kilroy)]

ADMINISTRATIVE AGENT AND BANK:

	JP MORGAN CHASE BANK, N.A., As Administrative Agent and as a Bank
By:	/s/ Nadeige S. Charles
	Name: Nadeige S. Charles Title:   Vice President
	JPMorgan Chase Bank, N.A.
	383 Madison Avenue, 24th Floor
	New York, NY 10179
	Attn: Nadeige S. Charles
	Telephone: (212) 622-4522
	Telecopy number: (212) 270-2157
	Domestic and Euro-Dollar Lending Office:
	JPMorgan Chase Bank, N.A.
	500 Stanton Christiana Road, Ops 2, 3rd Floor
	Newark, DE 19713
	Attn: Loan and Agency Services
	Telephone: (302) 634-8814
	Telecopy number: (302) 634-4733

[Signature Page - Term Loan Agreement (Kilroy)]

SYNDICATION AGENT AND BANK:

	BANK OF AMERICA, N.A.
By:	/s/ Helen Chan
	Name: Helen Chan Title:   Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Kevin A. Stacker
	Name: Kevin A. Stacker Title:   Senior Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	BARCLAYS BANK PLC
By:	/s/ Noam Azachi
	Name: Noam Azachi Title:   Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	COMPASS BANK
By:	/s/ Brian Tuerff
	Name: Brian Tuerff Title:   Senior Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	PNC BANK, NATIONAL ASSOCIATION
By:	/s/ Darin Mortimer
	Name: Darin Mortimer Title:   Senior Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	ROYAL BANK OF CANADA
By:	/s/ Dan LePage
	Name: Dan LePage Title:   Authorized Signatory

[Signature Page - Term Loan Agreement (Kilroy)]

	MUFG UNION BANK, N.A.
By:	/s/ Juliana Matson
	Name: Juliana Matson Title:   Director

[Signature Page - Term Loan Agreement (Kilroy)]

	U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Patrick J. Brown
	Name: Patrick J. Brown Title:   Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	BANK OF THE WEST, a California banking corporation
By:	/s/ Kent Horiuchi
	Name: Kent Horiuchi Title:   Vice President
By:	/s/ Sarah J. Burns
	Name: Sarah J. Burns Title:   AVP

[Signature Page - Term Loan Agreement (Kilroy)]

	SUMITOMO MISUI BANKING CORPORATION
By:	/s/ Keith J. Connolly
	Name: Keith J. Connolly Title:   Managing Director

[Signature Page - Term Loan Agreement (Kilroy)]

	COMERICA BANK
By:	/s/ Charles Weddell
	Name: Charles Weddell Title:   Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

	KEYBANK NATIONAL ASSOCIATION
By:	/s/ Michael P. Szuba
	Name: Michael P. Szuba Title:   Vice President

[Signature Page - Term Loan Agreement (Kilroy)]

EXHIBIT A

NOTE

$__________	New York, New York
	[Date]

For value received, KILROY REALTY, L.P., a Delaware limited partnership (the “Borrower”) promises to pay to _______________ (the “Bank”), for the account of its Applicable Lending Office, the principal sum of _________________________ DOLLARS ($___________) or, if less, the aggregate unpaid principal amount of all Loans made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the Maturity Date. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Administrative Agent under the Credit Agreement (as defined below).

All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.

This Note is one of the Notes referred to in the Term Loan Agreement, dated as of July 31, 2014, among the Borrower, the Banks party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and as Bank, J.P. Morgan Securities LLC, as Joint Lead Arranger and Joint Bookrunner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arranger and Joint Bookrunner, Wells Fargo Securities, LLC, as Joint Lead Arranger and Joint Bookrunner, and Bank of America, N.A., as Syndication Agent (as the same may be amended from time to time, the “Credit Agreement”).

[Signature Page to Follow]

A-1

Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

	KILROY REALTY, L.P., a Delaware limited partnership
By:	Kilroy Realty Corporation, a Maryland corporation, its general partner
By:
	Name: Tyler H. Rose Title:   Executive Vice President, Chief Financial Officer and Secretary
By:
	Name: Michelle Ngo Title:   Senior Vice President and Treasurer

A-2

Note (cont'd)

LOANS AND PAYMENTS OF PRINCIPAL

Date Amount of Loan Type of Loan Amount of Principal Repaid Maturity Date Notation Made By

A-3

EXHIBIT B

UNENCUMBERED ASSET POOL PROPERTIES (FEE INTERESTS)

6/30/2014

Property	Location
2240 E. Imperial Highway	LA and Ventura
2250 E. Imperial Highway	LA and Ventura
12100 W. Olympic Boulevard	LA and Ventura
12200 W. Olympic Boulevard	LA and Ventura
12312 W. Olympic Boulevard	LA and Ventura
1633 26th Street	LA and Ventura
3130 Wilshire Boulevard	LA and Ventura
501 Santa Monica Boulevard	LA and Ventura
2829 Townsgate Road	LA and Ventura
2260 E. Imperial Highway	LA and Ventura
111 Pacifica	Orange County
999 Town & Country	Orange County
12225 El Camino Real	San Diego
12235 El Camino Real	San Diego
12780 El Camino Real	San Diego
12790 El Camino Real	San Diego
12348 High Bluff Drive	San Diego
12400 High Bluff Drive	San Diego
3579 Valley Center Drive	San Diego
3611 Valley Center Drive	San Diego
3661 Valley Center Drive	San Diego
3721 Valley Center Drive	San Diego
3811 Valley Center Drive	San Diego
6200 Greenwich Drive	San Diego
6220 Greenwich Drive	San Diego
13280 Evening Creek Drive South	San Diego
13290 Evening Creek Drive South	San Diego
13480 Evening Creek Drive North	San Diego
13500 Evening Creek Drive North	San Diego
13520 Evening Creek Drive North	San Diego
7525 Torrey Santa Fe	San Diego
7535 Torrey Santa Fe	San Diego
7545 Torrey Santa Fe	San Diego
7555 Torrey Santa Fe	San Diego
2355 Northside Drive	San Diego
2365 Northside Drive	San Diego
2375 Northside Drive	San Diego
2385 Northside Drive	San Diego
2305 Historic Decatur Road	San Diego
4921 Directors Place	San Diego

B-1

Property	Region
4939 Directors Place	San Diego
4955 Directors Place	San Diego
10770 Wateridge Circle	San Diego
6260 Sequence Drive	San Diego
6290 Sequence Drive	San Diego
6310 Sequence Drive	San Diego
6340 Sequence Drive	San Diego
6350 Sequence Drive	San Diego
10390 Pacific Center Court	San Diego
10394 Pacific Center Court	San Diego
10398 Pacific Center Court	San Diego
10421 Pacific Center Court	San Diego
10445 Pacific Center Court	San Diego
10455 Pacific Center Court	San Diego
5717 Pacific Center Boulevard	San Diego
4100 Bohannon Drive	San Francisco
4200 Bohannon Drive	San Francisco
4300 Bohannon Drive	San Francisco
4400 Bohannon Drive	San Francisco
4500 Bohannon Drive	San Francisco
4600 Bohannon Drive	San Francisco
4700 Bohannon Drive	San Francisco
100 First Street	San Francisco
250 Brannan Street	San Francisco
201 Third Street	San Francisco
301 Brannan Street	San Francisco
4040 Civic Center	San Francisco
331 Fairchild Drive	San Francisco
599 Mathilda	San Francisco
360 Third Street	San Francisco
15050 NE 36th Street	Seattle
837 N. 34th Streeet	Seattle
10900 NE 4th Street	Seattle
401 Terry	Seattle

B-2

EXHIBIT C

UNENCUMBERED ASSET POOL PROPERTIES (LEASEHOLD INTERESTS)

6/30/2014

Property	Location
3750 Kilroy Airport Way	Long Beach, CA
3760 Kilroy Airport Way	Long Beach, CA
3780 Kilroy Airport Way	Long Beach, CA
3800 Kilroy Airport Way	Long Beach, CA
3840 Kilroy Airport Way	Long Beach, CA
3880 Kilroy Airport Way	Long Beach, CA
3900 Kilroy Airport Way	Long Beach, CA
601 108th Avenue NE	Bellevue, WA

C-1

EXHIBIT D

FORM OF ASSIGNMENT AND ASSUMPTION

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Bank under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit and guarantees included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Bank) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.	Assignor:
2.	Assignee:
		[and is [a Bank] [an Affiliate of [identify Bank]1]]
3.	Borrower:	Kilroy Realty, L.P.
4.	Administrative Agent:	JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement

_______________________

¹    Select as applicable.

D-1

5.	Credit Agreement:	The Term Loan Agreement dated as of July 31, 2014 among Kilroy Realty, L.P., the Banks parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other agents parties thereto
6.	Assigned Interest:

Facility Assigned2	Aggregate Amount of Commitment/Loans for all Banks	Amount of Commitment/Loans Assigned	Percentage Assigned of Commitment/Loans3
	$	$	%
	$	$	%
	$	$	%

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The Assignee, if not already a Bank, agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower, the General Partner and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:
ASSIGNEE [NAME OF ASSIGNEE]

__________________________

²  Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g., “Revolving Commitment,” “Term Loan Commitment,” etc.)

³  Set forth, to at least 9 decimals, as a percentage of the applicable Commitment/Loans of all Banks thereunder.

D-2

By:
	Title:

Consented to and Accepted:

JPMORGAN CHASE BANK, N.A., as

Administrative Agent

By_________________________________

Title:

[Consented to:]⁴     

KILROY REALTY, L.P.

By________________________________

Title:

__________________________

⁴    To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

D-3

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is not a Defaulting Bank; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of the Agreement or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under the Credit Agreement.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Bank under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Bank, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Bank thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Bank thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.1 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Bank, and (v) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Bank.

2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute

D-4

one instrument. Acceptance and adoption of the terms of this Assignment and Assumption by the Assignee and the Assignor by Electronic Signature or delivery of an executed counterpart of a signature page of this Assignment and Assumption by any Electronic System shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

D-5

EXHIBIT I-1

FORM OF U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Banks That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Term Loan Agreement dated as of July 31, 2014 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Kilroy Realty, L.P., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and each Bank from time to time party thereto.

Pursuant to the provisions of Section 8.4(f)(ii)(B)(3) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF BANK]
By:
	Name:
	Title:

Date: ________ __, 201[_]

I-1-1

EXHIBIT I-2

FORM OF U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Banks That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Term Loan Agreement dated as of July 31, 2014 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Kilroy Realty, L.P., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and each Bank from time to time party thereto.

Pursuant to the provisions of 8.4(f)(ii)(B)(4) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF BANK]
By:
	Name:
	Title:

Date: ________ __, 201[_]

I-2-1

EXHIBIT I-3

FORM OF U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Term Loan Agreement dated as of July 31, 2014 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Kilroy Realty, L.P., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and each Bank from time to time party thereto.

Pursuant to the provisions of 8.4(f)(ii)(B)(4) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished its participating Bank with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Bank in writing, and (2) the undersigned shall have at all times furnished such Bank with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF PARTICIPANT]
By:
	Name:
	Title:

Date: ________ __, 201[_]

I-3-1

EXHIBIT I-4

FORM OF U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Term Loan Agreement dated as of July 31, 2014 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Kilroy Realty, L.P., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and each Bank from time to time party thereto.

Pursuant to the provisions of 8.4(f)(ii)(B)(4) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished its participating Bank with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Bank and (2) the undersigned shall have at all times furnished such Bank with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF PARTICIPANT]
By:
	Name:
	Title:

Date: ________ __, 201[_]

I-4-1

SCHEDULE 1

COMMITMENTS

Lender	Commitment
JPMORGAN CHASE BANK, N.A.	$4,750,000
BANK OF AMERICA, N.A.	$4,750,000
WELLS FARGO BANK, NATIONAL ASSOCIATION	$4,750,000
BARCLAYS BANK PLC	$4,062,500
COMPASS BANK	$4,062,500
PNC BANK, NATIONAL ASSOCIATION	$4,062,500
ROYAL BANK OF CANADA	$4,062,500
MUFG UNION BANK, N.A.	$4,062,500
U.S. BANK NATIONAL ASSOCIATION	$4,062,500
BANK OF THE WEST, N.A.	$3,125,000
SUMITOMO MITSUI BANKING CORPORATION	$3,125,000
COMERICA BANK	$2,562,500
KEYBANK NATIONAL ASSOCIATION	$2,562,500
TOTAL	$50,000,000

Sch.1-1

SCHEDULE 4.22

LABOR MATTERS

None.

Sch. 4.22

EX-10.2

Exhibit 10.2

GUARANTY

GUARANTY (this “Guaranty”), made as of July 31, 2014, between KILROY REALTY CORPORATION, a Maryland corporation, having an address at 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064 (“Guarantor”), and JPMORGAN CHASE BANK, N.A., having an office at 383 Madison Avenue, New York, NY 10179, as administrative agent (the “Administrative Agent”) for the banks (the “Banks”) listed on the signature pages of the Term Loan Agreement (as the same may be amended, modified, supplemented or restated, the “Credit Agreement”), dated as of the date hereof, among Kilroy Realty, L.P. (“Borrower”), the Banks, the Administrative Agent, in its capacity as Administrative Agent and Bank, J.P. Morgan Securities LLC, as Joint Lead Arranger and Joint Bookrunner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arranger and Joint Bookrunner, Wells Fargo Securities, Inc., as Joint Lead Arranger and Joint Bookrunner, and Bank of America, N.A., as Syndication Agent.

WITNESSETH:

WHEREAS, as a condition to the execution and delivery of the Credit Agreement, the Banks have required that Guarantor enter into this Guaranty; and

WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Credit Agreement;

NOW, THEREFORE, the parties hereto hereby agree as follows:

1.Guarantor, on behalf of itself and its successors and assigns, hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment and for performance when due, whether at stated maturity or otherwise, of all Obligations of Borrower now or hereafter existing under the Credit Agreement and the other Loan Documents, for principal and/or interest as well as any and all other amounts due thereunder, including, without limitation, all indemnity obligations of Borrower thereunder, and any and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by the Administrative Agent or the Banks in enforcing its rights under this Guaranty (all of the foregoing obligations being the “Guaranteed Obligations”).

2.    It is agreed that the Guaranteed Obligations of Guarantor hereunder are primary and this Guaranty shall be enforceable against Guarantor and its successors and assigns without the necessity for any suit or proceeding of any kind or nature whatsoever brought by the Administrative Agent against Borrower or its respective successors or assigns or any other party or against any security for the payment and performance of the Guaranteed Obligations and without the necessity of any notice of non-payment or non-observance or of any notice of acceptance of this Guaranty or of any notice or demand to which Guarantor might otherwise be entitled (including, without limitation, diligence, presentment, notice of maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further security, release of further security, imposition or agreement arrived at as to the amount of or the terms of the Guaranteed Obligations, notice of adverse change in Borrower’s financial condition and any other fact which might materially increase the risk to Guarantor), all of which Guarantor hereby

expressly waives; and Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected, diminished, modified or impaired by reason of the assertion of or the failure to assert by the Administrative Agent against Borrower or its respective successors or assigns, any of the rights or remedies reserved to the Administrative Agent pursuant to the provisions of the Loan Documents. Guarantor agrees that any notice or directive given at any time to the Administrative Agent which is inconsistent with the waiver in the immediately preceding sentence shall be void and may be ignored by the Administrative Agent, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Administrative Agent has specifically agreed otherwise in a writing, signed by a duly authorized officer of the Administrative Agent. Guarantor specifically acknowledges and agrees that the foregoing waivers are of the essence of this transaction and that, but for this Guaranty and such waivers, the Administrative Agent would decline to execute the Loan Documents.

3.    Guarantor waives, and covenants and agrees that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any and all appraisal, valuation, stay, extension, marshaling-of-assets or redemption laws, or right of homestead or other exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its obligations under, or the enforcement by the Administrative Agent of, this Guaranty. Guarantor further covenants and agrees not to set up or claim any defense, counterclaim, offset, set-off or other objection of any kind to any action, suit or proceeding in law, equity or otherwise, or to any demand or claim that may be instituted or made by the Administrative Agent other than the defense of the actual timely payment and performance by Borrower of the Guaranteed Obligations hereunder; provided, however, that the foregoing shall not be deemed a waiver of Guarantor’s right to assert any compulsory counterclaim, if such counterclaim is compelled under local law or rule of procedure, nor shall the foregoing be deemed a waiver of Guarantor’s right to assert any claim which would constitute a defense, setoff, counterclaim or crossclaim of any nature whatsoever against Administrative Agent or any Bank in any separate action or proceeding. Guarantor represents, warrants and agrees that, as of the date hereof, its obligations under this Guaranty are not subject to any counterclaims, offsets or defenses against the Administrative Agent or any of the Banks of any kind.

4.    The provisions of this Guaranty are for the benefit of the Administrative Agent and the Banks and their successors and permitted assigns, and nothing herein contained shall impair as between Borrower and the Administrative Agent and the Banks the obligations of Borrower under the Loan Documents.

5.    This Guaranty shall be a continuing, unconditional and absolute guaranty and the liability of Guarantor hereunder shall in no way be terminated, affected, modified, impaired or diminished by reason of the happening, from time to time, of any of the following, although without notice or the further consent of Guarantor:

(a)    any assignment, amendment, modification or waiver of or change in any of the terms, covenants, conditions or provisions of any of the Guaranteed Obligations or the Loan Documents or the invalidity or unenforceability of any of the foregoing; or

2

(b)    any extension of time that may be granted by the Administrative Agent and/or any Bank to Borrower, any guarantor, or their respective successors or assigns, heirs, executors, administrators or personal representatives; or

(c)    any action which the Administrative Agent may take or fail to take under or in respect of any of the Loan Documents or by reason of any waiver or, or failure to enforce any of the rights, remedies, powers or privileges available to the Administrative Agent under this Guaranty or available to the Administrative Agent at law, equity or otherwise, or any action on the part of the Administrative Agent granting indulgence or extension in any form whatsoever; or

(d)    any sale, exchange, release, or other disposition of any property pledged, mortgaged or conveyed, or any property in which the Administrative Agent and/or the Banks have been granted a lien or security interest to secure any indebtedness of Borrower to the Administrative Agent and/or the Banks; or

(e)    any release of any person or entity who may be liable in any manner for the payment and collection of any amounts owed by Borrower to the Administrative Agent and/or the Banks; or

(f)    the application of any sums by whomsoever paid or however realized to any amounts owing by Borrower to the Administrative Agent and/or the Banks under the Loan Documents in such manner as the Administrative Agent shall determine in its sole discretion; or

(g)    Borrower’s or any guarantor’s voluntary or involuntary liquidation, dissolution, sale of all or substantially all of their respective assets and liabilities, appointment of a trustee, receiver, liquidator, sequestrator or conservator for all or any part of Borrower’s or Guarantor’s assets, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment, or the commencement of other similar proceedings affecting Borrower or any guarantor or any of the assets of any of them, including, without limitation, (i) the release or discharge of Borrower or any guarantor from the payment and performance of their respective obligations under any of the Loan Documents by operation of law, or (ii) the impairment, limitation or modification of the liability of Borrower or any guarantor in bankruptcy, or of any remedy for the enforcement of the Guaranteed Obligations under any of the Loan Documents, or Guarantor’s liability under this Guaranty, resulting from the operation of any present or future provisions of the Bankruptcy Code or other present or future federal, state or applicable statute or law or from the decision in any court; or

(h)    any improper disposition by Borrower of the proceeds of the Loans, it being acknowledged by Guarantor that the Administrative Agent or any Bank shall be entitled to honor any request made by Borrower for a disbursement of such proceeds and that neither the Administrative Agent nor any Bank shall have any obligation to see to the proper disposition by Borrower of such proceeds.

3

6.    Guarantor agrees that if at any time all or any part of any payment at any time received by the Administrative Agent and/or any Bank from Borrower or Guarantor under or with respect to this Guaranty is or must be rescinded or returned by the Administrative Agent or any Bank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower or Guarantor), then Guarantor’s obligations hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence notwithstanding such previous receipt by such party, and Guarantor’s obligations hereunder shall continue to be effective or reinstated, as the case may be, as to such payment, as though such previous payment had never been made.

7.    Until this Guaranty is terminated pursuant to the terms hereof, Guarantor (i) shall have no right of subrogation against Borrower or any entity comprising same by reason of any payments or acts of performance by Guarantor in compliance with the obligations of Guarantor hereunder; (ii) waives any right to enforce any remedy which Guarantor now or hereafter shall have against Borrower or any entity comprising same by reason of any one or more payment or acts of performance in compliance with the obligations of Guarantor hereunder and (iii) subordinates any liability or indebtedness of Borrower or any entity comprising same now or hereafter held by Guarantor or any affiliate of Guarantor to the obligations of Borrower under the Loan Documents, provided, however, until an Event of Default has occurred and is continuing, Borrower or any entity comprising same shall not be prohibited from making payments to Guarantor or any affiliate thereof on such subordinated liability or indebtedness in accordance with the terms thereof. The foregoing, however, shall not be deemed in any way to limit any rights that Guarantor may have pursuant to the Agreement of Limited Partnership of Borrower or which it may have at law or in equity with respect to any other partners of Borrower.

8.    Guarantor represents and warrants to the Administrative Agent and the Banks (with the knowledge that the Administrative Agent and the Banks are relying upon the same) as of the date hereof, as follows:

(a)    as of the date hereof, Guarantor is the sole general partner of Borrower;

(b)    based upon such relationship, Guarantor has determined that it is in its best interests to enter into this Guaranty;

(c)    in the good faith judgment of Guarantor, the benefits to be derived by Guarantor from Borrower’s access to funds made possible by the Loan Documents are at least equal to the obligations undertaken pursuant to this Guaranty;

(d)    Guarantor is solvent and has corporate power and authority to enter into this Guaranty and to perform its obligations under the term hereof and (i) Guarantor is organized and validly existing under the laws of the State of Maryland, (ii) Guarantor has complied with all provisions of applicable law in connection with all aspects of this Guaranty, and (iii) the persons executing this Guaranty have all the requisite power and authority to execute and deliver this Guaranty;

4

(e)    to the best of Guarantor’s knowledge, there is no action, suit, proceeding, or investigation pending or threatened against or affecting Guarantor at law, in equity, in admiralty or before any arbitrator or any governmental department, commission, board, bureau, agency or instrumentality (domestic or foreign) which is reasonably likely to materially and adversely impair the ability of Guarantor to perform its obligations under this Guaranty;

(f)    the execution and delivery of and the performance by Guarantor of its obligations under this Guaranty have been duly authorized by all necessary action on the part of Guarantor and do not (i) violate any provision of any law, rule, regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System of the United States), order, writ, judgment, decree, determination or award presently in effect having applicability to Guarantor or the organizational documents of Guarantor the consequences of which violation is likely to materially and adversely impair the ability of Guarantor to perform its obligations under this Guaranty or (ii) violate or conflict with, result in a breach of or constitute a default under any material indenture, agreement or other instrument to which Guarantor is a party, or by which Guarantor or any of its property is bound the consequences of which violation, conflict, breach or default is reasonably likely to materially and adversely impair the ability of Guarantor to perform its obligations under this Guaranty;

(g)    this Guaranty has been duly executed by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against it in accordance with its terms except as enforceability may be limited by applicable insolvency, bankruptcy or other laws affecting creditors’ rights generally or general principles of equity, whether such enforceability is considered in a proceeding in equity or at law;

(h)    no authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any Federal, state, local or foreign court, governmental agency or regulatory authority is required in connection with the execution, delivery and performance by Guarantor of this Guaranty, except those which have already been obtained; and

(i)    Guarantor is not an “investment company” as that term is defined in, nor is it otherwise subject to regulation under, the Investment Company Act of 1940, as amended.

9.    Guarantor and the Administrative Agent each acknowledge and agree that this Guaranty is a guarantee of payment and performance and not of collection and enforcement in respect of any obligations which may accrue to the Administrative Agent and/or the Banks from Borrower under the provisions of any Loan Document.

10.    Subject to the terms and conditions of the Credit Agreement, and in conjunction therewith, the Administrative Agent or any Bank may assign any or all of its rights under this Guaranty. In the event of any such assignment, the Administrative Agent shall give Guarantor prompt written notice of same. If the Administrative Agent and/or any Bank elects to sell all the Loans or participations in the Loans and the Loan Documents, including this

5

Guaranty, the Administrative Agent or any Bank may forward to each purchaser and prospective purchaser all documents and information relating to this Guaranty or to Guarantor, whether furnished by Borrower or Guarantor or otherwise, subject to the terms and conditions of the Credit Agreement.

11.    Guarantor agrees, upon the written request of the Administrative Agent, to execute and deliver to the Administrative Agent, from time to time, any modification or amendment hereto or any additional instruments or documents reasonably considered necessary by the Administrative Agent or its counsel to cause this Guaranty to be, become or remain valid and effective in accordance with its terms, provided, that any such modification, amendment, additional instrument or document shall not increase Guarantor’s obligation’s or diminish its rights hereunder and shall be reasonably satisfactory as to form to Guarantor and to Guarantor’s counsel.

12.    The representations and warranties of Guarantor set forth in this Guaranty shall survive until this Guaranty shall terminate in accordance with the terms hereof.

13.    This Guaranty contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements relating to such subject matter and may not be modified, amended, supplemented or discharged except by a written agreement signed by Guarantor and the Administrative Agent.

14.    If all or any portion of any provision contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, such provision or portion thereof shall be deemed stricken and severed from this Guaranty and the remaining provisions and portions thereof shall continue in full force and effect.

15.    This Guaranty may be executed in counterparts which together shall constitute the same instrument. Delivery of an executed counterpart of this Guaranty by telecopy or other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Guaranty.

16.    All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission followed by telephonic confirmation or similar writing) and shall be, addressed to such party at the address set forth below or to such other address as may be identified by any party in a written notice to the others:

If to Guarantor: Kilroy Realty Corporation
12200 West Olympic Boulevard, Suite 200
Los Angeles, California 90064
Attn: Tyler Rose and Michelle Ngo
Telecopy: (310) 481-6580

With Copies of

Notices to

Guarantor to: Latham & Watkins LLP
355 South Grand Avenue
Los Angeles, California 90071

6

Attn: Glen B. Collyer, Esq.
Telecopy: (213) 891-8763

If to the Administrative
Agent:

JPMorgan Chase Bank, N.A.
383 Madison Avenue, 24th Floor
New York, NY 10179
Attn: Nadeige Charles
Telecopy number: (212) 270-2157

With Copies of

Notices to the

Administrative

Agent to:

JPMorgan Chase Bank, N.A.
500 Stanton Christiana Road, Ops 2
Newark, DE 19713
Attn: Loan and Agency Services
Telecopy number: (302) 634-4733

and to: Bingham McCutchen LLP
1 Federal Street
Boston, Massachusetts 02110
Attn: Stephen Miklus, Esq.
Telecopy: (617) 428-6387

Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when such facsimile is transmitted to the facsimile number specified in this Section and the appropriate answerback or facsimile confirmation is received, (ii) if given by certified registered mail, return receipt requested, with first class postage prepaid, addressed as aforesaid, upon receipt or refusal to accept delivery, (iii) if given by a nationally recognized overnight carrier, 24 hours after such communication is deposited with such carrier with postage prepaid for next day delivery, or (iv) if given by any other means, when delivered at the address specified in this Section.

17.    Any acknowledgment or new promise, whether by payment of principal or interest or otherwise by Borrower or Guarantor, with respect to the Guaranteed Obligations shall, if the statute of limitations in favor of Guarantor against the Administrative Agent shall have commenced to run, toll the running of such statute of limitations, and if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations.

18.    This Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit of the Administrative Agent and the Banks and their successors and permitted assigns; provided that the Guarantor may not assign or transfer its rights or obligations under this Guaranty.

7

19.    The failure of the Administrative Agent to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against the Administrative Agent, nor excuse Guarantor from its obligations hereunder. Any waiver of any such right or remedy to be enforceable against the Administrative Agent must be expressly set forth in a writing signed by the Administrative Agent.

20.    (a)    THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

(b)    Any legal action or proceeding with respect to this Guaranty and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, the Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. The Guarantor irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor at its address for notices set forth herein. The Guarantor hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty brought in the courts referred to above and hereby further irrevocably waives, to the fullest extent permitted by law, and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Administrative Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction.

(c)    GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY AND ALL CLAIMS OR CAUSES OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. IT IS HEREBY ACKNOWLEDGED BY GUARANTOR THAT THE WAIVER OF A JURY TRIAL IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT TO ACCEPT THIS GUARANTY AND THAT THE LOANS MADE BY THE BANKS ARE MADE IN RELIANCE UPON SUCH WAIVER. GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT SUCH WAIVER HAS BEEN KNOWINGLY AND VOLUNTARILY MADE, FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED BY THE ADMINISTRATIVE AGENT IN COURT AS A WRITTEN CONSENT TO A NON-JURY TRIAL.

(d)    Guarantor does hereby further covenant and agree to and with the Administrative Agent that Guarantor may be joined in any action against Borrower in connection with the Loan Documents and that recovery may be had against Guarantor in such action or in any independent action against Guarantor (with respect to the

8

Guaranteed Obligations), without the Administrative Agent first pursuing or exhausting any remedy or claim against Borrower or its successors or assigns. Guarantor also agrees that, in an action brought with respect to the Guaranteed Obligations in any jurisdiction, it shall be conclusively bound by the judgment in any such action by the Administrative Agent (wherever brought) against Borrower or its successors or assigns, as if Guarantor were a party to such action, even though Guarantor was not joined as parties in such action.

(e)    Guarantor agrees to pay all reasonable expenses (including, without limitation, attorneys’ fees and disbursements) which may be incurred by the Administrative Agent or the Banks in connection with the enforcement of their rights under this Guaranty, whether or not suit is initiated.

21.    Notwithstanding anything to the contrary contained herein, this Guaranty shall terminate and be of no further force or effect upon the full performance and payment of the Guaranteed Obligations hereunder, subject to the provisions of Section 6 hereof. Upon termination of this Guaranty in accordance with the terms of this Guaranty, the Administrative Agent promptly shall deliver to Guarantor such documents as Guarantor or Guarantor’s counsel reasonably may request in order to evidence such termination.

22.    All of the Administrative Agent’s rights and remedies under each of the Loan Documents or under this Guaranty are intended to be distinct, separate and cumulative and no such right or remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any other right or remedy available to the Administrative Agent.

[Signature Pages to Follow]

9

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date and year first above written.

	GUARANTOR:
	KILROY REALTY CORPORATION
By:	/s/ Tyler H. Rose
	Name: Tyler H. Rose Title:   Executive Vice President, Chief Financial Officer and Secretary
By:	/s/ Michelle Ngo
	Name: Michelle Ngo Title:   Senior Vice President and Treasurer

[Signature Page to Guaranty (Term Loan)]

ACCEPTED:

JP MORGAN CHASE BANK, N.A., as Administrative Agent and as a Bank
By:	/s/ Nadeige S. Charles
	Name: Nadeige S. Charles Title:   Vice President

[Signature Page to Guaranty (Term Loan)]

ACKNOWLEDGMENT

STATE OF CALIFORNIA )

)SS
COUNTY OF LOS ANGELES )

On ___ 7/16/2014 ___, before me, ___Alex Megeredchian___, a Notary Public, personally appeared    Tyler Rose & Michelle Ngo   , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature /s/ Alex Megeredchian (Seal)

[Notary Page to Guaranty]

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John B. Kilroy, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John B. Kilroy, Jr.

John B. Kilroy, Jr.

President and Chief Executive Officer

Date: October 29, 2014

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Tyler H. Rose, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Date: October 29, 2014

EX-31.3

Exhibit 31.3

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John B. Kilroy, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P. ;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John B. Kilroy, Jr.

John B. Kilroy, Jr.

President and Chief Executive Officer

Kilroy Realty Corporation, sole general partner of

  Kilroy Realty, L.P.

Date: October 29, 2014

EX-31.4

Exhibit 31.4

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Tyler H. Rose, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P. ;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Kilroy Realty Corporation, sole general partner of

Kilroy Realty, L.P.

Date: October 29, 2014

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John B. Kilroy, Jr.
John B. Kilroy, Jr.
President and Chief Executive Officer
Date:	October 29, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of the Company or Kilroy Realty, L.P. under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tyler H. Rose
Tyler H. Rose
Executive Vice President and Chief Financial Officer
Date:	October 29, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of the Company or Kilroy Realty, L.P. under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.3

Exhibit 32.3

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, the sole general partner of Kilroy Realty, L.P. (the “Operating Partnership”), hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended September 30, 2014 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.

/s/ John B. Kilroy, Jr.
John B. Kilroy, Jr.
President and Chief Executive Officer
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P.
Date:	October 29, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.4

Exhibit 32.4

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, the sole general partner of Kilroy Realty, L.P. (the "Operating Partnership"), hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.

/s/ Tyler H. Rose
Tyler H. Rose
Executive Vice President and Chief Financial Officer
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P.
Date:	October 29, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Partners' Capital of the Operating Partnership Ownership Interest (Tables)

9 Months Ended

Sep. 30, 2014

Noncontrolling Interest [Abstract]

Redeemable Noncontrolling Interest

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

	September 30, 2014		December 31, 2013		September 30, 2013
Company owned common units in the Operating Partnership	83,388,220		82,153,944		82,113,491
Company owned general partnership interest	97.9	%	97.8	%	97.8	%
Noncontrolling common units of the Operating Partnership	1,804,200		1,805,200		1,821,503
Ownership interest of noncontrolling interest	2.1	%	2.2	%	2.2	%

XML

Unsecured Revolving Credit Facility (Details 3) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Debt Instrument [Line Items]
Unsecured debt	$ 1,743,962,000		$ 1,431,132,000
Terms of the Credit Facility
Unsecured line of credit	0		45,000,000
Kilroy Realty, L.P. [Member]
Debt Instrument [Line Items]
Unsecured debt	1,743,962,000		1,431,132,000
Terms of the Credit Facility
Unsecured line of credit	0		45,000,000
Kilroy Realty, L.P. [Member] | Revolving Credit Facility [Member]
Terms of the Credit Facility
Unsecured line of credit	0		45,000,000
Remaining borrowing capacity	600,000,000		455,000,000
Total borrowing capacity	600,000,000	[1]	500,000,000	[1]
Interest rate	0.00%	[2]	1.62%	[3]
Facility fee - annual rate	0.25%	[4]	0.30%
Maturity date	Jul. 01, 2019		Apr. 03, 2017
Debt Instrument, Contingent Additional Borrowings	300,000,000
Debt Instrument, Basis Spread on Variable Rate	1.25%		1.45%
Debt Issuance Cost	$ 6,200,000

[1] We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $300.0 million under an accordion feature under the terms of the unsecured revolving credit facility and term loan facility.

[2] Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of September 30, 2014.

[3] Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013

[4] Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2014, $6.2 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.

XML

Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Deferred Leasing Costs and Acquisition-related Intangible Assets, Net
Total deferred leasing costs and acquisition-related intangible assets, net	$ 183,057		$ 186,622
Acquisition-related Intangible Liabilities, Net
Total acquisitions-related intangible liabilities, net	44,267	[1]	49,776	[1]
Deferred Leasing Costs [Member]
Deferred Leasing Costs and Acquisition-related Intangible Assets, Net
Finite-lived intangible assets, gross	196,963		178,720
Finite-lived intangible assets accumulated amortization	(71,911)		(63,246)
Finite-lived intangible assets, net	125,052		115,474
Above-Market Leases [Member]
Deferred Leasing Costs and Acquisition-related Intangible Assets, Net
Finite-lived intangible assets, gross	21,926		27,635
Finite-lived intangible assets accumulated amortization	(14,151)		(14,283)
Finite-lived intangible assets, net	7,775	[2]	13,352
In-Place Leases [Member]
Deferred Leasing Costs and Acquisition-related Intangible Assets, Net
Finite-lived intangible assets, gross	94,281		100,318
Finite-lived intangible assets accumulated amortization	(44,522)		(42,999)
Finite-lived intangible assets, net	49,759		57,319
Below Market Ground Lease Obligation [Member]
Deferred Leasing Costs and Acquisition-related Intangible Assets, Net
Finite-lived intangible assets, gross	490		490
Finite-lived intangible assets accumulated amortization	(19)		(13)
Finite-lived intangible assets, net	471	[3]	477
Below Market Lease [Member]
Acquisition-related Intangible Liabilities, Net
FiniteLivedIntangibleLiabilitiesGross	69,533		69,385
Accumulated amortization	(31,288)		(25,706)
Acquisition-related Intangible Liabilities, net	38,245	[4]	43,679
Above-Market Ground Lease Obligation [Member]
Acquisition-related Intangible Liabilities, Net
FiniteLivedIntangibleLiabilitiesGross	6,320		6,320
Accumulated amortization	(298)		(223)
Acquisition-related Intangible Liabilities, net	$ 6,022	[5]	$ 6,097

[1] Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

[2] Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

[3] Represents estimated annual amortization related to below-market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.

[4] Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

[5] Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

XML

Debt Maturities (Details) (Debt [Member], Kilroy Realty, L.P. [Member], USD $)	Sep. 30, 2014
Debt [Member] | Kilroy Realty, L.P. [Member]
Stated debt maturities and scheduled amortization payments, excluding debt discounts
Remaining 2014	$ 138,009,000
2015	395,104,000
2016	99,431,000
2017	71,748,000
2018	451,728,000
Thereafter	1,268,013,000
Total	2,424,033,000	[1]
Unamortized premium	$ (4,900,000)

[1] Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $4.9 million

XML

Organization and Basis of Presentation (Details Textuals) (USD $)	9 Months Ended				9 Months Ended					12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 WASHINGTON building	Sep. 30, 2014 Kilroy Realty, L.P. [Member]	Sep. 30, 2013 Kilroy Realty, L.P. [Member]	Sep. 30, 2014 Kilroy Realty Finance, Inc. [Member]	Sep. 30, 2014 Real Estate Investment [Member]	Dec. 31, 2013 Real Estate Investment [Member]	Dec. 31, 2013 Restricted cash [Member]
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Lease-Up Properties, Maximum Stabilized Occupacy, Percentage	95.00%
Number of buildings				13
Percentage of general partnership interest owned by the company in the Operating Partnership	97.90%	97.80%	97.80%
Percentage of Common limited partnership interest owned by certain non-affiliated investors and certain directors and officers of the Company in the Operating Partnership	2.10%	2.20%	2.20%
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest							1.00%
Percentage of limited partnership interest owned by Operating Partnership					99.00%
Variable Interest Entity, Consolidated, Carrying Amount, Assets	$ 98,500,000		$ 251,800,000					$ 98,100,000	$ 234,500,000
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities	20,100,000		12,100,000
Noncontrolling Interest in Variable Interest Entity	5,222,000		4,885,000
Proceeds from Sale of Real Estate Held-for-investment	$ 368,381,000	$ 14,409,000			$ 368,381,000	$ 14,409,000				$ 32,200,000

XML

Organization and Basis of Presentation (Tables)

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of real estate properties

Our stabilized portfolio of operating properties was comprised of the following office properties at September 30, 2014:

	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage  Occupied
Stabilized Office Properties	105	13,486,006	526	94.1	%

As of September 30, 2014, the following properties were excluded from our stabilized portfolio:

	Number of Properties/Projects	Estimated Rentable Square Feet
Properties Held for Sale (1)	2	228,788
Development projects under construction (2)(3)	5	2,000,000

_______________

(1) Includes two properties, one located in Orange, California and the other in the San Rafael submarket of San Francisco, California. For additional information see Note 13.

(2) Estimated rentable square feet upon completion.

(3) During the third quarter of 2014, we stabilized a development property in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

XML

Noncontrolling Interests on the Company's Consolidated Financial Statements (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013
Noncontrolling Interest [Abstract]
Percentage of general partnership interest owned by the company in the Operating Partnership	97.90%	97.80%	97.80%
Percentage of Common limited partnership interest owned by certain non-affiliated investors and certain directors and officers of the Company in the Operating Partnership	2.10%	2.20%	2.20%
Common units outstanding held by common limited partners	1,804,200	1,805,200	1,821,503
Common stock, par value	$ 0.01
Aggregate value upon redemption of outstanding noncontrolling common units	$ 107,800,000	$ 90,800,000
Noncontrolling Interest in Variable Interest Entity	$ 5,222,000	$ 4,885,000

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

General

As of September 30, 2014, we had commitments of approximately $514.7 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and redevelopment properties.

Environmental Matters

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material adverse effect on our financial condition, results of operations and cash flow. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

XML

Receivables (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Current Receivables, net
Current receivables	$ 8,626	[1]	$ 12,866
Allowance for uncollectible tenant receivables	(2,183)	[1]	(2,123)
Current receivables, net	6,443	[1]	10,743
Deferred Rent Receivables, net
Deferred rent receivables	141,899	[2]	129,198
Allowance for deferred rent receivables	(1,989)	[2]	(2,075)
Deferred rent receivables, net	$ 139,910	[2]	$ 127,123

[1] Excludes current receivables, net related to properties held for sale at September 30, 2014.

[2] Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

XML

Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2014

Long Lived Assets Held-for-sale [Line Items]

Disclosure of Long Lived Assets Held-for-sale [Table Text Block]

As ofSeptember 30, 2014, the following properties were classified as held for sale:

Location	City/Submarket	Property Type	Number of Buildings	Rentable Square Feet (unaudited)
4040 Civic Center Dr, San Rafael, CA	San Rafael	Office	1	130,237
999 Town & Country Rd, Orange, CA	Orange	Office	1	98,551
Total properties held for sale			2	228,788

The major classes of assets and liabilities of the properties held for sale as of September 30, 2014 were as follows:

Real estate assets and other assets held for sale	(in thousands)
Land and improvements	$	18,077
Buildings and improvements	31,530
Total real estate held for sale	49,607
Accumulated depreciation and amortization	(5,046		)
Total real estate held for sale, net	44,561
Current receivables, net	56
Deferred rent receivables, net	1,241
Deferred leasing costs and acquisition-related intangible assets, net	3,754
Prepaid expenses and other assets, net	203
Real estate and other assets held for sale, net	$	49,815
Liabilities and deferred revenue of real estate assets held for sale
Accounts payable, accrued expenses and other liabilities	$	944
Deferred revenue and acquisition-related intangible liabilities, net	1,733
Rents received in advance and tenant security deposits	422
Liabilities and deferred revenue of real estate assets held for sale	$	3,099

Property Sold During The Period

The following table summarizes the operating properties sold during the nine months ended September 30, 2014:

Location	Property Type	Month of Disposition	Number of Buildings	Rentable Square Feet
San Diego Properties, San Diego, CA (1)	Office	January	12	1,049,035
9785 & 9791 Towne Centre Drive, San Diego, CA	Office	June	2	126,000
111 Pacifica, Irvine, CA	Office	September	1	67,496
Total 2014 Dispositions			15	1,242,531

________________________ 

(1) The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures

The following table summarizes the revenue and expense components that comprise income from discontinued operations for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Revenues:
Rental income	$	1,982	$	8,189	$	6,361	$	23,692
Tenant reimbursements	70		918		247		2,420
Other property income	6		5,151		26		5,159
Total revenues	2,058		14,258		6,634		31,271
Expenses:
Property expenses	705		2,673		1,952		5,753
Real estate taxes	196		891		628		2,626
Depreciation and amortization	609		4,846		1,963		11,693
Total expenses	1,510		8,410		4,543		20,072
Income from discontinued operations before gains on dispositions of discontinued operations	548		5,848		2,091		11,199
Gains on dispositions of discontinued operations	5,587		—		110,391		423
Total income from discontinued operations	$	6,135	$	5,848	$	112,482	$	11,622

XML

Secured and Unsecured Debt of the Operating Partnership (Tables) (Kilroy Realty, L.P. [Member])

9 Months Ended

Sep. 30, 2014

Debt Instrument [Line Items]

Schedule of Term Loan Facilities [Table Text Block]

The following table summarizes the balance and terms of our term loan facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	150,000		$	150,000
Interest rate	1.40		%	1.75		%
Maturity date	July 2019			March 2016

Per Share Average Trading Price Of Companys Common Stock On Stock Exchange [Tables Text Block]

For the three and nine months ended September 30, 2014 and 2013, the per share average trading price of the Company’s common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Per share average trading price of the Company’s common stock	$62.06	$51.57	$59.27	$52.42

Schedule of Debt Conversions, Fair Value Upon Conversion [Table Text Block]

The 4.25% Exchangeable Notes were exchangeable as of September 30, 2014 and September 30, 2013. If the 4.25% Exchangeable Notes outstanding as of those dates were exchanged, the approximate fair value of the shares upon exchange at September 30, 2014 and 2013, using the per share average trading price presented in the table above, would have been as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Approximate fair value of shares upon exchange	$	229,840	$	245,200	$	223,732	$	248,000
Principal amount of the 4.25% Exchangeable Notes	135,481		172,500		135,481		172,500
Approximate fair value in excess amount of principal amount	$	94,359	$	72,700	$	88,251	$	75,500

Interest expense for the exchangeable notes

The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notes based on the respective effective interest rates, before the effect of capitalized interest, for the three and nine months September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Contractual interest payments	$	1,439	$	1,833	$	4,908	$	5,498
Amortization of discount	1,004		1,116		3,337		3,291
Interest expense attributable to the 4.25% Exchangeable Notes	$	2,443	$	2,949	$	8,245	$	8,789

Capped call Transactions

The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014		December 31, 2013
Referenced shares of common stock (1)	3,770,531		4,800,796
Exchange price, including effect of capped calls	$	42.81	$	42.81

________________________

(1) The referenced shares of common stock decreased during the nine months ended September 30, 2014 as a result of the settled exchanges of the 4.25% Exchangeable Notes totaling $37.0 million.

Unsecured Revolving Credit Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	—		$	45,000
Remaining borrowing capacity	600,000			455,000
Total borrowing capacity (1)	$	600,000		$	500,000
Interest rate (2)(3)	—		%	1.62		%
Facility fee-annual rate (4)	0.250%			0.300%
Maturity date	July 2019			April 2017

_______________

(1) We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $300.0 million under an accordion feature under the terms of the unsecured revolving credit facility and term loan facility.

(2) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of September 30, 2014.

(3) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.

(4) Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2014, $6.2 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.

Stated debt maturities and scheduled amortization payments, excluding debt discounts

The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of September 30, 2014:

Year	(in thousands)
Remaining 2014	$	138,009
2015	395,104
2016	99,431
2017	71,748
2018	451,728
Thereafter	1,268,013
Total (1)	$	2,424,033

________________________

(1) Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $4.9 million

Capitalized interest and loan fees

The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2014 and 2013. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Gross interest expense	$	29,936		$	27,942		$	85,740		$	83,322
Capitalized interest and loan fees	(13,328		)	(9,089		)	(35,860		)	(25,301		)
Interest expense	$	16,608		$	18,853		$	49,880		$	58,021

Secured Debt [Member]

Debt Instrument [Line Items]

Balance and significant terms of debt

The following table sets forth the composition of our secured debt as of September 30, 2014 and December 31, 2013:

Type of Debt	Annual Stated Interest Rate (1)	GAAP Effective Rate (1)(2)	Maturity Date	September 30, 2014 (3)		December 31, 2013 (3)
				(in thousands)
Mortgage note payable	4.27%	4.27%	February 2018	$	131,363	$	133,117
Mortgage note payable (4)	4.48%	4.48%	July 2027	97,000		97,000
Mortgage note payable (4)	6.05%	3.50%	June 2019	90,065		92,502
Mortgage note payable	6.51%	6.51%	February 2017	66,907		67,663
Mortgage note payable (4)	5.23%	3.50%	January 2016	53,243		54,570
Mortgage note payable (4)	5.57%	3.25%	February 2016	40,611		41,654
Mortgage note payable(4)	5.09%	3.50%	August 2015	34,446		34,845
Mortgage note payable (4)	4.94%	4.00%	April 2015	26,629		27,641
Mortgage note payable	7.15%	7.15%	May 2017	7,185		8,972
Other	Various	Various	Various	2,447		2,470
Total				$	549,896	$	560,434

______________

(1) All interest rates presented are fixed-rate interest rates.

(2) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.

(3) Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

(4) The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

Exchangeable Debt [Member]

Debt Instrument [Line Items]

Balance and significant terms of debt

The table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the “4.25% Exchangeable Notes”) outstanding as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014			December 31, 2013
	(in thousands)
Principal amount	$	135,481		$	172,500
Unamortized discount	(432		)	(4,128		)
Net carrying amount of liability component	$	135,049		$	168,372
Carrying amount of equity component (1)	$15,578			$19,835
Issuance date	November 2009
Maturity date	November 2014
Stated coupon rate (2)	4.25%
Effective interest rate (3)	7.13%
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)	27.8307
Exchange price, as adjusted (4)	$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined (4)	3,770,531			4,800,796

_______________

(1) The $15.6 million carrying amount of the equity component at September 30, 2014 represents the proportionate amount of the initial $19.8 million carrying value of the equity component allocated to the remaining $135.5 million outstanding principal balance of the 4.25% Exchangeable Notes at September 30, 2014.

(2) Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15^th and November 15^th of each year.

(3) The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.

(4) The exchange rate, exchange price and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.

Senior Notes [Member]

Debt Instrument [Line Items]

Balance and significant terms of debt

The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as of September 30, 2014 and December 31, 2013:

					Principal Amount as of
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate (1)	September 30, 2014			December 31, 2013
					(in thousands)
4.250% Unsecured Senior Notes (2)	July 2014	August 2029	4.250%	4.350%	$	400,000		$	—
Unamortized discount					(4,422		)	—
Net carrying amount					$	395,578		$	—
3.800% Unsecured Senior Notes (3)	January 2013	January 2023	3.800%	3.804%	$	300,000		$	300,000
Unamortized discount					(82		)	(90		)
Net carrying amount					$	299,918		$	299,910
4.800% Unsecured Senior Notes (4)	July 2011	July 2018	4.800%	4.827%	$	325,000		$	325,000
Unamortized discount					(283		)	(339		)
Net carrying amount					$	324,717		$	324,661
6.625% Unsecured Senior Notes (5)	May 2010	June 2020	6.625%	6.743%	$	250,000		$	250,000
Unamortized discount					(1,207		)	(1,367		)
Net carrying amount					$	248,793		$	248,633
5.000% Unsecured Senior Notes (6)	November 2010	November 2015	5.000%	5.014%	$	325,000		$	325,000
Unamortized discount					(44		)	(73		)
Net carrying amount					$	324,956		$	324,927

________________________

(1) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.

(2) Interest on the 4.250% unsecured senior notes is payable semi-annually in arrears on February 15th and August 15th of each year.

(3) Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(4) Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(5) Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.

(6) Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.

XML

Exhangeable Senior Notes (Details) (USD $)	3 Months Ended			9 Months Ended			12 Months Ended
	Sep. 30, 2014		Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
Balance and significant terms of the Exchangeable Notes outstanding
Net carrying amount of liability component	$ 135,049,000			$ 135,049,000			$ 168,372,000
Kilroy Realty, L.P. [Member]
Balance and significant terms of the Exchangeable Notes outstanding
Net carrying amount of liability component	135,049,000			135,049,000			168,372,000
Exchangeable Debt [Member] | Kilroy Realty, L.P. [Member]
Debt Instrument [Line Items]
Referenced shares of common stock under capped call	3,770,531	[1]		3,770,531	[1]		4,800,796	[1]
Exchange price including effect of capped calls	42.81			42.81			42.81
Contractual interest payments	1,439,000		1,833,000	4,908,000		5,498,000
Amortization of discount	1,004,000		1,116,000	3,337,000		3,291,000
Interest Expense attributable to the Exchangeable Notes	2,443,000		2,949,000	8,245,000		8,789,000
Balance and significant terms of the Exchangeable Notes outstanding
Long-term Debt, Gross	135,481,000		172,500,000	135,481,000		172,500,000	172,500,000
Unamortized discount	(432,000)			(432,000)			(4,128,000)
Net carrying amount of liability component	135,049,000			135,049,000			168,372,000
Carrying amount of equity component	15,578,000	[2]		15,578,000	[2]		19,835,000	[3]
Issuance Date				Nov. 16, 2009
Maturity Date				Nov. 15, 2014
Stated coupon rate	4.25%	[4]		4.25%	[4]
Effective interest rate	7.13%	[5]		7.13%	[5]
Exchange rate per $1,000 principal value of the Exchangeable Notes, as adjusted				27.8307	[5]
Exchange price, as adjusted				$ 35.93	[6]
Number of Shares on which aggregate consideration to be delivered upon conversion is determined				3,770,531	[6]		4,800,796	[6]
Average trading price of the Companys stock	$ 62.06		$ 51.57	$ 59.27		$ 52.42
Fair Value Of Shares Upon Conversion If Exchangeable Notes Were Converted On Specified Date	229,840,000		245,200,000	223,732,000		248,000,000
Debt Instrument, Convertible, If-converted Value in Excess of Principal	94,359,000		72,700,000	88,251,000		75,500,000
Term Loan Facility [Member] | Line of Credit [Member] | Kilroy Realty, L.P. [Member]
Balance and significant terms of the Exchangeable Notes outstanding
Maturity Date				Jul. 01, 2019			Mar. 29, 2016
Debt Instrument, Basis Spread on Variable Rate				1.40%			1.75%
Exchangeable Note Two [Member] | Exchangeable Debt [Member] | Kilroy Realty, L.P. [Member]
Balance and significant terms of the Exchangeable Notes outstanding
Minimum percentage of exchange price				130.00%
Notes exchanged during 2014 [Member] | Exchangeable Debt [Member] | Kilroy Realty, L.P. [Member]
Balance and significant terms of the Exchangeable Notes outstanding
Long-term Debt, Gross	$ 37,000,000			$ 37,000,000
Exchangeable Note One [Member] | Exchangeable Debt [Member] | Kilroy Realty, L.P. [Member]
Debt Instrument [Line Items]
Number of trading days used for calculation of shares of common stock delivered for settlement				30
Common Stock [Member]
Balance and significant terms of the Exchangeable Notes outstanding
Common shares issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5), shares				431,270
Common shares received in connection with capped call option transactions (Note 5)				111,206
Common Stock, Issued, Net of Capped Calls				320,064

[1] The referenced shares of common stock decreased during the nine months ended September 30, 2014 as a result of the settled exchanges of the 4.25% Exchangeable Notes totaling $37.0 million.

[2] (1)The $15.6 million carrying amount of the equity component at September 30, 2014 represents the proportionate amount of the initial $19.8 million carrying value of the equity component allocated to the remaining $135.5 million outstanding principal balance of the 4.25% Exchangeable Notes at September 30, 2014.

[3] All interest rates presented are fixed-rate interest rates.

[4] Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year.

[5] The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.

[6] The exchange rate, exchange price and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.

XML

Net Income Available to Common Unitholders Per Unit of the Operating Partnership (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Numerator:
Income from continuing operations	$ 13,168		$ 3,179		$ 39,896		$ 9,896
Preferred distributions	(3,313)		(3,312)		(9,938)		(9,938)
Allocation to participating securities	(432)	[1]	(450)	[1]	(1,285)	[1]	(1,292)	[1]
Numerator for basic and diluted income from continuing operations available to common unitholders	9,230		(580)		28,038		(1,332)
Income from discontinued operations	6,135		5,848		112,482		11,622
Numerator for basic and diluted net income available to common unitholders	15,237		5,134		138,144		10,022
Denominator:
Weighted average common units outstanding - basic (Note 15)	83,161,323		76,768,893		82,525,033		75,750,822
Effect of dilutive securities	1,949,133		0		2,097,589		0
Weighted average common units outstanding - diluted (Note 15)	85,110,456		76,768,893		84,622,622		75,750,822
Basic earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit - basic (Note 15)	$ 0.11		$ 0.00		$ 0.34		$ (0.02)
Income from discontinued operations per common unit	$ 0.07		$ 0.07		$ 1.33		$ 0.15
Net income available to common unitholders per unit-basic (Note 15)	$ 0.18		$ 0.07		$ 1.67		$ 0.13
Diluted earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit - diluted (Note 15)	$ 0.11		$ 0.00		$ 0.33		$ (0.02)
Income from discontinued operations per common unit	$ 0.07		$ 0.07		$ 1.30		$ 0.15
Net income available to common unitholders per unit-diluted (Note 15)	$ 0.18		$ 0.07		$ 1.63		$ 0.13
Kilroy Realty, L.P. [Member]
Numerator:
Income from continuing operations	13,168		3,179		39,896		9,896
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(59)		(47)		(201)		(178)
Preferred distributions	(3,313)		(3,312)		(9,938)		(9,938)
Allocation to participating securities	(432)	[1]	(450)	[1]	(1,285)	[1]	(1,292)	[1]
Numerator for basic and diluted income from continuing operations available to common unitholders	9,364		(630)		28,472		(1,512)
Income from discontinued operations	6,135		5,848		112,482		11,622
Numerator for basic and diluted net income available to common unitholders	$ 15,499		$ 5,218		$ 140,954		$ 10,110
Denominator:
Weighted average common units outstanding - basic (Note 15)	84,965,523		78,590,396		84,329,317		77,574,907
Effect of dilutive securities	1,949,133		0		2,097,589		0
Weighted average common units outstanding - diluted (Note 15)	86,914,656		78,590,396		86,426,906		77,574,907
Basic earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit - basic (Note 15)	$ 0.11		$ 0.00		$ 0.34		$ (0.02)
Income from discontinued operations per common unit	$ 0.07		$ 0.07		$ 1.33		$ 0.15
Net income available to common unitholders per unit-basic (Note 15)	$ 0.18		$ 0.07		$ 1.67		$ 0.13
Diluted earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit - diluted (Note 15)	$ 0.11		$ 0.00		$ 0.33		$ (0.02)
Income from discontinued operations per common unit	$ 0.07		$ 0.07		$ 1.30		$ 0.15
Net income available to common unitholders per unit-diluted (Note 15)	$ 0.18		$ 0.07		$ 1.63		$ 0.13

[1] Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

XML

Commitments and Contingencies (Details 1) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014
Commitments and Contingencies Disclosure [Abstract]
Other Commitment	$ 514.7

XML

Acquisitions (Details) (USD $)	9 Months Ended
	Sep. 30, 2014 sqft		Dec. 31, 2013
Business Acquisition [Line Items]
Below Market Lease, Acquired	$ 4,600,000
Business Acquisition, Date of Acquisition Agreement	Mar. 13, 2014
Rentable square feet	79,000
Liabilities
Acquired Finite-lived Intangible Liabilities, Weighted Average Useful Life	7 years
Accounts Payable and Accrued Liabilities	243,602,000		198,467,000
Kilroy Mission Bay [Member]
Business Acquisition [Line Items]
Payments to Acquire Land	95,000,000	[1]
Liabilities
Accounts Payable and Accrued Liabilities	2,300,000
401 Terry Avenue North, Seattle, WA [Member]
Business Acquisition [Line Items]
Number of buildings	1
Rentable square feet	140,605
Occupancy as of September 30, 2014	100.00%
Purchase price	106,100,000
Office Properties Acquisitions [Member]
Business Acquisition [Line Items]
Number of buildings	1
Assets
Land and improvements	22,500,000
Buildings and improvements	77,046,000	[2]
Deferred leasing costs and acquisition-related intangible assets	11,199,000	[3]
Total assets acquired	110,745,000
Liabilities
Deferred revenue and acquisition-related intangible liabilities	4,620,000	[4]
Total liabilities assumed	4,620,000
Net assets and liabilities acquired	106,125,000
In-Place Leases [Member]
Assets
Deferred leasing costs and acquisition-related intangible assets	9,300,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	7 years
Deferred Leasing Costs [Member]
Assets
Deferred leasing costs and acquisition-related intangible assets	$ 1,900,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	7 years

[1] In connection with this acquisition, we also assumed $2.3 million in accrued liabilities which are not included in the purchase price above. As of September 30, 2014, the purchase price and assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets.

[2] Represents buildings, building improvements and tenant improvements.

[3] Represents in-place leases of approximately $9.3 million (with a weighted average amortization period of seven years) and leasing commissions of approximately $1.9 million (with a weighted average amortization period of seven years) at the time of the acquisition.

[4] Represents below-market leases of approximately $4.6 million (with a weighted average amortization period of seven years).

XML

Consolidated Balance Sheets (KILROY REALTY, L.P.) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$ 757,036		$ 657,491
Buildings and improvements (Note 2)	3,882,015		3,590,699
Undeveloped land and construction in progress (Note 2)	1,112,046		1,016,757
Total real estate assets held for investment	5,751,097		5,264,947
Accumulated depreciation and amortization	(912,623)		(818,957)
Total real estate assets held for investment, net ($98,121 and $234,532 of VIE, respectively, Note 1)	4,838,474		4,445,990
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 13)	49,815		213,100
CASH AND CASH EQUIVALENTS	200,431		35,377
RESTRICTED CASH (Notes 1 and 13)	17,487		49,780
MARKETABLE SECURITIES (Note 11)	12,076		10,008
CURRENT RECEIVABLES, NET (Note 4)	6,443	[1]	10,743
DEFERRED RENT RECEIVABLES, NET (Note 4)	139,910	[2]	127,123
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	183,057		186,622
DEFERRED FINANCING COSTS, NET	19,373		16,502
PREPAID EXPENSES AND OTHER ASSETS, NET	20,398		15,783
TOTAL ASSETS	5,487,464		5,111,028
LIABILITIES:
Secured debt (Notes 5 and 11)	549,896	[3]	560,434	[3]
Exchangeable senior notes, net (Notes 5 and 11)	135,049		168,372
Unsecured debt, net (Notes 5 and 11)	1,743,962		1,431,132
Unsecured line of credit (Notes 5 and 11)	0		45,000
Accounts payable, accrued expenses and other liabilities	243,602		198,467
Accrued distributions (Note 16)	31,897		31,490
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	114,504		101,286
Rents received in advance and tenant security deposits	45,086		44,240
Liabilities of real estate assets held for sale (Note 13)	3,099		14,447
Total liabilities	2,867,095		2,594,868
COMMITMENTS AND CONTINGENCIES (Note 10)
Partners’ Capital (Note 8):
TOTAL LIABILITIES AND EQUITY	5,487,464		5,111,028
Kilroy Realty, L.P. [Member]
REAL ESTATE ASSETS:
Land and improvements (Note 2)	757,036		657,491
Buildings and improvements (Note 2)	3,882,015		3,590,699
Undeveloped land and construction in progress (Note 2)	1,112,046		1,016,757
Total real estate assets held for investment	5,751,097		5,264,947
Accumulated depreciation and amortization	(912,623)		(818,957)
Total real estate assets held for investment, net ($98,121 and $234,532 of VIE, respectively, Note 1)	4,838,474		4,445,990
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 13)	49,815		213,100
CASH AND CASH EQUIVALENTS	200,431		35,377
RESTRICTED CASH (Notes 1 and 13)	17,487		49,780
MARKETABLE SECURITIES (Note 11)	12,076		10,008
CURRENT RECEIVABLES, NET (Note 4)	6,443		10,743
DEFERRED RENT RECEIVABLES, NET (Note 4)	139,910		127,123
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	183,057		186,622
DEFERRED FINANCING COSTS, NET	19,373		16,502
PREPAID EXPENSES AND OTHER ASSETS, NET	20,398		15,783
TOTAL ASSETS	5,487,464		5,111,028
LIABILITIES:
Secured debt (Notes 5 and 11)	549,896		560,434
Exchangeable senior notes, net (Notes 5 and 11)	135,049		168,372
Unsecured debt, net (Notes 5 and 11)	1,743,962		1,431,132
Unsecured line of credit (Notes 5 and 11)	0		45,000
Accounts payable, accrued expenses and other liabilities	243,602		198,467
Accrued distributions (Note 16)	31,897		31,490
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	114,504		101,286
Rents received in advance and tenant security deposits	45,086		44,240
Liabilities of real estate assets held for sale (Note 13)	3,099		14,447
Total liabilities	2,867,095		2,594,868
Partners’ Capital (Note 8):
Common units, 83,388,220 and 82,153,944 held by the general partner and 1,804,200 and 1,805,200 held by common limited partners issued and outstanding, respectively	2,419,033		2,315,361
Total partners’ capital	2,611,444		2,507,772
Noncontrolling interests in consolidated subsidiaries (Notes 1 and 6)	8,925		8,388
Total capital	2,620,369		2,516,160
TOTAL LIABILITIES AND EQUITY	5,487,464		5,111,028
Series G Cumulative Redeemable Preferred Unit [Member] | Kilroy Realty, L.P. [Member]
Partners’ Capital (Note 8):
Redeemable Preferred stock	96,155		96,155
Series H Cumulative Redeemable Preferred Unit [Member] | Kilroy Realty, L.P. [Member]
Partners’ Capital (Note 8):
Redeemable Preferred stock	$ 96,256		$ 96,256

[1] Excludes current receivables, net related to properties held for sale at September 30, 2014.

[2] Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

[3] Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

XML

Fair Value Measurements and Disclosures (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
Fair value adjustment of marketable securities and deferred compensation plan liability
Net gain on marketable securities	$ (39)		$ 669	$ 507		$ 995
Trading Securities	12,076			12,076			10,008
Fair Value (Level 1) [Member]
Assets and Liabilities Reported at Fair Value
Marketable securities	$ 12,076	[1],[2]		$ 12,076	[1],[2]		$ 10,008	[1],[2]

[1] The marketable securities are held in a limited rabbi trust.

[2] Based on quoted prices in active markets for identical securities.

XML

Net Income Available to Common Stockholders Per Share of the Company (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Net income (loss) available to common stockholders

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
(Income) Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	(193		)	3			(635		)	2
Preferred dividends	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common stockholders	9,230			(580		)	28,038			(1,332		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(128		)	(134		)	(2,376		)	(268		)
Numerator for basic and diluted net income available to common stockholders	$	15,237		$	5,134		$	138,144		$	10,022
Denominator:
Basic weighted average vested shares outstanding	83,161,323			76,768,893			82,525,033			75,750,822
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested shares and common share equivalents outstanding	85,110,456			76,768,893			84,622,622			75,750,822
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.33			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.30			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

XML

Net Income Available to Common Stockholders Per Share of the Company

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Available to Common Stockholders Per Share of the Company

Net Income Available to Common Stockholders Per Share of the Company

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
(Income) Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	(193		)	3			(635		)	2
Preferred dividends	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common stockholders	9,230			(580		)	28,038			(1,332		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(128		)	(134		)	(2,376		)	(268		)
Numerator for basic and diluted net income available to common stockholders	$	15,237		$	5,134		$	138,144		$	10,022
Denominator:
Basic weighted average vested shares outstanding	83,161,323			76,768,893			82,525,033			75,750,822
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested shares and common share equivalents outstanding	85,110,456			76,768,893			84,622,622			75,750,822
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.33			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.30			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

The impact of the contingently issuable shares, which consist of the 4.25% Exchangeable Notes and stock options, were considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2014 because we reported income from continuing operations attributable to common stockholders in the respective periods and the effect was dilutive. The impact of the contingently issuable shares were not considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2013 because we reported a loss from continuing operations available to common stockholders in the respective periods and the effect was anti-dilutive.

The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of September 30, 2014 because they are not included until all the necessary performance conditions have been met. The impact of our nonvested market measure-based RSUs were not included in dilutive securities as of September 30, 2013 because they were not considered contingently issuable shares as not all the necessary performance conditions were met.

XML

Discontinued Operations

9 Months Ended

Sep. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations and Land Dispositions

Properties Held for Sale

As ofSeptember 30, 2014, the following properties were classified as held for sale:

Location	City/Submarket	Property Type	Number of Buildings	Rentable Square Feet (unaudited)
4040 Civic Center Dr, San Rafael, CA	San Rafael	Office	1	130,237
999 Town & Country Rd, Orange, CA	Orange	Office	1	98,551
Total properties held for sale			2	228,788

The major classes of assets and liabilities of the properties held for sale as of September 30, 2014 were as follows:

Real estate assets and other assets held for sale	(in thousands)
Land and improvements	$	18,077
Buildings and improvements	31,530
Total real estate held for sale	49,607
Accumulated depreciation and amortization	(5,046		)
Total real estate held for sale, net	44,561
Current receivables, net	56
Deferred rent receivables, net	1,241
Deferred leasing costs and acquisition-related intangible assets, net	3,754
Prepaid expenses and other assets, net	203
Real estate and other assets held for sale, net	$	49,815
Liabilities and deferred revenue of real estate assets held for sale
Accounts payable, accrued expenses and other liabilities	$	944
Deferred revenue and acquisition-related intangible liabilities, net	1,733
Rents received in advance and tenant security deposits	422
Liabilities and deferred revenue of real estate assets held for sale	$	3,099

Operating Property Dispositions

The following table summarizes the operating properties sold during the nine months ended September 30, 2014:

Location	Property Type	Month of Disposition	Number of Buildings	Rentable Square Feet
San Diego Properties, San Diego, CA (1)	Office	January	12	1,049,035
9785 & 9791 Towne Centre Drive, San Diego, CA	Office	June	2	126,000
111 Pacifica, Irvine, CA	Office	September	1	67,496
Total 2014 Dispositions			15	1,242,531

________________________ 

(1) The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.

Discontinued Operations

Discontinued operations for the three months ended September 30, 2014 includes the income of the property sold in September 2014 and the two properties classified as held for sale at September 30, 2014. For the nine months ended September 30, 2014 and 2013, discontinued operations also included the gains on dispositions of $110.4 million related to the June 2014 office property disposition and income of the twelve operating office properties sold in January 2014. The operations related to the June 2014 office property dispositions were immaterial for classification as discontinued operations. For the three and nine months ended September 30, 2013, discontinued operations also included the income from three operating office properties that were sold during those respective periods in 2013. The following table summarizes the revenue and expense components that comprise income from discontinued operations for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Revenues:
Rental income	$	1,982	$	8,189	$	6,361	$	23,692
Tenant reimbursements	70		918		247		2,420
Other property income	6		5,151		26		5,159
Total revenues	2,058		14,258		6,634		31,271
Expenses:
Property expenses	705		2,673		1,952		5,753
Real estate taxes	196		891		628		2,626
Depreciation and amortization	609		4,846		1,963		11,693
Total expenses	1,510		8,410		4,543		20,072
Income from discontinued operations before gains on dispositions of discontinued operations	548		5,848		2,091		11,199
Gains on dispositions of discontinued operations	5,587		—		110,391		423
Total income from discontinued operations	$	6,135	$	5,848	$	112,482	$	11,622

Land Disposition

During the nine months ended September 30, 2014, the Company sold a land parcel located at 10850 Via Frontera in the Rancho Bernardo submarket of San Diego, California for a gross sales price of $33.1 million, resulting in a gain on sale of $3.5 million. The land parcel noted above did not meet the criteria for classification as discontinued operations because the parcel did not have any significant operations prior to disposal. Therefore, the gain on sale is included on our consolidated statements of operations as gain on sale of land within continuing operations.

Restricted Cash Related to Dispositions

During the nine months ended September 30, 2014, the net cash proceeds from the office properties disposed of during the period were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating Section 1031 Exchanges. During the nine months ended September 30, 2014, we successfully completed four Section 1031 Exchanges and all remaining cash proceeds related to these transactions were released from the qualified intermediaries upon completion.

As of December 31, 2013, approximately $32.2 million, respectively, of net cash proceeds related to the land and office properties disposed of during the year ended December 31, 2013 were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating Section 1031 Exchanges. The cash proceeds are included in restricted cash on the consolidated balance sheet at December 31, 2013. In February 2014, we successfully completed one of the Section 1031 Exchanges and the $32.2 million cash proceeds were released from the qualified intermediary.

XML

Secured and Unsecured Debt of the Operating Partnership Capitalized Interest and Loan Fees (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Capitalized Interest and Loan Fees [Line Items]
Interest Expense	$ 16,608	$ 18,853	$ 49,880	$ 58,021
Kilroy Realty, L.P. [Member]
Capitalized Interest and Loan Fees [Line Items]
Gross interest expense	29,936	27,942	85,740	83,322
Capitalized interest	(13,328)	(9,089)	(35,860)	(25,301)
Interest Expense	$ 16,608	$ 18,853	$ 49,880	$ 58,021

XML

Net Income Available to Common Unitholders Per Unit of the Operating Partnership (Tables)

9 Months Ended

Sep. 30, 2014

Net Income Available To Common Unitholders [Line Items]

Net income (loss) available to common unitholders

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
(Income) Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	(193		)	3			(635		)	2
Preferred dividends	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common stockholders	9,230			(580		)	28,038			(1,332		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(128		)	(134		)	(2,376		)	(268		)
Numerator for basic and diluted net income available to common stockholders	$	15,237		$	5,134		$	138,144		$	10,022
Denominator:
Basic weighted average vested shares outstanding	83,161,323			76,768,893			82,525,033			75,750,822
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested shares and common share equivalents outstanding	85,110,456			76,768,893			84,622,622			75,750,822
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.33			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per share	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common share	0.07			0.07			1.30			0.15
Net income available to common stockholders per share	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

Kilroy Realty, L.P. [Member]

Net Income Available To Common Unitholders [Line Items]

Net income (loss) available to common unitholders

The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(59		)	(47		)	(201		)	(178		)
Preferred distributions	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common unitholders	9,364			(630		)	28,472			(1,512		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Numerator for basic and diluted net income available to common unitholders	$	15,499		$	5,218		$	140,954		$	10,110
Denominator:
Basic weighted average vested units outstanding	84,965,523			78,590,396			84,329,317			77,574,907
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested units and common unit equivalents outstanding	86,914,656			78,590,396			86,426,906			77,574,907
Basic earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.33			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.30			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

XML

Net Income Available to Common Unitholders Per Unit of the Operating Partnership

9 Months Ended

Sep. 30, 2014

Earnings Per Unit [Abstract]

Net Income (Loss) Available to Common Unitholders per Unit of the Operating Partnership

Net Income Available to Common Unitholders Per Unit of the Operating Partnership

The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations	$	13,168		$	3,179		$	39,896		$	9,896
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(59		)	(47		)	(201		)	(178		)
Preferred distributions	(3,313		)	(3,312		)	(9,938		)	(9,938		)
Allocation to participating securities (1)	(432		)	(450		)	(1,285		)	(1,292		)
Numerator for basic and diluted income from continuing operations available to common unitholders	9,364			(630		)	28,472			(1,512		)
Income from discontinued operations	6,135			5,848			112,482			11,622
Numerator for basic and diluted net income available to common unitholders	$	15,499		$	5,218		$	140,954		$	10,110
Denominator:
Basic weighted average vested units outstanding	84,965,523			78,590,396			84,329,317			77,574,907
Effect of dilutive securities	1,949,133			—			2,097,589			—
Diluted weighted average vested units and common unit equivalents outstanding	86,914,656			78,590,396			86,426,906			77,574,907
Basic earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.34		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.33			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.67		$	0.13
Diluted earnings per unit:
Income (loss) from continuing operations available to common unitholders per unit	$	0.11		$	0.00		$	0.33		$	(0.02	)
Income from discontinued operations per common unit	0.07			0.07			1.30			0.15
Net income available to common unitholders per unit	$	0.18		$	0.07		$	1.63		$	0.13

________________________ 

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

The impact of the contingently issuable units, which consist of the 4.25% Exchangeable Notes and stock options, were considered in our diluted earnings per unit calculation for the three and nine months ended September 30, 2014 because the Operating Partnership reported income from continuing operations attributable to common unitholders in the respective periods and the effect was dilutive. The impact of the contingently issuable shares were not considered in our diluted earnings per unit calculation for the three and nine months ended September 30, 2013 because the Operating Partnership reported a loss from continuing operations available to common unitholders in the respective periods and the effect was anti-dilutive.

The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of September 30, 2014 because they are not included until all the necessary performance conditions have been met. The impact of our nonvested market measure-based RSUs were not included in dilutive securities as of September 30, 2013 because they were not considered contingently issuable shares as not all the necessary performance conditions were met.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

In October 2014, the Company completed the acquisition of a 1.9 acre land site in the Central SOMA submarket of San Francisco, California for approximately $27.0 million. The acquisition, which was completed through the execution of a merger transaction, was funded through the issuance of 351,476 shares of the Company’s common stock valued at approximately $21.6 million and the payment of approximately $5.4 million in cash to extinguish existing debt on the undeveloped land.

In October 2014, the Company issued 217,042 common shares under its at-the-market stock offering program at a weighted average price of $59.38 per share before selling commissions.

On October 15, 2014, aggregate dividends, distributions and dividend equivalents of $30.3 million were paid to common stockholders and common unitholders of record on September 30, 2014 and RSU holders of record on the payment date.

XML

Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest - capitalized interest amount	$ 33,533	$ 23,573

XML

Organization and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidation Policy

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all of our wholly owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

Basis of Accounting

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K/A for the year ended December 31, 2013.

Certain amounts in the consolidated statements of operations for prior periods have been reclassified to reflect the activity of discontinued operations.

Partially Owned Entities and Variable Interest Entities

At September 30, 2014, the consolidated financial statements of the Company and the Operating Partnership included one variable interest entity (“VIE”), in which we were deemed to be the primary beneficiary. The VIE, Redwood City Partners, LLC, was established in the second quarter of 2013 in connection with an undeveloped land acquisition. The impact of consolidating the VIE increased the Company’s total assets, liabilities and noncontrolling interests by approximately $98.5 million (of which $98.1 million related to real estate held for investment on our consolidated balance sheet), approximately $20.1 million and approximately $5.2 million, respectively, as of September 30, 2014. As of December 31, 2013, the consolidated financial statements of the Company and the Operating Partnership included four VIEs, in which we were deemed to be the primary beneficiary. One of the VIEs was Redwood City Partners, LLC and the remaining three VIEs were established during the third and fourth quarter of 2013 to facilitate potential Section 1031 Exchanges. During the three months ended March 31, 2014, the Section 1031 Exchanges were successfully completed and the three VIEs were terminated. As a result, $32.2 million of our restricted cash balance at December 31, 2013, which related to prior period disposition proceeds that were set aside to facilitate the Section 1031 Exchanges, was released from escrow. The impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests by approximately $251.8 million (of which $234.5 million related to real estate held for investment on our consolidated balance sheet), approximately $12.1 million and approximately $4.9 million, respectively, as of December 31, 2013.

Recent Accounting Pronouncements

On June 19, 2014, the Financial Accounting Standards Board (“FASB”) issued their final standard to amend the accounting guidance for stock compensation tied to performance targets (Accounting Standards Update (“ASU”) No. 2014-12). The issue is the result of a consensus of the FASB Emerging Issues Task Force (Issue No. 13-D). The standard requires that a performance target that could be achieved after the requisite service period be treated as a performance condition, and as a result, this type of performance condition may delay expense recognition until achievement of the performance target is probable. The ASU is effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015, and early adoption is permitted. The Company will adopt the guidance effective January 1, 2016 and the guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On May 28, 2014, the FASB issued their final standard on revenue from contracts with customers. The guidance specifically notes that lease contracts with customers are a scope exception. The standard (ASU No. 2014-09) outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The ASU is effective for annual reporting periods (including interim periods), beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt the guidance effective January 1, 2017 and is currently assessing the impact on our consolidated financial statements and notes to our consolidated financial statements.

On April 10, 2014, the FASB issued final guidance to change the criteria for reporting discontinued operations while enhancing disclosures in this area (ASU No. 2014-08). Under the new guidance, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should be presented as discontinued operations. The guidance will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The guidance is effective for annual financial statements with fiscal years beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. The Company will adopt the guidance effective January 1, 2015 and the guidance is not anticipated to have a material impact on our consolidated financial statements and notes to our consolidated financial statements.

XML

Share-Based Compensation Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Restricted Stock Units, Valuation Assumptions

The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:

	Fair Value Assumptions
Fair value per share at May 22, 2014	$65.03
Expected share price volatility	24.00%
Risk-free interest rate	0.61%
Remaining expected life	2.6

XML

Unsecured Senior Notes (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Debt Instrument [Line Items]
Unsecured debt	$ 1,743,962,000		$ 1,431,132,000
Exchangeable senior notes, net	135,049,000		168,372,000
Kilroy Realty, L.P. [Member]
Debt Instrument [Line Items]
Unsecured debt	1,743,962,000		1,431,132,000
Exchangeable senior notes, net	135,049,000		168,372,000
Kilroy Realty, L.P. [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.25%		1.45%
Debt Instrument, Contingent Additional Borrowings	300,000,000
Kilroy Realty, L.P. [Member] | Four Point Two Five Zero Percent Unsecured Senior Notes [Member] [Domain] | Senior Notes [Member]
Debt Instrument [Line Items]
Stated coupon rate	4.25%
Effective interest rate	4.35%	[1],[2]
Debt Instrument, Face Amount	400,000,000		0
Debt Instrument, Unamortized Discount	(4,422,000)		0
Unsecured debt	395,578,000		0
Kilroy Realty, L.P. [Member] | 3.800% Unsecured Senior Note [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Stated coupon rate	3.80%
Effective interest rate	3.804%	[1],[3]
Debt Instrument, Face Amount	300,000,000		300,000,000
Debt Instrument, Unamortized Discount	(82,000)		(90,000)
Unsecured debt	299,918,000		299,910,000
Kilroy Realty, L.P. [Member] | 4.800% Unsecured Senior Notes Due July Fifteen Two Thousand Eighteen [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Stated coupon rate	4.80%
Effective interest rate	4.827%	[1],[4]
Debt Instrument, Face Amount	325,000,000		325,000,000
Debt Instrument, Unamortized Discount	(283,000)		(339,000)
Unsecured debt	324,717,000		324,661,000
Kilroy Realty, L.P. [Member] | 6.625% Unsecured Senior Notes due June 1 2020 [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Stated coupon rate	6.625%
Effective interest rate	6.743%	[1],[5]
Debt Instrument, Face Amount	250,000,000		250,000,000
Debt Instrument, Unamortized Discount	(1,207,000)		(1,367,000)
Unsecured debt	248,793,000		248,633,000
Kilroy Realty, L.P. [Member] | 5.000% Unsecured Senior Notes due Nov3 2015 [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Stated coupon rate	5.00%
Effective interest rate	5.014%	[1],[6]
Debt Instrument, Face Amount	325,000,000		325,000,000
Debt Instrument, Unamortized Discount	(44,000)		(73,000)
Unsecured debt	324,956,000		324,927,000
Kilroy Realty, L.P. [Member] | 6.45% Unsecured Senior Notes due Aug 4 2014 [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Effective interest rate			6.45%
Unsecured debt			83,000,000
Kilroy Realty, L.P. [Member] | Term Loan Facility [Member] | Line of Credit [Member]
Debt Instrument [Line Items]
Maturity Date	Jul. 01, 2019		Mar. 29, 2016
Unsecured debt	$ 150,000,000		$ 150,000,000
Debt Instrument, Basis Spread on Variable Rate	1.40%		1.75%

[1] This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.

[2] Interest on the 4.250% unsecured senior notes is payable semi-annually in arrears on February 15th and August 15th of each year.

[3] Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

[4] Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

[5] Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.

[6] Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.

XML

Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$ 757,036		$ 657,491
Buildings and improvements (Note 2)	3,882,015		3,590,699
Undeveloped land and construction in progress (Note 2)	1,112,046		1,016,757
Total real estate assets held for investment	5,751,097		5,264,947
Accumulated depreciation and amortization	(912,623)		(818,957)
Total real estate assets held for investment, net ($98,121 and $234,532 of VIE, respectively, Note 1)	4,838,474		4,445,990
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 13)	49,815		213,100
CASH AND CASH EQUIVALENTS	200,431		35,377
RESTRICTED CASH (Notes 1 and 13)	17,487		49,780
MARKETABLE SECURITIES (Note 11)	12,076		10,008
CURRENT RECEIVABLES, NET (Note 4)	6,443	[1]	10,743
DEFERRED RENT RECEIVABLES, NET (Note 4)	139,910	[2]	127,123
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	183,057		186,622
DEFERRED FINANCING COSTS, NET	19,373		16,502
PREPAID EXPENSES AND OTHER ASSETS, NET	20,398		15,783
TOTAL ASSETS	5,487,464		5,111,028
LIABILITIES:
Secured debt (Notes 5 and 11)	549,896	[3]	560,434	[3]
Exchangeable senior notes, net (Notes 5 and 11)	135,049		168,372
Unsecured debt, net (Notes 5 and 11)	1,743,962		1,431,132
Unsecured line of credit (Notes 5 and 11)	0		45,000
Accounts payable, accrued expenses and other liabilities	243,602		198,467
Accrued distributions (Note 16)	31,897		31,490
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	114,504		101,286
Rents received in advance and tenant security deposits	45,086		44,240
Liabilities of real estate assets held for sale (Note 13)	3,099		14,447
Total liabilities	2,867,095		2,594,868
COMMITMENTS AND CONTINGENCIES (Note 10)
Preferred stock, $.01 par value, 30,000,000 shares authorized:
Common stock, $.01 par value, 150,000,000 shares authorized, 83,388,220 and 82,153,944 shares issued and outstanding, respectively	834		822
Additional paid-in capital	2,530,282		2,478,975
Distributions in excess of earnings	(159,799)		(210,896)
Total stockholders’ equity	2,563,728		2,461,312
Noncontrolling interest :
Common units of the Operating Partnership (Note 6)	51,419		49,963
Noncontrolling interest in consolidated subsidiary (Notes 1 and 6)	5,222		4,885
Total noncontrolling interests	56,641		54,848
Total equity	2,620,369		2,516,160
TOTAL LIABILITIES AND EQUITY	5,487,464		5,111,028
Series G Cumulative Redeemable Preferred Stock
Preferred stock, $.01 par value, 30,000,000 shares authorized:
Cumulative Redeemable Preferred stock	96,155		96,155
Series H Cumulative Redeemable Preferred Stock
Preferred stock, $.01 par value, 30,000,000 shares authorized:
Cumulative Redeemable Preferred stock	$ 96,256		$ 96,256

[1] Excludes current receivables, net related to properties held for sale at September 30, 2014.

[2] Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

[3] Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

XML

Organization and Basis of Presentation (Details)	9 Months Ended
	Sep. 30, 2014
Real Estate Properties [Line Items]
Rentable square feet	79,000
Kilroy Realty Finance, Inc. [Member]
Real Estate Properties [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest	1.00%
Properties Held for Sale [Member]
Real Estate Properties [Line Items]
Number of buildings	2	[1]
Rentable square feet	228,788	[1]
Development Properties [Member]
Real Estate Properties [Line Items]
Number of buildings	5	[2],[3]
Rentable square feet	2,000,000	[2],[3]
Office Properties [Member]
Real Estate Properties [Line Items]
Number of buildings	105
Rentable square feet	13,486,006
Number of Tenants	526
Percentage Occupied	94.10%
WASHINGTON
Real Estate Properties [Line Items]
Number of buildings	13
N. Mathilda Avenue 599 and 555, Sunnyvale, CA [Member]
Real Estate Properties [Line Items]
Number of buildings	3
Rentable square feet	587,429

[1] Includes two properties, one located in Orange, California and the other in the San Rafael submarket of San Francisco, California.

[2] During the third quarter of 2014, we stabilized a development property in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

[3] Estimated rentable square feet upon completion.

XML

Consolidated Statements of Equity (Unaudited) (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Stockholders' Equity [Abstract]
Dividends declared per common share	$ 0.35	$ 0.35	$ 1.05	$ 1.05

XML

Partners' Capital of the Operating Partnership (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
General Partners' Capital Account [Abstract]
Net proceeds from issuance of common stock	$ 22,136	$ 349,951
Noncontrolling Interest, Ownership Percentage by Parent	97.90%	97.80%	97.80%
Common units held by limited partners	1,804,200	1,821,503	1,805,200
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	2.10%	2.20%	2.20%
Kilroy Realty, L.P. [Member] | Capital Units [Member]
General Partners' Capital Account [Abstract]
General Partners' Capital Account, Units Outstanding	83,388,220	82,113,491	82,153,944

XML

Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net (Tables)

9 Months Ended

Sep. 30, 2014

Intangible Assets and Liabilities Disclosure [Abstract]

Summary of identified deferred leasing costs and acquisition-related intangible assets and liabilities

The following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-market ground lease obligation) as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Deferred Leasing Costs and Acquisition-Related Intangible Assets, net:
Deferred leasing costs	$	196,963		$	178,720
Accumulated amortization	(71,911		)	(63,246		)
Deferred leasing costs, net	125,052			115,474
Above-market operating leases	21,926			27,635
Accumulated amortization	(14,151		)	(14,283		)
Above-market operating leases, net	7,775			13,352
In-place leases	94,281			100,318
Accumulated amortization	(44,522		)	(42,999		)
In-place leases, net	49,759			57,319
Below-market ground lease obligation	490			490
Accumulated amortization	(19		)	(13		)
Below-market ground lease obligation, net	471			477
Total deferred leasing costs and acquisition-related intangible assets, net	$	183,057		$	186,622
Acquisition-Related Intangible Liabilities, net: (1)
Below-market operating leases	$	69,533		$	69,385
Accumulated amortization	(31,288		)	(25,706		)
Below-market operating leases, net	38,245			43,679
Above-market ground lease obligation	6,320			6,320
Accumulated amortization	(298		)	(223		)
Above-market ground lease obligation, net	6,022			6,097
Total acquisition-related intangible liabilities, net	$	44,267		$	49,776

_______________

(1) Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

Schedule Of Finite Lived Intangible Assets and Liabilities Amortization Expense

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles, including amounts attributable to discontinued operations, for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Deferred leasing costs (1)	$	7,132		$	6,945		$	20,683		$	20,882
Above-market operating leases (2)	1,305			1,417			4,230			4,214
In-place leases (1)	5,169			7,677			17,090			22,546
Below-market ground lease obligation (3)	2			2			6			6
Below-market operating leases (4)	(2,940		)	(3,355		)	(10,054		)	(10,229		)
Above-market ground lease obligation (5)	(26		)	(25		)	(76		)	(76		)
Total	$	10,642		$	12,661		$	31,879		$	37,343

_______________

(1) The amortization of deferred leasing costs related to lease incentives is recorded to rental income and other deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.

(2) The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

(3) The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.

(4) The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.

(5) The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

Schedule of Finite Lived Intangible Assets And Liabilities Future Amortization Expense

The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as of September 30, 2014 for future periods:

Year	Deferred Leasing Costs		Above-Market Operating Leases (1)		In-Place Leases		Below-Market Ground Lease Obligation (2)		Below-Market Operating Leases (3)			Above-Market Ground Lease Obligation (4)
	(in thousands)
Remaining 2014	$	6,936	$	993	$	4,274	$	2	$	(2,851	)	$	(26	)
2015	24,851		2,530		13,131		8		(9,567		)	(101		)
2016	22,045		1,503		10,080		8		(7,847		)	(101		)
2017	19,163		1,241		8,440		8		(6,780		)	(101		)
2018	15,748		831		5,532		8		(5,177		)	(101		)
Thereafter	36,309		677		8,302		437		(6,023		)	(5,592		)
Total	$	125,052	$	7,775	$	49,759	$	471	$	(38,245	)	$	(6,022	)

_______________

(1) Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

(2) Represents estimated annual amortization related to below-market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.

(3) Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

(4) Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

XML

Discontinued Operations (Details) (USD $)	3 Months Ended		9 Months Ended					9 Months Ended						12 Months Ended
	Sep. 30, 2014 sqft	Sep. 30, 2013	Sep. 30, 2014 sqft	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 San Diego Properties, San Diego [Member] building sqft		Sep. 30, 2014 10850 Via Frontera San Diego CA [Member]	Sep. 30, 2014 4040 Civic Center [Member] sqft building	Sep. 30, 2014 9785&9791 Towne Centre Drive, San Diego CA [Member] sqft building	Sep. 30, 2014 111 Pacifica [Member] [Member] sqft building	Sep. 30, 2014 2014 Dispositions [Member] sqft building	Sep. 30, 2014 999 Town &Country[Member] [Member] sqft building	Dec. 31, 2013 Restricted cash [Member]	Sep. 30, 2014 Properties Held for Sale [Member] building sqft
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Gain on sale of land (Note 13)	$ 0	$ 0	$ 3,490,000	$ 0
Dispositions Sales Price								33,100,000
Number of buildings						12	[1]		1	2	1	15	1		2	[2]
Proceeds from Sale of Real Estate Held-for-investment			368,381,000	14,409,000										32,200,000
Disposal Group, Including Discontinued Operation, Balance Sheet Disclosures [Abstract]
Disposal Group, Including Discontinued Operation, Land and improvements	18,077,000		18,077,000
Disposal Group, Including Discontinued Operation, Buildings and Improvements	31,530,000		31,530,000
Disposal Group, Including Discontinued Operation, Total real estate held-for-sale	49,607,000		49,607,000
Disposal Group, Including Discontinued Operation, Accumulated depreciation and amortization	5,046,000		5,046,000
Disposal Group, Including Discontinued Operation, Total real estate held for sale, net	44,561,000		44,561,000
Disposal Group, Including Discontinued Operation, Current receivables, net	56,000		56,000
Disposal Group, Including Discontinued Operation, Deferred rent receivables, net	1,241,000		1,241,000
Disposal Group, Including Discontinued Operation, Deferred leasing costs and acquisition-related intangible assets, net	3,754,000		3,754,000
Disposal Group, Including Discontinued Operation, Prepaid expenses and other assets, net	203,000		203,000
Disposal Group, Including Discontinued Operation, Real estate and other assets held for sale, net	49,815,000		49,815,000		213,100,000
Disposal Group, Including Discontinued Operation, Accounts payable, accrued expenses and other liabilities	944,000		944,000
Disposal Group, Including Discontinued Operation, Deferred revenue and acquisition-related intangible liabilities, net	1,733,000		1,733,000
Disposal Group, Including Discontinued Operation, Rents received in advance and tenant security deposits	422,000		422,000
Disposal Group, Including Discontinued Operations, Liabilities and deferred revenue of real estate assets held for sale	3,099,000		3,099,000		14,447,000
Disposal Group, Including Discontinued Operation, Income Statement Disclosures [Abstract]
Rental income	1,982,000	8,189,000	6,361,000	23,692,000
Tenant reimbursements	70,000	918,000	247,000	2,420,000
Other property income	6,000	5,151,000	26,000	5,159,000
Total revenues	2,058,000	14,258,000	6,634,000	31,271,000
Property expenses	705,000	2,673,000	1,952,000	5,753,000
Real estate taxes	196,000	891,000	628,000	2,626,000
Depreciation and amortization	609,000	4,846,000	1,963,000	11,693,000
Total expenses	1,510,000	8,410,000	4,543,000	20,072,000
Income from discontinued operations	548,000	5,848,000	2,091,000	11,199,000
Gains on dispositions of discontinued operations	5,587,000	0	110,391,000	423,000
Total income from discontinued operations	$ 6,135,000	$ 5,848,000	$ 112,482,000	$ 11,622,000
Net Rentable Area	79,000		79,000			1,049,035	[1]		130,237	126,000	67,496	1,242,531	98,551		228,788	[2]

[1] The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.

[2] Includes two properties, one located in Orange, California and the other in the San Rafael submarket of San Francisco, California.

XML

Stockholders' Equity of the Company

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Stockholders' Equity of the Company

Stockholders’ Equity of the Company

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in July 2011, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $200.0 million from time to time in “at-the-market” offerings. There were no sales of our common stock under our at-the-market offering program for the three months ended September 30, 2014. The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the nine months ended September 30, 2014:

	Nine months  ended September 30, 2014
	(in millions, except share and per share data)
Shares of common stock sold during the year	370,700
Weighted average price per common share	$	61.01
Aggregate gross proceeds	$	22.6
Aggregate net proceeds after sales agent compensation	$	22.3

The proceeds from the sales were used to fund acquisitions and development and redevelopment expenditures and for general corporate purposes. Since commencement of the program, we have sold 2,553,961 shares of common stock having an aggregate gross sales price of $127.9 million. As of September 30, 2014, shares of common stock having an aggregate gross sales price of up to $72.1 million remain available to be sold under this program. Actual future sales will depend upon a variety of factors, including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

XML

Receivables (Tables)

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Current receivables	$	8,626		$	12,866
Allowance for uncollectible tenant receivables	(2,183		)	(2,123		)
Current receivables, net	$	6,443		$	10,743

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Deferred rent receivables	$	141,899		$	129,198
Allowance for deferred rent receivables	(1,989		)	(2,075		)
Deferred rent receivables, net	$	139,910		$	127,123

______________

(1) Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

XML

Share-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-Based Compensation

Stockholder Approved Equity Compensation Plans

As of September 30, 2014, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the “2006 Plan”). As of March 31, 2014, no shares were available for grant under the 2006 Plan. At our Annual Meeting of Stockholders, on May 22, 2014, stockholders approved an amendment of the 2006 Plan, which included an increase in the share limit to 7,120,000 shares. As of September 30, 2014, 728,865 shares were available for grant under the amended 2006 Plan.

2014 Share-Based Compensation Grants

On January 29, 2014, the Executive Compensation Committee of the Company’s Board of Directors awarded to certain officers of the Company under the 2006 Plan of 236,604 restricted stock units (“RSUs”), 119,098 RSUs that are subject to market and performance-based vesting requirements (the “2014 Performance-Based RSU Grant”) and 117,506 RSUs that are subject to time-based vesting requirements (the “2014 Time-Based RSU Grant”). As of the RSU grant date, an insufficient number of shares were available under the 2006 Plan to settle these RSUs in stock and the RSUs were subject to liability accounting. As discussed above, on May 22, 2014 we received stockholder approval for an increase to our share limit which resulted in a sufficient number of shares authorized by our stockholders for issuance under the 2006 Plan to cover settlement of these awards. As a result, as of May 22, 2014 given we have the ability to deliver shares to settle the RSUs, we reclassified these awards as equity awards and re-measured the fair value of the awards as of that date.

2014 Performance-Based RSU Grant

The 2014 Performance-Based RSUs are scheduled to vest at the end of a three year period based upon the achievement of pre-established levels of FFO per share (the “performance condition”) for the year ended December 31, 2014 and also based upon the average annual relative total stockholder return targets (the “market condition”) for the three year period ending December 31, 2016. The 2014 Performance-Based RSUs are also subject to a three-year service vesting provision and will cliff vest at the end of the three-year period. The number of 2014 Performance-Based RSUs ultimately earned, and therefore the compensation costs for these awards, could fluctuate from the 119,098 RSUs granted based upon the levels of achievement for both the FFO and relative stockholder return metrics. During the 2014 performance period, the estimate of the number of awards earned were evaluated quarterly based on our forecasted level of achievement of the FFO hurdle. Compensation expense for the 2014 Performance-Based RSU Grant will be recorded on a straight-line basis over the three year period.

Each 2014 Performance-Based RSU represents the right to receive one share of our common stock in the future. As of March 31, 2014, we recorded compensation expense for the award based upon the fair value at period end of $63.44, as we had an insufficient number of shares available for issuance under the 2006 Plan at that time. As discussed above, upon stockholder approval of the amended 2006 Plan on May 22, 2014, we were required to re-measure the fair value of the 2014 Performance-Based RSU Grant and record compensation expense based on the fair value at that date for the cumulative portion of the performance period that had elapsed. The total fair value of the 2014 Performance-Based RSU Grant was $7.7 million at May 22, 2014 and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The determination of the fair value of the 2014 Performance-Based RSU Grant takes into consideration the likelihood of achievement of both the performance condition and the market condition discussed above. For the nine months ended September 30, 2014, we recorded compensation expense based upon the $65.03 fair value at May 22, 2014. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:

	Fair Value Assumptions
Fair value per share at May 22, 2014	$65.03
Expected share price volatility	24.00%
Risk-free interest rate	0.61%
Remaining expected life	2.6

The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately five years as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate two and a half year remaining performance period of the RSUs and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at May 22, 2014. The expected dividend yield is estimated by examining

the average of the historical dividend yield levels over the remaining 2.6 year term of the RSUs and our current annualized dividend yield as of May 22, 2014. The expected life of the RSUs is equal to the remaining 2.6 year vesting period at May 22, 2014.

2014 Time-Based RSU Grant

The 2014 Time-Based RSUs are scheduled to vest in four equal installments beginning on January 5, 2015 through January 5, 2018. Compensation expense for the 2014 Time-Based RSUs will be recognized on a straight-line basis over the four year service vesting period. Each 2014 Time-Based RSUs represents the right to receive one share of our common stock in the future. As of March 31, 2014, we recorded compensation expense for the award based upon the fair value at period end of $51.64, because at that time an insufficient number of shares were available for issuance under the 2006 Plan. As discussed above, upon stockholder approval of the amended 2006 Plan on May 22, 2014, we were required to re-measure the fair value of the 2014 Time-Based RSU Grant and record compensation expense based on the fair value at that date, for the cumulative portion of the performance period that had elapsed. The total fair value was $7.1 million, which was based on the $60.16 closing share price of the Company’s common stock on the NYSE on May 22, 2014.

Share-Based Award Activity

During the nine months ended September 30, 2014, 482,000 non-qualified stock options were exercised and issued at an exercise price per share equal to $42.61. The total shares exercised include 22,162 common shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements and exercise price related to the non-qualified stock options exercised. We accept the return of shares at the current quoted closing share price of the Company’s common stock to satisfy tax obligations and cover the exercise price.

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $4.0 million and $2.5 million for the three months ended September 30, 2014 and 2013, respectively, and $10.3 million and $7.2 million for the nine months ended September 30, 2014 and 2013, respectively. Of the total share-based compensation costs, $0.6 million and $0.2 million was capitalized as part of real estate assets for the three months ended September 30, 2014 and 2013, respectively, and $1.5 million and $0.6 million was capitalized as part of real estate assets for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was approximately $34.4 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that is expected to be recognized over a weighted-average period of 2.8 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2014.

XML

Subsequent Events (Details) (USD $)	9 Months Ended		0 Months Ended		1 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Oct. 15, 2014 Subsequent Event [Member]	Oct. 03, 2014 Subsequent Event [Member]	Oct. 23, 2014 Subsequent Event [Member] SFFGA [Member]
Subsequent Event [Line Items]
purchase price, cash paid to acquire land					$ 5,400,000
Average price per common shares sold				$ 59.38
purchase price, value of shares issued to acquire land					21,600,000
Common Stock, Shares, Issued				217,042	351,476
Aggregate dividends, distributions, and dividend equivalents paid to common stockholders and common unitholders	88,540,000	82,152,000	30,300,000
purchase price, land acquisition					$ 27,000,000

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 152,378	$ 21,518
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	148,878	148,982
Increase in provision for bad debts	58	196
Depreciation of furniture, fixtures and equipment	1,731	1,363
Noncash amortization of share-based compensation awards	8,817	6,454
Noncash amortization of deferred financing costs and debt discounts and premiums	3,563	4,047
Noncash amortization of net below market rents (Note 3)	(6,216)	(6,015)
Gains on dispositions of discontinued operations (Note 13)	(110,391)	(423)
Gain on sale of land (Note 13)	(3,490)	0
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,695)	(7,585)
Straight-line rents	(15,245)	(18,188)
Net change in other operating assets	(795)	(6,435)
Net change in other operating liabilities	25,671	42,844
Insurance proceeds received for property damage	0	(448)
Net cash provided by operating activities	197,264	186,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(106,125)	(202,682)
Expenditures for operating properties	(93,977)	(83,991)
Expenditures for development and redevelopment properties and undeveloped land	(292,803)	(222,192)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(97,727)	(13,269)
Net proceeds received from dispositions of operating properties and land (Note 13)	368,381	14,409
Insurance proceeds received from property damage	0	448
Decrease (increase) in acquisition-related deposits	1,000	(4,000)
Decrease in restricted cash (Notes 1 and 13)	32,293	229,613
Net cash used in investing activities	(188,958)	(281,664)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock (Note 7)	22,136	349,951
Borrowings on unsecured line of credit	365,000	10,000
Repayments on unsecured line of credit	(410,000)	(195,000)
Principal payments on secured debt	(7,315)	(91,298)
Proceeds from the issuance of unsecured debt (Note 5)	395,528	299,901
Repayments of unsecured debt (Note 5)	(83,000)	0
Repayments for early redemption of exchangeable senior notes (Note 5)	37,092	0
Financing costs	(8,043)	(3,975)
Repurchase of common stock and restricted stock units	(2,861)	(1,813)
Proceeds from exercise of stock options (Note 9)	20,537	128
Contributions from noncontrolling interests in consolidated subsidiary	336	0
Dividends and distributions paid to common stockholders and common unitholders	(88,540)	(82,152)
Dividends and distributions paid to preferred stockholders and preferred unitholders	(9,938)	(9,938)
Net cash provided by financing activities	156,748	275,804
Net increase in cash and cash equivalents	165,054	180,450
Cash and cash equivalents, beginning of period	35,377	16,700
Cash and cash equivalents, end of period	200,431	197,150
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $33,533 and $23,573 as of September 30, 2014 and 2013, respectively	42,633	47,107
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	92,693	79,866
Tenant improvements funded directly by tenants	23,069	5,750
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net	2,300	422
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary	0	4,885
Assumption of secured debt in connection with property acquisitions	0	95,496
NONCASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders	30,258	29,378
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders	1,656	1,692
Fair value of share-based compensation awards at equity classification date (Note 9)	18,111	10,347
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$ 28	$ 0

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Carrying amounts of consolidated VIE	$ 98,121,000	$ 234,532,000
Common stock, par value	$ 0.01
Common Stock [Member]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	83,388,220	82,153,944
Common stock, shares outstanding	83,388,220	82,153,944
Preferred Stock [Member]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	30,000,000	30,000,000
Series G Cumulative Redeemable Preferred Stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock dividend rate percentage	6.875%	6.875%
Preferred stock, shares authorized	4,600,000	4,600,000
Preferred stock, shares issued	4,000,000	4,000,000
Preferred stock, shares outstanding	4,000,000	4,000,000
Preferred Stock Liquidation preference	100,000,000	100,000,000
Series H Cumulative Redeemable Preferred Stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock dividend rate percentage	6.375%	6.375%
Preferred stock, shares authorized	4,000,000	4,000,000
Preferred stock, shares issued	4,000,000	4,000,000
Preferred stock, shares outstanding	4,000,000	4,000,000
Preferred Stock Liquidation preference	$ 100,000,000	$ 100,000,000

XML

Acquisitions

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Acquisitions

Acquisitions

Operating Properties

During the nine months ended September 30, 2014, we acquired the one operating office property listed below, from an unrelated third party. The acquisition was funded with proceeds from 2013 and 2014 dispositions (see Note 13).

Property	Date of Acquisition	Number of Buildings	Rentable Square Feet	Occupancy as of September 30, 2014	Purchase Price (in millions)
401 Terry Avenue North, Seattle, WA	March 13, 2014	1	140,605	100.0%	$	106.1

The related assets, liabilities and results of operations of the acquired property are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the acquisition date:

	Total 2014 Acquisitions
	(in thousands)
Assets
Land and improvements	$	22,500
Buildings and improvements (1)	77,046
Deferred leasing costs and acquisition-related intangible assets (2)	11,199
Total assets acquired	110,745
Liabilities
Deferred revenue and acquisition-related intangible liabilities (3)	4,620
Total liabilities assumed	4,620
Net assets and liabilities acquired	$	106,125

_______________

(1) Represents buildings, building improvements and tenant improvements.

(2) Represents in-place leases of approximately $9.3 million (with a weighted average amortization period of seven years) and leasing commissions of approximately $1.9 million (with a weighted average amortization period of seven years) at the time of the acquisition.

(3) Represents below-market leases of approximately $4.6 million (with a weighted average amortization period of seven years).

Development Project Sites

During the nine months ended September 30, 2014, we acquired one undeveloped land site listed below from an unrelated third party. The acquisition was funded with proceeds from the Company’s at-the-market stock offering program (see Note 7) and disposition proceeds (see Note 13).

Project	Date of Acquisition	Type	Purchase Price (in millions)
Kilroy Mission Bay, San Francisco, CA (1)	May 23, 2014	Land	$	95.0

_______________

(1) In connection with this acquisition, we also assumed $2.3 million in accrued liabilities which are not included in the purchase price above. As of September 30, 2014, the purchase price and assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 24, 2014
Entity Registrant Name	KILROY REALTY CORP
Entity Central Index Key	0001025996
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		83,956,738
Kilroy Realty, L.P. [Member]
Entity Registrant Name	Kilroy Realty, L.P.
Entity Central Index Key	0001493976
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net

9 Months Ended

Sep. 30, 2014

Intangible Assets and Liabilities Disclosure [Abstract]

deferred Leasing Costs and Acquisition-Related Intangible Assets and Liabilities, net

    Deferred Leasing Costs and Acquisition-Related Intangible Assets and Liabilities, net

The following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-market ground lease obligation) as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Deferred Leasing Costs and Acquisition-Related Intangible Assets, net:
Deferred leasing costs	$	196,963		$	178,720
Accumulated amortization	(71,911		)	(63,246		)
Deferred leasing costs, net	125,052			115,474
Above-market operating leases	21,926			27,635
Accumulated amortization	(14,151		)	(14,283		)
Above-market operating leases, net	7,775			13,352
In-place leases	94,281			100,318
Accumulated amortization	(44,522		)	(42,999		)
In-place leases, net	49,759			57,319
Below-market ground lease obligation	490			490
Accumulated amortization	(19		)	(13		)
Below-market ground lease obligation, net	471			477
Total deferred leasing costs and acquisition-related intangible assets, net	$	183,057		$	186,622
Acquisition-Related Intangible Liabilities, net: (1)
Below-market operating leases	$	69,533		$	69,385
Accumulated amortization	(31,288		)	(25,706		)
Below-market operating leases, net	38,245			43,679
Above-market ground lease obligation	6,320			6,320
Accumulated amortization	(298		)	(223		)
Above-market ground lease obligation, net	6,022			6,097
Total acquisition-related intangible liabilities, net	$	44,267		$	49,776

_______________

(1) Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles, including amounts attributable to discontinued operations, for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Deferred leasing costs (1)	$	7,132		$	6,945		$	20,683		$	20,882
Above-market operating leases (2)	1,305			1,417			4,230			4,214
In-place leases (1)	5,169			7,677			17,090			22,546
Below-market ground lease obligation (3)	2			2			6			6
Below-market operating leases (4)	(2,940		)	(3,355		)	(10,054		)	(10,229		)
Above-market ground lease obligation (5)	(26		)	(25		)	(76		)	(76		)
Total	$	10,642		$	12,661		$	31,879		$	37,343

_______________

(1) The amortization of deferred leasing costs related to lease incentives is recorded to rental income and other deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.

(2) The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

(3) The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.

(4) The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.

(5) The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as of September 30, 2014 for future periods:

Year	Deferred Leasing Costs		Above-Market Operating Leases (1)		In-Place Leases		Below-Market Ground Lease Obligation (2)		Below-Market Operating Leases (3)			Above-Market Ground Lease Obligation (4)
	(in thousands)
Remaining 2014	$	6,936	$	993	$	4,274	$	2	$	(2,851	)	$	(26	)
2015	24,851		2,530		13,131		8		(9,567		)	(101		)
2016	22,045		1,503		10,080		8		(7,847		)	(101		)
2017	19,163		1,241		8,440		8		(6,780		)	(101		)
2018	15,748		831		5,532		8		(5,177		)	(101		)
Thereafter	36,309		677		8,302		437		(6,023		)	(5,592		)
Total	$	125,052	$	7,775	$	49,759	$	471	$	(38,245	)	$	(6,022	)

_______________

(1) Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

(2) Represents estimated annual amortization related to below-market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.

(3) Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

(4) Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

XML

Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
REVENUES:
Rental income	$ 115,221	$ 103,354	$ 338,911	$ 303,573
Tenant reimbursements	11,346	9,583	33,399	28,350
Other property income (Note 12)	2,457	608	7,650	6,584
Total revenues	129,024	113,545	379,960	338,507
EXPENSES
Property expenses	25,801	24,470	75,448	69,895
Real estate taxes	11,008	10,088	32,728	29,129
Provision for bad debts	58	101	58	196
Ground leases	771	929	2,306	2,665
General and administrative expenses	11,138	10,226	33,806	29,750
Acquisition-related expenses	431	568	1,268	1,387
Depreciation and amortization	50,032	45,804	148,647	138,652
Total expenses	99,239	92,186	294,261	271,674
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains/(losses) (Note 11)	(9)	673	587	1,084
Interest expense (Note 5)	(16,608)	(18,853)	(49,880)	(58,021)
Total other (expenses) income	(16,617)	(18,180)	(49,293)	(56,937)
INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND	13,168	3,179	36,406	9,896
Gain on sale of land (Note 13)	0	0	3,490	0
INCOME FROM CONTINUING OPERATIONS	13,168	3,179	39,896	9,896
DISCONTINUED OPERATIONS (Note 13)
Income from discontinued operations	548	5,848	2,091	11,199
Gains on dispositions of discontinued operations	5,587	0	110,391	423
Total income from discontinued operations	6,135	5,848	112,482	11,622
NET INCOME	19,303	9,027	152,378	21,518
Net income attributable to noncontrolling common units of the Operating Partnership	(321)	(131)	(3,011)	(266)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	18,982	8,896	149,367	21,252
PREFERRED DIVIDENDS	(3,313)	(3,312)	(9,938)	(9,938)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$ 15,669	$ 5,584	$ 139,429	$ 11,314
Income (loss) from continuing operations available to common stockholders per common share – basic (Note 14)	$ 0.11	$ 0.00	$ 0.34	$ (0.02)
Income (loss) from continuing operations available to common stockholders per common share – diluted (Note 14)	$ 0.11	$ 0.00	$ 0.33	$ (0.02)
Net income available to common stockholders per share – basic (Note 14)	$ 0.18	$ 0.07	$ 1.67	$ 0.13
Net income available to common stockholders per share – diluted (Note 14)	$ 0.18	$ 0.07	$ 1.63	$ 0.13
Weighted average common shares outstanding – basic (Note 14)	83,161,323	76,768,893	82,525,033	75,750,822
Weighted average common shares outstanding – diluted (Note 14)	85,110,456	76,768,893	84,622,622	75,750,822
Dividends declared per common share	$ 0.35	$ 0.35	$ 1.05	$ 1.05

XML

Consolidated Statements of Capital (KILROY REALTY, L.P.) (Kilroy Realty, L.P. [Member], USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended										9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Total Partners Capital [Member]	Sep. 30, 2013 Total Partners Capital [Member]	Sep. 30, 2014 Noncontrolling Interest [Member]	Sep. 30, 2013 Noncontrolling Interest [Member]	Sep. 30, 2014 Partners Capital Preferred Units [Member]	Dec. 31, 2013 Partners Capital Preferred Units [Member]	Sep. 30, 2013 Partners Capital Preferred Units [Member]	Dec. 31, 2012 Partners Capital Preferred Units [Member]	Sep. 30, 2014 Partners Capital Common Unit [Member]	Sep. 30, 2013 Partners Capital Common Unit [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	$ 2,516,160	$ 2,235,933	$ 2,507,772	$ 2,232,654	$ 8,388	$ 3,279	$ 192,411	$ 192,411	$ 192,411	$ 192,411	$ 2,315,361	$ 2,040,243
Beginning Balance units											83,959,144	76,753,484
Net income	152,378	21,518	152,177	21,340	201	178					152,177	21,340
Issuance of common units, units											370,700	7,210,838
Issuance of common units	22,136	349,951	22,136	349,951							22,136	349,951
Issuance of share-based compensation awards, units												0
Issuance of share-based compensation awards	1,281	1,075	1,281	1,075							1,281	1,075
Noncash amortization of share-based compensation	10,345	7,096	10,345	7,096							10,345	7,096
Repurchase of common units and restricted stock units, units											(48,017)	(34,164)
Repurchase of common units and restricted stock units	(2,861)	(1,803)	(2,861)	(1,803)							(2,861)	(1,803)
Settlement of restricted stock units, units											108,529	4,363
Settlement of restricted stock units for shares of common stock	0	(10)	0	(10)							0	(10)
Common units issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5), units											431,270
Common units issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5)	223		223								223
Common units received in connection with capped call option transactions (Note 5), units											(111,206)
Common units received in connection with capped call option transactions (Note 5)	0		0
Exercise of stock options, net, units											482,000	473
Exercise of stock options, net	20,537	128	20,537	128							20,537	128
Contribution by noncontrolling interest in consolidated subsidiary	336	4,885			336	4,885
Preferred distributions	(9,938)	(9,938)	(9,938)	(9,938)							(9,938)	(9,938)
Distributions declared per common unit ($1.05 per unit)	(90,228)	(84,741)	(90,228)	(84,741)							(90,228)	(84,741)
Ending Balance	$ 2,620,369	$ 2,524,094	$ 2,611,444	$ 2,515,752	$ 8,925	$ 8,342	$ 192,411	$ 192,411	$ 192,411	$ 192,411	$ 2,419,033	$ 2,323,341
Ending Balance units											85,192,420	83,934,994

XML

Consolidated Statements of Operations (KILROY REALTY, L.P.) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
REVENUES:
Rental income	$ 115,221	$ 103,354	$ 338,911	$ 303,573
Tenant reimbursements	11,346	9,583	33,399	28,350
Other property income (Note 12)	2,457	608	7,650	6,584
Total revenues	129,024	113,545	379,960	338,507
EXPENSES
Property expenses	25,801	24,470	75,448	69,895
Real estate taxes	11,008	10,088	32,728	29,129
Provision for bad debts	58	101	58	196
Ground leases	771	929	2,306	2,665
General and administrative expenses	11,138	10,226	33,806	29,750
Acquisition-related expenses	431	568	1,268	1,387
Depreciation and amortization	50,032	45,804	148,647	138,652
Total expenses	99,239	92,186	294,261	271,674
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains/(losses) (Note 11)	(9)	673	587	1,084
Interest expense (Note 5)	(16,608)	(18,853)	(49,880)	(58,021)
Total other (expenses) income	(16,617)	(18,180)	(49,293)	(56,937)
INCOME FROM CONTINUING OPERATIONS	13,168	3,179	39,896	9,896
DISCONTINUED OPERATIONS (Note 13)
Income from discontinued operations	548	5,848	2,091	11,199
Gains on dispositions of discontinued operations	5,587	0	110,391	423
Total income from discontinued operations	6,135	5,848	112,482	11,622
NET INCOME	19,303	9,027	152,378	21,518
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	18,982	8,896	149,367	21,252
NET INCOME AVAILABLE TO COMMON UNITHOLDERS	15,669	5,584	139,429	11,314
Income (loss) from continuing operations available to common unitholders per unit - basic (Note 15)	$ 0.11	$ 0.00	$ 0.34	$ (0.02)
Income (loss) from continuing operations available to common unitholders per unit - diluted (Note 15)	$ 0.11	$ 0.00	$ 0.33	$ (0.02)
Net income available to common unitholders per unit-basic (Note 15)	$ 0.18	$ 0.07	$ 1.67	$ 0.13
Net income available to common unitholders per unit-diluted (Note 15)	$ 0.18	$ 0.07	$ 1.63	$ 0.13
Weighted average common units outstanding - basic (Note 15)	83,161,323	76,768,893	82,525,033	75,750,822
Weighted average common units outstanding - diluted (Note 15)	85,110,456	76,768,893	84,622,622	75,750,822
Kilroy Realty, L.P. [Member]
REVENUES:
Rental income	115,221	103,354	338,911	303,573
Tenant reimbursements	11,346	9,583	33,399	28,350
Other property income (Note 12)	2,457	608	7,650	6,584
Total revenues	129,024	113,545	379,960	338,507
EXPENSES
Property expenses	25,801	24,470	75,448	69,895
Real estate taxes	11,008	10,088	32,728	29,129
Provision for bad debts	58	101	58	196
Ground leases	771	929	2,306	2,665
General and administrative expenses	11,138	10,226	33,806	29,750
Acquisition-related expenses	431	568	1,268	1,387
Depreciation and amortization	50,032	45,804	148,647	138,652
Total expenses	99,239	92,186	294,261	271,674
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains/(losses) (Note 11)	(9)	673	587	1,084
Interest expense (Note 5)	(16,608)	(18,853)	(49,880)	(58,021)
Total other (expenses) income	(16,617)	(18,180)	(49,293)	(56,937)
INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND	13,168	3,179	36,406	9,896
Gain on sale of land (Note 13)	0	0	3,490	0
INCOME FROM CONTINUING OPERATIONS	13,168	3,179	39,896	9,896
DISCONTINUED OPERATIONS (Note 13)
Income from discontinued operations	548	5,848	2,091	11,199
Gains on dispositions of discontinued operations	5,587	0	110,391	423
Total income from discontinued operations	6,135	5,848	112,482	11,622
NET INCOME	19,303	9,027	152,378	21,518
Net income attributable to noncontrolling interests in consolidated subsidiaries	(59)	(47)	(201)	(178)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	19,244	8,980	152,177	21,340
Preferred Distributions	(3,313)	(3,312)	(9,938)	(9,938)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS	$ 15,931	$ 5,668	$ 142,239	$ 11,402
Income (loss) from continuing operations available to common unitholders per unit - basic (Note 15)	$ 0.11	$ 0.00	$ 0.34	$ (0.02)
Income (loss) from continuing operations available to common unitholders per unit - diluted (Note 15)	$ 0.11	$ 0.00	$ 0.33	$ (0.02)
Net income available to common unitholders per unit-basic (Note 15)	$ 0.18	$ 0.07	$ 1.67	$ 0.13
Net income available to common unitholders per unit-diluted (Note 15)	$ 0.18	$ 0.07	$ 1.63	$ 0.13
Weighted average common units outstanding - basic (Note 15)	84,965,523	78,590,396	84,329,317	77,574,907
Weighted average common units outstanding - diluted (Note 15)	86,914,656	78,590,396	86,426,906	77,574,907
Dividends declared per common unit	$ 0.35	$ 0.35	$ 1.05	$ 1.05

XML

Partners' Capital of the Operating Partnership

9 Months Ended

Sep. 30, 2014

Partners' Capital Notes [Abstract]

Common Units of the Operating Partnership

Partners’ Capital of the Operating Partnership

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

	September 30, 2014		December 31, 2013		September 30, 2013
Company owned common units in the Operating Partnership	83,388,220		82,153,944		82,113,491
Company owned general partnership interest	97.9	%	97.8	%	97.8	%
Noncontrolling common units of the Operating Partnership	1,804,200		1,805,200		1,821,503
Ownership interest of noncontrolling interest	2.1	%	2.2	%	2.2	%

For a further discussion of the noncontrolling common units as of September 30, 2014 and December 31, 2013, refer to Note 6.

XML

Receivables

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

Receivables

Receivables

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Current receivables	$	8,626		$	12,866
Allowance for uncollectible tenant receivables	(2,183		)	(2,123		)
Current receivables, net	$	6,443		$	10,743

______________

(1) Excludes current receivables, net related to properties held for sale at September 30, 2014.

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of September 30, 2014 and December 31, 2013:

	September 30, 2014 (1)			December 31, 2013
	(in thousands)
Deferred rent receivables	$	141,899		$	129,198
Allowance for deferred rent receivables	(1,989		)	(2,075		)
Deferred rent receivables, net	$	139,910		$	127,123

______________

(1) Excludes deferred rent receivables, net related to properties held for sale at September 30, 2014.

XML

Consolidated Statements of Cash Fiows (Kilroy Realty, L.P.) (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash paid for interest - capitalized interest amount	$ 33,533	$ 23,573
Kilroy Realty, L.P. [Member]
Cash paid for interest - capitalized interest amount	$ 33,533	$ 23,573

XML

Share-Based Compensation (Details Textuals) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended				3 Months Ended	9 Months Ended				9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	May 22, 2014	Mar. 31, 2014	Mar. 31, 2014 Market Measure-Based Restricted Stock Units (RSUs) [Member]	Sep. 30, 2014 Market Measure-Based Restricted Stock Units (RSUs) [Member]	Sep. 30, 2014 Time-Based Restricted Stock Units (RSUs) [Member]	Sep. 30, 2014 Employee Stock Option [Member]	Sep. 30, 2014 Kilroy Realty 2006 Incentive Award Plan [Member]	Sep. 30, 2014 Common Stock [Member]	Sep. 30, 2013 Common Stock [Member]	Sep. 30, 2014 Common Stock [Member] Employee Stock Option [Member]	Sep. 30, 2014 Shareholder Meeting Date May 22, 2014 [Domain]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common shares received in connection with capped call option transactions (Note 5)												111,206
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Requested															7,120,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price										$ 42.61
Shares Paid for Tax Withholding for Share Based Compensation												48,017	34,164	22,162
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant											728,865
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value							$ 63.44	$ 65.03
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate								24.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate								0.61%
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			236,604					119,098	117,506
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term								2 years 7 months
Share Price					$ 60.16	$ 51.64
Exercise of stock options, net, shares												482,000	473
Share-based Compensation Arrangement By Share-based Payment Award, Equity Instruments Other Than Options, Grants In Period, Grant Date Fair Value								$ 7.7	$ 7.1
Share-based Compensation Capitalized	0.6	0.2	1.5	0.6
Share-based Compensation, Unrecognized costs	34.4		34.4
Share-based Compensation, Unrecognized costs, weighted-average vesting period			2 years 9 months
Allocated Share-based Compensation Expense	$ 4.0	$ 2.5	$ 10.3	$ 7.2

XML

Consolidated Statements of Capital (KILROY REALTY, L.P.) (Parenthetical) (Kilroy Realty, L.P. [Member], USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Kilroy Realty, L.P. [Member]
Distributions Per Limited Partnership and General Partnership Unit, Outstanding, Basic	$ 0.35	$ 0.35	$ 1.05	$ 1.05

XML

Consolidated Statements of Cash Flows (KILROY REALTY, L.P.) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 152,378	$ 21,518
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	148,878	148,982
Increase in provision for bad debts	58	196
Depreciation of furniture, fixtures and equipment	1,731	1,363
Noncash amortization of share-based compensation awards	8,817	6,454
Noncash amortization of deferred financing costs and debt discounts and premiums	3,563	4,047
Noncash amortization of net below market rents (Note 3)	(6,216)	(6,015)
Gains on dispositions of discontinued operations (Note 13)	(110,391)	(423)
Gain on sale of land (Note 13)	(3,490)	0
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,695)	(7,585)
Straight-line rents	(15,245)	(18,188)
Net change in other operating assets	(795)	(6,435)
Net change in other operating liabilities	25,671	42,844
Insurance proceeds received for property damage	0	(448)
Net cash provided by operating activities	197,264	186,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(106,125)	(202,682)
Expenditures for operating properties	(93,977)	(83,991)
Expenditures for development and redevelopment properties and undeveloped land	(292,803)	(222,192)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(97,727)	(13,269)
Net proceeds received from dispositions of operating properties and land (Note 13)	368,381	14,409
Insurance proceeds received from property damage	0	448
Decrease (increase) in acquisition-related deposits	1,000	(4,000)
Decrease in restricted cash (Notes 1 and 13)	32,293	229,613
Net cash used in investing activities	(188,958)	(281,664)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on unsecured line of credit	365,000	10,000
Repayments on unsecured line of credit	(410,000)	(195,000)
Principal payments on secured debt	(7,315)	(91,298)
Proceeds from issuance of unsecured debt (Note 5)	395,528	299,901
Repayments of unsecured debt (Note 5)	(83,000)	0
Repayments for early redemption of exchangeable senior notes (Note 5)	37,092	0
Financing costs	(8,043)	(3,975)
Repurchase of common stock and restricted stock units	(2,861)	(1,813)
Proceeds from exercise of stock options (Note 9)	20,537	128
Contributions from noncontrolling interests in consolidated subsidiary	336	0
Distributions paid to common unitholders	(88,540)	(82,152)
Distributions paid to preferred unitholders	(9,938)	(9,938)
Net cash provided by financing activities	156,748	275,804
Net increase in cash and cash equivalents	165,054	180,450
Cash and cash equivalents, beginning of period	35,377	16,700
Cash and cash equivalents, end of period	200,431	197,150
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $33,533 and $23,573 as of September 30, 2014 and 2013, respectively	42,633	47,107
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	92,693	79,866
Tenant improvements funded directly by tenants	23,069	5,750
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net	2,300	422
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary	0	4,885
Assumption of secured debt in connection with property acquisitions	0	95,496
NONCASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders	30,258	29,378
Accrual of distributions payable to preferred unitholders	1,656	1,692
Fair value of share-based compensation awards at equity classification date (Note 9)	18,111	10,347
Kilroy Realty, L.P. [Member]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	152,378	21,518
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	148,878	148,982
Increase in provision for bad debts	58	196
Depreciation of furniture, fixtures and equipment	1,731	1,363
Noncash amortization of share-based compensation awards	8,817	6,454
Noncash amortization of deferred financing costs and debt discounts and premiums	3,563	4,047
Noncash amortization of net below market rents (Note 3)	(6,216)	(6,015)
Gains on dispositions of discontinued operations (Note 13)	(110,391)	(423)
Gain on sale of land (Note 13)	(3,490)	0
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,695)	(7,585)
Straight-line rents	(15,245)	(18,188)
Net change in other operating assets	(795)	(6,435)
Net change in other operating liabilities	25,671	42,844
Insurance proceeds received for property damage	0	(448)
Net cash provided by operating activities	197,264	186,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(106,125)	(202,682)
Expenditures for operating properties	(93,977)	(83,991)
Expenditures for development and redevelopment properties and undeveloped land	(292,803)	(222,192)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(97,727)	(13,269)
Net proceeds received from dispositions of operating properties and land (Note 13)	368,381	14,409
Insurance proceeds received from property damage	0	448
Decrease (increase) in acquisition-related deposits	1,000	(4,000)
Decrease in restricted cash (Notes 1 and 13)	32,293	229,613
Net cash used in investing activities	(188,958)	(281,664)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common units (Note 8)	22,136	349,951
Borrowings on unsecured line of credit	365,000	10,000
Repayments on unsecured line of credit	(410,000)	(195,000)
Principal payments on secured debt	(7,315)	(91,298)
Proceeds from issuance of unsecured debt (Note 5)	395,528	299,901
Repayments of unsecured debt (Note 5)	(83,000)	0
Repayments for early redemption of exchangeable senior notes (Note 5)	37,092	0
Financing costs	(8,043)	(3,975)
Repurchase of common stock and restricted stock units	(2,861)	(1,813)
Proceeds from exercise of stock options (Note 9)	20,537	128
Contributions from noncontrolling interests in consolidated subsidiary	336	0
Distributions paid to common unitholders	(88,540)	(82,152)
Distributions paid to preferred unitholders	(9,938)	(9,938)
Net cash provided by financing activities	156,748	275,804
Net increase in cash and cash equivalents	165,054	180,450
Cash and cash equivalents, beginning of period	35,377	16,700
Cash and cash equivalents, end of period	200,431	197,150
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $33,533 and $23,573 as of September 30, 2014 and 2013, respectively	42,633	47,107
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	92,693	79,866
Tenant improvements funded directly by tenants	23,069	5,750
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net	2,300	422
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary	0	4,885
Assumption of secured debt in connection with property acquisitions	0	95,496
NONCASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders	30,258	29,378
Accrual of distributions payable to preferred unitholders	1,656	1,692
Fair value of share-based compensation awards at equity classification date (Note 9)	$ 18,111	$ 10,347

XML

Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

    Organization and Basis of Presentation

Organization

Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC.”

We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the “Operating Partnership”) and Kilroy Realty Finance Partnership, L.P. (the “Finance Partnership”). We generally conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicates otherwise, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees, and properties apply to both the Company and the Operating Partnership.

Our stabilized portfolio of operating properties was comprised of the following office properties at September 30, 2014:

	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage  Occupied
Stabilized Office Properties	105	13,486,006	526	94.1	%

Our stabilized portfolio includes all of our properties with the exception of real estate assets held for sale, undeveloped land, development and redevelopment properties currently under construction or committed for construction, and “lease-up” properties. As of September 30, 2014, our stabilized portfolio of operating properties excluded two properties that were classified as held for sale as of that date. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define “lease-up” properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. There were no operating properties in “lease-up” as of September 30, 2014. During the third quarter of 2014, we stabilized a development project in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

As of September 30, 2014, the following properties were excluded from our stabilized portfolio:

	Number of Properties/Projects	Estimated Rentable Square Feet
Properties Held for Sale (1)	2	228,788
Development projects under construction (2)(3)	5	2,000,000

_______________

(1) Includes two properties, one located in Orange, California and the other in the San Rafael submarket of San Francisco, California. For additional information see Note 13.

(2) Estimated rentable square feet upon completion.

(3) During the third quarter of 2014, we stabilized a development property in the Sunnyvale submarket of San Francisco, California consisting of three office buildings encompassing 587,429 square feet. As a result, this project is now included in our stabilized portfolio as of September 30, 2014.

As of September 30, 2014, all of our properties and development and redevelopment projects and all of our business was conducted in the state of California with the exception of thirteen office properties located in the state of Washington. All of our properties and development and redevelopment projects are 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary (see Note 6).

As of September 30, 2014, the Company owned a 97.9% common general partnership interest in the Operating Partnership. The remaining 2.1% common limited partnership interest in the Operating Partnership as of September 30, 2014 was owned by non-affiliated investors and certain of our executive officers and directors (see Note 6). Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement”) (see Note 6).

Kilroy Realty Finance, Inc., which is a wholly owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of the Operating Partnership, is the entity through which we generally conduct substantially all of our development activities. With the exception of the Operating Partnership and Redwood City Partners, LLC, all of our subsidiaries are wholly owned.

Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all of our wholly owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC, Redwood City Partners, LLC and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K/A for the year ended December 31, 2013.

Certain amounts in the consolidated statements of operations for prior periods have been reclassified to reflect the activity of discontinued operations.

Variable Interest Entities

At September 30, 2014, the consolidated financial statements of the Company and the Operating Partnership included one variable interest entity (“VIE”), in which we were deemed to be the primary beneficiary. The VIE, Redwood City Partners, LLC, was established in the second quarter of 2013 in connection with an undeveloped land acquisition. The impact of consolidating the VIE increased the Company’s total assets, liabilities and noncontrolling interests by approximately $98.5 million (of which $98.1 million related to real estate held for investment on our consolidated balance sheet), approximately $20.1 million and approximately $5.2 million, respectively, as of September 30, 2014. As of December 31, 2013, the consolidated financial statements of the Company and the Operating Partnership included four VIEs, in which we were deemed to be the primary beneficiary. One of the VIEs was Redwood City Partners, LLC and the remaining three VIEs were established during the third and fourth quarter of 2013 to facilitate potential Section 1031 Exchanges. During the three months ended March 31, 2014, the Section 1031 Exchanges were successfully completed and the three VIEs were terminated. As a result, $32.2 million of our restricted cash balance at December 31, 2013, which related to prior period disposition proceeds that were set aside to facilitate the Section 1031 Exchanges, was released from escrow. The impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests by approximately $251.8 million (of which $234.5 million related to real estate held for investment on our consolidated balance sheet), approximately $12.1 million and approximately $4.9 million, respectively, as of December 31, 2013.

Recent Accounting Pronouncements

On June 19, 2014, the Financial Accounting Standards Board (“FASB”) issued their final standard to amend the accounting guidance for stock compensation tied to performance targets (Accounting Standards Update (“ASU”) No. 2014-12). The issue is the result of a consensus of the FASB Emerging Issues Task Force (Issue No. 13-D). The standard requires that a performance target that could be achieved after the requisite service period be treated as a performance condition, and as a result, this type of performance condition may delay expense recognition until achievement of the performance target is probable. The ASU is effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015, and early adoption is permitted. The Company will adopt the guidance effective January 1, 2016 and the guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On May 28, 2014, the FASB issued their final standard on revenue from contracts with customers. The guidance specifically notes that lease contracts with customers are a scope exception. The standard (ASU No. 2014-09) outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The ASU is effective for annual reporting periods (including interim periods), beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt the guidance effective January 1, 2017 and is currently assessing the impact on our consolidated financial statements and notes to our consolidated financial statements.

On April 10, 2014, the FASB issued final guidance to change the criteria for reporting discontinued operations while enhancing disclosures in this area (ASU No. 2014-08). Under the new guidance, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should be presented as discontinued operations. The guidance will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The guidance is effective for annual financial statements with fiscal years beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. The Company will adopt the guidance effective January 1, 2015 and the guidance is not anticipated to have a material impact on our consolidated financial statements and notes to our consolidated financial statements.

XML

Other Significant Events (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014
Other Significant Noncash Transactions [Line Items]
Net Rentable Area	79,000	79,000
Lease termination fee, total contract amount	$ 5,700,000	$ 5,700,000
Lease Termination
Other Significant Noncash Transactions [Line Items]
Lease Termination Fee, amount recognized in the quarter	2,000,000	5,700,000
Amortization of Intangible Assets	$ 400,000	$ 1,300,000

XML

Net Income Available to Common Stockholders Per Share of the Company (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Numerator:
Income from continuing operations	$ 13,168		$ 3,179		$ 39,896		$ 9,896
(Income) Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	(193)		3		(635)		2
Preferred dividends	(3,313)		(3,312)		(9,938)		(9,938)
Allocation to participating securities	(432)	[1]	(450)	[1]	(1,285)	[1]	(1,292)	[1]
Numerator for basic and diluted income from continuing operations available to common stockholders	9,230		(580)		28,038		(1,332)
Income from discontinued operations	6,135		5,848		112,482		11,622
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(128)		(134)		(2,376)		(268)
Numerator for basic and diluted net income available to common stockholders	15,237		5,134		138,144		10,022
Denominator:
Weighted average common shares outstanding – basic (Note 14)	83,161,323		76,768,893		82,525,033		75,750,822
Effect of dilutive securities	1,949,133		0		2,097,589		0
Weighted average common shares outstanding-diluted	85,110,456		76,768,893		84,622,622		75,750,822
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per common share – basic (Note 14)	$ 0.11		$ 0.00		$ 0.34		$ (0.02)
Income from discontinued operations per common share	$ 0.07		$ 0.07		$ 1.33		$ 0.15
Net income available to common stockholders per share-basic	$ 0.18		$ 0.07		$ 1.67		$ 0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per common share – diluted (Note 14)	$ 0.11		$ 0.00		$ 0.33		$ (0.02)
Income from discontinued operations per common share	$ 0.07		$ 0.07		$ 1.30		$ 0.15
Net income available to common stockholders per share-diluted	$ 0.18		$ 0.07		$ 1.63		$ 0.13
Kilroy Realty, L.P. [Member]
Numerator:
Income from continuing operations	13,168		3,179		39,896		9,896
Preferred dividends	(3,313)		(3,312)		(9,938)		(9,938)
Allocation to participating securities	(432)	[1]	(450)	[1]	(1,285)	[1]	(1,292)	[1]
Numerator for basic and diluted income from continuing operations available to common stockholders	9,364		(630)		28,472		(1,512)
Income from discontinued operations	6,135		5,848		112,482		11,622
Numerator for basic and diluted net income available to common stockholders	$ 15,499		$ 5,218		$ 140,954		$ 10,110
Denominator:
Weighted average common shares outstanding – basic (Note 14)	84,965,523		78,590,396		84,329,317		77,574,907
Effect of dilutive securities	1,949,133		0		2,097,589		0
Weighted average common shares outstanding-diluted	86,914,656		78,590,396		86,426,906		77,574,907
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders per common share – basic (Note 14)	$ 0.11		$ 0.00		$ 0.34		$ (0.02)
Income from discontinued operations per common share	$ 0.07		$ 0.07		$ 1.33		$ 0.15
Net income available to common stockholders per share-basic	$ 0.18		$ 0.07		$ 1.67		$ 0.13
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders per common share – diluted (Note 14)	$ 0.11		$ 0.00		$ 0.33		$ (0.02)
Income from discontinued operations per common share	$ 0.07		$ 0.07		$ 1.30		$ 0.15
Net income available to common stockholders per share-diluted	$ 0.18		$ 0.07		$ 1.63		$ 0.13

[1] Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

XML

Fair Value Measurements and Disclosures (Details 1) (USD $)	Sep. 30, 2014		Dec. 31, 2013
Liabilities
Secured Debt	$ 549,896,000	[1]	$ 560,434,000	[1]
Exchangeable senior notes, net	135,049,000		168,372,000
Unsecured debt	1,743,962,000		1,431,132,000
Unsecured line of credit	0		45,000,000
Carrying Value
Liabilities
Secured Debt	549,896,000	[2]	560,434,000	[2]
Exchangeable senior notes, net	135,049,000	[2]	168,372,000	[2]
Unsecured debt	1,743,962,000	[3]	1,431,132,000	[3]
Unsecured line of credit	0	[2]	45,000,000	[2]
Carrying Value | Fair Value (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	474,700,000		557,700,000
Carrying Value | Unsecured Debt [Member] | Fair Value (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	1,269,200,000		873,500,000
Fair Value
Liabilities
Secured Debt	557,217,000	[2]	568,760,000	[2]
Exchangeable senior notes, net	135,770,000	[2]	178,190,000	[2]
Unsecured debt	1,825,725,000	[3]	1,523,052,000	[3]
Unsecured line of credit	0	[2]	45,012,000	[2]
Fair Value | Fair Value (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	500,600,000		593,700,000
Fair Value | Unsecured Debt [Member] | Fair Value (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	$ 1,325,000,000		$ 929,300,000

[1] Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

[2] Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

[3] Fair value calculated using Level I and Level II inputs. Level I inputs are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $1,269.2 million and $1,325.0 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level I instruments as of December 31, 2013, was $873.5 million and $929.3 million, respectively. The carrying value and fair value of the Level II instruments was $474.7 million and $500.6 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level II instruments as of December 31, 2013, was $557.7 million and $593.7 million, respectively.

XML

Acquisitions (Tables)

9 Months Ended

Sep. 30, 2014

Business Acquisition [Line Items]

Schedule of Significant Acquisitions

During the nine months ended September 30, 2014, we acquired one undeveloped land site listed below from an unrelated third party. The acquisition was funded with proceeds from the Company’s at-the-market stock offering program (see Note 7) and disposition proceeds (see Note 13).

Project	Date of Acquisition	Type	Purchase Price (in millions)
Kilroy Mission Bay, San Francisco, CA (1)	May 23, 2014	Land	$	95.0

_______________

(1) In connection with this acquisition, we also assumed $2.3 million in accrued liabilities which are not included in the purchase price above. As of September 30, 2014, the purchase price and assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets.

Office Properties Acquisitions [Member]

Business Acquisition [Line Items]

Acquired operating properties from unrelated third parties

During the nine months ended September 30, 2014, we acquired the one operating office property listed below, from an unrelated third party. The acquisition was funded with proceeds from 2013 and 2014 dispositions (see Note 13).

Property	Date of Acquisition	Number of Buildings	Rentable Square Feet	Occupancy as of September 30, 2014	Purchase Price (in millions)
401 Terry Avenue North, Seattle, WA	March 13, 2014	1	140,605	100.0%	$	106.1

Fair values of assets acquired and liabilities assumed

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the acquisition date:

	Total 2014 Acquisitions
	(in thousands)
Assets
Land and improvements	$	22,500
Buildings and improvements (1)	77,046
Deferred leasing costs and acquisition-related intangible assets (2)	11,199
Total assets acquired	110,745
Liabilities
Deferred revenue and acquisition-related intangible liabilities (3)	4,620
Total liabilities assumed	4,620
Net assets and liabilities acquired	$	106,125

_______________

(1) Represents buildings, building improvements and tenant improvements.

(2) Represents in-place leases of approximately $9.3 million (with a weighted average amortization period of seven years) and leasing commissions of approximately $1.9 million (with a weighted average amortization period of seven years) at the time of the acquisition.

(3) Represents below-market leases of approximately $4.6 million (with a weighted average amortization period of seven years).

XML

Secured Debt (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Debt Instrument [Line Items]
Secured Debt	$ 549,896	[1]	$ 560,434	[1]
Kilroy Realty, L.P. [Member]
Debt Instrument [Line Items]
Secured Debt	549,896		560,434
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 4.27% Mortgage Payable due Feb. 01, 2018 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	4.27%	[2]
Effective interest rate	4.27%	[2],[3]
Maturity Date	Feb. 01, 2018
Secured Debt	131,363	[1]	133,117	[1]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 4.48% Mortgage Payable due July 1, 2027 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	4.48%	[2]
Effective interest rate	4.48%	[2],[3]
Maturity Date	Jul. 01, 2027
Secured Debt	97,000	[1],[4]	97,000	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 6.05% Mortgage Payable Due June 1, 2019 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	6.05%	[2]
Effective interest rate	3.50%	[2],[3]
Maturity Date	Jun. 01, 2019
Secured Debt	90,065	[1],[4]	92,502	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 6.51% Mortgage Payable due Feb. 01, 2017 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	6.51%	[2]
Effective interest rate	6.51%	[2],[3]
Maturity Date	Feb. 01, 2017
Secured Debt	66,907	[1]	67,663	[1]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 5.23% Mortgage Payable due Jan. 01, 2016 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	5.23%	[2]
Effective interest rate	3.50%	[2],[3]
Maturity Date	Jan. 01, 2016
Secured Debt	53,243	[1],[4]	54,570	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 5.57% Morgage Payable Due Feb. 11, 2016 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	5.57%	[2]
Effective interest rate	3.25%	[2],[3]
Maturity Date	Feb. 11, 2016
Secured Debt	40,611	[1],[4]	41,654	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 5.09% Mortgage Payable due Aug. 7, 2015 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	5.09%	[2]
Effective interest rate	3.50%	[2],[3]
Maturity Date	Aug. 07, 2015
Secured Debt	34,446	[1],[4]	34,845	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 4.94% Mortgage Payable due April 15, 2015 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	4.94%	[2]
Effective interest rate	4.00%	[2],[3]
Maturity Date	Apr. 15, 2015
Secured Debt	26,629	[1],[4]	27,641	[1],[4]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | 7.15% Mortgage Payable due May 01, 2017 [Member]
Debt Instrument [Line Items]
Annual Stated Interest Rate	7.15%	[2]
Effective interest rate	7.15%	[2],[3]
Maturity Date	May 01, 2017
Secured Debt	7,185	[1]	8,972	[1]
Kilroy Realty, L.P. [Member] | Secured Debt [Member] | Municipal Bonds [Member]
Debt Instrument [Line Items]
Secured Debt	$ 2,447	[1]	$ 2,470	[1]

[1] Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

[2] All interest rates presented are fixed-rate interest rates.

[3] This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.

[4] The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

XML

Noncontrolling Interests on the Company's Consolidated Financial Statements

9 Months Ended

Sep. 30, 2014

Noncontrolling Interest [Abstract]

Noncontrolling Interests on the Company's Consolidated Financial Statements

Noncontrolling Interests on the Company’s Consolidated Financial Statements

Common Units of the Operating Partnership

The Company owned a 97.9%, 97.8% and 97.8% common general partnership interest in the Operating Partnership as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. The remaining 2.1%, 2.2% and 2.2% common limited partnership interest as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,804,200, 1,805,200 and 1,821,503 common units outstanding held by these investors, executive officers and directors as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $107.8 millionand $90.8 million as of September 30, 2014 and December 31, 2013,

respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.

Noncontrolling Interest in Consolidated Variable Interest Entity

The noncontrolling interest in consolidated subsidiary represents the third party equity interest in Redwood City Partners, LLC, a consolidated VIE. This noncontrolling interest was $5.2 millionand $4.9 million at September 30, 2014 and December 31, 2013, respectively.

XML

Fair Value Measurements and Disclosures

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements and Disclosures

Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets we record at fair value on a recurring basis on our consolidated financial statements are the marketable securities related to our deferred compensation plan. The following table sets forth the fair value of our marketable securities as of September 30, 2014 and December 31, 2013:

	Fair Value (Level  1) (1)
	September 30, 2014		December 31, 2013
Description	(in thousands)
Marketable securities (2)	$	12,076	$	10,008

_______________

(1) Based on quoted prices in active markets for identical securities.

(2) The marketable securities are held in a limited rabbi trust.

We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gains (losses) in the consolidated statements of operations. We adjust the related deferred compensation plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost for the period.

The following table sets forth the net gain (loss) on marketable securities recorded during the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014		2013
Description	(in thousands)
Net (loss) gain on marketable securities	$	(39	)	$	669	$	507	$	995

Financial Instruments Disclosed at Fair Value

The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2014 and December 31, 2013:

	September 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Liabilities
Secured debt (1)	$	549,896	$	557,217	$	560,434	$	568,760
Exchangeable senior notes, net (1)	135,049		135,770		168,372		178,190
Unsecured debt, net (2)	1,743,962		1,825,725		1,431,132		1,523,052
Unsecured line of credit (1)	—		—		45,000		45,012

_______________

(1) Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

(2) Fair value calculated using Level I and Level II inputs. Level I inputs are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $1,269.2 million and $1,325.0 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level I instruments as of December 31, 2013, was $873.5 million and $929.3 million, respectively. The carrying value and fair value of the Level II instruments was $474.7 million and $500.6 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level II instruments as of December 31, 2013, was $557.7 million and $593.7 million, respectively.

XML

Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013		Dec. 31, 2013
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization Of Intangible Liabilities	$ (10,642)		$ (12,661)		$ (31,879)		$ (37,343)
Deferred Leasing Costs [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization of Intangible Assets	7,132	[1]	6,945	[1]	20,683	[1]	20,882	[1]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	6,936				6,936
2015	24,851				24,851
2016	22,045				22,045
2017	19,163				19,163
2018	15,748				15,748
Thereafter	36,309				36,309
Finite-lived intangible assets, net	125,052				125,052				115,474
Above-Market Leases [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization of Intangible Assets	1,305	[2]	1,417	[2]	4,230	[2]	4,214	[2]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	993	[3]			993	[3]
2015	2,530	[3]			2,530	[3]
2016	1,503	[3]			1,503	[3]
2017	1,241	[3]			1,241	[3]
2018	831	[3]			831	[3]
Thereafter	677	[3]			677	[3]
Finite-lived intangible assets, net	7,775	[3]			7,775	[3]			13,352
In-Place Leases [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization of Intangible Assets	5,169	[1]	7,677	[1]	17,090	[1]	22,546	[1]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	4,274				4,274
2015	13,131				13,131
2016	10,080				10,080
2017	8,440				8,440
2018	5,532				5,532
Thereafter	8,302				8,302
Finite-lived intangible assets, net	49,759				49,759				57,319
Below Market Ground Lease Obligation [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization of Intangible Assets	2	[4]	2	[4]	6	[4]	6	[4]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	2	[5]			2	[5]
2015	8	[5]			8	[5]
2016	8	[5]			8	[5]
2017	8	[5]			8	[5]
2018	8	[5]			8	[5]
Thereafter	437	[5]			437	[5]
Finite-lived intangible assets, net	471	[5]			471	[5]			477
Below Market Leases [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization Of Intangible Liabilities	(2,940)	[6]	(3,355)	[6]	(10,054)	[6]	(10,229)	[6]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	(2,851)	[7]			(2,851)	[7]
2015	(9,567)	[7]			(9,567)	[7]
2016	(7,847)	[7]			(7,847)	[7]
2017	(6,780)	[7]			(6,780)	[7]
2018	(5,177)	[7]			(5,177)	[7]
Thereafter	(6,023)	[7]			(6,023)	[7]
Acquisition-related Intangible Liabilities, net	(38,245)	[7]			(38,245)	[7]			(43,679)
Above-Market Ground Lease Obligation [Member]
Amortization for the period related to deferred leasing costs and acquisition-related intangibles
Amortization Of Intangible Liabilities	(26)	[8]	(25)	[8]	(76)	[8]	(76)	[8]
Estimated annual amortization related to acquisition-related intangibles
Remaining 2014	(26)	[9]			(26)	[9]
2015	(101)	[9]			(101)	[9]
2016	(101)	[9]			(101)	[9]
2017	(101)	[9]			(101)	[9]
2018	(101)	[9]			(101)	[9]
Thereafter	(5,592)	[9]			(5,592)	[9]
Acquisition-related Intangible Liabilities, net	$ (6,022)	[9]			$ (6,022)	[9]			$ (6,097)

[1] The amortization of deferred leasing costs related to lease incentives is recorded to rental income and other deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.

[2] The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

[3] Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

[4] The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.

[5] Represents estimated annual amortization related to below-market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.

[6] The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.

[7] Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

[8] The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

[9] Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

XML

Fair Value Measurements and Disclosures (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair value of the company's marketable securities

The following table sets forth the fair value of our marketable securities as of September 30, 2014 and December 31, 2013:

	Fair Value (Level  1) (1)
	September 30, 2014		December 31, 2013
Description	(in thousands)
Marketable securities (2)	$	12,076	$	10,008

_______________

(1) Based on quoted prices in active markets for identical securities.

(2) The marketable securities are held in a limited rabbi trust.

Fair value adjustment of marketable securities and deferred compensation plan liability

The following table sets forth the net gain (loss) on marketable securities recorded during the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014		2013
Description	(in thousands)
Net (loss) gain on marketable securities	$	(39	)	$	669	$	507	$	995

Carrying value and fair value of company's remaining financial assets and liabilities

The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2014 and December 31, 2013:

	September 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Liabilities
Secured debt (1)	$	549,896	$	557,217	$	560,434	$	568,760
Exchangeable senior notes, net (1)	135,049		135,770		168,372		178,190
Unsecured debt, net (2)	1,743,962		1,825,725		1,431,132		1,523,052
Unsecured line of credit (1)	—		—		45,000		45,012

_______________

(1) Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

(2) Fair value calculated using Level I and Level II inputs. Level I inputs are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $1,269.2 million and $1,325.0 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level I instruments as of December 31, 2013, was $873.5 million and $929.3 million, respectively. The carrying value and fair value of the Level II instruments was $474.7 million and $500.6 million, respectively, as of September 30, 2014. The carrying value and fair value of the Level II instruments as of December 31, 2013, was $557.7 million and $593.7 million, respectively.

XML

Consolidated Statements of Equity (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Total USD ($)	Common Stock [Member] USD ($)	Total Stockholders' Equity USD ($)	Preferred Stock [Member] USD ($)	Common Stock Additional Paid-in Capital USD ($)	Common Stock Distributions in Excess of Earnings USD ($)	Noncontrolling Interest [Member] USD ($)	Kilroy Realty, L.P. [Member] USD ($)	Kilroy Realty, L.P. [Member] Noncontrolling Interest [Member] USD ($)	Common Stock [Member]	Issuance of Equity under ATM Program [Member] Common Stock [Member]
Beginning Balance at Dec. 31, 2012	$ 2,235,933	$ 749	$ 2,189,630	$ 192,411	$ 2,126,005	$ (129,535)	$ 46,303
Beginning Balance, shares at Dec. 31, 2012		74,926,981
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	21,518		21,252			21,252	266	21,518	178
Issuance of common stock (Note 7), shares		7,215,838
Issuance of common stock (Note 7)	349,951	72	349,951		349,879
Issuance of share-based compensation awards, shares		0
Issuance of share-based compensation awards	1,075		1,075		1,075
Noncash amortization of share-based compensation	7,096		7,096		7,096			7,096
Repurchase of common stock and restricted stock units, shares		(34,164)
Repurchase of common stock and restricted stock units	(1,803)		(1,803)		(1,803)
Settlement of restricted stock units for shares of common stock, shares		4,363
Settlement of restricted stock units for shares of common stock	(10)		(10)		(10)			(10)
Exercise of stock options, net, shares		473
Exercise of stock options, net	128		128		128
Adjustment for noncontrolling interest	0		(5,946)		(5,946)		5,946
Contribution by noncontrolling interest in consolidated subsidiary	4,885						4,885	4,885	4,885
Preferred dividends	(9,938)		(9,938)			(9,938)		(9,938)
Dividends declared per common share and common unit ($1.05 per share/unit)	(84,741)		(82,827)			(82,827)	(1,914)
Ending Balance at Sep. 30, 2013	2,524,094	821	2,468,608	192,411	2,476,424	(201,048)	55,486
Ending Balance, shares at Sep. 30, 2013		82,113,491
Beginning Balance at Jun. 30, 2013
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	9,027							9,027
Ending Balance at Sep. 30, 2013	2,524,094			192,411
Beginning Balance at Dec. 31, 2013	2,516,160	822	2,461,312	192,411	2,478,975	(210,896)	54,848
Beginning Balance, shares at Dec. 31, 2013		82,153,944								82,153,944
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	152,378		149,367			149,367	3,011	152,378	201
Issuance of common stock (Note 7), shares		370,700									370,700
Issuance of common stock (Note 7)	22,136	4	22,136		22,132
Issuance of share-based compensation awards, shares		0
Issuance of share-based compensation awards	1,281		1,281		1,281
Noncash amortization of share-based compensation	10,345		10,345		10,345			10,345
Repurchase of common stock and restricted stock units, shares		(48,017)
Repurchase of common stock and restricted stock units	(2,861)		(2,861)		(2,861)
Settlement of restricted stock units for shares of common stock, shares		108,529
Settlement of restricted stock units for shares of common stock	0		0		0			0
Common shares issued in connection with early exchange of 4.25% Exchangeable Senior Notes (Note 5), shares		431,270
Common shares issued in connection with early exchange of 4.25% Exchangeable Senior Notes, net of equity component (Note 5)	223	4	223		219			223
Common shares received in connection with capped call option transactions (Note 5), shares		(111,206)
Common shares received in connection with capped call option transactions (Note 5)	0		0					0
Exercise of stock options, net, shares		482,000
Exercise of stock options, net	20,537	4	20,537		20,533
Exchange of common units of the Operating Parternship, shares		1,000
Exchange of common units of the Operating Partnership	0		28		28		(28)
Adjustment for noncontrolling interest	0		(370)		(370)		370
Contribution by noncontrolling interest in consolidated subsidiary	336						336	336	336
Preferred dividends	(9,938)		(9,938)			(9,938)		(9,938)
Dividends declared per common share and common unit ($1.05 per share/unit)	(90,228)		(88,332)			(88,332)	(1,896)
Ending Balance at Sep. 30, 2014	2,620,369	834	2,563,728	192,411	2,530,282	(159,799)	56,641
Ending Balance, shares at Sep. 30, 2014		83,388,220								83,388,220
Beginning Balance at Jun. 30, 2014
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	19,303							19,303
Ending Balance at Sep. 30, 2014	$ 2,620,369			$ 192,411
Ending Balance, shares at Sep. 30, 2014										83,388,220

XML

Consolidated Balance Sheets (KILROY REALTY, L.P.) (Parenthetical) (Kilroy Realty, L.P. [Member], USD $)					9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Common Units [Member]	Dec. 31, 2013 Common Units [Member]	Sep. 30, 2014 Series G Cumulative Redeemable Preferred Unit [Member]	Dec. 31, 2013 Series G Cumulative Redeemable Preferred Unit [Member]	Sep. 30, 2014 Series H Cumulative Redeemable Preferred Unit [Member]	Dec. 31, 2013 Series H Cumulative Redeemable Preferred Unit [Member]
Carrying amounts of consolidated VIE	$ 98,121,000	$ 234,532,000
Preferred Units, Issued					4,000,000	4,000,000	4,000,000	4,000,000
Preferred Units, Outstanding					4,000,000	4,000,000	4,000,000	4,000,000
Preferred stock dividend rate percentage					6.875%	6.875%	6.375%	6.375%
Preferred Stock Liquidation preference					$ 100,000,000	$ 100,000,000	$ 100,000,000	$ 100,000,000
General partner, units issued			83,388,220	82,153,944
General partners, units outstanding			83,388,220	82,153,944
Limited partners, units issued			1,804,200	1,805,200
Common units held by limited partners			1,804,200	1,805,200

XML

Stockholders' Equity of the Company (Details) (USD $)	9 Months Ended					9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Common Stock [Member]	Dec. 31, 2013 Common Stock [Member]	Sep. 30, 2014 Issuance of Equity - at the market offering [Member] Common Stock [Member]	Sep. 30, 2014 Issuance of Equity under ATM Program [Member]	Sep. 30, 2014 Issuance of Equity under ATM Program [Member] Common Stock [Member]
Common Stock of the Company [Abstract]
Issuance of common stock (Note 7), shares							370,700
Average price per common shares sold							$ 61.01
At the Market Stock Offering Program Aggregate Value Of Common Stock						$ 200,000,000
Net proceeds from issuance of common stock (Note 7)	22,136,000	349,951,000					22,600,000
Common stock, shares issued			83,388,220	82,153,944		2,553,961
At Market Stock Aggregate Gross Sales Price of Common Stock					127,900,000
At the Market Stock Offering Program Remained Available For Issuance							72,100,000
Proceeds from Issuance of Common stock, net							$ 22,300,000

XML

Other Significant Events Other Significant Events

9 Months Ended

Sep. 30, 2014

Other Income and Expenses [Abstract]

Other Significant Events

Other Significant Events

In January 2014, a tenant at one of our San Diego, California operating properties exercised an early lease termination clause as permitted under the terms of their lease. As a result, the lease which encompasses approximately 79,000 rentable square feet and was scheduled to expire in February 2020, terminated during the three months ended September 30, 2014. The total lease termination fee of $5.7 million, of which the Company recorded $2.0 million and $5.7 million during the three and nine months ended September 30, 2014, respectively, was recorded as other property income on a straight line basis through the early lease termination date. The Company received the cash payment of the lease termination fee of $5.7 million during the three months ended September 30, 2014. During the three and nine months ended September 30, 2014, the Company also recognized approximately $0.4 million and $1.3 million as a reduction to rental income due to the accelerated amortization of the deferred rent receivable and above market lease for this tenant.

XML

Stockholders' Equity of the Company (Tables)

9 Months Ended

Sep. 30, 2014

Class of Stock [Line Items]

Schedule of Stockholders Equity [Table Text Block]

The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the nine months ended September 30, 2014:

	Nine months  ended September 30, 2014
	(in millions, except share and per share data)
Shares of common stock sold during the year	370,700
Weighted average price per common share	$	61.01
Aggregate gross proceeds	$	22.6
Aggregate net proceeds after sales agent compensation	$	22.3

XML

Secured and Unsecured Debt of the Operating Partnership (Kilroy Realty, L.P. [Member])

9 Months Ended

Sep. 30, 2014

Kilroy Realty, L.P. [Member]

Debt Instrument [Line Items]

Secured and Unsecured Debt of the Operating Partnership

Secured and Unsecured Debt of the Operating Partnership

Secured Debt

The following table sets forth the composition of our secured debt as of September 30, 2014 and December 31, 2013:

Type of Debt	Annual Stated Interest Rate (1)	GAAP Effective Rate (1)(2)	Maturity Date	September 30, 2014 (3)		December 31, 2013 (3)
				(in thousands)
Mortgage note payable	4.27%	4.27%	February 2018	$	131,363	$	133,117
Mortgage note payable (4)	4.48%	4.48%	July 2027	97,000		97,000
Mortgage note payable (4)	6.05%	3.50%	June 2019	90,065		92,502
Mortgage note payable	6.51%	6.51%	February 2017	66,907		67,663
Mortgage note payable (4)	5.23%	3.50%	January 2016	53,243		54,570
Mortgage note payable (4)	5.57%	3.25%	February 2016	40,611		41,654
Mortgage note payable(4)	5.09%	3.50%	August 2015	34,446		34,845
Mortgage note payable (4)	4.94%	4.00%	April 2015	26,629		27,641
Mortgage note payable	7.15%	7.15%	May 2017	7,185		8,972
Other	Various	Various	Various	2,447		2,470
Total				$	549,896	$	560,434

______________

(1) All interest rates presented are fixed-rate interest rates.

(2) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.

(3) Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.

(4) The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

4.25% Exchangeable Senior Notes

The table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the “4.25% Exchangeable Notes”) outstanding as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014			December 31, 2013
	(in thousands)
Principal amount	$	135,481		$	172,500
Unamortized discount	(432		)	(4,128		)
Net carrying amount of liability component	$	135,049		$	168,372
Carrying amount of equity component (1)	$15,578			$19,835
Issuance date	November 2009
Maturity date	November 2014
Stated coupon rate (2)	4.25%
Effective interest rate (3)	7.13%
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)	27.8307
Exchange price, as adjusted (4)	$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined (4)	3,770,531			4,800,796

_______________

(1) The $15.6 million carrying amount of the equity component at September 30, 2014 represents the proportionate amount of the initial $19.8 million carrying value of the equity component allocated to the remaining $135.5 million outstanding principal balance of the 4.25% Exchangeable Notes at September 30, 2014.

(2) Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15^th and November 15^th of each year.

(3) The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.

(4) The exchange rate, exchange price and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.

During the nine months ended September 30, 2014, the Company settled early exchanges of the 4.25% Exchangeable Notes with an aggregate principal amount of $37.0 million. For these exchanges, the number of shares issued in excess of the exchange value was calculated on a proportionate basis for each day of a 30 trading-day observation following the exchange date. For the exchange settlements, the Company paid the noteholders a total of $37.0 million in cash for the principal amount and issued to the noteholders a total of 431,270 shares of our common stock for the excess exchange value. As a result of the exchanges, the Company exercised the equivalent proportionate amount of its capped call options and, and in connection received 111,206 shares of our common stock from the counterparties. This reduced the shares of common stock issued in connection with the exchanges to 320,064 shares.

Upon exchange of the balance of the 4.25% Exchangeable Notes at maturity, the holders will receive (i) cash up to the principal amount of the 4.25% Exchangeable Notes and (ii) to the extent the exchange value exceeds the principal amount of the 4.25% Exchangeable Notes, shares of the Company’s common stock. Any shares of common stock delivered for settlement will be based on a daily exchange value calculated on a proportionate basis for each day of a 30 trading-day observation period.

The 4.25% Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events. During the three and nine months ended September 30, 2014, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three month period ended September 30, 2014, the 4.25% Exchangeable Notes were exchangeable at the exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods.

In connection with the offering of the 4.25% Exchangeable Notes, we entered into capped call option transactions (“capped calls”) to mitigate the dilutive impact of the potential exchange of the 4.25% Exchangeable Notes. The capped calls, as amended, are separate transactions entered into by us with the relevant financial institutions, are not part of the terms of the 4.25% Exchangeable Notes, and do not affect the holders’ rights under the 4.25% Exchangeable Notes. The strike prices of the capped calls, which are subject to customary anti-dilution adjustments, correspond to the exchange prices of the applicable 4.25% Exchangeable Notes. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of September 30, 2014 and December 31, 2013.

	4.25% Exchangeable Notes
	September 30, 2014		December 31, 2013
Referenced shares of common stock (1)	3,770,531		4,800,796
Exchange price, including effect of capped calls	$	42.81	$	42.81

________________________

(1) The referenced shares of common stock decreased during the nine months ended September 30, 2014 as a result of the settled exchanges of the 4.25% Exchangeable Notes totaling $37.0 million.

The capped calls are expected to terminate upon the earlier of the maturity date of the 4.25% Exchangeable Notes or upon the date upon which the 4.25% Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of the capped calls were recorded as a reduction to additional paid-in capital.

For the three and nine months ended September 30, 2014 and 2013, the per share average trading price of the Company’s common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Per share average trading price of the Company’s common stock	$62.06	$51.57	$59.27	$52.42

The 4.25% Exchangeable Notes were exchangeable as of September 30, 2014 and September 30, 2013. If the 4.25% Exchangeable Notes outstanding as of those dates were exchanged, the approximate fair value of the shares upon exchange at September 30, 2014 and 2013, using the per share average trading price presented in the table above, would have been as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Approximate fair value of shares upon exchange	$	229,840	$	245,200	$	223,732	$	248,000
Principal amount of the 4.25% Exchangeable Notes	135,481		172,500		135,481		172,500
Approximate fair value in excess amount of principal amount	$	94,359	$	72,700	$	88,251	$	75,500

See Notes 14 and 15 for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented.

Interest Expense for the 4.25% Exchangeable Notes

The unamortized discount on the 4.25% Exchangeable Notes is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notes based on the respective effective interest rates, before the effect of capitalized interest, for the three and nine months September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Contractual interest payments	$	1,439	$	1,833	$	4,908	$	5,498
Amortization of discount	1,004		1,116		3,337		3,291
Interest expense attributable to the 4.25% Exchangeable Notes	$	2,443	$	2,949	$	8,245	$	8,789

Unsecured Senior Notes

In July 2014, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of the initial issuance discount of $4.4 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on August 15, 2029, require semi-annual interest payments each February and August based on a stated annual interest rate of 4.250%. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings under the Operating Partnership’s revolving credit facility.

The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as of September 30, 2014 and December 31, 2013:

					Principal Amount as of
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate (1)	September 30, 2014			December 31, 2013
					(in thousands)
4.250% Unsecured Senior Notes (2)	July 2014	August 2029	4.250%	4.350%	$	400,000		$	—
Unamortized discount					(4,422		)	—
Net carrying amount					$	395,578		$	—
3.800% Unsecured Senior Notes (3)	January 2013	January 2023	3.800%	3.804%	$	300,000		$	300,000
Unamortized discount					(82		)	(90		)
Net carrying amount					$	299,918		$	299,910
4.800% Unsecured Senior Notes (4)	July 2011	July 2018	4.800%	4.827%	$	325,000		$	325,000
Unamortized discount					(283		)	(339		)
Net carrying amount					$	324,717		$	324,661
6.625% Unsecured Senior Notes (5)	May 2010	June 2020	6.625%	6.743%	$	250,000		$	250,000
Unamortized discount					(1,207		)	(1,367		)
Net carrying amount					$	248,793		$	248,633
5.000% Unsecured Senior Notes (6)	November 2010	November 2015	5.000%	5.014%	$	325,000		$	325,000
Unamortized discount					(44		)	(73		)
Net carrying amount					$	324,956		$	324,927

________________________

(1) This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.

(2) Interest on the 4.250% unsecured senior notes is payable semi-annually in arrears on February 15th and August 15th of each year.

(3) Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(4) Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.

(5) Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.

(6) Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.

In addition to the registered unsecured senior notes listed above, we also had outstanding Series B unsecured senior notes with an aggregate principal balance of $83.0 million and effective interest rate of 6.45% as of December 31, 2013. We repaid the notes upon maturity in August 2014.

Unsecured Revolving Credit Facility and Term Loan Facility

In the second quarter of 2014, the Company amended the terms of our unsecured revolving credit facility and the Company’s $150.0 million term loan facility. The amendment increased the size of the Company’s unsecured line of credit to $600.0 million, extended the maturity to July 2019 on both the credit facility and term loan facility, reduced the annual interest rate on the unsecured revolving credit facility to LIBOR plus 1.250% and reduced the annual interest rate on the term loan facility to LIBOR plus 1.400%. The amendment did not affect the outstanding borrowings under the credit facility.

The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	—		$	45,000
Remaining borrowing capacity	600,000			455,000
Total borrowing capacity (1)	$	600,000		$	500,000
Interest rate (2)(3)	—		%	1.62		%
Facility fee-annual rate (4)	0.250%			0.300%
Maturity date	July 2019			April 2017

_______________

(1) We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $300.0 million under an accordion feature under the terms of the unsecured revolving credit facility and term loan facility.

(2) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of September 30, 2014.

(3) Our revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.

(4) Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2014, $6.2 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.

The Company intends to borrow amounts under the unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.

The following table summarizes the balance and terms of our term loan facility as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
	(in thousands)
Outstanding borrowings	$	150,000		$	150,000
Interest rate	1.40		%	1.75		%
Maturity date	July 2019			March 2016

Debt Covenants and Restrictions

The revolving credit facility, the term loan facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of September 30, 2014.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of September 30, 2014:

Year	(in thousands)
Remaining 2014	$	138,009
2015	395,104
2016	99,431
2017	71,748
2018	451,728
Thereafter	1,268,013
Total (1)	$	2,424,033

________________________

(1) Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $4.9 million.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2014 and 2013. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Gross interest expense	$	29,936		$	27,942		$	85,740		$	83,322
Capitalized interest and loan fees	(13,328		)	(9,089		)	(35,860		)	(25,301		)
Interest expense	$	16,608		$	18,853		$	49,880		$	58,021