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Postal Realty TrustUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010ORoo 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 CORPORATIONKILROY REALTY, L.P.(Exact name of registrant as specified in its charter)Kilroy RealtyCorporation Maryland(State or other jurisdiction ofincorporation or organization) 95-4598246(I.R.S. EmployerIdentification No.)Kilroy Realty,L.P. Delaware(State or other jurisdiction ofincorporation or organization) 95-4612685(I.R.S. EmployerIdentification No.)12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (310)481-8400 Securities registered pursuant to Section 12(b) of the Act:Registrant Title of each class Name of each exchange on which registeredKilroy Realty Corporation Common Stock, $.01 par value New York Stock ExchangeKilroy Realty Corporation 7.80% Series E Cumulative RedeemablePreferred Stock, $.01 par value New York Stock ExchangeKilroy Realty Corporation 7.50% Series F Cumulative RedeemablePreferred Stock, $.01 par value New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:Registrant Title of each classKilroy Realty,L.P. Common Units Representing LimitedPartnership InterestsIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Kilroy Realty Corporation Yes No oKilroy Realty, L. P. Yes No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Kilroy Realty Corporation Yes o No Kilroy Realty, L. P. Yes o No 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 periodthat 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 No oKilroy Realty, L. P. Yes No oIndicate 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 ofRegulation 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 No oKilroy Realty, L. P. Yes o No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 Accelerated filer oNon-accelerated filer oSmaller reporting company o(Do not check if a smaller reporting company)Kilroy Realty, L.P. Large accelerated filer oAccelerated filer oNon-accelerated filer 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 Act).Kilroy Realty Corporation Yes o No Kilroy Realty, L. P. Yes o No The aggregate market value of the voting and non-voting common shares held by non-affiliates of Kilroy Realty Corporation was approximately $1,554,766,591 based on the quoted closing price on the New YorkStock Exchange for such shares on June 30, 2010.As of February 10, 2011, 52,421,591 shares of Kilroy Realty Corporation’s common stock, par value $.01 per share, were outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Kilroy Realty Corporation’s Proxy Statement with respect to its 2011 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the registrant’s fiscal year are incorporatedby reference into Part III of this Form 10-K. EXPLANATORY NOTEThis report combines the annual reports on Form 10-K for the year ended December 31, 2010 of Kilroy Realty Corporation andKilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company”mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “KilroyRealty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidatedsubsidiaries. The terms “the Company,” “we,” “our,” and “us” refer to the Company or the Company and the Operating Partnershiptogether, as the text requires.The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of December 31,2010, the Company owned an approximate 96.8% common general partnership interest in the Operating Partnership. The remainingapproximate 3.2% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of theCompany. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over theOperating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions includingacquisitions, 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 which are reflected in the disclosures in thisForm 10-K. We believe it is important to understand the differences between the Company and the Operating Partnership in the context ofhow the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, whose onlymaterial asset is its ownership of partnership interests of the Operating Partnership. As a result, the Company does not conduct businessitself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certaindebt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but guarantees some of the debtof the Operating Partnership. The Operating Partnership owns substantially all the assets of the Company either directly or through itssubsidiaries, conducts the operations of the business and is structured as a limited partnership with no publicly traded equity. Except fornet proceeds from equity issuances by the Company, which the Company is required to contribute to the Operating Partnership inexchange for common partnership units, the Operating Partnership generates the capital required by the Company’s business through theOperating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of partnershipunits.Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the consolidatedfinancial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the OperatingPartnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in theCompany’s financial statements. The Operating Partnership’s financial statements reflect the noncontrolling interest in Kilroy RealtyFinance Partnership, L.P. This noncontrolling interest represents the Company’s 1% indirect general partnership interest in Kilroy RealtyFinance Partnership, L.P., which is directly held by Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company. Thedifferences between stockholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued atthe Company and the Operating Partnership levels and in the Company’s noncontrolling interest in Kilroy Realty Finance Partnership,L.P.We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report resultsin the following benefits: • Combined reports better reflect how management and the analyst community view the business as a single operating unit; • Combined reports enhance investor understanding of the Company and the Operating Partnership by enabling them to viewthe 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 andexpense; and2 • Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document fortheir review.To help investors understand the significant differences between the Company and the Operating Partnership, this report presentsthe following separate sections for each of the Company and the Operating Partnership: • consolidated financial statements; • the following notes to the consolidated financial statements: • Secured and Unsecured Debt of the Company and Secured and Unsecured Debt of the Operating Partnership; • Noncontrolling Interests on the Company’s Consolidated Financial Statements; • Stockholders’ Equity of the Company and Preferred and Common Units in the Operating Partnership’s ConsolidatedFinancial Statements; • Net Income Available to Common Stockholders per Share of the Company and Net Income Available to CommonUnitholders per Unit of the Operating Partnership; • Quarterly Financial Information of the Company (Unaudited) and Quarterly Financial Information of the OperatingPartnership (Unaudited); • Pro Forma Results of the Company (Unaudited) and Pro Forma Results of the Operating Partnership (Unaudited); and • Liquidity and Capital Resources in Item 7: Management’s Discussion and Analysis of Financial Condition and Results ofOperations.This report also includes separate sections under Item 9A. Controls and Procedures and separate Exhibit 31 and Exhibit 32certifications for each of the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief FinancialOfficer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant withRule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. § 1350.3 TABLE OF CONTENTS Page PART I Item 1. Business 5 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 21 Item 2. Properties 22 Item 3. Legal Proceedings 33 Item 4. Submission of Matters to a Vote of Security Holders 33 PART II Item 5. Market for Kilroy Realty Corporation’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities 33 Market for Kilroy Realty, L.P.’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 33 Item 6. Selected Financial Data—Kilroy Realty Corporation 35 Selected Financial Data—Kilroy Realty, L.P. 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 72 Item 8. Financial Statements and Supplementary Data 73 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73 Item 9A. Controls and Procedures 73 Item 9B. Other Information 78 PART III Item 10. Directors, Executive Officers and Corporate Governance 78 Item 11. Executive Compensation 78 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 78 Item 13. Certain Relationships and Related Transactions, and Director Independence 78 Item 14. Principal Accountant Fees and Services 78 PART IV Item 15. Exhibits and Financial Statement Schedules 79 SIGNATURES 86 4 PART IThis document contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Exchange Act. These statements relate to, among other things, our future results of operations, cashavailable for distribution, property acquisitions, level of future property dispositions, ability to timely lease or re-lease space at current oranticipated rents, ability to complete current and future development or redevelopment properties within budget and on schedule, sourcesof growth, planned development and expansion of owned or leased property, capital requirements, compliance with contractual obligationsand federal, state, and local regulations, conditions of properties, environmental findings, and general business, industry, and economicconditions applicable to us. These statements are based largely on our current expectations and are subject to a number of risks anduncertainties. Actual results could differ materially from these forward-looking statements. You are cautioned not to place undue relianceon these forward-looking statements, which speak only as of the date this annual report was filed with the Securities and ExchangeCommission (the “SEC”).ITEM 1. BUSINESSThe CompanyWe are a self-administered REIT active in premier office and industrial submarkets along the West Coast. We own, develop, acquireand manage primarily Class A real estate assets in the coastal regions of Los Angeles, Orange County, San Diego, greater Seattle and theSan Francisco Bay Area, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompassesattractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-averagematerial, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of1986, as amended (the “Code”).As of December 31, 2010, our stabilized portfolio was comprised of the following office buildings (the “Office Properties”) andindustrial buildings (the “Industrial Properties”). As of December 31, 2010, all but one of our properties are located in California: Number of Rentable Number of Buildings Square Feet Tenants Percentage Occupied Office Properties(1) 100 10,395,208 365 87.5%Industrial Properties 40 3,602,896 58 93.9%Total Stabilized Portfolio 140 13,998,104 423 89.1%(1)Includes ten office buildings acquired in 2010 (see Note 3 to our consolidated financial statements included in this report for additional information).Our stabilized portfolio excludes undeveloped land, one office redevelopment property that is currently under construction and oneindustrial property that we are in the process of repositioning for residential use.We own our interests in all of our Office Properties and Industrial Properties through the Operating Partnership and Kilroy RealtyFinance Partnership, L.P. (the “Finance Partnership”), a Delaware limited partnership. We conduct substantially all of our operationsthrough the Operating Partnership of which as of December 31, 2010, we owned a 96.8% general partnership interest. The remaining3.2% common limited partnership interest in the Operating Partnership as of December 31, 2010 was owned by non-affiliated investorsand certain of our directors and officers. Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company, is the sole generalpartner of the Finance Partnership and owns a 1.0% general partnership interest. The Operating Partnership owns the remaining 99.0%limited partnership interest. We conduct substantially all of our development activities through Kilroy Services, LLC (“KSLLC”), whichis a wholly-owned subsidiary of the Operating Partnership. With the exception of the Operating Partnership, all of the Company’ssubsidiaries, which include, Kilroy Realty TRS, Inc., Kilroy Realty Management, L.P., Kilroy RB, LLC, Kilroy RB II, LLC, KilroyNorthside Drive, LLC, and Kilroy Realty 303, LLC are wholly-owned.5 The following diagram illustrates our organizational structure as of December 31, 2010:6 Available Information; Website Disclosure; Corporate Governance DocumentsKilroy Realty Corporation was incorporated in the state of Maryland on September 13, 1996 and Kilroy Realty, L.P. was organizedin the state of Delaware on October 2, 1996. Our principal executive offices are located at 12200 W. Olympic Boulevard, Suite 200 LosAngeles, California 90064. Our telephone number at that location is (310) 481-8400. Our website is located at www.kilroyrealty.com. Theinformation found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annualreport on Form 10-K or any other report or document we file with or furnish to the United States Securities and Exchange Commission, orthe SEC. All reports we will file with the SEC will be available free of charge via EDGAR through the SEC website at www.sec.gov. Inaddition, the public may read and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E.,Washington, D.C. 20549. All reports that we will file with the SEC will also be available free of charge on our website atwww.kilroyrealty.com as soon as reasonably practicable after we file those materials with, or furnish them to, the SEC.The following documents relating to corporate governance are also available free of charge on our website under “Investor Relations—Corporate Governance” and available in print to any security holder upon request: • Corporate Governance Guidelines • Code of Business Conduct and Ethics • Audit Committee Charter • Executive Compensation Committee Charter • Nominating / Corporate Governance Committee CharterYou may request copies of any of these documents by writing to:Attention: Investor RelationsKilroy Realty Corporation12200 West Olympic Boulevard, Suite 200Los Angeles, CA 90064Business and Growth StrategiesGrowth Strategies. We believe that a number of factors and strategies will enable us to continue to achieve our objectives of long-term sustainable growth in Net Operating Income (defined below) and FFO (defined below) as well as maximization of long-termstockholder value. These factors and strategies include: • the quality and location of our properties; • our ability to efficiently manage our assets as a low cost provider of commercial real estate through our seasoned managementteam possessing core capabilities in all aspects of real estate ownership, including property management, leasing, marketing,financing, accounting, legal, construction management, and new development; • our strong financial position that has and will continue to allow us to pursue attractive acquisition opportunities; • our access to development, redevelopment, acquisition, and leasing opportunities as a result of our extensive experience andsignificant working relationships with major west coast property owners, corporate tenants, municipalities, and landownersgiven our over 60-year presence in the California market; and • our existing pipeline of undeveloped land holdings“Net Operating Income” is defined as operating revenues (rental income, tenant reimbursements, and other property income) lessproperty and related expenses (property expenses, real estate taxes, provision for bad debts, and ground leases) before depreciation. “FFO”is funds from operations as defined by the National Association of Real Estate Investment Trusts (“NAREIT”). See “Item 7:Management’s Discussion and Analysis of Financial7 Condition and Results of Operations—Results of Operations” and “—Non-GAAP Supplemental Financial Measures: Funds FromOperations” for a reconciliation of these measures to generally accepted accounting principles (“GAAP”) net income available for commonstockholders.Operating Strategies. We focus on enhancing long-term growth in Net Operating Income and FFO from our properties by: • maximizing cash flow from our properties through active leasing, early renewals, and effective property management; • structuring leases to maximize returns and internal growth; • managing portfolio credit risk through effective underwriting, including the use of credit enhancements and interests incollateral to mitigate portfolio credit risk; • managing operating expenses through the efficient use of internal management, leasing, marketing, financing, accounting,legal, and construction management functions; • maintaining and developing long-term relationships with a diverse tenant base; • managing our properties to offer the maximum degree of utility and operational efficiency to tenants; • continuing to effectively manage capital improvements to enhance our properties’ competitive advantages in their respectivemarkets and improve the efficiency of building systems; and • attracting and retaining motivated employees by providing financial and other incentives to meet our operating and financialgoals.Acquisition Strategies. We believe we are well positioned to acquire properties as the result of our extensive experience, strongfinancial position, and ability to access capital. We continue to actively monitor our target markets and focus on acquiring additional highquality office and industrial properties that: • provide attractive yields and significant potential for growth in cash flow from property operations; • present growth opportunities in our existing or other strategic markets; and • demonstrate the potential for improved performance through intensive management and leasing that should result in increasedoccupancy and rental revenues.Development Strategies. We and our predecessors have developed office and industrial properties primarily located in Californiasince 1947. As of December 31, 2010, our development pipeline included 116.7 gross acres of undeveloped land, with which we believewe will have the potential to develop over two million rentable square feet of office space in the future, depending upon economicconditions. Our strategy with respect to development is to: • maintain a disciplined approach by emphasizing pre-leasing, commencing development in stages, or phasing, and costcontrol; • continue to execute our build-to-suit philosophy in which we develop properties to be leased by specific committed tenantsproviding for lower-risk development; • be the premier provider of two- to six-story campus style office buildings in California; • reinvest capital from dispositions of nonstrategic assets into new state-of-the-market development assets with higher cashflow and rates of return; and • evaluate redevelopment opportunities in supply-constrained markets since such efforts generally achieve similar returns tonew development with reduced entitlement risk and shorter construction periods.Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing buildingspursuant to a formal plan, the intended result of which is a higher economic return on the property. We may engage in the additionaldevelopment or redevelopment of office and/or industrial properties, when market conditions support a favorable risk-adjusted return onsuch development or redevelopment. We expect that our significant working relationships with tenants, municipalities, and landowners onthe west coast will give us8 further access to development opportunities. We cannot assure you that we will be able to successfully develop or redevelop any of ourproperties or that we will have access to additional development or redevelopment opportunities.Financing Strategies. Our financing policies and objectives are determined by our board of directors. Our goal is to limit ourdependence on leverage and maintain a conservative ratio of debt-to-total market capitalization. As of December 31, 2010, our total debt asa percentage of total market capitalization was 40.2%, and our total debt and liquidation value of our preferred equity as a percentage oftotal market capitalization was 45.8%, both of which were calculated based on the quoted closing price per share of the Company’scommon stock of $36.47 on December 31, 2010. Our financing strategies are to: • maintain financial flexibility, including a low secured to unsecured debt ratio, to maximize our ability to access a variety ofboth public and private capital sources; • maintain a staggered debt maturity schedule in which the maturity dates of our debt are spread out over several years to limitrisk exposure at any particular point in the capital and credit market cycles; • complete financing in advance of the need for capital; and • manage interest rate exposure by generally maintaining a greater amount of fixed-rate debt as compared to variable-rate debt.We utilize multiple sources of capital, including borrowings under our unsecured line of credit, proceeds from the issuance of debtor equity securities and other bank and/or institutional borrowings, and dispositions of nonstrategic assets. There can be no assurancethat we will be able to obtain capital as needed on terms favorable to us or at all. See the discussion under the caption “Item 7:Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Influence Future Resultsof Operations” and “Item 1A: Risk Factors”.Significant TenantsAs of December 31, 2010, our fifteen largest tenants in terms of annualized base rental revenues represented approximately 39.5% ofour total annualized base rental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, 2010determined on a straight-line basis over the term of the related lease in accordance with GAAP.For further information on the composition of our tenant base, see “Item 2: Properties—Significant Tenants.”CompetitionWe compete with several developers, owners, operators and acquirers of office, industrial, and other commercial real estate, many ofwhich own properties similar to ours in the same submarkets in which our properties are located. For further discussion of the potentialimpact of competitive conditions on our business, see “Item 1A: Risk Factors.”Segment and Geographic Financial InformationFor financial information about our two reportable segments, Office Properties and Industrial Properties, see Note 18 to ourconsolidated financial statements.All of our business is currently conducted in California with the exception of the operation of one property in the state ofWashington. For information about our revenues and long-lived assets and other financial information, see our consolidated financialstatements included in this report and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”EmployeesAs of December 31, 2010, we employed 141 people through the Operating Partnership, KSLLC, and Kilroy Realty TRS, Inc. Webelieve that relations with our employees are good.9 Government Regulations Relating to the EnvironmentMany laws and governmental regulations relating to the environment are applicable to our properties, and changes in these laws andregulations, or their interpretation by agencies and the courts, occur frequently and may adversely affect us.Existing conditions at some of our properties. Independent environmental consultants have conducted Phase I or similarenvironmental site assessments on all of our properties. We generally obtain these assessments prior to the acquisition of a property andmay later update them as required for subsequent financing of the property or as requested by a tenant. Site assessments are generallyperformed to American Society for Testing and Materials standards then-existing for Phase I site assessments and typically include ahistorical review, a public records review, a visual inspection of the surveyed site, and the issuance of a written report. These assessmentsdo not generally include any soil samplings or subsurface investigations. Depending on the age of the property, the Phase I may haveincluded an assessment of asbestos-containing materials. For properties where asbestos-containing materials were identified or suspected,an operations and maintenance plan was generally prepared and implemented.Historical operations at or near some of our properties, including the presence of underground storage tanks, may have caused soilor groundwater contamination. The prior owners of the affected properties conducted remediation of known contamination in the soils onour properties, and we do not believe that further clean-up of the soils is required. We are not aware of any such condition, liability, orconcern by any other means that would give rise to material environmental liability. However, the assessments may have failed to revealall environmental conditions, liabilities, or compliance concerns; there may be material environmental conditions, liabilities, orcompliance concerns that arose at a property after the review was completed; future laws, ordinances, or regulations may impose materialadditional environmental liability; and environmental conditions at our properties may be affected in the future by tenants, third parties,or the condition of land or operations near our properties, such as the presence of underground storage tanks. We cannot be certain thatcosts of future environmental compliance will not have an adverse effect on our financial condition, results of operations, cash flow, thequoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions tosecurity holders.Use of hazardous materials by some of our tenants. Some of our tenants handle hazardous substances and wastes on ourproperties as part of their routine operations. Environmental laws and regulations may subject these tenants, and potentially us, toliability resulting from such activities. We generally require our tenants in their leases to comply with these environmental laws andregulations and to indemnify us for any related liabilities. As of December 31, 2010, approximately 5% of our tenants handled hazardoussubstances and/or wastes on less than 5% of the aggregate square footage of our properties as part of their routine operations. Thesetenants are primarily involved in the life sciences and the light industrial and warehouse business. The hazardous substances and wastesare primarily comprised of diesel fuel for emergency generators and small quantities of lab and light manufacturing chemicals including,but not limited to, alcohol, ammonia, carbon dioxide, cryogenic gases, dichlorophenol, methane, naturalyte acid, nitrogen, nitrous oxide,and oxygen which are routinely used by life science and light manufacturing companies. We are not aware of any materialnoncompliance, liability, or claim relating to hazardous or toxic substances or petroleum products in connection with any of ourproperties, and management does not believe that on-going activities by our tenants will have a material adverse effect on our operations.Costs related to government regulation and private litigation over environmental matters. Under applicable environmentallaws and regulations, we may be liable for the costs of removal, remediation, or disposal of certain hazardous or toxic substances presentor released on our properties. These laws could impose liability without regard to whether we are responsible for, or even knew of, thepresence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs, and thepresence or release of hazardous substances on a property could result in governmental clean-up actions, personal injury actions, orsimilar claims by private plaintiffs.Potential environmental liabilities may exceed our environmental insurance coverage limits. We carry what we believe to besufficient environmental insurance to cover any potential liability for soil and groundwater contamination and the presence of asbestos-containing materials at the affected sites identified in the environmental10 site assessments. The policy is subject to various terms, conditions, qualifications, and limitations of coverage. Therefore, we cannotprovide any assurance that our insurance coverage will be sufficient or that our liability, if any, will not have a material adverse effect onour financial condition, results of operations, cash flows, quoted trading price of our securities, and our ability to satisfy our debt serviceobligations and to pay dividends and distributions to security holders.ITEM 1A RISK FACTORSThe following section sets forth material factors that may adversely affect our business and operations. The following factors, aswell as the factors discussed in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Influence Future Results of Operations” and other information contained in this report, should be considered inevaluating us and our business.Risks Related to our Business and OperationsGlobal market and economic conditions may adversely affect our liquidity and financial condition and those of our tenants. Inthe U.S., market and economic conditions continue to be challenging with tight credit conditions and modest growth. While recenteconomic data reflects a stabilization of the economy and credit markets, the cost and availability of credit may continue to be adverselyaffected. Concern about continued stability of the economy and credit markets generally, and the strength of counterparties specifically,has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Volatility in theU.S. and international capital markets and continued recessionary conditions in global economies, and in the California economy inparticular, may adversely affect our liquidity and financial condition and the liquidity and financial condition of our tenants. If thesemarket conditions continue, they may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access thecapital markets to meet liquidity needs.Our operations and those of our tenants may be adversely affected by the impact of California economic conditions andCalifornia’s budget deficit. As of December 31, 2010, all but one of our properties and all of our undeveloped land are located inCalifornia. The continuing economic crisis has particularly affected the economy of California. The State of California began its fiscalyear on July 1, 2010 with a significant reported deficit, which continues to impact and aggravate current recessionary conditions withinthe State. Given the budgetary situation in California, there is also the possibility that the California State Legislature could enact new taxlegislation, increasing tax rates in California. New legislation also could cut funding for government programs that are relied upon by ourtenants. The economic and legislative environment within the State could have an adverse impact on businesses operating in California,including us and our tenants.As a result of these factors, continued economic weakness in California could impact our ability to generate revenues sufficient tomeet our operating expenses or other obligations, which would adversely impact our financial condition, results of operations, cash flows,the quoted trading price of the Company’s common stock and of the Operating Partnership’s publicly-traded notes, and our ability tosatisfy our debt service obligations and to pay dividends and distributions to our security holders.Our performance and value are subject to risks associated with our investments in real estate assets and with trends in thereal estate industry. Our economic performance and the value of our real estate assets, and consequently the value of the Company’scommon stock, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or otherobligations. A deficiency of this nature would adversely impact our financial condition, results of operations, cash flows, the quotedtrading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to oursecurity holders.Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economicperformance and the value of our real estate assets may include: • local oversupply or reduction in demand for office, industrial, or other commercial space, which may result in decreasingrental rates and greater concessions to tenants; • inability to collect rent from tenants;11 • vacancies or inability to rent space on favorable terms or at all; • inability to finance property development and acquisitions on favorable terms or at all; • increased operating costs, including insurance premiums, utilities, and real estate taxes; • costs of complying with changes in governmental regulations; • the relative illiquidity of real estate investments; • changing submarket demographics; and • property damage resulting from seismic activity or other natural disasters.We depend upon significant tenants and the loss of a significant tenant could adversely affect our financial condition, revenuesand results of operations. As of December 31, 2010, our fifteen largest tenants represented approximately 39.5% of total annualizedbase rental revenues. See further discussion on the composition of our tenants by industry and our largest tenants under “Item 1:Business—Significant Tenants” and “Item 2: Properties—Significant Tenants.”Although we have been able to mitigate the impact of past significant tenant defaults on our financial condition, revenues, andresults of operations, our financial condition, results of operations, ability to borrow funds, and cash flows would be adversely affectedif any of our significant tenants fails to renew its lease(s), renew its lease(s) on terms less favorable to us, or becomes bankrupt orinsolvent or otherwise unable to satisfy its lease obligations.Downturn in tenants’ businesses may reduce our cash flows. For the year ended December 31, 2010, we derived approximately99.0% of our revenues from continuing operations from rental income and tenant reimbursements. A tenant may experience a downturn inits business, which may weaken its financial condition and result in its failure to make timely rental payments or result in defaults underour leases. In the event of default by a tenant, we may experience delays in enforcing our rights as landlord and may incur substantialcosts in protecting our investment.The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenantbecomes a debtor in a case under the Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy. In addition, thebankruptcy court might permit the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid and future rentcould be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Therefore, ourclaim for unpaid rent would likely not be paid in full. Any losses resulting from the bankruptcy of any of our existing tenants couldadversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability tosatisfy our debt service obligations and to pay dividends and distributions to our security holders.We may be unable to renew leases or re-lease available space. As of December 31, 2010, we had office and industrial spaceavailable for lease representing approximately 10.9% of the total square footage of our properties. In addition, leases representingapproximately 5.8% and 10.3% of the leased rentable square footage of our properties are scheduled to expire in 2011 and 2012,respectively. Above market rental rates on some of our properties may force us to renew or re-lease expiring leases at rates below currentlease rates. As of December 31, 2010, we believe that the weighted average cash rental rates for our overall portfolio, including recentlyacquired properties, are approximately 10% above the current average quoted market rental rates, and weighted average cash rental ratesfor leases scheduled to expire during 2011 are approximately 15% above the current average quoted market rental rates, althoughindividual properties within any particular submarket presently may be leased at, above, or below the current market rental rates withinthat submarket. We cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to orabove the current rental rates. If the average rental rates for our properties decrease or existing tenants do not renew their leases, ourfinancial condition, results of operations, cash flows, the quoted trading price of the Company’s common stock and of the OperatingPartnership’s publicly-traded notes, and our ability to satisfy our debt service obligations and to pay dividends and distributions to oursecurity holders could be adversely affected.12 We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties. We aresubject to governmental regulations that may have a material adverse effect on our financial condition, results of operations, cash flow,the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions toour security holders.Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act of 1990 (the “ADA”) andupdates thereof under which all public accommodations must meet federal requirements related to access and use by disabled persons,and state and local laws addressing earthquake, fire, and life safety requirements. Although we believe that our properties substantiallycomply with requirements under applicable governmental regulations, none of our properties have been audited or investigated forcompliance by any regulatory agency. If we were not in compliance with material provisions of the ADA or other regulations affecting ourproperties, we might be required to take remedial action, which could include making modifications or renovations to properties. Federal,state, or local governments may also enact future laws and regulations that could require us to make significant modifications orrenovations to our properties. If we were to incur substantial costs to comply with the ADA or any other regulations, our financialcondition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt serviceobligations and to pay dividends and distributions to our security holders could be adversely affected.Our properties are subject to land use rules and regulations that govern our development, redevelopment, and use of our properties.Restrictions on our ability to develop, redevelop, or use our properties resulting from changes in the existing land use rules and regulationscould have an adverse effect on our financial position, results of operations, cash flows, quoted trading price of our securities, our abilityto satisfy our debt service obligations and to pay dividends and distributions to our security holders.Increasing utility costs in California may have an adverse effect on our operating results and occupancy levels. The State ofCalifornia continues to address issues related to the supply of electricity, water, and natural gas. In recent years, shortages of electricityhave resulted in increased costs for consumers and certain interruptions in service. Increased consumer costs and consumer perceptionthat the State is not able to effectively manage its utility needs may reduce demand for leased space in California office and industrialproperties.Our debt level reduces cash available for distribution and may expose us to the risk of default under our debtobligations. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties orto pay in cash the distributions necessary to maintain the Company’s REIT qualification. See “—Risks Related to the Company’s Statusas a REIT-Loss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’scommon stock.” Our level of debt and the limitations imposed by our debt agreements may have substantial consequences to us,including the following: • we may be unable to refinance our indebtedness at maturity, or the refinancing terms may be less favorable than the terms ofour original indebtedness; • cash flows may be insufficient to meet required principal and interest payments; • we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms; • we may default on our obligations, and the lenders or mortgagees may foreclose on our properties that secure the loans andreceive an assignment of rents and leases; and • our default under one mortgage loan could result in a default on other indebtedness with cross default provisions.If one or more of these events were to occur, our financial condition, results of operations, cash flow, the quoted trading price of oursecurities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders could beadversely affected. In addition, foreclosures could create taxable income without accompanying cash proceeds, which could require oursecurity holders to pay income tax. As of December 31, 2010, we had approximately $1.5 billion aggregate principal amount ofindebtedness, $75.0 million of which is contractually due prior to December 31, 2011. Our total debt and preferred equity atDecember 31, 2010 represented 45.8% of our total market capitalization (which we define as the aggregate of our long-term debt,liquidation value of our preferred equity, and the market value of the Company’s common stock and common units).13 For the calculation of our market capitalization and additional information on debt maturities see “Item 7: Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and Capital Resources of the Company.”Our credit facility includes financial covenants relating to our operations, which could limit our ability to make distributionsto our stockholders. We rely exclusively on cash distributions we receive from the Operating Partnership for our working capital,including the cash necessary to pay dividends and distributions on shares of our common stock and preferred stock. The OperatingPartnership has a $500 million unsecured revolving credit facility (the “Credit Facility”) which restricts the Operating Partnership frommaking, in any year, distributions to us or other holders of its partnership interests in an aggregate amount in excess of the greater of: • 95% of the Operating Partnership’s consolidated funds from operations (as defined in the Credit Facility) for such year; and • an amount which results in distributions to us (excluding any preferred partnership distributions to the extent the same have beendeducted from consolidated funds from operation for such year) in an amount sufficient to permit us to (a) pay dividends to ourstockholders which we reasonably believe are necessary to maintain our qualification as a REIT for federal and state income taxpurposes and (b) avoid the payment of federal or state income or exercise tax.In addition, the Credit Facility provides that, if the Operating Partnership fails to pay when due any principal of or interest on anyborrowings under the Credit Facility, then the Operating Partnership may make only those partnership distributions to us and otherholders of its partnership interests necessary to enable us to make distributions to our stockholders which we reasonably believe arenecessary to maintain our status as a REIT for federal and state income tax purposes. Any limitation on our ability to make distributionsto our stockholders, whether as a result of these provisions in the Credit Facility or otherwise, could have a material adverse effect on themarket value of our common stock and preferred stock.We face significant competition, which may decrease the occupancy and rental rates of our properties. We compete withseveral developers, owners, and operators of office, industrial, and other commercial real estate, many of which own properties similar toours in the same submarkets in which our properties are located but which have lower occupancy rates than our properties. Therefore,our competitors have an incentive to decrease rental rates until their available space is leased. As previously mentioned, at December 31,2010 we believe that the weighted average cash rental rates for our overall portfolio are 10% above the current average quoted market rentalrates. If our competitors offer space at rental rates below the rates currently charged by us for comparable space, we may be pressured toreduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As a result, our financialcondition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligationsand to pay dividends and distributions to our security holders may be adversely affected.Potential casualty losses, such as earthquake losses, may not be covered by insurance and payment of such losses mayadversely affect our financial condition and results of operations. We carry comprehensive liability, fire, extended coverage, rentalloss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits areappropriate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generallyuninsurable losses such as loss from riots or acts of God. Some of our policies, like those covering losses resulting from floods, aresubject to limitations involving large deductibles or co-payments.We are subject to environmental and health and safety laws and regulations, and any costs to comply with, or liabilitiesarising under, such laws and regulations could be material. As an owner, operator, manager, and developer of real properties, we aresubject to environmental and health and safety laws and regulations. Certain of these laws and regulations impose joint and severalliability, without regard to fault, for investigation and clean-up costs on current and former owners and operators of real property andpersons who have disposed of or released hazardous substances into the environment. At some of the properties, there are asbestos-containing materials, or tenants routinely handle hazardous substances as part of their operations. In addition, historical operations,including the presence of underground storage tanks, have caused soil or groundwater contamination at or near14 some of the properties. Although we believe that the prior owners of the affected properties conducted remediation of known soilcontamination at these properties, we cannot assure you that all such contamination has been remediated. The discovery of previouslyunknown contamination or the compliance with existing or new environmental or health and safety laws and regulations could require usto incur costs or liabilities that could be material.Earthquake damage to our properties could have an adverse effect on our financial condition and operating results. All butone of our properties are located in California. We carry earthquake insurance on our properties in an amount and with deductibles thatmanagement believes are commercially reasonable. However, the amount of our earthquake insurance coverage may not be sufficient tocover losses from earthquakes. In addition, our earthquake insurance policies include substantial self-insurance portions, and we maydiscontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for earthquake insurance exceedsthe value of the coverage discounted for the risk of loss. If we experience a loss that is uninsured or which exceeds policy limits, we couldlose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if thedamaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the properties wereirreparable.We may be unable to complete acquisitions and successfully operate acquired properties. We continually evaluate the market ofavailable properties and may continue to acquire office and industrial properties and undeveloped land when strategic opportunities exist.Our ability to acquire properties on favorable terms and successfully operate them is subject to the following risks: • we may potentially be unable to acquire a desired property because of competition from other real estate investors withsignificant capital, including both publicly traded REITs and institutional investment funds; • the possibility that, even if we enter into agreements for the acquisition of office and industrial properties, we may be unableto complete such acquisitions since they remain subject to customary conditions to closing including the completion of duediligence investigations to management’s satisfaction; • we may be unable to finance acquisitions on favorable terms or at all; • we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; • we may lease acquired properties at below expected rental rates; • we may acquire properties that are subject to liabilities for which we may have limited or no recourse; and • we may be unable to complete an acquisition after making a nonrefundable deposit and incurring certain other acquisitionrelated costs.If we cannot finance property acquisitions on favorable terms or operate acquired properties to meet financial expectations, ourfinancial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt serviceobligations and to pay dividends and distributions to our security holders could be adversely affected.We may be unable to successfully complete and operate acquired, developed, and redeveloped properties. There are significantrisks associated with property acquisition, development, and redevelopment including the possibility that: • we may be unable to lease acquired, developed, or redeveloped properties at expected rental rates or within budgetedtimeframes; • we may not complete development or redevelopment properties on schedule or within budgeted amounts;15 • we may expend funds on and devote management’s time to acquisition, development, or redevelopment properties that wemay not complete; • we may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, andbuilding, occupancy, and other required governmental permits and authorizations; • we may encounter delays, refusals, unforeseen cost increases, and other impairments resulting from third-partylitigation; and • we may fail to obtain the financial results expected from properties we acquire, develop, or redevelop.If one or more of these events were to occur in connection with our acquired properties, undeveloped land, or development orredevelopment properties under construction, we could be required to recognize an impairment loss. These events could also have anadverse impact on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability tosatisfy our debt service obligations and to pay dividends and distributions to our security holders.While we historically have acquired, developed, and redeveloped office properties in California markets, we acquired one propertyin Washington during the year ended December 31, 2010 and may in the future acquire, develop, or redevelop properties for other usesand expand our business to other geographic regions where we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment. Presently, we do not possess the same level of familiarity with development of property types otherthan office and industrial, or with certain outside markets, which could adversely affect our ability to acquire or develop properties or toachieve expected performance.We could default on leases for land on which some of our properties are located. As of December 31, 2010, we owned oneoffice complex, Kilroy Airport Center in Long Beach, California, located on various land parcels, which we lease individually on a long-term basis. As of December 31, 2010, we had approximately 949,100 aggregate rentable square feet, or 6.8% of our total stabilizedportfolio, of rental space located on these leased parcels. If we default under the terms of any particular lease, we may lose the ownershiprights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiate a new lease on favorable terms, if atall. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on our financialcondition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligationsand to pay dividends and distributions to our security holders.Real estate assets are illiquid, and we may not be able to sell our properties when we desire. Our investments in our propertiesare relatively illiquid, limiting our ability to sell our properties quickly in response to changes in economic or other conditions. Inaddition, the Code generally imposes a 100% prohibited transaction tax on the Company on profits derived from sales of properties heldprimarily for sale to customers in the ordinary course of business, which effectively limits our ability to sell properties other than on aselected basis. These restrictions on our ability to sell our properties could have an adverse effect on our financial condition, results ofoperations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to paydividends and distributions to our security holders.We may invest in securities related to real estate, which could adversely affect our ability to pay dividends and distributions toour security holders. We may purchase securities issued by entities which own real estate and may, in the future, also invest inmortgages. In general, investments in mortgages are subject to several risks, including: • borrowers may fail to make debt service payments or pay the principal when due; • the value of the mortgaged property may be less than the principal amount of the mortgage note securing the property; and • interest rates payable on the mortgages may be lower than our cost for the funds used to acquire these mortgages.16 Owning these securities may not entitle us to control the ownership, operation, and management of the underlying real estate. Inaddition, we may have no control over the distributions with respect to these securities, which could adversely affect our ability to paydividends and distributions to our security holders.Future terrorist activity or engagement in war by the U.S. may have an adverse effect on our financial condition andoperating results. Terrorist attacks in the U.S. and other acts of terrorism or war, may result in declining economic activity, whichcould harm the demand for and the value of our properties. In addition, the public perception that certain locations are at greater risk forattack, such as major airports, ports, and rail facilities, may decrease the demand for and the value of our properties near these sites. Adecrease in demand could make it difficult for us to renew or re-lease our properties at these sites at lease rates equal to or above historicalrates. Terrorist activities also could directly impact the value of our properties through damage, destruction, or loss, and the availabilityof insurance for these acts may be less, and cost more, which could adversely affect our financial condition. To the extent that our tenantsare impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor theirexisting leases.Terrorist acts and engagement in war by the U.S. also may adversely affect the markets in which our securities trade and may causefurther erosion of business and consumer confidence and spending and may result in increased volatility in national and internationalfinancial markets and economies. Any one of these events may cause a decline in the demand for our office and industrial leased space,delay the time in which our new or renovated properties reach stabilized occupancy, increase our operating expenses, such as thoseattributable to increased physical security for our properties, and limit our access to capital or increase our cost of raising capital.Risks Related to our Organizational StructureOur growth depends on external sources of capital that are outside of our control and the inability to obtain capital on termsthat are acceptable to us, or at all, could adversely affect our financial condition and results of operations. The Company isrequired under the Code to distribute at least 90% of its taxable income (subject to certain adjustments and excluding net capital gain) andthe Operating Partnership is required to make distributions to the Company to allow the Company to satisfy these REIT distributionrequirements. For distributions with respect to our 2008 through 2011 taxable years, IRS guidance allows the Company to satisfy up to90% of this requirement through the distribution of shares of its common stock, if certain conditions are met. Because of thesedistribution requirements, the Operating Partnership is required to make distributions to the Company, and we may not be able to fundfuture capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, management relies on third-party sources of capital to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debtwe incur will increase our leverage. Access to third-party sources of capital depends, in part, on general market conditions and theavailability of credit, the market’s perception of our growth potential, our current and expected future earnings, our cash flows and cashdistributions, and the quoted market price of our securities. If we cannot obtain capital from third-party sources, our financial condition,results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and topay dividends and distributions to our security holders may be adversely affected.Our common limited partners have limited approval rights, which may prevent us from completing a change of controltransaction that may be in the best interests of all our security holders. The Company may not withdraw as the OperatingPartnership’s general partner or transfer its general partnership interest in the Operating Partnership without the approval of the holders ofat least 60% of the units representing common limited partnership interests, including the common units held by the Company in itscapacity as the Operating Partnership’s general partner. In addition, the Company may not engage in a merger, consolidation, or othercombination or the sale of substantially all of its assets or such similar transaction, without the approval of the holders of 60% of thecommon units, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. The rightof our common limited partners to vote on these transactions could limit our ability to complete a change of control transaction that mightotherwise be in the best interest of all our security holders.In certain circumstances, our limited partners must approve our dissolution and the disposition of properties contributed bythe limited partners. For as long as limited partners own at least 5% of all of our partnership17 interests, we must obtain the approval of limited partners holding a majority of the units representing common limited partnershipinterests before we may dissolve. As of December 31, 2010, limited partners owned approximately 3.2% of our partnership interests, ofwhich 2.7% was owned by John B. Kilroy, Sr. and John B. Kilroy, Jr. In addition, we agreed to use commercially reasonable efforts tominimize the tax consequences to common limited partners resulting from the repayment, refinancing, replacement, or restructuring ofdebt, or any sale, exchange, or other disposition of any of our other assets. The exercise of one or more of these approval rights by thelimited partners could delay or prevent us from completing a transaction that may be in the best interest of all our security holders.The Chairman of our board of directors and our President and Chief Executive Officer each have substantial influence overour affairs. John B. Kilroy, Sr. is the Chairman of our board of directors and the father of John B. Kilroy, Jr., our President and ChiefExecutive Officer. Each is a member of our board of directors, and together, as of December 31, 2010, they beneficially ownedapproximately 3.3% of the total outstanding shares of the Company’s common stock. The percentage of outstanding shares of commonstock beneficially owned includes 239,477 shares of common stock, 176,616 restricted stock units that were vested and held by JohnB. Kilroy, Jr. at December 31, 2010, and assumes the exchange into shares of the Company’s common stock of the 1,335,135 commonunits held by Messrs. Kilroy (which are redeemable in exchange for, at the option of the Company, an equal number of shares of theCompany’s common stock). The beneficial ownership percentage excludes 33,201 nonvested restricted stock units held by John B.Kilroy, Jr. at December 31, 2010.Pursuant to the Company’s charter, no other stockholder may own, actually or constructively, more than 7.0% of the outstandingCompany common stock without obtaining a waiver from the board of directors. The board of directors has waived the ownership limitswith respect to John B. Kilroy, Sr., John B. Kilroy, Jr., members of their families, and some of their affiliated entities. These namedindividuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of the Company’s outstanding commonstock, excluding Operating Partnership units that are exchangeable into shares of Company common stock. Consequently,Messrs. Kilroy have substantial influence on the Company, and because the Company is the manager of the Operating Partnership, onthe Operating Partnership, and could exercise their influence in a manner that is not in the best interest of our stockholders, noteholders orunitholders. Also, they may, in the future, have a substantial influence on the outcome of any matters submitted to our stockholders orunitholders for approval.There are restrictions on the ownership of the capital stock of the Company, which limit the opportunities for a change ofcontrol at a premium to existing security holders. Provisions of the Maryland General Corporation Law, the Company’s charter andbylaws, and the Operating Partnership’s partnership agreement may delay, deter, or prevent a change of control over us, or the removal ofexisting management. Any of these actions might prevent our security holders from receiving a premium for their common shares orcommon units over the then-prevailing market price of the shares of the Company’s common stock.The Code contains ownership limits on the Company’s capital stock that apply as a result of the Company’s decision to be taxed asa REIT, including: • no more than 50% in value of the Company’s capital stock may be owned, actually or constructively, by five or fewerindividuals, including some entities, during the last half of a taxable year; • the Company’s common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year,or a proportionate part of a short taxable year; and • if the Operating Partnership, the Company or any entity which owns 10% or more of the Company’s capital stock, actuallyor constructively own 10% or more of one of the Operating Partnership’s tenants, a tenant of the Company or any partnershipin which the Operating Partnership or the Company is a partner, then any rents received from that tenant will not bequalifying income for purposes of the Code’s REIT gross income tests, regardless of whether the rent is received directly orthrough a partnership.The Company’s charter also establishes ownership limits to protect the Company’s REIT status. No single stockholder may own,either actually or constructively, absent a waiver from the board of directors, more than 7.0% (by value or by number of shares,whichever is more restrictive) of the Company’s common stock outstanding. Similarly, absent a waiver from the board of directors, nosingle holder of the Company’s 7.45% Series A18 Cumulative Redeemable Preferred stock (the “Series A Preferred Stock”), if issued, may actually or constructively own any class orseries of the Company’s preferred stock, so that their total capital stock ownership would exceed 7.0% by value of the Company’s totaloutstanding shares of capital stock; no single holder of the Company’s 7.8% Series E Cumulative Redeemable Preferred stock (the“Series E Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is morerestrictive) of the Company’s Series E Preferred Stock; and no single holder of the Company’s 7.5% Series F Cumulative RedeemablePreferred stock (the “Series F Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares,whichever is more restrictive) of the Company’s Series F Preferred Stock.The board of directors may waive the ownership limits if it is satisfied that the excess ownership would not jeopardize theCompany’s REIT status and if it believes that the waiver would be in our best interest. The board of directors has waived the ownershiplimits with respect to John B. Kilroy, Sr., John B. Kilroy, Jr., members of their families, and some of their affiliated entities. Thesenamed individuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of the Company’s outstandingcommon stock, excluding units that are exchangeable into shares of common stock. The board of directors has also waived the ownershiplimits with respect to the initial purchasers of each of our 3.25% Exchangeable Senior Notes due 2012 (the “3.25% Exchangeable Notes”)and the 4.25% Exchangeable Senior Notes due 2014 (the “4.25% Exchangeable Notes” and, together with the 3.25% Exchangeable Notes,the “Exchangeable Notes”) and certain of their affiliated entities to beneficially own up to 9.8%, in the aggregate, of the Company’scommon stock in connection with hedging the capped call transactions.If anyone acquires shares in excess of any ownership limits, the transfer to the transferee will be void with respect to the excessshares, the excess shares will be automatically transferred from the transferee or owner to a trust for the benefit of a qualified charitableorganization, the purported transferee or owner will have no right to vote those excess shares, and the purported transferee or owner willhave no right to receive dividends or other distributions from those excess shares.The Company’s charter contains provisions that may delay, deter, or prevent a change of control transaction. The followingprovisions of the Company’s charter may delay or prevent a change of control over us, even if a change of control might be beneficial toour security holders, deter tender offers that may be beneficial to our security holders, or limit security holders’ opportunity to receive apotential premium for their shares and/or units if an investor attempted to gain shares beyond the Company’s ownership limits orotherwise to effect a change of control: • The Company’s charter authorizes the board of directors to issue up to 30,000,000 shares of the Company’s preferred stock,including convertible preferred stock, without stockholder approval. The board of directors may establish the preferences,rights, and other terms, including the right to vote and the right to convert into common stock any shares issued. Theissuance of preferred stock could delay or prevent a tender offer or a change of control even if a tender offer or a change ofcontrol was in our security holder’s interest. As of December 31, 2010, 5,060,000 shares of the Company’s preferred stockwere issued and outstanding, consisting of 1,610,000 shares of the Company’s Series E Preferred Stock and3,450,000 shares of the Company’s Series F Preferred Stock, and an additional 1,500,000 shares of preferred stock weredesignated as Series A Preferred Stock, which was reserved for possible issuance in exchange for the Operating Partnership’soutstanding Series A Preferred Units (the “Series A Preferred Units”); and • The Company’s charter states that any director, or the entire board of directors, may be removed from office at any time, butonly for cause and then only by the affirmative vote of the holders of at least two thirds of the votes of the Company’s capitalstock entitled to be cast in the election of directors.The board of directors may change investment and financing policies without unitholder or stockholder approval, causing usto become more highly leveraged, which may increase our risk of default under our debt obligations.We are not limited in our ability to incur debt. Our financing policies and objectives are determined by the board of directors. Ourgoal is to limit our dependence on leverage and maintain a conservative ratio of debt to total19 market capitalization. However, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise,that we may incur. As of December 31, 2010, we had approximately $1.5 billion aggregate principal amount of indebtedness outstanding,which represented 40.2% of our total market capitalization. Our total debt and the liquidation value of our preferred equity as a percentageof total market capitalization was approximately 45.8% as of December 31, 2010. See “Item 7: Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources of the Company” for a calculation of our marketcapitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amountof debt outstanding would result in an increase in our debt service, which could adversely affect cash flow and our ability to paydividends and distributions to our security holders. Higher leverage also increases the risk of default on our obligations and limits ourability to obtain additional financing in the future.We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable,which may dilute unitholder or stockholder investment. The Company may issue shares of our common stock, preferred stock, orother equity or debt securities without stockholder approval, including the issuance of shares to satisfy REIT dividend distributionrequirements. Similarly, the Operating Partnership may offer our common or preferred units for contributions of cash or property withoutapproval by our unitholders. Further, under certain circumstances, the Company may issue shares of our common stock in exchange forthe Operating Partnership’s outstanding Exchangeable Notes. Existing security holders have no preemptive rights to acquire any of thesesecurities, and any issuance of equity securities under these circumstances may dilute a unitholder’s or stockholder’s investment.Sales of a substantial number of shares of the Company’s securities, or the perception that this could occur, could result indecreasing the quoted market price per share for the Company’s common stock and of the Operating Partnership’s publicly-tradednotes. Management cannot predict whether future issuances of shares of the Company’s common stock or the availability of shares forresale in the open market will result in decreasing the market price per share of the Company’s common stock. As of December 31, 2010,52,349,670 shares of the Company’s common stock and 5,060,000 shares of the Company’s preferred stock, consisting of1,610,000 shares of Series E Preferred Stock and 3,450,000 shares of Series F Preferred Stock, were issued and outstanding, and anadditional 1,500,000 shares of preferred stock were designated as Series A Preferred Stock, which was reserved for possible issuance inexchange for the Operating Partnership’s outstanding Series A Preferred Units.As of December 31, 2010, the Company had reserved for future issuance the following shares of common stock: 1,723,131 sharesissuable upon the exchange, at the Company’s option, of the Operating Partnership’s common units; 4,375,533 shares remainedavailable for grant under our 2006 Incentive Award Plan (see Note 12 to our consolidated financial statements); 713,822 shares issuableupon settlement of restricted stock units (“RSUs”); 20,000 shares issuable upon exercise of outstanding options; and 975,101 sharesissuable under our the Company’s Dividend Reinvestment and Direct Stock Purchase Plan, as well as 1,681,813 and 4,800,796 sharespotentially issuable under certain circumstances, in exchange for the 3.25% Exchangeable Notes and 4.25% Exchangeable Notes,respectively. The Company has a currently effective registration statement registering 1,723,131 shares of our common stock for possibleissuance to the holders of the Operating Partnership’s common units. That registration statement also registers 306,808 shares of commonstock held by certain stockholders for possible resale. The Company also has a currently effective registration statements registering the1,681,813 shares of our common stock that may potentially be issued in exchange for the Operating Partnership’s presently outstanding3.25% Exchangeable Notes, and 4,800,796 shares of our common stock that may potentially be issued in exchange for the OperatingPartnership’s presently outstanding 4.25% Exchangeable Notes. Consequently, if and when the shares are issued, they may be freelytraded in the public markets.Risks Related to the Company’s Status as a REITLoss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’scommon stock. The Company currently operates in a manner that is intended to allow the Company to qualify as a REIT for federalincome tax purposes under the Code. If the Company were to lose its REIT status, the20 Company would face serious tax consequences that would substantially reduce the funds available for distribution to our unitholders andstockholders for each of the years involved because: • the Company would not be allowed a deduction for distributions to our stockholders in computing the Company’s taxableincome and would be subject to federal income tax at regular corporate rates; • the Company could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and • unless entitled to relief under statutory provisions, the Company could not elect to be taxed as a REIT for four taxable yearsfollowing the year during which the Company was disqualified.In addition, if the Company failed to qualify as a REIT, the Company will not be required to make distributions to ourstockholders, and all distributions to our stockholders will be subject to tax as regular corporate dividends to the extent of its current andaccumulated earnings and profits. As a result of all these factors, the Company’s failure to qualify as a REIT also could impair ourability to expand our business and raise capital and could adversely affect the value of the Company’s common stock.Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limitedjudicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have beenpromulgated under the Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination ofvarious factual matters and circumstances not entirely within our control may affect the Company’s ability to continue to qualify as aREIT. For example, to qualify as a REIT, at least 95% of the Company’s gross income in any year must be derived from qualifyingsources. Also, the Company must make distributions to stockholders aggregating annually at least 90% of the Company’s taxable income(subject to certain adjustments and excluding net capital gain). For distributions with respect to our 2008 through 2011 taxable years, IRSguidance allows the Company to satisfy up to 90% of this requirement through the distribution of shares of its common stock, if certainconditions are met. In addition, legislation, new regulations, administrative interpretations, or court decisions may adversely affect theCompany’s security holders, or the Company’s ability to qualify as a REIT for federal income tax purposes or the desirability of aninvestment in a REIT relative to other investments. Although management believes that we are organized and that we operate in a manner topermit the Company to continue to qualify as a REIT, we can provide no assurance to that effect.To maintain the Company’s REIT status, we may be forced to borrow funds on a short-term basis during unfavorable marketconditions. To qualify as a REIT, the Company generally must distribute to our stockholders at least 90% of the Company’s taxableincome each year (subject to certain adjustments and excluding net capital gain) and we will be subject to regular corporate income taxes tothe extent that we distribute less than 100% of our net taxable income each year. In addition, the Company will be subject to a 4%nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% ofour ordinary income, 95% of our net capital gains, and 100% of our undistributed income from prior years. For distributions withrespect to our 2008 through 2011 taxable years, IRS guidance allows the Company to satisfy up to 90% of this requirement through thedistribution of shares of its common stock, if certain conditions are met. To maintain the Company’s REIT status and avoid the paymentof federal income and excise taxes, the Operating Partnership may need to borrow funds on a short-term basis and loan the proceeds to theCompany so we can meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for theseborrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of income and inclusionof income for federal income tax purposes, or the effect of nondeductible capital expenditures, the creation of reserves, or required debt oramortization payments.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.21 ITEM 2. PROPERTIESGeneralAs of December 31, 2010, our stabilized portfolio of operating properties was comprised of the following office and industrialproperties, all but one of which are located in California. Number of Rentable Number of Percentage Occupied Buildings Square Feet Tenants at December 31, 2010 Office Properties 100 10,395,208 365 87.5%Industrial Properties 40 3,602,896 58 93.9%Total Stabilized Portfolio 140 13,998,104 423 89.1%Our stabilized portfolio excludes undeveloped land, one office redevelopment property that is currently under construction and oneindustrial property that we are in the process of repositioning for residential use. We own all of our properties through the OperatingPartnership and the Finance Partnership. All our properties are held in fee except for the seven office buildings located at Kilroy AirportCenter in Long Beach, California, which are held subject to leases for the land that expire in 2084.In general, the Office Properties are leased to tenants on a full service gross or modified gross basis, and the Industrial Properties areleased to tenants on a triple net basis. Under a full service lease, the landlord is obligated to pay the tenant’s proportionate share of realestate taxes, insurance, and operating expenses up to the amount incurred during the tenant’s first year of occupancy (“Base Year”) or anegotiated amount approximating the tenant’s pro rata share of real estate taxes, insurance, and operating expenses (“Expense Stop”). Thetenant pays its pro rata share of increases in expenses above the Base Year or Expense Stop. A modified gross lease is similar to a fullservice gross lease, except tenants are obligated to pay their proportionate share of certain operating expenses, usually electricity, directly tothe service provider. Under a triple net lease and a modified net lease, tenants pay their proportionate share of real estate taxes, operatingcosts, and utility costs.We believe that all of our properties are well maintained and do not require significant capital improvements. As of December 31,2010, we managed all of our properties through internal property managers.Office and Industrial PropertiesThe following table sets forth certain information relating to each of the stabilized Office Properties and Industrial Properties ownedas of December 31, 2010. Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) Office Properties: Los Angeles County 23925 Park Sorrento,Calabasas, California 1 2001 11,789 100.0% $421 $35.71 23975 Park Sorrento,Calabasas, California 1 2002 100,592 86.8% 3,126 36.94 24025 Park Sorrento,Calabasas, California 1 2000 102,264 96.8% 3,096 31.27 26541 Agoura RoadCalabasas, California 1 1988 90,156 100.0% 1,628 18.06 5151 Camino Ruiz,Camarillo, California(15) 2 1982 187,861 89.4% 1,879 11.19 5153 Camino Ruiz,Camarillo, California(10) 1 1982 38,655 100.0% 626 16.19 5155 Camino Ruiz,Camarillo, California(10) 1 1982 38,856 100.0% 221 11.70 22 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) 2240 E. Imperial Highway,El Segundo, California 1 1983/2008 122,870 100.0% 2,643 21.51 2250 E. Imperial Highway,El Segundo, California 1 1983 293,261 90.5% 8,178 31.07 909 Sepulveda Blvd.,El Segundo, California 1 1972/2005 241,607 98.7% 5,902 25.01 999 Sepulveda Blvd.,El Segundo, California 1 1962/2003 127,901 100.0% 2,673 23.06 3750 Kilroy Airport Way,Long Beach, California(5) 1 1989 10,457 100.0% 137 19.85 3760 Kilroy Airport Way,Long Beach, California 1 1989 165,278 96.1% 4,675 29.42 3780 Kilroy Airport Way,Long Beach, California 1 1989 219,745 81.5% 4,888 27.96 3800 Kilroy Airport Way,Long Beach, California 1 2000 192,476 93.6% 5,298 29.40 3840 Kilroy Airport Way,Long Beach, California 1 1999 136,026 100.0% 4,915 36.13 3880 Kilroy Airport Way,Long Beach, California 1 1987 98,243 100.0% 1,289 13.12 3900 Kilroy Airport Way,Long Beach, California 1 1987 126,840 65.2% 2,066 25.05 12100 W. Olympic Blvd.,Los Angeles, California 1 2003 150,167 65.1% 3,643 37.25 12200 W. Olympic Blvd.,Los Angeles, California 1 2000 150,302 92.2% 4,093 39.70 12312 W. Olympic Blvd,Los Angeles, California(4) 1 1950/1997 78,000 100.0% 2,108 27.03 1633 26th Street,Santa Monica, California 1 1972/1997 44,915 100.0% 1,152 25.65 2100 Colorado Avenue,Santa Monica, California 3 1992/2009 94,844 58.9% 2,413 43.17 3130 Wilshire Blvd.,Santa Monica, California 1 1969/1998 88,339 80.3% 2,265 31.93 501 Santa Monica Blvd.,Santa Monica, California 1 1974 73,115 69.0% 2,043 40.50 2829 Townsgate Road,Thousand Oaks, California 1 1990 81,067 82.3% 2,046 30.67 Subtotal/Weighted Average—Los Angeles County 29 3,065,626 89.3% 73,424 27.66 San Diego County 12225 El Camino Real,Del Mar, California(22) 1 1998 60,148 24.5% 488 33.13 12235 El Camino Real,Del Mar, California(6) 1 1998 54,673 81.0% 1,587 35.83 12340 El Camino Real,Del Mar, California(6) 1 2002 87,405 80.2% 3,099 44.20 12390 El Camino Real,Del Mar, California(6) 1 2000 72,332 100.0% 3,069 42.43 23 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) 12348 High Bluff Drive,Del Mar, California(6) 1 1999 38,710 93.5% 1,247 34.44 12400 High Bluff Drive,Del Mar, California(6) 1 2004 208,464 100.0% 9,897 47.48 3579 Valley Centre Drive,Del Mar, California(16) 1 1999 52,375 79.0% 1,572 37.99 3611 Valley Centre Drive,Del Mar, California(6) 1 2000 130,178 100.0% 4,504 36.42 3661 Valley Centre Drive,Del Mar, California(6) 1 2001 129,752 96.9% 3,760 32.51 3721 Valley Centre Drive,Del Mar, California(6) 1 2003 114,780 100.0% 3,767 32.82 3811 Valley Centre Drive,Del Mar, California(7) 1 2000 112,067 100.0% 5,199 46.39 6200 Greenwich Drive,Governor Park, California(7) 1 1999 71,000 100.0% 1,637 23.06 6220 Greenwich Drive,Governor Park , California(6) 1 1996/2010 141,214 100.0% 4,286 30.35 15051 Avenue of Science,I-15 Corridor, California(7) 1 2002 70,617 100.0% 2,035 28.82 15073 Avenue of Science,I-15 Corridor, California(7) 1 2002 46,759 100.0% 1,233 26.37 15231 Avenue of Science,I-15 Corridor, California(17) 1 2005 65,638 72.3% 936 19.71 15253 Avenue of Science,I-15 Corridor, California(7) 1 2005 37,437 100.0% 610 16.29 15333 Avenue of Science,I-15 Corridor, California(6) 1 2006 78,880 36.3% 737 25.74 15378 Avenue of Science,I-15 Corridor, California(7) 1 1990 68,910 100.0% 978 14.19 15004 Innovation Drive,I-15 Corridor, California(7) 1 2008 150,801 100.0% 7,364 48.83 15435 Innovation Drive,I-15 Corridor, California(18) 1 2000 51,500 63.5% 732 22.39 15445 Innovation Drive,I-15 Corridor, California(6) 1 2000 51,500 100.0% 1,214 23.57 13280 Evening Creek Drive South,I-15 Corridor, California(8) 1 2008 42,971 46.5% 541 27.08 13290 Evening Creek Drive South,I-15 Corridor, California 1 2008 61,176 0.0% — — 13480 Evening Creek Drive North,I-15 Corridor, California(6) 1 2008 149,817 100.0% 7,779 51.92 13500 Evening Creek Drive North,I-15 Corridor, California(6) 1 2004 147,533 100.0% 6,471 43.86 13520 Evening Creek Drive North,I-15 Corridor, California(6) 1 2004 141,368 97.7% 4,801 36.85 7525 Torrey Santa Fe,56 Corridor, California(7) 1 2007 103,979 100.0% 3,012 28.97 7535 Torrey Santa Fe,56 Corridor, California(7) 1 2007 130,243 100.0% 3,693 28.35 24 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) 7545 Torrey Santa Fe,56 Corridor, California(7) 1 2007 130,354 100.0% 3,609 27.69 7555 Torrey Santa Fe,56 Corridor, California(7) 1 2007 101,236 100.0% 3,175 31.36 2355 Northside Drive,Mission Valley, California(6) 1 1990 50,425 59.4% 1,063 35.47 2365 Northside Drive,Mission Valley, California(6) 1 1990 91,260 82.4% 2,592 34.45 2375 Northside Drive,Mission Valley, California(6) 1 1990 48,949 78.6% 1,328 34.53 2385 Northside Drive,Mission Valley, California(6) 1 2008 88,795 71.8% 2,032 31.89 2305 Historic Decatur Road,Point Loma, California(21) 1 2009 103,900 95.4% 3,796 38.29 10020 Pacific Mesa Blvd,Sorrento Mesa, California(4) 1 2007 318,000 100.0% 7,683 24.16 4910 Directors Place,Sorrento Mesa, California(23) 1 2009 50,925 24.5% 592 47.36 4921 Directors Place,Sorrento Mesa, California(7) 1 2008 55,500 85.9% 1,155 24.22 4939 Directors Place,Sorrento Mesa, California(7) 1 2002 60,662 100.0% 2,276 37.52 4955 Directors Place,Sorrento Mesa, California(7) 1 2008 76,246 100.0% 2,881 37.79 5005 Wateridge Vista Drive,Sorrento Mesa, California 1 1999 61,460 0.0% — — 5010 Wateridge Vista Drive,Sorrento Mesa, California 1 1999 111,318 0.0% — — 10243 Genetic Center Drive,Sorrento Mesa, California(27) 1 2001 102,875 0.0% — — 6055 Lusk Avenue,Sorrento Mesa, California(4) 1 1997 93,000 100.0% 1,554 16.71 6260 Sequence Drive,Sorrento Mesa, California(7) 1 1997 130,536 100.0% 1,717 13.15 6290 Sequence Drive,Sorrento Mesa, California(7) 1 1997 90,000 100.0% 2,098 23.31 6310 Sequence Drive,Sorrento Mesa, California(7) 1 2000 62,415 100.0% 1,133 18.15 6340 Sequence Drive,Sorrento Mesa, California(7) 1 1998 66,400 100.0% 1,341 20.20 6350 Sequence Drive,Sorrento Mesa, California 1 1998 132,600 100.0% 2,507 18.91 10390 Pacific Center Court,Sorrento Mesa, California(7) 1 2002 68,400 100.0% 2,771 40.51 10394 Pacific Center Court,Sorrento Mesa, California(7) 1 1995 59,630 100.0% 1,096 18.38 10398 Pacific Center Court,Sorrento Mesa, California(7) 1 1995 43,645 100.0% 698 15.99 10421 Pacific Center Court,Sorrento Mesa, California(24) 1 1995/2002 79,871 63.0% 642 12.76 25 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) 10445 Pacific Center Court,Sorrento Mesa, California(7) 1 1995 48,709 100.0% 831 17.06 10455 Pacific Center Court,Sorrento Mesa, California 1 1995 90,000 100.0% 1,112 12.36 10350 Barnes Canyon,Sorrento Mesa, California(6) 1 1998 38,018 100.0% 915 24.07 10120 Pacific Heights Drive,Sorrento Mesa, California(7) 1 1995 52,540 100.0% 977 18.60 5717 Pacific Center Blvd,Sorrento Mesa, California(4) 1 2001/2005 67,995 100.0% 1,503 22.10 4690 Executive Drive,UTC, California(9) 1 1999 47,212 88.3% 1,025 24.60 9455 Towne Center Drive,UTC, California 1 1998 45,195 0.0% — — 9785 Towne Center Drive,UTC, California(4) 1 1999 75,534 100.0% 1,374 18.19 9791 Towne Center Drive,UTC, California(4) 1 1999 50,466 100.0% 916 18.15 Subtotal/Weighted Average—San Diego County 63 5,466,298 86.4% 142,640 30.36 Orange County 4175 E. La Palma Avenue,Anaheim, California 1 1985 43,263 96.6% 780 19.19 8101 Kaiser Blvd.Anaheim, California 1 1988 59,790 100.0% 1,326 22.18 2211 Michelson,Irvine, California 1 2007 271,556 93.7% 9,905 39.42 111 Pacifica,Irvine Spectrum, California 1 1991 67,496 72.3% 1,043 23.42 999 Town & Country,Orange, California 1 1977/2009 98,551 100.0% 2,919 29.62 Subtotal/Weighted Average—Orange County 5 540,656 93.1% 15,973 32.28 San Francisco 303 Second Street,San Francisco, California(28) 1 1988 734,035 89.4% 24,298 37.20 100 First Street,San Francisco, California(28) 1 1988 466,490 76.2% 15,463 44.22 Subtotal/Weighted Average—San Francisco 2 1,200,525 84.3% 39,761 39.64 Greater Seattle 15050 N.E. 36th Street,Redmond, Washington(4) 1 1998 122,103 100.0% 3,130 25.63 Subtotal/Weighted Average—Greater Seattle 1 122,103 100.0% 3,130 25.63 TOTAL/WEIGHTED AVERAGEOFFICE PROPERTIES 100 10,395,208 87.5% 274,928 30.64 26 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) Industrial Properties: Los Angeles County 2031 E. Mariposa Avenue,El Segundo, California 1 1954/1990 192,053 100.0% 2,960 15.41 Subtotal/Weighted Average—Los Angeles County 1 192,053 100.0% 2,960 15.41 Orange County 1000 E. Ball Road,Anaheim, California 1 1956 100,000 100.0% 757 7.57 1230 S. Lewis Road,Anaheim, California 1 1982 57,730 100.0% 388 6.72 1250 N. Tustin Avenue,Anaheim, California 1 1984 84,185 100.0% 593 7.04 3125 E. Coronado Street,Anaheim, California 1 1970 144,000 100.0% 598 4.15 3130/3150 Miraloma,Anaheim, California(11) 1 1970 144,000 100.0% 838 5.82 3250 E. Carpenter,Anaheim, California 1 1998 41,225 100.0% 314 7.62 3340 E. La Palma Avenue,Anaheim, California 1 1966 153,320 100.0% 661 4.31 3355 E. La Palma Avenue,Anaheim, California 1 1999 98,200 100.0% 923 9.40 4123 E. La Palma Avenue,Anaheim, California(13) 1 1985 70,863 100.0% 764 10.79 4155 E. La Palma Avenue,Anaheim, California(12) 1 1985 74,618 85.8% 731 11.42 5115 E. La Palma Avenue,Anaheim, California 1 1967/1998 286,139 100.0% 2,078 7.26 5325 E. Hunter Avenue,Anaheim, California 1 1983 110,487 100.0% 433 3.92 1145 N. Ocean Boulevard,Anaheim, California(25) 1 1999 65,447 0.0% — — 1201 N. Miller Street,Anaheim, California 1 1999 119,612 37.9% 441 9.74 1211 N. Miller Street,Anaheim, California 1 1999 200,646 100.0% 1,349 6.72 1231 N. Miller Street,Anaheim, California(26) 1 1999 113,242 56.7% 302 4.70 950 W. Central Avenue,Brea, California 1 1983 24,000 100.0% 214 8.92 1050 W. Central Avenue,Brea, California(19) 1 1984 30,000 80.0% 236 9.83 1150 W. Central Avenue,Brea, California 1 1984 30,000 100.0% 278 9.27 895 Beacon Street,Brea, California 1 1987 54,795 100.0% 400 7.30 955 Beacon Street,Brea, California 1 1987 37,916 100.0% 212 5.59 27 Average Annualized Base Rental Percentage Base Rental Revenue No. of Year Built/ Rentable Occupied at Revenue Per Sq. Ft. Property Location Buildings Renovated Square Feet 12/31/10(1) ($000’s)(2) ($)(3) 1125 Beacon Street,Brea, California 1 1988 49,178 100.0% 420 8.54 925 Lambert Road,Brea, California(14) 1 1999 80,000 100.0% 521 6.51 1075 Lambert Road,Brea, California(14) 1 1999 98,811 100.0% 663 6.71 1675 MacArthur Blvd,Costa Mesa, California 1 1986 50,842 100.0% 577 11.35 25902 Towne Center Drive,Foothill Ranch, California 1 1998 309,685 100.0% 2,459 7.94 12681/12691 Pala Drive,Garden Grove, California(20) 1 1970 84,700 82.6% 544 7.77 7421 Orangewood Avenue,Garden Grove, California(7) 1 1981 82,602 100.0% 643 7.78 7091 Belgrave Avenue,Garden Grove, California 1 1971 70,000 100.0% 310 4.43 12271 Industry Street,Garden Grove, California(6) 1 1972 20,000 100.0% 125 8.33 12311 Industry Street,Garden Grove, California(6) 1 1972 25,000 100.0% 196 7.84 7261 Lampson Avenue,Garden Grove, California 1 1974 47,092 100.0% 330 7.01 12472 Edison Way,Garden Grove, California 1 1984 55,576 100.0% 416 7.49 12442 Knott Street,Garden Grove, California 1 1985 58,303 100.0% 344 5.90 2055 S.E. Main Street,Irvine, California 1 1973 47,583 100.0% 541 11.37 1951 E. Carnegie Avenue,Santa Ana, California 1 1981 100,000 100.0% 746 7.46 2525 Pullman Street,Santa Ana, California 1 1976 103,380 100.0% 548 5.30 14831 Franklin Avenue,Tustin, California 1 1978 36,256 100.0% 279 7.70 2911 Dow Avenue,Tustin, California 1 1998 51,410 100.0% 316 6.15 Subtotal/Weighted Average—Orange County 39 3,410,843 93.5% 22,488 7.06 TOTAL/WEIGHTED AVERAGEINDUSTRIAL PROPERTIES 40 3,602,896 93.9% 25,448 7.53 TOTAL/WEIGHTED AVERAGE ALLPROPERTIES 140 13,998,104 89.1% 300,376 $24.32 (1)Based on all leases at the respective properties in effect as of December 31, 2010. Includes month-to-month leases as of December 31, 2010.(2)Calculated as contractual base rental revenues as of December 31, 2010, determined in accordance with GAAP, annualized to reflect a twelve-month period.Annualized base rental revenues excludes the amortization of deferred revenue recorded for tenant-funded tenant improvements. Excludes month-to-monthleases and vacant space as of December 31, 2010.(3)Reflects annualized contractual base rent calculated on a straight-line basis in accordance with GAAP excluding the amortization of deferred revenue relatedto tenant-funded tenant improvements and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2010.28 (4)For these properties, the leases are written on a triple net basis.(5)For this property, leases of approximately 5,000 rentable square feet are written on a modified gross basis, a lease of approximately 2,000 rentable squarefeet is written on a full service gross basis, and a lease of approximately 3,000 rentable square feet is written on a gross basis whereby the tenant does notpay any operating expenses.(6)For these properties, the leases are written on a modified gross basis.(7)For these properties, the leases are written on a modified net basis.(8)For this property, a lease of approximately 20,000 rentable square feet is written on a modified net basis. A lease of approximately 5,000 rentable square feetwas executed with one tenant during the fourth quarter of 2010 and is written on a modified gross basis. The remaining 18,000 rentable square feet iscurrently being marketed for lease.(9)For this property, leases of approximately 19,000 rentable square feet are written on a modified net basis, and leases of approximately 22,000 rentable squarefeet are written on a modified gross basis.(10)For this property, leases of approximately 20,000 rentable square feet are written on a full service gross basis, and leases of approximately 19,000 rentablesquare feet are written on a triple net basis.(11)For this property, a lease of approximately 144,000 rentable square feet is written on a modified net basis.(12)For this property, leases of approximately 15,000 rentable square feet are written on a full service gross basis, leases of approximately 31,000 rentable squarefeet are written on a triple net basis, and leases of approximately 18,000 rentable square feet are written on a modified triple net basis.(13)For this property, a lease of approximately 15,000 rentable square feet is written on a modified gross basis, and a lease of approximately 56,000 rentablesquare feet is written on a triple net basis.(14)For these properties, leases of approximately 142,000 rentable square feet are written on a modified net basis, and a lease of approximately 37,000 rentablesquare feet is written on a modified gross basis.(15)For this property, leases of approximately 168,000 rentable square feet are written on a triple net basis, and the remaining 20,000 rentable square feet arevacant.(16)For this property, a lease of approximately 41,000 rentable square feet is written on a modified gross basis. The remaining 11,000 rentable square feet iscurrently being marketed for lease.(17)For this property, a lease of approximately 47,000 rentable square feet is written on a modified net basis. The remaining 18,000 rentable square feet iscurrently being marketed for lease.(18)For this property, a lease of approximately 33,000 rentable square feet is written on a modified gross basis. The remaining 18,000 rentable square feet iscurrently being marketed for lease.(19)For this property, leases of approximately 24,000 rentable square feet are written on a modified gross basis.(20)For this property, a lease of approximately 70,000 rentable square feet is written on a modified net basis.(21)For this property, leases of approximately 82,000 rentable square feet are written on a modified gross basis, and a lease of approximately 17,000 rentablesquare feet is written on a gross basis. The remaining 5,000 rentable square feet is currently being marketed for lease.(22)For this property, a lease of approximately 15,000 rentable square feet is written on a modified gross basis. A lease of approximately 44,000 rentable squarefeet was executed with one tenant during the fourth quarter of 2010. The new lease is expected to commence in the first quarter of 2011.(23)For this property, a lease of approximately 13,000 rentable square feet is written on a modified net basis, and a lease of approximately 10,000 rentable squarefeet will commence in the first quarter of 2011 . The remaining 28,000 rentable square feet is currently being marketed for lease.(24)For this property, a lease of approximately 50,000 rentable square feet is written on a modified net basis. The remaining 30,000 rentable square feet iscurrently being marketed for lease.(25)For this property, a lease of approximately 65,000 rentable square feet was executed with one tenant during the fourth quarter of 2010. The new lease isexpected to commence in the second quarter of 2011.(26)For this property, a lease of approximately 50,000 rentable square feet was executed with one tenant during the fourth quarter of 2010. The new lease isexpected to commence in the second quarter of 2011.(27)For this property, a lease of approximately 103,000 rentable square feet was executed with one tenant during the fourth quarter of 2010. The new lease isexpected to commence in the third quarter of 2011.(28)For these properties, the office leases are written on a full service gross basis and the retail leases are written on a triple net basis.Re-entitlement PropertyAs of December 31, 2010, we were in the process of repositioning the following property for residential use. Rentable No. of Year Square % Occupied atProperty Location Buildings Acquired Feet December 31, 201017150 Von KarmanIrvine, California 1 1997 157,458 — During the year ended December 31, 2010, we received notification that the zoning to allow high density residential improvements onthe land underlying this property was adopted by the city of Irvine. We are currently evaluating strategic alternatives for this property.29 In Process Redevelopment PropertyAs of December 31, 2010, we were in the process of redeveloping the following property. Construction Period Estimated Estimated Estimated Stabilization Rentable % Project Start Date Compl. Date Date(1) Square Feet Leased 2260 E. Imperial Highway El Segundo, California 3Q 2010 3Q 2011 3Q 2012 300,000 — (1)Based on management’s estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.Future Development PipelineThe following table sets forth certain information relating to our undeveloped land located in San Diego, California as ofDecember 31, 2010. Gross Site Project Submarket Acreage Carlsbad Oaks—Lots 4, 5, 7 & 8 Carlsbad 32.0 Pacific Corporate Center—Lot 8 Sorrento Mesa 5.0 Rancho Bernardo Corporate Center I-15 Corridor 21.0 One Paseo (San Diego Corporate Center) Del Mar 23.0 Santa Fe Summit—Phase II and III 56 Corridor 21.8 Sorrento Gateway—Lot 2 Sorrento Mesa 6.3 Sorrento Gateway—Lot 7 Sorrento Mesa 7.6 Total 116.7 Significant TenantsThe following table sets forth information about our fifteen largest tenants based upon annualized rental revenues as of December 31,2010. Percentage of Total Annualized Base Annualized Base Property Rental Rental Lease Expiration Tenant Name Segment Revenues(1) Revenues(1) Date (in thousands) Intuit, Inc. Office $15,126 5.0% Various(2)Bridgepoint Education, Inc. Office 15,099 5.0 Various(3)Scripps Health Office 12,562 4.2 Various(4)Delta Dental of California Office 10,834 3.6 Various(5)CareFusion Corporation(10) Office 10,087 3.4 Various(6)DIRECTV, Inc. Office 8,540 2.8 July 2014 AMN Healthcare, Inc. Office 8,192 2.7 July 2018 Fish & Richardson P.C. Office 6,071 2.0 October 2018 Hewlett-Packard Company Office 5,803 1.9 Various(7)Wells Fargo(10) Office 5,346 1.8 Various(8)BP Biofuels North America LLC Office 5,128 1.7 Various(9)Epson America, Inc. Office 4,915 1.6 October 2019 Mitchell International, Inc. Office 3,775 1.3 October 2025 Avnet, Inc. Office 3,768 1.3 February 2013 Scan Health Plan(10) Office 3,626 1.2 June 2015 Total $118,872 39.5% (1)Based upon annualized contractual base rental revenue, which is calculated on a straight-line basis in accordance with GAAP, for leases for which rentalrevenue is being recognized by us as of December 31, 2010.30 (2)The Intuit leases, which contribute $1.6 million and $13.5 million of annualized base rental revenues, expire in August 2012 and August 2017,respectively.(3)The Bridgepoint Education leases, which contribute $1.0 million, $6.3 million, and $7.8 million of annualized base rental revenues, expire in February2017, July 2018, and September 2018, respectively.(4)The Scripps Health leases, which contribute $5.2 million and $7.4 million of annualized base rental revenues, expire in June 2021 and February 2027,respectively.(5)The Delta Dental leases, which contribute $0.5 million and $10.3 million of annualized base rental revenues, expire in December 2011 and May 2015,respectively.(6)The CareFusion Corporation leases, which contribute $0.8 million and $9.3 million of annualized base rental revenues, expire in February 2012 andAugust 2017, respectively.(7)The Hewlett-Packard Company leases, which contribute $4.3 million and $1.5 million of annualized base rental revenues, expire in April 2012 and July2015, respectively.(8)The Wells Fargo leases, which contribute $0.1 million, $1.4 million, $1.0 million, $0.7 million, $2.0 million, and $0.1 million of annualized rental revenues,expire in January 2011, September 2013, November 2014, August 2015, September 2017, and February 2019, respectively.(9)During 2010, these leases were assigned from Verenium Corporation to BP Biofuels North America LLC. These leases, which contribute $2.9 million and$2.2 million of annualized base rental revenues, expire in November 2015 and March 2017, respectively.(10)We have entered into leases with various affiliates of the tenant name listed above.The following table sets forth the composition of our tenant base by industry based on Standard Industrial Classifications as ofDecember 31, 2010. Percentage of Total Annualized Base Rental Industry Revenues at December 31, 2010 Technology and Media 29.0%Education and Health Services 22.0 Manufacturing 14.0 Finance, Insurance, and Real Estate 14.0 Professional, Business, and Other Services 12.0 Wholesale and Retail Trade 3.0 Government 2.0 Construction 2.0 Leisure and Hospitality 1.0 Transportation, Warehousing, and Public Utilities 1.0 Total 100.0%31 Lease ExpirationsThe following table sets forth a summary of our lease expirations for the Office Properties and Industrial Properties for each of thenext ten years beginning with 2011, assuming that none of the tenants exercise renewal options or termination rights. See furtherdiscussion of our lease expirations under “Item 1A: Risk Factors”.Lease Expirations by Segment(1) Percentage of Average Annualized Annualized Base Net Rentable Percentage of Base Rental Revenue Area Subject Leased Square Annualized Base Rental Revenue Per Square Foot Year of Number of to Expiring Feet Represented Rental Revenue Represented Under Lease Expiring Leases by Expiring Under Expiring by Expiring Expiring Leases Expiration Leases (Sq. Ft.) Leases Leases (000’s)(2) Leases(2) (000’s)(2) Office Properties: 2011 72 565,860 6.3% $13,111 4.8% $23.17 2012 75 816,845 9.1% 22,808 8.3% 27.92 2013 72 861,486 9.6% 23,451 8.5% 27.22 2014 57 1,139,710 12.7% 30,298 11.0% 26.58 2015 87 1,501,743 16.7% 49,544 18.0% 32.99 2016 31 454,198 5.1% 10,977 4.0% 24.17 2017 30 1,387,122 15.5% 40,375 14.7% 29.11 2018 15 765,681 8.5% 33,609 12.2% 43.89 2019 9 357,541 4.0% 13,477 4.9% 37.69 2020 11 460,774 5.1% 14,507 5.3% 31.48 2021 and beyond 9 660,878 7.4% 22,771 8.3% 34.46 468 8,971,838 100.0% $274,928 100.0% $30.64 Percentage of Average Annualized Annualized Base Net Rentable Percentage of Base Rental Revenue Area Subject Leased Square Annualized Base Rental Revenue Per Square Foot Year of Number of to Expiring Feet Represented Rental Revenue Represented Under Lease Expiring Leases by Expiring Under Expiring by Expiring Expiring Leases Expiration Leases (Sq. Ft.) Leases Leases (000’s)(2) Leases(2) (000’s)(2) Industrial Properties: 2011 6 149,852 4.4% $1,393 5.5% $9.30 2012 11 452,557 13.4% 2,647 10.4% 5.85 2013 9 628,386 18.6% 4,671 18.4% 7.43 2014 13 501,364 14.8% 4,088 16.1% 8.15 2015 10 544,864 16.1% 3,839 15.1% 7.05 2016 3 297,497 8.8% 3,576 14.1% 12.02 2017 4 149,482 4.4% 888 3.5% 5.94 2018 2 137,397 4.1% 1,043 4.1% 7.59 2019 2 168,200 5.0% 1,467 5.8% 8.72 2020 1 50,842 1.5% 577 2.3% 11.35 2021 and beyond 2 297,320 8.9% 1,259 4.7% 4.23 63 3,377,761 100.0% $25,448 100.0% $7.53 Total Portfolio 531 12,349,599 100.0% $300,376 100.0% $24.32 (1)The information presented reflects leasing activity through December 31, 2010. For leases that have been renewed early or space that has been re-leased to anew tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes spaceleased under month-to-month leases and vacant space as of December 31, 2010.(2)Reflects annualized contractual base rent calculated on a straight-line basis in accordance with GAAP excluding the amortization of deferred revenue relatedto tenant-funded tenant improvements and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures includingfull service gross, modified gross and triple net.32 Secured DebtAs of December 31, 2010, the Operating Partnership had six outstanding mortgage notes payable, which were secured by certain ofour properties. Our secured debt represents an aggregate indebtedness of approximately $313.7 million, before the effect of unamortizeddiscounts. See additional information regarding our secured debt in “Item 7: Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity” and “Capital Resources—Liquidity Sources,” Notes 6 and 7 to our consolidatedfinancial statements, and Schedule III—Real Estate and Accumulated Depreciation included with this report. Management believes that,as of December 31, 2010, the value of the properties securing the applicable secured obligations in each case exceeded the principalamount of the outstanding obligation.ITEM 3. LEGAL PROCEEDINGSWe and our properties are subject to routine litigation incidental to our business’, we are not a defendant in, and our properties arenot subject to, any legal proceedings that, if determined adversely to us, would have a material adverse effect upon our financialcondition, results of operations, or cash flows.ITEM 4. REMOVED AND RESERVEDPART IIITEM 5. MARKET FOR KILROY REALTY CORPORATION’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESThe Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “KRC.” As of the date thisreport was filed, there were approximately 105 registered holders of the Company’s common stock. The following table illustrates thehigh, low, and closing prices by quarter as well as dividends declared during 2010 and 2009 as reported on the NYSE. Per Share Common Stock Dividends2010 High Low Close DeclaredFirst quarter $32.60 $26.75 $30.84 $0.3500 Second quarter 36.72 29.73 29.73 0.3500 Third quarter 34.39 27.54 33.14 0.3500 Fourth quarter 36.72 32.64 36.47 0.3500 Per Share Common Stock Dividends2009 High Low Close DeclaredFirst quarter $32.83 $15.40 $17.19 $0.5800 Second quarter 23.35 16.16 20.54 0.3500 Third quarter 30.75 18.67 27.74 0.3500 Fourth quarter 31.99 26.00 30.67 0.3500 The Company pays distributions to common stockholders quarterly each January, April, July, and October at the discretion of theboard of directors. Distribution amounts depend on our FFO, financial condition, capital requirements, the annual distributionrequirements under the REIT provisions of the Code, and such other factors as the board of directors deems relevant.MARKET FOR KILROY REALTY , L.P.’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESThere is no established public trading market for the Operating Partnership’s partnership units. As of the date this report was filed,there were 17 holders of record of our common limited partnership units (including the Company’s general partnership interest).33 The following table reports the distributions per common limited partnership unit declared during the years ended December 31,2010 and 2009. Per Unit Common Unit Distribution2010 DeclaredFirst quarter $0.3500 Second quarter 0.3500 Third quarter 0.3500 Fourth quarter 0.3500 Per Unit Common Unit Distribution2009 DeclaredFirst quarter $0.5800 Second quarter 0.3500 Third quarter 0.3500 Fourth quarter 0.3500 During 2009, the operating partnership redeemed 30,598 common limited partnership units for the same number of shares of theCompany’s common stock. During 2010, the operating partnership did not redeem any common limited partnership units for shares ofthe Company’s common stock.PERFORMANCE GRAPHThe following line graph compares the change in cumulative stockholder return on shares of the Company’s common stock to thecumulative total return of the NAREIT All Equity REIT Index, the Standard & Poor’s 500 Stock Index, and the SNL REIT Office Indexfor the five-year period ended December 31, 2010. We include an additional index, the SNL REIT Office Index, to the performance graphsince management believes it provides additional information to investors about our performance relative to a more specific peer group.The SNL REIT Office Index is a published and widely recognized index that comprises 17 office equity REITs, including us. The graphassumes the investment of $100 in us and each of the indices on December 31, 2005 and, as required by the SEC, the reinvestment of alldistributions. The return shown on the graph is not necessarily indicative of future performance.34 ITEM 6. SELECTED FINANCIAL DATA—KILROY REALTY CORPORATIONThe following tables set forth selected consolidated financial and operating data on an historical basis for the Company. Thefollowing data should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion and Analysisof Financial Condition and Results of Operations” included below in this Form 10-K.The consolidated balance sheet data as of December 31, 2010, 2009, 2008, 2007, and 2006 and the consolidated statement ofoperations data for each of the years then ended have been derived from the historical consolidated financial statements of Kilroy RealtyCorporation audited by an independent registered public accounting firm.KILROY REALTY CORPORATION CONSOLIDATED(in thousands, except share, per share, square footage and occupancy data) Year Ended December 31, 2010 2009 2008 2007 2006Statements of Operations Data: Total revenues $301,980 $279,434 $289,355 $257,876 $241,138 Income from continuing operations 18,937 35,754 45,849 44,560 47,741 Net income available for commonstockholders 4,512 21,794 29,829 101,164 72,256 Per-Share Data: Weighted average common sharesoutstanding-basic 49,497,487 38,705,101 32,466,591 32,379,997 31,244,062 Weighted average common sharesoutstanding-diluted 49,513,195 38,732,126 32,540,872 32,408,966 31,292,628 Income from continuing operationsavailable to common stockholdersper common share-basic $0.05 $0.47 $0.88 $0.82 $0.96 Income from continuing operationsavailable to common stockholdersper common share-diluted $0.05 $0.47 $0.88 $0.82 $0.96 Net income available to commonstockholders per share-basic $0.07 $0.53 $0.91 $3.09 $2.30 Net income available to commonstockholders per share-diluted $0.07 $0.53 $0.91 $3.09 $2.30 Dividends declared per common share $1.40 $1.63 $2.32 $2.22 $2.12 35 December 31, 2010 2009 2008 2007 2006Balance Sheet Data: Total real estate held for investment, beforeaccumulated depreciation and amortization $3,216,871 $2,520,083 $2,475,596 $2,370,004 $2,040,761 Total assets 2,816,565 2,084,281 2,102,918 2,069,810 1,799,352 Total debt 1,427,776 972,016 1,142,348 1,072,659 879,198 Total noncontrolling interest—preferred units(1) 73,638 73,638 73,638 73,638 73,638 Total preferred stock 121,582 121,582 121,582 121,582 121,582 Total equity(2) 1,117,730 883,838 714,886 767,034 713,924 Other Data: Funds From Operations(3) $106,639 $107,159 $113,972 $107,324 $118,184 Cash flows provided by (used in): Operating activities 119,827 124,965 144,481 147,500 61,570 Investing activities (701,774) (50,474) (93,825) (244,802) (136,193)Financing activities 586,904 (74,161) (52,835) 97,086 82,690 Property Data: Office Properties: Rentable square footage 10,395,208 8,708,466 8,650,126 8,088,769 7,835,040 Occupancy 87.5% 80.6% 86.2% 93.7% 95.8%Industrial Properties: Rentable square footage 3,602,896 3,654,463 3,718,663 3,869,969 3,869,969 Occupancy 93.9% 88.2% 96.3% 94.7% 95.8%(1)Represents the redemption value, less issuance costs of our issued and outstanding 1,500,000 Series A Preferred Units.(2)Includes the noncontrolling interest of the common units of the Operating Partnership.(3)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 netincome or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciableoperating property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estateassets), and after adjustment for unconsolidated partnerships and joint ventures.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 operatingreal 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 comparingthose operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, itfacilitates 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 diminishespredictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have consideredpresentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation andamortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performancerelative to our competitors and a more appropriate basis on which to make decisions involving operating, financing, and investing activities than the requiredGAAP presentations alone would provide.However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costsor the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costsand could materially impact our results of operations.Noncash adjustments to arrive at FFO were as follows: noncontrolling interest in earnings of the Operating Partnership, depreciation and amortization of realestate assets, and net gain (loss) from dispositions of operating properties. For additional information, see Item 7: Management’s Discussion and Analysis ofFinancial Condition and Results of Operations “-Non-GAAP Supplemental Financial Measure: Funds From Operations” including a reconciliation of ourGAAP net income available for common stockholders to FFO for the periods presented.36 SELECTED FINANCIAL DATA—KILROY REALTY, L.P.The following tables set forth selected consolidated financial and operating data on an historical basis for the Operating Partnership.The following data should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” included below in this Form 10-K.The consolidated balance sheet data as of December 31, 2010, 2009, and 2008 and the consolidated statement of operations data forthe years ended December 31, 2010, 2009, 2008, and 2007 have been derived from the historical consolidated financial statements ofKilroy Realty, L.P. audited by an independent registered public accounting firm. The consolidated balance sheet data as of December 31,2007 and 2006 and the consolidated statement of operations data for the year ended December 31, 2006 have been derived from theunaudited historical consolidated financial statements of Kilroy Realty, L.P.KILROY REALTY, L.P. CONSOLIDATED(in thousands, except unit, per unit, square footage and occupancy data) Year Ended December 31, 2010 2009 2008 2007 2006Statements of Operations Data: Total revenues $301,980 $279,434 $289,355 $257,876 $241,138 Income from continuing operations 18,937 35,754 45,849 44,560 47,741 Net income available for commonunitholders 4,528 22,618 31,478 107,797 78,008 Per-Unit Data: Weighted average common unitsoutstanding-basic 51,220,618 40,436,196 34,531,779 34,615,769 33,842,375 Weighted average common unitsoutstanding-diluted 51,236,326 40,463,221 34,606,060 34,644,738 33,890,941 Income from continuing operationsavailable to common unitholders percommon unit-basic $0.05 $0.47 $0.87 $0.81 $0.95 Income from continuing operationsavailable to common unitholders percommon unit-diluted $0.05 $0.47 $0.87 $0.81 $0.95 Net income available to commonunitholders per unit-basic $0.07 $0.53 $0.90 $3.09 $2.30 Net income available to commonunitholders per unit-diluted $0.07 $0.53 $0.90 $3.09 $2.30 Distributions declared per commonunit $1.40 $1.63 $2.32 $2.22 $2.12 37 December 31, 2010 2009 2008 2007 2006Balance Sheet Data: Total real estate held for investment, beforeaccumulated depreciation and amortization $3,216,871 $2,520,083 $2,475,596 $2,370,004 $2,040,761 Total assets 2,816,565 2,084,281 2,102,918 2,069,810 1,799,352 Total debt 1,427,776 972,016 1,142,348 1,072,659 879,198 Series A redeemable referred units(1) 73,638 73,638 73,638 73,638 73,638 Total preferred capital 121,582 121,582 121,582 121,582 121,582 Total capital(2) 1,117,730 883,838 714,886 767,034 713,924 Other Data: Cash flows provided by (used in): Operating activities 119,827 124,965 144,481 147,500 61,570 Investing activities (701,774) (50,474) (93,825) (244,802) (136,193)Financing activities 586,904 (74,161) (52,835) 97,086 82,690 Property Data: Office Properties: Rentable square footage 10,395,208 8,708,466 8,650,126 8,088,769 7,835,040 Occupancy 87.5% 80.6% 86.2% 93.7% 95.8%Industrial Properties: Rentable square footage 3,602,896 3,654,463 3,718,663 3,869,969 3,869,969 Occupancy 93.9% 88.2% 96.3% 94.7% 95.8%(1)Represents the redemption value, less issuance costs of the Operating Partnership’s issued and outstanding 1,500,000 Series A Preferred Units.(2)Includes the noncontrolling interests in consolidated subsidiaries.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSThe following discussion relates to our consolidated financial statements and should be read in conjunction with the financialstatements and notes thereto appearing elsewhere in this report. The results of operations discussion is combined for the Company and theOperating Partnership because there are no material differences in the results of operations between the two reporting entities.Statements contained in this report that are not historical facts may be forward-looking statements. Such statements are subject tocertain risks and uncertainties, which could cause actual results to differ materially from those projected. Some of the informationpresented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, propertydevelopment timing and costs, and investment amounts. Numerous factors could affect our actual results, some of which are beyond ourcontrol. These include the breadth and duration of the current slowness of economic growth and its impact on our tenants, the strength ofcommercial and industrial real estate markets, market conditions affecting tenants, our ability to complete and successfully integratepending and recent acquisitions, competitive market conditions, interest rate levels, volatility in the trading prices of the Company’ssecurities, and capital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of thedate of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information,future events, or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federalsecurities laws to disclose material information. For a discussion of important risks related to our business, and related to investing in oursecurities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see “Item 1A: Risk Factors and the discussion under the captions—Factors That May Influence Future Results ofOperations” and “—Liquidity and Capital Resources” below. In light of these risks, uncertainties, and assumptions, our actual resultscould be materially different from the expectations stated in this report.38 Overview and BackgroundWe are a self-administered REIT active in premier office and industrial submarkets along the West Coast. We own, develop, acquireand manage primarily Class A real estate assets in the coastal regions of Los Angeles, Orange County, San Diego, greater Seattle and theSan Francisco Bay Area, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of ourproperties through the Operating Partnership and the Finance Partnership, and conduct substantially all of our operations through theOperating Partnership. We owned a 96.8% and 96.2% general partnership interest in the Operating Partnership as of December 31, 2010and 2009, respectively.Critical Accounting PoliciesThe preparation of financial statements in conformity with GAAP requires us to make estimates, assumptions, and judgments thataffect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses for the reporting periods.Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that requireour management team to make significant estimates and/or assumptions about matters that are uncertain at the time the estimates and/orassumptions are made or where we are required to make significant judgments and assumptions with respect to the practical applicationof accounting principles in our business operations. Critical accounting policies are by definition those policies that are material to ourfinancial statements and for which the impact of changes in estimates, assumptions, and judgments could have a material impact to ourfinancial statements.The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, andjudgments used in the preparation of our consolidated financial statements. This discussion of our critical accounting policies is intendedto supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additionalinsight into the information used by management when evaluating significant estimates, assumptions, and judgments. For furtherdiscussion of our significant accounting policies, see Note 2 to the consolidated financial statements included in this report.Rental Revenue RecognitionRental revenue is our principal source of revenue. The timing of when we commence rental revenue recognition depends largely onour conclusion as to whether we are or the tenant is the owner for accounting purposes of the tenant improvements at the leased property.When we conclude that we are the owner of tenant improvements for accounting purposes, we record the cost to construct the tenantimprovements as an asset, and we commence rental revenue recognition when the tenant takes possession of the finished space, which istypically when such tenant improvements are substantially complete.The determination of whether we are or the tenant is the owner of the tenant improvements for accounting purposes is subject tosignificant judgment. In making that determination, we consider numerous factors and perform a detailed evaluation of each individuallease. No one factor is determinative in reaching a conclusion. The factors we evaluate include but are not limited to the following: • whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installationof the tenant improvements; • whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenantimprovement allowance was spent on prior to payment by the landlord for such tenant improvements; • whether the tenant improvements are unique to the tenant or reusable by other tenants; • whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or withoutcompensating the landlord for any lost utility or diminution in fair value; and39 • whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the leaseterm.In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we arethe owner of such tenant improvements using the factors discussed above. For these tenant-funded tenant improvements, we record theamount funded or reimbursed by tenants as deferred revenue, which is amortized and recognized as rental revenue over the term of therelated lease beginning upon substantial completion of the leased premises. During the years ended December 31, 2010, 2009, and 2008,we recorded $5.4 million, $2.0 million, and $28.1 million, respectively, of tenant-funded tenant improvements. The decreasing trendcorresponds to the decrease we have been experiencing in our development and redevelopment activities since leases at our developmentand redevelopment properties generally have higher tenant-funded tenant improvements. For those periods, we also recognized$9.7 million, $9.8 million, and $11.3 million, respectively, of noncash rental revenue related to the amortization of deferred revenuerecorded in connection with tenant-funded tenant improvements.When we conclude that we are not the owner and the tenant is the owner of tenant improvements for accounting purposes, we recordour contribution towards those improvements as a lease incentive, which is amortized as a reduction to rental revenue on a straight-linebasis over the term of the related lease, and rental revenue recognition begins when the tenant takes possession of or controls the space.Our determination as to whether we are or the tenant is the owner of tenant improvements for accounting purposes is made on alease-by-lease basis and has a significant impact on the amount of noncash rental revenue that we record related to the amortization ofdeferred revenue for tenant-funded tenant improvements, and can also have a significant effect on the timing of our overall revenuerecognition.Tenant Reimbursement RevenueReimbursements from tenants consist of amounts due from tenants for common area maintenance, real estate taxes, and otherrecoverable costs, including capital expenditures. Calculating tenant reimbursement revenue requires an in-depth analysis of the complexterms of each underlying lease. Examples of judgments and estimates used when determining the amounts recoverable include: • estimating the final expenses, net of accruals, that are recoverable; • estimating the fixed and variable components of operating expenses for each building; • conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicableunderlying lease; and • concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease.During the year, we accrue estimated tenant reimbursement revenue in the period in which the tenant reimbursable costs are incurredbased on our best estimate of the amounts to be recovered. Throughout the year, we perform analyses to properly match tenantreimbursement revenue with reimbursable costs incurred to date. Additionally, during the fourth quarter of each year, we performpreliminary reconciliations and accrue additional tenant reimbursement revenue or refunds. Subsequent to year end, we perform finaldetailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual adjustments in thefirst and second quarters of each year for the previous year’s activity. Our historical experience for the years ended December 31, 2009,2008, and 2007 has been that our final reconciliation and billing process resulted in final amounts that approximated the total annualtenant reimbursement revenues recognized.Allowances for Uncollectible Current Tenant Receivables and Deferred Rent ReceivablesTenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables anddeferred rent receivables. Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursementsof common area maintenance expenses, property taxes, and other costs recoverable from tenants. Deferred rent receivables represent theamount by which the cumulative straight-40 line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement. As of December 31, 2010 and 2009, currentreceivables were carried net of an allowance for uncollectible amount of $2.8 million and $3.1 million, respectively, and deferred rentreceivables were carried net of an allowance for uncollectible accounts of $3.8 million and $6.4 million, respectively.Management’s determination of the adequacy of the allowance for uncollectible current tenant receivables and the allowance fordeferred rent receivables is performed using a methodology that incorporates a specific identification analysis and an aging analysis andincludes an overall evaluation of our historical loss trends and the current economic and business environment. This determinationrequires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including thecreditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Since thesefactors are beyond our control, actual results can differ from our estimates, and such differences could be material.With respect to the allowance for uncollectible tenant receivables, the specific identification methodology analysis relies on factorssuch as the age and nature of the receivables, the payment history and financial condition of the tenant, our assessment of the tenant’sability to meet its lease obligations, and the status of negotiations of any disputes with the tenant. With respect to the allowance fordeferred rent receivables, given the longer-term nature of these receivables, the specific identification methodology analysis evaluates eachof our significant tenants and any tenants on our internal watchlist and relies on factors such as each tenant’s financial condition and itsability to meet its lease obligations. We evaluate our reserve levels quarterly based on changes in the financial condition of tenants and ourassessment of the tenant’s ability to meet its lease obligations, overall economic conditions, and the current business environment.For the years ended December 31, 2010, 2009, and 2008, we recorded a total provision for bad debts for both current tenantreceivables and deferred rent receivables of approximately (0.4)%, 0.2%, and 1.4%, respectively, of recurring rental revenue. The negativeprovision for the year ended December 31, 2010 reflects the reversal of approximately $1.0 million of a provision for bad debts recordedin prior years against outstanding receivables from a former tenant due to the settlement of outstanding litigation with the former tenant in2010. Included in the provision amount for 2008 is approximately $3.1 million for the unrecoverable portion of the deferred rent receivablebalance related to an early termination at one of our Office Properties in San Diego. Excluding the impact of the early termination on theprovision for bad debts, for the year ended December 31, 2008, we recorded a provision for bad debts of approximately 0.3% of recurringrevenue. During the year ended December 31, 2010, we wrote off approximately $1.7 million of receivables that were reserved in previousperiods. Excluding the $1.0 million reversal of the provision in 2010, our historical experience has been that actual write-offs of currenttenant receivables and deferred rent receivables has approximated the provision for bad debts recorded for the years ended December 31,2010, 2009, and 2008. In the event our estimates were not accurate and we had to change our allowances by 1% of recurring revenue, thepotential impact to our net income would be approximately $3.0 million, $2.8 million, and $2.8 million for the years ended December 31,2010, 2009, and 2008, respectively.Operating Property AcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions at fair value at theacquisition date. We assess and consider fair value based on estimated cash flow projections that utilize available market information anddiscount and/or capitalization rates that we deem appropriate. Estimates of future cash flows are based on a number of factors includinghistorical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumedliabilities for an acquired operating property generally include but are not limited to: land, buildings and improvements, and identifiedtangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value ofbuildings and improvements, tenant improvements, and leasing costs are based upon current market replacement costs and other relevantmarket rate information.The fair value of the above-market or below-market component of an acquired in-place lease is based upon the present value(calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over itsremaining term and (ii) management’s estimate of the rents that would be paid using fair41 market rental rates and rent escalations at the date of acquisition over the remaining term of the lease. We review in-place leases at acquiredproperties at the time of acquisition to determine if contractual rents are above or below current market rents for the acquired property, andwe record an identifiable intangible asset or liability if there is an above or below-market lease. The amounts recorded for above-marketleases are included in deferred leasing costs and acquisition-related intangibles, net on the balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-market leasesare included in deferred revenue and acquisition-related liabilities, net on the balance sheet and are amortized on a straight-line basis as anincrease to rental income over the remaining term of the applicable leases. If a lease were to be terminated prior to its contractual expiration(for example resulting from bankruptcy), amortization of the related unamortized above or below-market lease intangible would beaccelerated.The fair value of acquired in-place leases is derived based on management’s assessment of lost revenue and costs incurred for theperiod required to lease the “assumed vacant” property to the occupancy level when purchased. This fair value is based on a variety ofconsiderations including, but not necessarily limited to: (1) the value associated with avoiding the cost of originating the acquired in-placeleases; (2) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during theassumed lease-up period; and (3) the value associated with lost rental revenue from existing leases during the assumed lease-up period.Factors considered by us in performing these analyses include an estimate of the carrying costs during the expected lease-up periods,current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance andother operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand atmarket rates. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses. The amountrecorded for acquired in-place leases is included in deferred leasing costs and acquisition-related intangibles, net on the balance sheet andamortized as an increase to depreciation and amortization expense over the remaining term of the applicable leases. If a lease were to beterminated or if termination were determined to be likely prior to its contractual expiration (for example resulting from bankruptcy),amortization of the related unamortized in-place lease intangible would be accelerated.The determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of operating propertyacquisitions requires us to make significant judgments and assumptions about the numerous inputs discussed above. The use ofdifferent assumptions in these fair value calculations could significantly affect the reported amounts of the allocation of our acquisitionrelated assets and liabilities and the related amortization and depreciation expense recorded for such assets and liabilities. In addition,since the value of above and below market leases are amortized as either a reduction or increase to rental income, respectively, ourjudgments for these intangibles could have a significant impact on our reported rental revenues and results of operations.Evaluation of Asset ImpairmentWe evaluate our real estate assets for potential impairment whenever events or changes in circumstances indicate that the carryingamount of a given asset may not be recoverable. We evaluate our real estate assets for impairment on a property-by-property basis.Indicators we use to determine whether an impairment evaluation is necessary include: • low occupancy levels or forecasted low occupancy levels at a specific property; • current period operating or cash flow losses combined with a historical pattern or future projection of potential continuedoperating or cash flow losses at a specific property; • deterioration in rental rates for a specific property as evidenced by sudden significant rental rate decreases or continuousrental rate decreases over numerous quarters, which could signal a continued decrease in future cash flow for that property; • deterioration of a given rental submarket as evidenced by significant increases in market vacancy and/or negative absorptionrates or continuous increases in market vacancy and/or negative absorption rates over numerous quarters, which couldsignal a decrease in future cash flow for properties within that submarket; • significant increases in property sales yields, continuous increases in property sales yields over several quarters, or recentproperty sales at a loss within a given submarket, each of which could signal a decrease in the market value of properties;42 • significant change in strategy or use of a specific property or any other event that could result in a decreased holding period orsignificant development delay; • evidence of material physical damage to the property; and • default by a significant tenant when any of the other indicators above are present.When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are anyindicators of impairment. If any impairment indicators are present for a specific real estate asset, we then perform an undiscounted cashflow analysis and compare the net carrying amount of the real estate asset to the real estate asset’s estimated undiscounted future cash flowover the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the real estateasset, we perform an impairment loss calculation to determine if the fair value of the real estate asset is less than the net carrying value ofthe real estate asset. Our impairment loss calculation compares the net carrying amount of the real estate asset to the real estate asset’sestimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals.We recognize an impairment loss if the amount of the asset’s net carrying amount exceeds the asset’s estimated fair value. If we recognizean impairment loss, the estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basiswill be depreciated (amortized) over the remaining useful life of that asset.Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to makeassumptions and to apply judgment to estimate future cash flow and property fair values, including selecting the discount orcapitalization rate that reflects the risk inherent in future cash flow. Estimating projected cash flow is highly subjective as it requiresassumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, andoccupancy levels. We are also required to make a number of assumptions relating to future economic and market events and prospectiveoperating trends. Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factorsincluding the prevailing rate for the market or submarket, as well as the quality and location of the properties. Further, capitalization ratescan fluctuate resulting from a variety of factors in the overall economy or within regional markets. If the actual net cash flow or actualmarket capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materiallyaffected.Because of the economic and market environment, circumstances indicated that an analysis for potential impairment of certain ofour properties was necessary in each of the years ended December 31, 2010, 2009, and 2008. As a result, for each property where suchan indicator occurred and/or for properties within a given submarket where such an indicator occurred, we completed an impairmentevaluation. After completing this process, we determined that for each of the properties evaluated, undiscounted cash flows over theholding period were in excess of carrying value and, therefore, we did not record any impairment losses for these periods.Cost Capitalization and DepreciationWe capitalize costs associated with development and redevelopment activities, capital improvements, tenant improvements, andleasing activities. Amounts capitalized are depreciated or amortized over estimated useful lives determined by management. We depreciatebuildings and improvements based on the estimated useful life of the asset, and we amortize tenant improvements and leasing costs overthe shorter of the estimated useful life or estimated remaining life of the related lease. All capitalized costs are depreciated or amortizedusing the straight-line method.Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management toexercise significant judgment. Expenditures that meet one or more of the following criteria generally qualify for capitalization: • provide benefit in future periods; • extend the useful life of the asset beyond our original estimates; and • increase the quality of the asset beyond our original estimates.43 Our historical experience has demonstrated that we have not had material write-offs of assets and that our depreciation andamortization estimates have been reasonable and appropriate.Factors That May Influence Future Results of OperationsAcquisitions. As a key component of our growth strategy, we continually evaluate selected property acquisition opportunities.During the year ended December 31, 2010, we acquired ten buildings in eight transactions for approximately $697.8 million (see Note 3to our consolidated financial statements included in this report for additional information). We consider potential acquisitions on anongoing basis and may have one or more potential acquisitions under consideration at any point in time, which may be at varying stagesof the negotiation and due diligence review process. We generally finance our acquisitions through debt and equity offerings andborrowings on our unsecured line of credit. Costs associated with acquisitions are expensed as incurred and we may be unable to completean acquisition after making a nonrefundable deposit or incurring acquisition-related costs.In January 2011, we completed our third acquisition in San Francisco with the purchase of 250 Brannan Street in the SouthFinancial District for approximately $33.0 million. The building encompasses approximately 91,000 rentable square feet and is currently77% leased to two tenants.Leasing Activity and Changes in Rental Rates. The amount of net rental income generated by our properties depends principallyon our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed orredeveloped properties, and space available from unscheduled lease terminations. The amount of rental income we generate also dependson our ability to maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affectour rental income in future periods. The following tables set forth certain information regarding leases that commenced during the yearended December 31, 2010.Lease Commencement Information by SegmentFor Leases that Commenced During the Year Ended December 31, 2010 1st & 2nd Generation(1) 2nd Generation(1) Weighted Number of Rentable Changes Average Leases(2) Square Feet(2) Changes in in Cash Retention Lease Term New Renewal New Renewal Rents(3) Rents(4) Rates(5) (in months) Office Properties 57 53 898,090 740,652 (2.3)% (9.5)% 56.7% 63 Industrial Properties 11 8 508,105 278,700 (26.5)% (31.7)% 54.8% 81 Total portfolio 68 61 1,406,195 1,019,352 (6.1)% (12.9)% 56.1% 70 (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 during the period shown, including first and second generation space, net of month-to-month leases.Excludes leasing on new construction.(3)Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which thespace was vacant longer than one year, or vacant when the property was acquired .(4)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 spacewas vacant longer than one year, or vacant when the property was acquired.(5)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.The changes in rents and changes in cash rents reported above excludes leases of approximately 893,900 rentable square feet for thetwelve months ended December 31, 2010, for which the space was vacant longer than one year or we are leasing the space for the firsttime. We exclude space vacant for more than one year in our change in rents calculations to provide a meaningful market comparison.In general, we have experienced decreases in rental rates in many of our submarkets over the last several quarters as the result ofcontinued slow economic growth and other related factors. During the fourth quarter of 2010, we executed 42 leases for an aggregate of0.8 million rentable square feet. The weighted average change in44 rents as compared to the expiring rents for the same space for these new leases was a 6.2% decrease in GAAP rents and a 14.7% decreasein cash rents, excluding leases for which the space was vacant longer than one year. As of December 31, 2010, we believe that theweighted average cash rental rates for our overall portfolio, including recently acquired properties, are approximately 10% above thecurrent 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. As previously discussed, our rental rates and occupancy are impacted by generaleconomic conditions, including the pace of regional economic growth and access to capital. Therefore, given the impact of the currenteconomic conditions and continued expectation of slow economic growth in our submarkets, we cannot give any assurance that leases willbe renewed or that available space will be re-leased at rental rates equal to or above the current market rates. Additionally, decreaseddemand and other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have furthernegative effects on our future financial condition, results of operations, and cash flows.Scheduled Lease Expirations. In addition to the 1.5 million rentable square feet, or 10.9%, of currently available space in ourstabilized portfolio, leases representing approximately 5.8% and 10.3% of the occupied square footage of our stabilized portfolio arescheduled to expire during 2011 and in 2012, respectively. The leases scheduled to expire during 2011 and in 2012 representapproximately 1.4 million rentable square feet of office space, or 12.0% of our total annualized base rental revenue, and 0.6 millionrentable square feet of industrial space, or 1.3% of our total annualized base rental revenue, respectively. We believe that the weightedaverage cash rental rates are approximately 15% above the current average quoted market rates for leases scheduled to expire during 2011,although individual properties within any particular submarket presently may be leased either above, below, or at the current quotedmarket rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cashrental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the marketconditions in the specific regions in which individual properties are located.Development and Redevelopment Programs. We believe that a portion of our long-term future potential growth will continue tocome from our development pipeline and redevelopment opportunities within our existing portfolio. Redevelopment opportunities are thoseprojects in which we spend significant development and construction costs on existing buildings pursuant to a formal plan, the result ofwhich is a higher economic return on the property. While in recent periods we have delayed the timing and reduced the scope of ourdevelopment program activity as a result of economic conditions in our submarkets, we continue to proactively evaluate development andredevelopment opportunities throughout California.In the third quarter of 2010 we commenced the redevelopment of one of our buildings in the El Segundo submarket of Los AngelesCounty which encompasses approximately 300,000 rentable square feet. We will be upgrading and modernizing the building and adjacentcommon areas since it was previously occupied by the Boeing Company and its predecessors for more than 25 years. The project has atotal estimated investment of approximately $50 million and is currently expected to be completed in the third quarter of 2011 (seeadditional information under the caption “—Liquidity and Capital Resources of the Operating Partnership—Liquidity Uses—Redevelopment and Acquisition Opportunities”).Over the next two years, we also plan to continue to evaluate redevelopment opportunities for certain other of our properties, whichhave been occupied by long-term tenants and require significant capital expenditures to upgrade and modernize the buildings. In addition,we plan to continue to focus on enhancing the entitlements for our existing development land pipeline, and performing additional activitiesto prepare for the time when development will again be economically attractive.Incentive Compensation. Our Executive Compensation Committee determines compensation, including equity and cash incentiveprograms, for our executive officers. The programs approved by the Executive Compensation Committee have historically provided forequity and cash compensation to be earned by our executive officers based on certain performance measures, including financial,operating, and development targets. Incentive compensation for our executive officers for 2011 is structured to allow the CompensationCommittee to evaluate a variety of key factors and metrics at the end of the year and make a determination of incentive45 compensation for executive officers based on the Company’s and management’s overall performance. As a result, accrued incentivecompensation and compensation expense for future incentive compensation awards will be affected by our operating and developmentperformance, financial results, the performance of the trading price of the Company’s common stock, and market conditions.Consequently, we cannot predict the amounts that will be recorded in future periods related to executive compensation.Share-Based Compensation. As of December 31, 2010, there was $4.8 million of total unrecognized compensation cost related tooutstanding nonvested shares of restricted common stock and nonvested RSUs issued under share-based compensation arrangements.That cost is expected to be recognized over a weighted-average period of 1.5 years. Additional unrecognized compensation cost of$4.6 million related to 66,208 shares of restricted common stock and 97,597 nonvested restricted stock units issued under share-basedcompensation arrangements subsequent to December 31, 2010 is expected to be recognized over a weighted-average period of 2.1 years. SeeNote 12 to our consolidated financial statements for additional information regarding our share-based incentive compensation plan.Stabilized Portfolio InformationThe following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties fromDecember 31, 2009 to December 31, 2010: Office Properties Industrial Properties Total Number of Rentable Number of Rentable Number of Rentable Buildings Square Feet Buildings Square Feet Buildings Square Feet Total as of December 31, 2009 93 8,708,466 41 3,654,463 134 12,362,929 Acquisitions 10 2,076,064 10 2,076,064 Property moved to the redevelopment portfolio (1) (286,151) (1) (286,151)Dispositions (2) (106,791) (1) (51,567) (3) (158,358)Remeasurement 3,620 3,620 Total as of December 31, 2010 100 10,395,208 40 3,602,896 140 13,998,104 Occupancy InformationThe following table sets forth certain information regarding our stabilized portfolio:Stabilized Portfolio Occupancy by Segment Number of Square Feet Occupancy at(1) Region Buildings Total 12/31/2010 12/31/2009 12/31/2008 Office Properties: Los Angeles and Ventura Counties 29 3,065,626 89.3% 88.8% 92.3%San Diego County 63 5,466,298 86.4 76.8 83.1 Orange County 5 540,656 93.1 49.8 67.9 San Francisco 2 1,200,525 84.3 — — Greater Seattle 1 122,103 100.0 — — 100 10,395,208 87.5 80.6 86.2 Industrial Properties: Los Angeles County 1 192,053 100.0 100.0 100.0 Orange County 39 3,410,843 93.5 87.6 96.1 40 3,602,896 93.9 88.2 96.3 Total Stabilized Portfolio 140 13,998,104 89.1% 82.8% 89.2%46 Average Occupancy Stabilized Portfolio(1) Core Portfolio(2) 2010 2009 2010 2009Office Properties 84.2% 83.3% 85.0% 83.5%Industrial Properties 87.3 89.8 87.2 90.4 Total 85.1% 85.3% 85.6% 85.6%(1)Occupancy percentages reported are based on our stabilized portfolio for the period presented.(2)Occupancy percentages reported are based on Office Properties and Industrial Properties owned and stabilized at January 1, 2009 and still owned andstabilized as of December 31, 2010.As of December 31, 2010, the Office Properties and Industrial Properties represented approximately 91.5% and 8.5%, respectively, of ourtotal annualized base rental revenue and approximately 89.4% and 10.6%, respectively, of our total net operating income, as defined.Current Regional InformationAlthough real estate fundamentals continue to be challenging in many of our regional submarkets, we have started to see an increasein occupancy across our portfolio, and we have generally seen a modest decrease in vacancy rates across many of our regionalsubmarkets as well as a stabilization in rental rates and lease concession packages.Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized office portfolio of 3.1 million rentablesquare feet was 89.3% occupied with approximately 328,800 vacant rentable square feet as of December 31, 2010 compared to 88.8%occupied with approximately 376,400 vacant rentable square feet as of December 31, 2009.As of December 31, 2010, an aggregate of approximately 435,269 and 215,167 rentable square feet are scheduled to expire in thisregion during 2011 and 2012, respectively. The aggregate rentable square feet scheduled to expire in this region during 2011 and 2012represents approximately 22.9% of the total occupied rentable square feet in this region and 5.1% of our annualized base rental revenuesfor our total stabilized portfolio.San Diego County. Our San Diego stabilized office portfolio of 5.5 million rentable square feet was 86.4% occupied withapproximately 744,300 vacant rentable square feet as of December 31, 2010 compared to 76.8% occupied with approximately 1.2 millionvacant rentable square feet as of December 31, 2009. During the year ended December 31, 2010, we acquired five San Diego officebuildings encompassing approximately 383,329 rentable square feet, which were 80.0% occupied as of December 31, 2010. In addition,we commenced 11 leases representing approximately 498,800 rentable square feet for space in this region that was vacant as ofDecember 31, 2009.As of December 31, 2010, leases representing an aggregate of approximately 76,594 and 463,179 rentable square feet are scheduledto expire during 2011 and 2012, respectively, in this region. The aggregate rentable square feet scheduled to expire in this region during2011 and 2012 represents approximately 11.5% of the total occupied rentable square feet in this region and 5.0% of our annualized baserental revenues for our total stabilized portfolio. As of the date of this filing, we have leased approximately 155,000 rentable square feet ofspace in this region that was vacant at December 31, 2010. The new leases are scheduled to commence at various dates during the firstthree quarters of 2011.Orange County. As of December 31, 2010, our Orange County stabilized industrial portfolio of approximately 3.4 million rentablesquare feet was 93.5% occupied with approximately 220,100 vacant rentable square feet compared to 87.6% occupied with approximately429,900 vacant rentable square feet as of December 31, 2009. The increase in Orange County stabilized industrial portfolio occupancy isprimarily attributable to three leases encompassing approximately 361,500 rentable square feet that commenced in 2010, partially offsetby two leases encompassing approximately 139,800 rentable square feet that expired during the year. Furthermore, of the 220,100 rentablesquare feet that was vacant as of December 31, 2010, approximately47 114,500 rentable square feet has been re-leased to two new tenants. These two new leases are expected to commence during the first half of2011.Our Orange County stabilized office portfolio of approximately 540,700 rentable square feet was 93.1% occupied withapproximately 37,300 vacant rentable square feet as of December 31, 2010 compared to 49.8% occupied with approximately 139,100vacant rentable square feet as of December 31, 2009. The increase in Orange County stabilized office portfolio occupancy is primarilyattributable to two acquisitions and two dispositions made during the year. During the second quarter of 2010, we acquired two OrangeCounty office buildings encompassing approximately 370,107 rentable square feet, which were 95.4% occupied as of December 31,2010. During the fourth quarter of 2010, we disposed of two Orange County office buildings encompassing approximately106,800 rentable square feet, which were 4.3% occupied as of the date of sale.As of December 31, 2010, leases representing an aggregate of approximately 173,749 and 510,723 rentable square feet are scheduledto expire during 2011 and 2012, respectively, in this region. The aggregate rentable square feet scheduled to expire during 2011 and 2012represents approximately 18.6% of the total occupied rentable square feet in this region and 2.0% of the annualized base rental revenuesfor our total stabilized portfolio. Of the 684,472 rentable square feet scheduled to expire during 2011 and 2012, approximately602,409 rentable square feet is industrial space. Over the last year, the Orange County industrial market has experienced a significantdecrease in rental rates.San Francisco. During the year ended December 31, 2010, we acquired two office buildings in San Francisco encompassingapproximately 1.2 million rentable square feet. These buildings were 84.3% occupied with approximately 188,900 vacant rentable squarefeet as of December 31, 2010. As of December 31, 2010, leases representing an aggregate of approximately 30,100 and 80,333 rentablesquare feet are scheduled to expire during 2011 and 2012, respectively, in this region. The aggregate rentable square feet scheduled toexpire in this region during 2011 and 2012 represents approximately 11.0% of the total occupied rentable square feet in this region andless than 1.2% of our annualized base rental revenues for our total stabilized portfolio. As of the date of this filing, we have leasedapproximately 130,400 rentable square feet of space in this region that was vacant at December 31, 2010. The new leases are scheduled tocommence at various dates during the first three quarters of 2011.Greater Seattle. During the year ended December 31, 2010, we acquired one office building in Redmond, Washington,encompassing approximately 122,100 rentable square feet. The building was 100.0% occupied as of December 31, 2010 to a single tenantand the lease expires in 2015.Results of OperationsManagement internally evaluates the operating performance and financial results of our portfolio based on Net Operating Income forthe following segments of commercial real estate property: Office Properties and Industrial Properties. We define “Net Operating Income”as operating revenues (rental income, tenant reimbursements, and other property income) less operating expenses (property expenses, realestate taxes, provision for bad debts, and ground leases). The Net Operating Income segment information presented within thisManagement’s Discussion and Analysis of Financial Condition and Results of Operations consists of the same Net Operating Incomesegment information disclosed in Note 18 to our consolidated financial statements.48 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009The following table reconciles our Net Operating Income by segment to our net income for the years ended December 31, 2010 and2009. Year Ended December 31, Dollar Percentage 2010 2009 Change Change ($ in thousands) Net Operating Income, as defined Office Properties $193,649 $178,247 $15,402 8.6%Industrial Properties 22,849 24,982 (2,133) (8.5)Total portfolio 216,498 203,229 13,269 6.5 Reconciliation to Net Income: Net Operating Income, as defined for reportable segments 216,498 203,229 13,269 6.5 Unallocated (expense) income: General and administrative expenses (27,963) (39,938) 11,975 (30.0)Acquisition-related expenses (2,248) — (2,248) 100.0 Depreciation and amortization (103,809) (87,627) (16,182) 18.5 Interest income and other investment gains 964 1,300 (336) (25.8)Interest expense (59,941) (46,119) (13,822) 30.0 (Loss) gain on early extinguishment of debt (4,564) 4,909 (9,473) (193.0)Income from continuing operations 18,937 35,754 (16,817) (47.0)Income from discontinued operations 949 2,261 (1,312) (58.0)Net income $19,886 $38,015 $(18,129) (47.7)%Rental OperationsOffice PropertiesThe following table compares the Net Operating Income for the Office Properties for the years ended December 31, 2010 and 2009.Office Properties Total Office Portfolio Core Office Portfolio(1) Dollar Percentage Dollar Percentage 2010 2009 Change Change 2010 2009 Change Change Operating revenues: Rental income $249,278 $220,393 $28,885 13.1% $217,135 $214,424 $2,711 1.3%Tenant reimbursements 20,884 24,350 (3,466) (14.2) 19,298 22,048 (2,750) (12.5)Other property income 1,716 2,328 (612) (26.3) 1,310 2,321 (1,011) (43.6)Total 271,878 247,071 24,807 10.0 237,743 238,793 (1,050) (0.4)Property and related expenses: Property expenses 53,904 45,970 7,934 17.3 45,097 43,900 1,197 2.7 Real estate taxes 24,355 21,181 3,174 15.0 20,077 20,215 (138) (0.7)Provision for bad debts (1,014) 76 (1,090) (1,434.2) (1,014) 76 (1,090) (1,434.2)Ground leases 984 1,597 (613) (38.4) 971 1,584 (613) (38.7)Total 78,229 68,824 9,405 13.7 65,131 65,775 (644) (1.0)Net Operating Income $193,649 $178,247 $15,402 8.6% $172,612 $173,018 $(406) (0.2)%(1)Office Properties owned and stabilized at January 1, 2009 and still owned and stabilized as of December 31, 2010.49 Rental IncomeRental income from Office Properties increased $28.9 million, or 13.1%, for the year ended December 31, 2010 compared to the yearended December 31, 2009 primarily the result of: • An increase of $28.9 million generated by the ten office buildings we acquired during 2010 (the “Office AcquisitionProperties”); • An increase of $2.7 million generated by a 1.5% increase in average occupancy for the Office Properties owned andstabilized as of January 1, 2009 and still owned and stabilized as of December 31, 2010 (the “Core Office Portfolio”) from83.5% for the year ended December 31, 2009 to 85.0% for the year ended December 31, 2010; and • An offsetting decrease of $2.3 million generated by one office building that was moved from the stabilized portfolio to theredevelopment portfolio during the third quarter of 2010 upon the expiration of the lease for that building (the “OfficeRedevelopment Property”).Tenant ReimbursementsTenant reimbursements from Office Properties decreased $3.5 million, or 14.2%, for the year ended December 31, 2010 compared tothe year ended December 31, 2009 as the result of: • A decrease of $2.8 million generated by the Core Office Portfolio primarily the result of the renewal of several leases, whichresulted in the reset of the base year expense level; • A decrease of $1.2 million generated by the Office Redevelopment Property; and • An offsetting increase of $0.5 million generated by the Office Acquisition Properties.Other Property IncomeOther property income from Office Properties decreased $0.6 million, or 26.3%, for the year ended December 31, 2010 compared tothe year ended December 31, 2009. Other property income for both periods consisted primarily of lease termination fees and othermiscellaneous income within the Core Office Portfolio.Property ExpensesProperty expenses from Office Properties increased $7.9 million, or 17.3%, for the year ended December 31, 2010 compared to theyear ended December 31, 2009 as the result of: • An increase of $7.0 million generated by the Office Acquisition Properties; • An increase of $1.2 million generated by the Core Office Portfolio primarily the result of: • An increase of $0.8 million attributable to a casualty loss and costs associated with the initial clean-up and repair at oneof our properties in Los Angeles that sustained damage from water intrusion; and • An increase of $0.7 million attributable to an increase in certain recurring operating costs such as repairs andmaintenance, property management expenses, janitorial and other service-related costs; and • An offsetting decrease of $0.3 million generated by the Office Redevelopment Property.Real Estate TaxesReal estate taxes from Office Properties increased $3.2 million, or 15.0%, for the year ended December 31, 2010 compared to theyear ended December 31, 2009 primarily attributable to the Office Acquisition Properties.50 Provision for Bad DebtsThe provision for bad debts from Office Properties for the year ended December 31, 2010 included a $1.0 million reversal of apreviously recorded provision for bad debts. During 2010, we settled outstanding litigation and received cash payments related to certainpremises at one of our properties that had been abandoned by its former occupants (see Note 15 to our consolidated financial statementsincluded in this report for additional information).Ground LeasesGround lease expense from Office Properties decreased $0.6 million, or 38.4%, for the year ended December 31, 2010 compared tothe year ended December 31, 2009 primarily as the result of a ground rent expense adjustment for our Kilroy Airport Center, Long Beachproject. During the first quarter of 2010, we were successful in negotiating a lower rental rate under the terms of the ground leaseretroactive to January 1, 2006.Net Operating IncomeNet Operating Income from Office Properties increased $15.4 million, or 8.6%, for the year ended December 31, 2010 compared tothe year ended December 31, 2009 primarily as the result of: • An increase of $19.4 million attributable to the Office Acquisition Properties; • An offsetting decrease of $3.0 million primarily attributable to the Office Redevelopment Property; and • An offsetting decrease of $0.4 million attributable to the Core Office Portfolio.Industrial PropertiesThe following table compares the Net Operating Income for the Industrial Properties for the year ended December 31, 2010 and 2009.Industrial Properties Total Industrial Portfolio Core Industrial Portfolio(1) Dollar Percentage Dollar Percentage 2010 2009 Change Change 2010 2009 Change Change ($ in thousands) Operating revenues: Rental income $25,430 $27,256 $(1,826) (6.7)% $24,948 $26,648 $(1,700) (6.4)%Tenant reimbursements 3,442 3,725 (283) (7.6) 3,400 3,685 (285) (7.7)Other property income 1,230 1,382 (152) (11.0) 1,230 1,382 (152) (11.0)Total 30,102 32,363 (2,261) (7.0) 29,578 31,715 (2,137) (6.7)Property and related expenses: Property expenses 4,163 3,739 424 11.3 3,690 3,221 469 14.6 Real estate taxes 3,139 3,149 (10) (0.3) 2,665 2,661 4 0.2 Provision for bad debts (49) 493 (542) (109.9) (49) 493 (542) (109.9)Total 7,253 7,381 (128) (1.7) 6,306 6,375 (69) (1.1)Net Operating Income $22,849 $24,982 $(2,133) (8.5)% $23,272 $25,340 $(2,068) (8.2)%(1)Industrial Properties owned and stabilized at January 1, 2009 which are still owned and stabilized as of December 31, 2010.51 Rental IncomeRental income from Industrial Properties decreased $1.8 million, or 6.7%, for the year ended December 31, 2010 compared to theyear ended December 31, 2009 primarily as the result of: • A 3.2% decrease in average occupancy for the Industrial Properties owned and stabilized at January 1, 2009 and still ownedand stabilized as of December 31, 2010 (the “Core Industrial Portfolio”) from 90.4% for the year ended December 31, 2009 to87.2% for the year ended December 31, 2010; and • A decrease in GAAP rental income of approximately 26.5% for leases that commenced during the year ended December 31,2010 (see additional information under the caption “—Factors That May Influence Results of Operations”).Tenant ReimbursementsTenant reimbursements from Industrial Properties decreased $0.3 million, or 7.6%, for the year ended December 31, 2010 comparedto the year ended December 31, 2009 because of a decrease in the Core Industrial Portfolio’s average occupancy, as discussed above underthe caption “—Rental Income.”Property ExpensesProperty expenses from Industrial Properties increased $0.4 million, or 11.3%, for the year ended December 31, 2010 compared tothe year ended December 31, 2009 primarily as the result of an increase in nonreimbursable legal fees related to tenant defaults thatoccurred during 2009.Provision for Bad DebtsProvision for bad debts from Industrial Properties decreased $0.5 million, or 109.9%, for the year ended December 31, 2010compared to the year ended December 31, 2009 as the result of changes in our estimates of collectability of receivables from certainwatchlist tenants.Net Operating IncomeNet Operating Income from Industrial Properties decreased $2.1 million, or 8.5%, for the year ended December 31, 2010 comparedto the year ended December 31, 2009 primarily as the result of a decrease in average occupancy year over year at the Core IndustrialPortfolio and a decrease in GAAP rental income of approximately 26.5% for leases that commenced during the year ended December 31,2010.Other Income and ExpensesGeneral and Administrative ExpenseGeneral and administrative expenses decreased $12.0 million, or 30.0%, for the year ended December 31, 2010 compared to the yearended December 31, 2009 primarily resulting from $7.0 million of separation payments in our results for the year ended December 31,2009 and an overall decrease in incentive compensation expenses.Acquisition Related ExpensesDuring the year ended December 31, 2010, we incurred third-party acquisition costs of $2.2 million in connection with completedacquisitions and other potential acquisitions. In accordance with accounting provisions, all acquisition costs related to operating propertyacquisitions are expensed as incurred.Depreciation and Amortization ExpenseDepreciation and amortization increased by $16.2 million, or 18.5% for the year ended December 31, 2010 compared to the yearended December 31, 2009 primarily as the result of: • Approximately $12.3 million related to the Office Acquisition Properties; and • Approximately $4.2 million related to the change in estimated useful life of the industrial property that we are currently in theprocess of repositioning.52 Interest Income and Other Investment GainsTotal interest income and other investment gains decreased by $0.3 million, or 25.8%, for the year ended December 31, 2010compared to the year ended December 31, 2009 primarily as the result of a decrease of $0.3 million in interest income for the year endedDecember 31, 2010 as compared to the year ended December 31, 2009 attributable to the repayment of the note receivable in July 2010 (seeNote 5 to our consolidated financial statements included in this report for additional information).Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts and loan cost amortization, net of capitalizedinterest for the years ended December 31, 2010 and 2009. Dollar Percentage 2010 2009 Change Change ($ in thousands) Gross interest expense $69,956 $55,802 $14,154 25.4%Capitalized interest (10,015) (9,683) (332) 3.4%Interest expense $59,941 $46,119 $13,822 30.0%Gross interest expense, before the effect of capitalized interest, increased $14.2 million, or 25.4%, for the year ended December 31,2010 compared to the year ended December 31, 2009 resulting from an increase in our average outstanding debt balances during 2010. Inaddition, our weighted average effective interest rate increased from approximately 5.2% for the year ended December 31, 2009 toapproximately 6.2% for the year ended December 31, 2010.Capitalized interest increased $0.3 million, or 3.4%, for the year ended December 31, 2010 compared to the year ended December 31,2009 attributable to an increase in our weighted average interest rate, which caused a corresponding increase in the capitalization rateapplied to development and redevelopment asset balances qualifying for interest capitalization. For the years ended December 31, 2010and 2009, we did not capitalize interest on five of our seven development pipeline properties with an aggregate cost basis of approximately$77.8 million as of December 31, 2010. In addition, during the third quarter of 2010, we also ceased interest capitalization on another ofour development pipeline properties with an aggregate cost basis of approximately $77.3 million as of December 31, 2010. We havesuspended substantially all development activities related to these projects as a result of economic conditions in our submarkets and wedetermined these projects did not qualify for interest capitalization under GAAP.(Loss) Gain on Early Extinguishment of DebtDuring the year ended December 31, 2010, we recorded a loss on early extinguishment of debt of approximately $4.6 million realatedto the repurchase of the 3.25% Exchangeable Notes with an aggregate stated principal amount of $150.0 million. During the year endedDecember 31, 2009, we recorded a gain on early extinguishment of debt of approximately $4.9 million resulting from the repurchase ofthe 3.25% Exchangeable Notes with an aggregate stated principal amount of $162.0 million. (See Note 7 to our consolidated financialstatements included in this report for additional information pertaining to these exchangeable note repurchases).53 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008The following table reconciles our Net Operating Income by segment to our net income for the years ended December 31, 2009 and2008. Year Ended December 31, Dollar Percentage 2009 2008 Change Change ($ in thousands) Net Operating Income, as defined Office Properties $178,247 $185,967 $(7,720) (4.2)%Industrial Properties 24,982 26,796 (1,814) (6.8)Total portfolio 203,229 212,763 (9,534) (4.5)Reconciliation to Net Income: Net Operating Income, as defined for reportable segments 203,229 212,763 (9,534) (4.5)Unallocated (expense) income: General and administrative expenses (39,938) (38,260) (1,678) 4.4 Depreciation and amortization (87,627) (83,215) (4,412) 5.3 Interest income and other investment gains (losses) 1,300 (93) 1,393 (1,497.8)Interest expense (46,119) (45,346) (773) 1.7 Gain on early extinguishment of debt 4,909 — 4,909 100.0 Income from continuing operations 35,754 45,849 (10,095) (22.0)Income from discontinued operations 2,261 1,062 1,199 112.9 Net income $38,015 $46,911 $(8,896) (19.0)%Rental OperationsOffice PropertiesThe following table compares the Net Operating Income for the Office Properties for the year ended December 31, 2009 and 2008. Total Office Portfolio Core Office Portfolio(1) Dollar Percentage Dollar Percentage 2009 2008 Change Change 2009 2008 Change Change ($ in thousands) Operating revenues: Rental income $220,393 $223,245 $(2,852) (1.3)% $199,278 $213,721 $(14,443) (6.8)%Tenant reimbursements 24,350 26,898 (2,548) (9.5) 22,256 25,430 (3,174) (12.5)Other property income 2,328 5,923 (3,595) (60.7) 2,279 5,860 (3,581) (61.1)Total 247,071 256,066 (8,995) (3.5) 223,813 245,011 (21,198) (8.7)Property and related expenses: Property expenses 45,970 45,437 533 1.2 43,028 44,093 (1,065) (2.4)Real estate taxes 21,181 19,169 2,012 10.5 18,385 18,155 230 1.3 Provision for bad debts 76 3,876 (3,800) (98.0) 76 3,876 (3,800) (98.0)Ground leases 1,597 1,617 (20) (1.2) 1,591 1,612 (21) (1.3)Total 68,824 70,099 (1,275) (1.8) 63,080 67,736 (4,656) (6.9)Net Operating Income $178,247 $185,967 $(7,720) (4.2)% $160,733 $177,275 $(16,542) (9.3)%(1)Office Properties owned and stabilized at January 1, 2008 and still owned and stabilized as of December 31, 2010.54 Rental IncomeRental income from Office Properties decreased $2.9 million, or 1.3%, for the year ended December 31, 2009 compared to the yearended December 31, 2008 primarily resulting from: • A decrease of $14.4 million attributable to the Office Properties owned and stabilized at January 1, 2008 and still owned andstabilized as of December 31, 2010 (the “Core Office Portfolio”) primarily resulting from: • A decrease of $11.7 million primarily attributable to a 7.9% decrease in average occupancy from 91.9% for the yearended December 31, 2008 to 84.0% for the year ended December 31, 2009; and • A decrease of $2.7 million of noncash rental income primarily attributable to the acceleration of the amortization of thedeferred revenue balance during the year ended December 31, 2008 related to tenant-funded tenant improvementsassociated with an early lease termination at one of our properties in San Diego (see Note 17 to our consolidated financialstatements included with this report for additional information); • An offsetting increase of $11.6 million generated by one office development property that was added to the stabilizedportfolio in the third quarter of 2008 and two office development properties that were added to the stabilized portfolio in thefourth quarter of 2008 (collectively, the “Office Development Properties”); and • An offsetting increase of $0.7 million generated by one office redevelopment property that was added to the stabilizedportfolio in the third quarter of 2008 and one office redevelopment project consisting of two buildings that was added to thestabilized portfolio in the fourth quarter of 2008 (collectively, the “2008 Office Redevelopment Properties”).Tenant ReimbursementsTenant reimbursements from Office Properties decreased $2.5 million, or 9.5%, for the year ended December 31, 2009 compared tothe year ended December 31, 2008 primarily as the result of: • A decrease of $3.2 million attributable to the Core Office Portfolio primarily resulting from a decrease in average occupancy,as discussed above under the caption “—Rental Income;” and • An offsetting increase of $1.0 million generated by the Office Development Properties and 2008 Office RedevelopmentProperties.Other Property IncomeOther property income from Office Properties decreased $3.6 million, or 60.7%, for the year ended December 31, 2009 compared tothe year ended December 31, 2008. Other property income for 2009 included a $1.4 million net lease termination fee related to a settlementwith a former tenant. Other property income for 2008 included a $5.0 million net lease termination fee related to an early lease termination.Other property income for both periods consisted primarily of lease termination fees and other miscellaneous income within the CoreOffice Portfolio.Property ExpensesProperty expenses from Office Properties increased $0.5 million, or 1.2%, for the year ended December 31, 2009 compared to theyear ended December 31, 2008 primarily resulting from: • An increase of $1.3 million attributable to the Office Development Properties; • An increase of $0.4 million attributable to the 2008 Office Redevelopment Properties; and55 • An offsetting decrease of $1.1 million attributable to the Core Office Portfolio primarily resulting from: • A decrease of $2.4 million primarily attributable to a decrease in certain recurring operating expenses such as utilities,property management expenses, repairs and maintenance costs, and janitorial and other service-related costs primarilyattributable to a decrease in average occupancy as discussed above under the caption “—Rental Income;” and • An offsetting increase of $1.0 million primarily attributable to nonreimbursable legal fees largely related to tenant defaultsand costs associated with nonrecurring repairs at one of our San Diego properties.Real Estate TaxesReal estate taxes from Office Properties increased $2.0 million, or 10.5%, for the year ended December 31, 2009 compared to theyear ended December 31, 2008 primarily attributable to the Office Development Properties and the 2008 Office Redevelopment Properties.Provision for Bad DebtsThe provision for bad debts from Office Properties decreased $3.8 million, or 98.0%, for the year ended December 31, 2009compared to the year ended December 31, 2008 as the result of changes in our estimates of collectability of receivables from certainwatchlist tenants. The provision for bad debts for the year ended December 31, 2008 included a $3.1 million charge for the deferred rentreceivable related to an early termination at one of our properties in San Diego (see Note 17 to our consolidated financial statementsincluded with this report for additional information).Net Operating IncomeNet Operating Income from Office Properties decreased $7.7 million, or 4.2%, for the year ended December 31, 2009 compared tothe year ended December 31, 2008 primarily attributable to: • A decrease of $16.5 million attributable to the Core Office Portfolio primarily attributable to a decrease in average occupancyyear over year; and • An offsetting increase of $9.9 million generated by the Office Development Properties and the 2008 Office RedevelopmentProperties.56 Industrial PropertiesThe following table compares the Net Operating Income for the Industrial Properties for the year ended December 31, 2009 and 2008.Industrial Properties Total Industrial Portfolio Core Industrial Portfolio(1) Dollar Percentage Dollar Percentage 2009 2008 Change Change 2009 2008 Change Change ($ dollars in thousands) Operating revenues: Rental income $27,256 $28,275 $(1,019) (3.6)% $26,647 $27,716 $(1,069) (3.9)%Tenant reimbursements 3,725 4,088 (363) (8.9) 3,685 4,049 (364) (9.0)Other property income 1,382 926 456 49.2 1,382 873 509 58.3 Total 32,363 33,289 (926) (2.8) 31,714 32,638 (924) (2.8)Property and related expenses: Property expenses 3,739 3,424 315 9.2 3,220 3,295 (75) (2.3)Real estate taxes 3,149 2,894 255 8.8 2,661 2,567 94 3.7 Provision for bad debts 493 175 318 181.7 493 175 318 181.7 Total 7,381 6,493 888 13.7 6,374 6,037 337 5.6 Net Operating Income $24,982 $26,796 $(1,814) (6.8)% $25,340 $26,601 $(1,261) (4.7)%(1)Industrial Properties owned and stabilized at January 1, 2008 and still owned and stabilized as of December 31, 2010.Rental IncomeRental income from Industrial Properties decreased $1.0 million, or 3.6%, for the year ended December 31, 2009 compared to theyear ended December 31, 2008 as the result of a decrease in average occupancy for the Industrial Properties owned and stabilized atJanuary 1, 2008 and still owned and stabilized as of December 31, 2010 (the “Core Industrial Portfolio”). Average occupancy for the CoreIndustrial Portfolio decreased 6.7% from 96.5% for the year ended December 31, 2008 to 89.8% for the year ended December 31, 2009.Tenant ReimbursementsTenant reimbursements from Industrial Properties decreased $0.4 million, or 8.9%, for the year ended December 31, 2009 comparedto the year ended December 31, 2008 primarily attributable to a decrease in average occupancy in the Core Industrial Portfolio asdiscussed above under the caption “—Rental Income.”Other Property IncomeOther property income from Industrial Properties increased $0.5 million, or 49.2%, for the year ended December 31, 2009 comparedto the year ended December 31, 2008 primarily attributable to a $0.7 million net restoration fee received during the first quarter of 2009from a tenant that vacated one of our Industrial Properties in Orange County. Other property income for both periods consisted primarilyof lease termination fees and other miscellaneous income within the Core Industrial Portfolio.Property ExpensesProperty expenses from Industrial Properties increased $0.3 million, or 9.2%, for the year ended December 31, 2009 compared to theyear ended December 31, 2008. The results for the year ended December 31, 2008 included a $0.6 million credit recorded in June 2008 forinsurance proceeds received in connection with a casualty loss at one57 property, which was recently reentitled for residential use (the “Industrial Reentitlement Property”). Excluding the insurance proceedscredit, property expenses from Industrial Properties decreased approximately $0.3 million for the year ended December 31, 2009 comparedto December 31, 2008.Real Estate TaxesReal estate taxes from Industrial Properties increased $0.3 million, or 8.8%, for the year ended December 31, 2009 compared to theyear ended December 31, 2008 primarily attributable to one building that was moved from our stabilized portfolio to our redevelopmentportfolio.Provision for Bad DebtsThe provision for bad debts from Industrial Properties increased $0.3 million, or 181.7%, for the year ended December 31, 2009compared to the year ended December 31, 2008 as the result of changes in our estimates of collectability of receivables from certainwatchlist tenants.Net Operating IncomeNet Operating Income from Industrial Properties decreased $1.8 million, or 6.8%, for the year ended December 31, 2009 comparedto the year ended December 31, 2008 as the result of: • A decrease of $1.3 million attributable to a decrease in average occupancy in the Core Industrial Portfolio primarily year overyear; and • A decrease of $0.5 million primarily resulting from a credit recorded in 2008 for insurance proceeds related to our IndustrialReentitlement Property.Other Income and ExpensesGeneral and Administrative ExpenseGeneral and administrative expenses increased $1.7 million, or 4.4%, for the year ended December 31, 2009 compared to the yearended December 31, 2008 primarily as the result of a $7.0 million charge for separation payments, partially offset by a decrease inincentive compensation expense year over year and severance costs paid in 2008.Depreciation and Amortization ExpenseDepreciation and amortization expense increased $4.4 million, or 5.3%, for the year ended December 31, 2009 compared to the yearended December 31, 2008 primarily attributable to the Office Development Properties and the 2008 Office Redevelopment Properties.Interest Income and Other Investment Gains (Losses)Total interest income and other investment gains (losses) increased approximately $1.4 million, or 1,497.8%, for the year endedDecember 31, 2009 compared to the year ended December 31, 2008 primarily as the result of an increase in the fair value of themarketable securities held in connection with the Kilroy Realty Corporation 2007 Deferred Compensation Plan during the year endedDecember 31, 2009.58 Interest ExpenseThe following table sets forth our gross interest expense, including debt discount and loan cost amortization, net of capitalizedinterest for the years ended December 31, 2009 and 2008. Dollar Percentage 2009 2008 Change Change ($ in thousands) Gross interest expense $55,802 $63,478 $(7,676) (12.1)%Capitalized interest (9,683) (18,132) 8,449 (46.6)%Interest expense $46,119 $45,346 $773 1.7%Gross interest expense, before the effect of capitalized interest, decreased $7.7 million, or 12.1%, for the year ended December 31,2009 compared to the year ended December 31, 2008 primarily as the result of a decrease in our average debt balance during the yearended December 31, 2009 compared to the year ended December 31, 2008 and, to a lesser extent, a decrease in our weighted-averageeffective interest rate from approximately 5.4% during the year ended December 31, 2008 to approximately 5.2% during the year endedDecember 31, 2009.Capitalized interest decreased $8.4 million, or 46.6% for the year ended December 31, 2009 compared to the year endedDecember 31, 2008 primarily as the result of a decrease in our average development and redevelopment asset balances qualifying forinterest capitalization during the year ended December 31, 2009 compared to the year ended December 31, 2008 and, to a lesser extent, adecrease in our weighted-average effective interest rate which caused a corresponding decrease in the capitalization rate applied to ourdevelopment and redevelopment asset balances qualifying for interest capitalization. During the year ended December 31, 2009, we didnot capitalize interest for certain development properties because we suspended substantially all development activities related to theseprojects as a result of economic conditions in our submarkets.Gain on Early Extinguishment of DebtGain on early extinguishment of debt was approximately $4.9 million for the year ended December 31, 2009 and represents the netgain from the repurchase of the 3.25% Exchangeable Notes with an aggregate stated principal amount of $162.0 million (see Note 7 to ourconsolidated financial statements included with this report for additional information).Liquidity and Capital Resources of the CompanyIn this “Liquidity and Capital Resources of the Company” section, the term the “Company” refers only to Kilroy Realty Corporationon an unconsolidated basis, and excludes the Operating Partnership and all other subsidiaries. For further discussion of the liquidity andcapital resources of the Company on a consolidated basis see the section entitled “—Liquidity and Capital Resources of the OperatingPartnership” below.The Company’s business is operated primarily through the Operating Partnership. The Company issues equity from time to time,but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as apublic company which are fully reimbursed by the Operating Partnership. The Company itself does not hold any indebtedness, and itsonly material asset is its ownership of partnership interests of the Operating Partnership. The Company’s principal funding requirementis the payment of dividends on its common and preferred stock. The Company’s source of funding for its dividend payments isdistributions it receives from the Operating Partnership.As of December 31, 2010, the Company owned a 96.8%, general partnership interest in the Operating Partnership excludingpreferred units. The remaining 3.2% common limited partnership interest as of December 31, 2010 was owned by non-affiliate investorsand certain of our executive officers and directors. Through its ownership as the sole general partner of the Operating Partnership, theCompany has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. TheCompany causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of itsavailable cash in the manner provided in the Operating Partnership’s partnership agreement. Distributions from the Operating Partnershipare the Company’s source of capital.59 The Company is a well-known seasoned issuer with an effective shelf registration statement that allows the Company to registerunspecified various classes of debt and equity securities and the Operating Partnership to register unspecified and various classes of debtsecurities. As circumstances warrant, the Company may issue securities from time to time on an opportunistic basis, dependent uponmarket conditions and available pricing. When the Company receives proceeds from preferred or common equity issuances, it is requiredby the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership inexchange for preferred or common partnership units of the Operating Partnership. The Operating Partnership may use the proceeds torepay debt, including borrowings under its line of credit, develop new or existing properties, to make acquisitions of properties, portfoliosof properties, or for general corporate purposes.The liquidity of the Company is dependent on the Operating Partnership’s ability to make sufficient distributions to the Company.The Company also guarantees some of the Operating Partnership’s debt, as discussed further in Note 6 to the consolidated financialstatements. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger Company guarantee obligations, thenthe Company would be required to fulfill its cash payment commitments under such guarantees. However, the Company’s onlysignificant asset and source of liquidity is its investment in the Operating Partnership.The Company believes the Operating Partnership’s sources of working capital, specifically its cash flow from operations, andborrowings available under its credit facility, are adequate for it to make its distribution payments to the Company and, in turn, for theCompany to make its dividend payments to its preferred and common shareholders. Cash flows from operating activities generated by theOperating Partnership for the year ended December 31, 2010 were sufficient to cover the Company’s payment of cash dividends to itsshareholders. However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all orin amounts sufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital couldadversely affect the Operating Partnership’s ability to make distributions to the Company, which would in turn, adversely affect theCompany’s ability to pay cash dividends to its shareholders.As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership forfinancial 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 thesame on their respective financial statements. Because the Company consolidates the Operating Partnership for financial reportingpurposes, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with thissection to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as awhole.Distribution RequirementsThe Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gain) onan annual basis to maintain qualification as a REIT for federal income tax purposes. As a result of this distribution requirement, theOperating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent as other companies whose parentcompanies are not REITs. In addition, the Company may be required to use borrowings under the Operating Partnership’s Credit Facility,if necessary, to meet REIT distribution requirements and maintain its REIT status. The Company may also need to continue to raisecapital in the equity markets to fund the Operating Partnership’s working capital needs, as well as potential developments of new orexisting properties or acquisitions.While historically the Company has satisfied its distribution requirement by making cash distributions to its shareholders, fordistributions with respect to our 2008 through 2011 taxable years, IRS guidance allows the Company to satisfy up to 90% of thisrequirement through the distribution of shares of the Company’s common stock, if certain conditions are met. The Company intends tocontinue to make, but has not committed to make, regular quarterly cash distributions to common stockholders and common unitholdersfrom cash flow from operating activities. All such distributions are at the discretion of the board of directors. The Company hashistorically distributed amounts in excess of our taxable income resulting in a return of capital to its stockholders60 and the Company currently believes it has the ability to maintain distributions at the 2010 levels to meet its REIT requirements for 2011.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-bearingsecurities, which are consistent with the Company’s intention to maintain its qualification as a REIT. Such investments may include, forexample, obligations of the Government National Mortgage Association, other governmental agency securities, certificates of deposit, andinterest-bearing bank deposits.On December 9, 2010, the Board of Directors declared a regular quarterly cash dividend of $0.350 per common share payable onJanuary 18, 2011 to stockholders of record on December 31, 2010 and caused a $0.35 per Operating Partnership unit cash distribution tobe paid in respect of the Operating Partnership’s common limited partnership interests, including those owned by the Company. Thesedividends and distributions are equivalent to an annual rate of $1.40 per share, which in aggregate totals approximately $76.7 million ofannualized common dividends and distributions per year based on common shares, restricted stock units, and common unitsoutstanding at December 31, 2010.On December 9, 2010, the Board of Directors declared a dividend of $0.4875 per share on the Company’s Series E Preferred Stockand a dividend of $0.46875 per share on the Company’s Series F Preferred Stock for the period commencing on and includingNovember 15, 2010 and ending on and including February 14, 2011. The Company is also required to make quarterly cashdistributions to the 7.45% Series A Preferred unitholders of $0.7 million, payable on February 15, 2011. Dividends and distributionspayable to the Series E and Series F Preferred stockholders and the Series A Preferred unitholders, total approximately $15.2 million ofannualized preferred dividends and distributions per year.Debt CovenantsOne of the covenants contained within the Credit Facility prohibits the Company from paying dividends in excess of 95% of FFO.61 CapitalizationAs of December 31, 2010, our total debt as a percentage of total market capitalization was 40.2% and our total debt and liquidationvalue of our preferred equity as a percentage of total market capitalization was 45.8%, which was calculated based on the closing priceper share of the Company’s common stock of $36.47 on December 31, 2010 as shown in the table below. Aggregate Principal Amount or % of Total Shares/Units at $ Value Market December 31, 2010 Equivalent Capitalization ($ in thousands) Debt: Credit Facility $159,000 4.4%3.25% Exchangeable Notes due 2012(1) 148,000 4.1 4.25% Exchangeable Notes due 2014(1) 172,500 4.8 Unsecured Senior Notes due 2014 83,000 2.3 Unsecured Senior Notes due 2015(1) 325,000 9.0 Unsecured Senior Notes due 2020(1) 250,000 6.9 Secured debt(1) 313,652 8.7 Total debt $1,451,152 40.2%Equity and Noncontrolling Interest: 7.450% Series A Cumulative Redeemable Preferred Units(2) 1,500,000 $75,000 2.1%7.800% Series E Cumulative Redeemable Preferred Stock(3) 1,610,000 40,250 1.1 7.500% Series F Cumulative Redeemable Preferred Stock(3) 3,450,000 86,250 2.4 Common Units Outstanding(4) 1,723,131 62,843 1.7 Common Shares Outstanding(4) 52,349,670 1,909,192 52.5 Total equity and noncontrolling interests 2,173,535 59.8 Total Market Capitalization $3,624,687 100.0%(1)Represents gross aggregate principal amount due at maturity, before the effect of the unamortized discounts as of December 31, 2010.(2)Value based on $50.00 per share liquidation preference.(3)Value based on $25.00 per share liquidation preference.(4)Value based on closing price per share of the Company’s common stock of $36.47 as of December 31, 2010.Liquidity and Capital Resources of the Operating PartnershipIn this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we,” “our,” and “us” refer to theOperating Partnership or the Operating Partnership and the Company together, as the context requires.GeneralOur primary liquidity sources and uses are as follows:Liquidity Sources • Net cash flow from operations; • Borrowings under the Credit 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 nonstrategic assets.62 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; and • Development and redevelopment costs; • Repurchasing outstanding debt.General StrategyOur general strategy is to maintain a conservative balance sheet with a top credit profile and to maintain a capital structure thatallows for financial flexibility and diversification of capital resources. We manage our capital structure to reflect a long -term investmentapproach and utilize multiple sources of capital to meet our long-term capital requirements. We believe that our current projected liquidityrequirements for the next twelve month period, as set forth above under the caption ‘‘—Liquidity Uses,” will be satisfied using acombination of the liquidity sources listed above. We believe our conservative leverage and staggered debt maturities provide us withfinancial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and, therefore, we are well-positioned torefinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, asnecessary, with future public and private issuances of debt and equity securities.2010 Financing ActivitiesDuring 2010, we completed a variety of capital raising activities which significantly extended our debt maturities and enabled us tofund ten building acquisitions in eight separate transactions. This financing and acquisition activity increased our consolidated totalassets by approximately 35% as compared to December 31, 2009, without significantly increasing our total debt as a percentage of totalmarket capitalization. The following activities occurred during the period (see Notes 7 and 10 to our consolidated financial statementsincluded in this report for additional information): • In November 2010, the Operating Partnership issued $325.0 million in aggregate stated principal amount of 5.00%unsecured senior notes due 2015; • In September 2010, the Operating Partnership became a registered public entity with the SEC allowing more flexible access tothe public debt and capital markets; • In August 2010, the Operating Partnership entered into a new $500.0 million Credit Facility with a term of three years plus aone year extension option. We used borrowings under the Credit Facility to repay, and then terminate, our previous$550.0 million unsecured line of credit (the “Prior Credit Facility”); • In August 2010, the Operating Partnership used borrowings under our Prior Credit Facility to repay a portion of ourunsecured senior notes, with a principal balance of $61.0 million that was maturing; • In June 2010, the Operating Partnership completed a tender offer for the repurchase of $150 million in aggregate statedprincipal value of the 3.25% Exchangeable Notes; • In June 2010, the Operating Partnership assumed secured debt with a principal balance of $52.0 million in conjunction withthe acquisition of Mission City Corporate Center in San Diego, CA; • In May 2010, the Operating Partnership issued $250.0 million in aggregate stated principal amount of 6.625% unsecuredsenior notes due 2020;63 • In April 2010, the Company completed an underwritten public offering of 9,200,000 shares of our common stock. The netoffering proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately$299.8 million were contributed to the Operating Partnership in exchange for common units issued to the Company; • In April 2010, the Operating Partnership was assigned initial investment grade credit ratings by two major rating agencies,which we believe enhances our access to the capital markets by allowing the Operating Partnership to raise long-termunsecured debt financing in the bond market. • In March 2010, the Operating Partnership used borrowings under our Prior Credit Facility to repay a secured line of creditwith an outstanding principal balance of $33.5 million that was scheduled to mature in April 2010. • In January 2010, the Operating Partnership used the proceeds from the issuance of a $71.0 million mortgage loan to repay anoutstanding mortgage loan with a principal balance of $63.2 million that was scheduled to mature in April 2010. Themortgage loan is secured by five properties, bears interest at an annual rate of 6.51%, requires monthly interest and principalpayments based on a 30-year amortization period, and is scheduled to mature on February 1, 2017.Liquidity SourcesExchangeable Notes, Unsecured Senior Notes, and Secured DebtThe aggregate principal amount of Exchangeable Notes, unsecured senior notes, and secured debt of the Operating Partnershipoutstanding as of December 31, 2010 was as follows: Aggregate Principal Amount Outstanding ($ in thousands) 3.25% Exchangeable Notes due 2012(1) $148,000 4.25% Exchangeable Notes due 2014(1) 172,500 Unsecured Senior Notes due 2014 83,000 Unsecured Senior Notes due 2015(1) 325,000 Unsecured Senior Notes due 2020(1) 250,000 Secured Debt(1) 313,652 Total Exchangeable Notes, Unsecured Senior Notes, and Secured Debt $1,292,152 (1)Represents gross aggregate principal amount before the effect of the unamortized discounts as of December 31, 2010.Debt CompositionThe composition of our aggregate debt balances between fixed- and variable-rate debt as of December 31, 2010 and 2009 were asfollows: Percentage of TotalDebt Weighted AverageInterest Rate 2010 2009 2010 2009 Secured vs. unsecured: Unsecured(1) 78.4% 70.7% 4.8% 3.8%Secured 21.6 29.3 6.0 5.7 Variable-rate vs. fixed-rate: Variable-rate 11.0 13.0 2.9 1.1 Fixed-rate(1) 89.0 87.0 5.3 4.8 Stated interest rate(1) 5.1 4.3 Interest rate including loan costs(1) 5.7 4.8 GAAP Effective Rate(2) 6.3% 5.9%64 (1)Excludes the impact of the amortization of the noncash debt discount related to the accounting required for our Exchangeable Notes.(2)Includes the impact of the amortization of the noncash debt discounts related to the accounting required for our Exchangeable Notes.Credit FacilityAs discussed above under the caption “—2010 Financing Activities,” the Operating Partnership entered into the Credit Facility inAugust 2010 and used borrowings under the Credit Facility to repay, and then terminate, the Prior Credit Facility. The following tablesummarizes the balance and significant terms of the Credit Facility and Prior Credit Facility as of December 31, 2010 and December 31,2009, respectively: Prior Credit Credit Facility Facility December 31, 2010 December 31, 2009 (in thousands) Outstanding borrowings $159,000 $97,000 Remaining borrowing capacity 341,000 453,000 Total borrowing capacity(1) $500,000 $550,000 Maturity date(2)(3) August 2013 April 2010 Interest rate(4) 2.99% 1.11%Fees(5) 0.575% 0.200%(1)We may elect to borrow, subject to bank approval, up to an additional $200 million under an accordion feature under the terms of the Credit Facility.(2)Under the terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.(3)In April 2010, we exercised an option to extend the maturity date of the Prior Credit Facility by one year.(4)As of December 31, 2010, the Credit Facility bore interest at an annual rate of LIBOR plus 2.675%. As of December 31, 2009, the Prior Credit Facility boreinterest at an annual rate of LIBOR plus 0.85% to 1.35% depending upon our leverage ratio at the time of borrowing.(5)As of December 31, 2010, the facility fee for the Credit Facility was at an annual rate of 0.575%. In addition, we also incurred debt origination and legalcosts of approximately $5 million, which will be amortized as additional interest expense through the contractual maturity date. As of December 31, 2009, thefee for unused funds for the Prior Credit Facility was at an annual rate of 0.15% to 0.20%, depending on the balance of our daily average undrawn balance.Liquidity UsesContractual ObligationsThe following table provides information with respect to the Operating Partnership’s contractual obligations as of December 31,2010. The table (i) indicates the maturities and scheduled principal repayments of our secured debt, Exchangeable Notes, unsecuredsenior notes, and Credit Facility; (ii) indicates the scheduled interest payments of our fixed-rate and variable-rate debt as of December 31,2010; (iii) provides information about the minimum commitments due in connection with our ground lease obligations and other lease andcontractual commitments; and (iv) provides estimated redevelopment commitments as of December 31, 2010. Note that the65 table does not reflect our available debt maturity extension options and reflects gross aggregate principal amounts before the effect ofunamortized discounts. Payment Due by Period Less than More than 1 Year 1-3 Years 3-5 Years 5 Years (2011) (2012-2013) (2014-2015) (After 2015) Total (in thousands) Principal payments—secured debt(1) $75,017 $159,528 $7,185 $71,922 $313,652 Principal payments—Exchangeable Notes(2) 148,000 172,500 320,500 Principal payments—unsecured senior notes(3) 408,000 250,000 658,000 Principal payments—Credit Facility 159,000 159,000 Interest payments—fixed-rate debt(4) 69,214 107,255 84,048 81,795 342,312 Interest payments—variable-rate debt(5) 5,883 9,805 15,688 Ground lease obligations(6) 1,329 2,192 2,040 68,542 74,103 Lease and contractual commitments(7) 42,229 4,183 3,791 50,203 Redevelopment commitments(8) 15,000 15,000 Total $208,672 $589,963 $677,564 $472,259 $1,948,458 (1)Includes the $52.0 million gross aggregate principal amount of the loan due in April 2012 before the effect of the unamortized discount of approximately$0.6 million as of December 31, 2010.(2)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $20.5 million as of December 31, 2010.(3)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $2.2 million as of December 31, 2010.(4)As of December 31, 2010, 89.0% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations forthese fixed-rate payments based on the contractual interest rates, interest payment dates, and scheduled maturity dates.(5)As of December 31, 2010, 11.0% of our debt bore interest at variable rates. The variable interest rate payments are based on LIBOR plus a spread of2.675% as of December 31, 2010. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based onoutstanding principal balances as of December 31, 2010, the scheduled interest payment dates, and the contractual maturity dates.(6)One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection andinfrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for this ground lease included aboveassumes the $1.0 million annual ground lease rental obligation in effect as of December 31, 2010.(7)Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing ofthese expenditures may fluctuate.(8)Amounts represent contractual commitments for redevelopment contracts and projects under construction at December 31, 2010. Costs include the remainingtotal estimated investment, excluding capitalized interest, development overhead, potential future leasing costs, and tenant improvements for these projects.The timing of these expenditures may fluctuate based on the ultimate progress of construction.Potential Future Capital RequirementsPotential Future AcquisitionsDuring the year ended December 31, 2010, we spent approximately $637.6 million in cash to acquire ten properties in eighttransactions. We expect that in 2011 we will continue to pursue and evaluate strategic opportunities to acquire additional properties thatprovide attractive yields, significant potential for growth in cash flow from operations, present growth opportunities in strategic markets,or demonstrate the potential for improved performance through strategic management. We expect that any material acquisitions will befunded with borrowings under our Credit Facility or the public issuance of new debt or equity securities.Redevelopment and Development OpportunitiesAs of December 31, 2010, we had one redevelopment project under construction. This project has a total estimated investment ofapproximately $50 million of which we have incurred approximately $15 million as of December 31, 2010. Of the remaining $35 millionyet to be incurred, we are currently contractually obligated to approximately $15 million over the next year as shown in our contractualobligations table above. We expect we also may incur up to approximately $20 million of the $50 million in leasing related costs for thisproject, depending66 on leasing activity. Ultimate timing of these expenditures may fluctuate given the ultimate progress and leasing status of the redevelopmentproject.Over the next year, we may also redevelop certain other properties that have been occupied by long-term tenants and thus requiresignificant capital expenditures to update and modernize the buildings. We are also focusing on enhancing the entitlements for our existingdevelopment land pipeline and are evaluating strategic alternatives for the one property that was recently re-entitled for residential use. Weestimate that we could spend up to to an additional $20 million on these efforts during 2011.In addition, we continually evaluate the size, timing, costs, and scope of our development program and, as necessary, scale activityto reflect the market conditions and the real estate fundamentals that exist in our strategic submarkets. Therefore, depending on futuremarket conditions, we anticipate that we may have additional spending for our future development pipeline projects during 2011 andbeyond.Potential Future Leasing Costs and Capital ImprovementsGiven the current economic conditions, the amounts we are required to spend on tenant improvements and leasing costs are expectedto remain above historical levels for us to be able to execute leases at current market terms, as evidenced in the table below. The amountswe ultimately incur for tenant improvements and leasing costs will depend on actual leasing activity. Tenant improvements and leasingcosts 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 subjectto the nature, extent, and timing of improvements required to maintain our properties.We currently project we could spend up to $25 million in capital improvements, tenant improvements, and leasing costs in 2011 forproperties within our stabilized portfolio, depending on leasing activity, in addition to the $42 million of lease and contractualcommitments discussed in our capital commitments table above.67 The following tables set forth our historical capital expenditures, tenant improvements, and leasing costs, excluding tenant-fundedtenant improvements, for renewed and re-tenanted space within our stabilized portfolio for each of the three years during the period endedDecember 31, 2010 on a per square foot basis. Year Ended December 31, 2010 2009 2008Office Properties: Capital Expenditures: Capital expenditures per square foot $1.36 $0.86 $0.91 Tenant Improvement and Leasing Costs(1) Replacement tenant square feet 637,155 221,229 180,696 Tenant improvements per square foot leased $28.03 $27.47 $24.21 Leasing commissions per square foot leased $9.30 $9.64 $11.52 Total per square foot $37.33 $37.11 $35.73 Renewal tenant square feet 691,531 680,977 349,009 Tenant improvements per square foot leased $12.67 $10.38 $5.74 Leasing commissions per square foot leased $8.31 $8.00 $4.55 Total per square foot $20.98 $18.38 $10.29 Total per square foot per year $5.49 $4.18 $4.30 Average remaining lease term (in years) 5.3 5.5 4.4 Industrial Properties: Capital Expenditures: Capital expenditures per square foot $0.41 $0.85 $0.28 Tenant Improvement and Leasing Costs(1) Replacement tenant square feet 508,105 248,380 212,698 Tenant improvements per square foot leased $5.02 $2.54 $2.52 Leasing commissions per square foot leased $2.55 $2.19 $2.31 Total per square foot $7.57 $4.73 $4.83 Renewal tenant square feet 278,700 545,143 728,363 Tenant improvements per square foot leased $2.15 $1.49 $2.55 Leasing commissions per square foot leased $2.32 $3.02 $1.37 Total per square foot $4.46 $4.50 $3.91 Total per square foot per year $0.96 $0.74 $0.79 Average remaining lease term (in years) 6.8 6.2 5.3 (1)Includes only tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation expenditures. First generationexpenditures are those expenditures that ultimately result in additional revenue generated when the space is re-leased.As a result of the volume of leases that commenced in 2010, office capital expenditures trended higher than in past years. We believethat all of our properties are well maintained and do not require significant capital improvements, and do not anticipate this trend tocontinue.Distribution RequirementsFor a discussion of our dividend and distribution requirements, please see the Distribution Requirements discussion underLiquidity and Capital Resources of the Company.Other Potential Future Liquidity UsesWe may seek to repurchase additional debt securities depending on prevailing market conditions, our liquidity requirements, andother factors.We have the ability to repurchase preferred stock in open market transactions. We may repurchase our outstanding preferred stockin the future depending upon market conditions and our liquidity and financial position.An aggregate of 988,025 common shares currently remain eligible for repurchase under a share-repurchase program approved byour board of directors. We did not repurchase shares of common stock under this program during the year ended December 31, 2010. Wemay repurchase additional shares of our common stock in the future depending upon market conditions.68 Factors That May Influence Future Sources of Capital and LiquidityWe continue to evaluate sources of financing for our business activities, including borrowings under the Credit Facility, issuance ofpublic and private unsecured debt, fixed-rate secured mortgage financing, and offerings of the Company’s common stock. However, theOperating Partnership’s ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by variousfactors including the state of economic conditions, significant tenant defaults, a further decline in the demand for office or industrialproperties, a further decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of futureborrowings. These events could result in the following: • decreases in our cash flows from operations, which could create further dependence on our Credit Facility; • an increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in thefuture; and • a decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incuradditional 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 ratingagencies and may be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. In the event thatthe Operating Partnership’s credit ratings are downgraded, we may incur higher borrowing costs and may experience difficulty inobtaining additional financing or refinancing existing indebtedness.Debt CovenantsThe Credit Facility, unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiringus to meet certain financial ratios and reporting requirements. Key existing financial covenants and their covenant levels include: Actual Performance at Covenant Level December 31, 2010Unsecured Line of Credit (as defined in the Credit Agreement): Total debt to total asset value less than 60% 37%Fixed charge coverage ratio greater than 1.5x 2.8xUnsecured debt ratio greater than 1.67x 2.48xUnencumbered asset pool debt service coverage greater than 2.0x 4.9xUnencumbered debt yield greater than 12% 16%Unsecured Senior Notes due 2015 and 2020 (as defined in the Indenture): Total debt/total asset value less than 60% 43%Interest coverage greater than 1.5x 3.4xSecured debt/total asset value less than 40% 9%Unencumbered asset pool value to unsecured debt greater than 150% 248%We believe that the Operating Partnership was in compliance with all its debt covenants as of December 31, 2010. Our currentexpectation 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 continued economic slow down and continued volatility in the credit markets, there is no certainty that theOperating Partnership will be able to continue to satisfy all the covenant requirements.69 Historical Cash Flow SummaryOur historical cash flow activity for the year ended December 31, 2010 as compared to the year ended December 31, 2009 was asfollows: Year Ended December 31, Dollar Percentage 2010 2009 Change Change ($ in thousands) Net cash provided by operating activities $119,827 $124,965 $(5,138) (4.1)%Net cash used in investing activities (701,774) (50,474) (651,300) (1,290.4)Net cash provided by (used in) financing activities 586,904 (74,161) 661,065 891.4 Operating ActivitiesOur cash flows from operations depends on numerous factors including the occupancy level of our portfolio, the rental ratesachieved on our leases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of propertyacquisitions and related financing activities, and other general and administrative costs. Our net cash provided by operating activitiesdecreased by $5.1 million, or 4.1%, for the year ended December 31, 2010 compared to the year ended December 31, 2009 primarily asthe result of an increase in expenditures for severance costs and acquisition related costs.Investing ActivitiesOur net cash used in investing activities is generally used to fund property acquisitions, recurring and nonrecurring capitalexpenditures for our operating properties, and development and redevelopment projects . Our net cash used in investing activitiesincreased $651.3 million, or 1,290.4%, for the year ended December 31, 2010 compared to the year ended December 31, 2009. This netincrease was primarily attributable to the following: • Approximately $637.6 million in cash paid to acquire ten operating properties in eight transactions during 2010; • An increase of $35.6 million in expenditures for our operating properties in 2010 primarily for tenant improvement projectsand leasing commissions related to increased leasing activity; • An offsetting decrease primarily as the result of $10.7 million in cash received for the repayment of the note receivablebalance and $10.0 million in proceeds received from the sale of properties.Financing ActivitiesOur net cash provided by or used in financing activities is generally impacted by our capital raising activities net of dividends anddistributions paid to common and preferred security holders. Net cash provided by financing activities increased by $661.1 million, or891.4%, for the year ended December 31, 2010 compared to the year ended December 31, 2009, and was primarily attributable to anincrease in our capital raising activities during 2010 to fund our 2010 property acquisitions (see 2010 Financing Activities discussionunder the heading Liquidity and Capital Resources of the Operating Partnerships for additional information).Off-Balance Sheet ArrangementsAs of December 31, 2010 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements,or obligations, including contingent obligations.Non-GAAP Supplemental Financial Measure: Funds From OperationsWe calculate FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paperdefines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gainsand losses from sales of depreciable operating property, plus real estate-related depreciation and amortization (excluding amortization ofdeferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and jointventures.70 We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and lossesfrom the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form thecore of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as theindustry 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 estateassets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industryinvestors and analysts have considered presentations of operating results for real estate companies using historical cost accounting aloneto be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the requiredGAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basison which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone wouldprovide.However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect eitherdepreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performanceof our properties, which are significant economic costs and could materially impact our results from operations.The following table presents our FFO for the years ended December 31, 2010, 2009, 2008, 2007, and 2006: Year Ended December 31, 2010 2009 2008 2007 2006 (in thousands) Net income available to common stockholders $4,512 $21,794 $29,829 $101,164 $72,256 Adjustments: Net income attributable to noncontrolling commonunits of the Operating Partnership 178 1,025 1,886 6,957 5,990 Depreciation and amortization of real estate assets 102,898 86,825 82,491 73,708 71,197 Net gain on dispositions of discontinued operations (949) (2,485) (234) (74,505) (31,259)Funds From Operations(1) $106,639 $107,159 $113,972 $107,324 $118,184 (1)Reported amounts are attributable to common stockholders and common unitholders.71 The following table presents our weighted average common shares and common units outstanding for the years ended December 31,2010, 2009, 2008, 2007, and 2006: Year Ended December 31, 2010 2009 2008 2007 2006 Weighted average common shares outstanding 49,497,487 38,705,101 32,466,591 32,379,997 31,244,062 Weighted average common units outstanding 1,723,131 1,731,095 2,065,188 2,235,772 2,598,313 Effect of participating securities—nonvestedshares and restricted stock units 812,865 785,582 372,444 312,552 154,079 Total basic weighted average shares/unitsoutstanding 52,033,483 41,221,778 34,904,223 34,928,321 33,996,454 Effect of dilutive securities—stock optionsand contingently issuable shares 15,708 27,025 74,281 28,969 48,566 Total diluted weighted average shares/unitsoutstanding 52,049,191 41,248,803 34,978,504 34,957,290 34,045,020 InflationSince the majority of our leases require tenants to pay most operating expenses, including real estate taxes, utilities, insurance, andincreases in common area maintenance expenses, we do not believe our exposure to increases in costs and operating expenses resultingfrom inflation is material.New Accounting PronouncementsThere are currently no recently issued accounting pronouncements that are expected to have a material effect on our financialcondition and results of operations in future periods.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe primary market risk we face is interest rate risk. We mitigate this risk by following established risk management policies andprocedures. These policies include maintaining prudent amounts of debt, including a greater amount of fixed-rate debt as compared tovariable-rate debt in our portfolio, and may include the periodic use of derivative instruments. As of December 31, 2010 and 2009, we didnot have any interest-rate sensitive derivative assets or liabilities.Information about our changes in interest rate risk exposures from December 31, 2009 to December 31, 2010 is incorporated hereinby reference from Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations “—Liquidity andCapital Resources of the Operating Partnership.”Market RiskAs of December 31, 2010, approximately 11% of our total outstanding debt of $1.5 billion was subject to variable interest rates. Theremaining 89.0% bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than tradingpurposes.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 suchinstruments mature or are otherwise terminated and need to be refinanced. However, interest rate fluctuations will impact the fair value ofthe fixed-rate debt instruments.With the exception of the Exchangeable Notes and our publicly traded unsecured senior notes, we generally determine the fair valueof our fixed-rate debt by performing discounted cash flow analyses using an appropriate market rate. We calculate the market rate byobtaining period-end treasury rates for maturities that correspond to the72 maturities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financialinstitutions. 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. We determine the fair value of theliability component of our Exchangeable Notes by performing discounted cash flow analysis using an appropriate market interest rate forsimilar non-convertible conventional debt instruments. We determine the fair value of each of our publicly traded unsecured senior notesbased on their quoted trading price at the end of the reporting period. See Note 16 to our consolidated financial statements included in thisreport for additional information on the fair value of our financial assets and liabilities as of December 31, 2010 and 2009.As of December 31, 2010, the total outstanding balance of our variable-rate debt included borrowings on our Credit Facility of$159.0 million and was indexed to LIBOR plus a spread of 2.675% (weighted average interest rate was 2.99% ). As of December 31,2009, the total outstanding balance of our variable-rate debt included borrowings of $97.0 million on our Prior Credit Facility, which wasindexed to LIBOR plus a spread of 0.85%, and borrowings of $33.5 million on our secured line of credit, which was indexed to LIBORplus a spread of 0.75% (weighted average interest rate was 1.1%). Assuming no changes in the outstanding balance of our existingvariable-rate debt as of December 31, 2010, a 100 basis point increase in the LIBOR rate would increase our projected annual interestexpense, before the effect of capitalization, by approximately $1.6 million. Comparatively, if interest rates were 100 basis points higher asof December 31, 2009, our projected annual interest expense, before the effect of capitalization, would have been $1.3 million higher.The total carrying value of our fixed-rate debt, including our Exchangeable Notes, was approximately $1.3 billion and$841.5 million as of December 31, 2010 and 2009, respectively. The total estimated fair value of our fixed-rate debt was approximately$1.3 billion and $842.1 million as of December 31, 2010 and 2009, respectively. For sensitivity purposes, a 100 basis point increase inthe discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately $47.2 million, or 3.6%, as ofDecember 31, 2010. 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 $20.2 million, or 2.4%, as of December 31, 2009.The above sensitivity analyses do not consider interrelationships between different market movements, which could result inadditional changes in the fair value of our debt and Exchangeable Notes, beyond the amounts calculated.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee the index included at Item 15: Exhibits, Financial Statement Schedules.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURENot applicable.ITEM 9A. CONTROLS AND PROCEDURESKilroy Realty CorporationThe Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the ExchangeAct) that are designed to ensure that information required to be disclosed in our 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 andcommunicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timelydecisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes thatany controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls andprocedures.As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of managementincluding the Chief Executive Officer and Chief Financial Officer, of the effectiveness73 of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report. Based on theforegoing, our Chief Executive Officer and Chief Financial Officer concluded, as of that time, that our disclosure controls and procedureswere effective at the reasonable assurance level.Changes in Internal Control Over Financial ReportingThere have been no changes that occurred during the fourth quarter of the year covered by this report in the Company’s internalcontrol over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingInternal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and ChiefFinancial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internalcontrol over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures arebeing made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on theconsolidated financial statements.Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controlover financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties.The Company has used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment,management concluded that internal control over financial reporting operated effectively as of December 31, 2010.Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Company’s financialstatements and has issued a report on the effectiveness of the Company’s internal control over financial reporting.74 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofKilroy Realty CorporationLos Angeles, CaliforniaWe have audited the internal control over financial reporting of Kilroy Realty Corporation (the “Company”) as of December 31,2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Reporton Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financialreporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,or disposition of the company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or impropermanagement override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk thatthe controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedules as of and for the year ended December 31, 2010, of the Company andour report dated February 10, 2011, expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 201175 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 theExchange Act) that are designed to ensure that information required to be disclosed in our 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 isaccumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of our general partner,as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide onlyreasonable 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 theparticipation of management including the Chief Executive Officer and Chief Financial Officer of our general partner, of the effectivenessof the design and operation of the disclosure controls and procedures as of the end of the period covered by this report. Based on theforegoing, the Chief Executive Officer and Chief Financial Officer of our general partner concluded, as of that time, that our disclosurecontrols and procedures were effective at the reasonable assurance level.Changes in Internal Control Over Financial ReportingThere have been no changes that occurred during the fourth quarter of the year covered by this report in the Operating Partnership’sinternal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or isreasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingInternal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and ChiefFinancial Officer of our general partner and effected by the board of directors, management, and other personnel of our general partner toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets thatcould have a material effect on the consolidated financial statements.Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controlover financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties.The Operating Partnership has used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon thisassessment, management concluded that internal control over financial reporting operated effectively as of December 31, 2010.Deloitte & Touche LLP, the Operating Partnership’s independent registered public accounting firm, has audited the OperatingPartnership’s financial statements and has issued a report on the effectiveness of the Operating Partnership’s internal control overfinancial reporting.76 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Partners ofKilroy Realty, L.P.Los Angeles, CaliforniaWe have audited the internal control over financial reporting of Kilroy Realty, L.P. (the “Operating Partnership”) as of December 31,2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. The Operating Partnership’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the OperatingPartnership’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,or disposition of the company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or impropermanagement override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk thatthe controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedules as of and for the year ended December 31, 2010, of the OperatingPartnership and our report dated February 10, 2011, expressed an unqualified opinion on those financial statements and financialstatement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 201177 ITEM 9B. OTHER INFORMATIONNot applicable.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual stockholders’meeting presently scheduled to be held in May 2011.ITEM 11. EXECUTIVE COMPENSATIONThe information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’meeting presently scheduled to be held in May 2011.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERSThe information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’meeting presently scheduled to be held in May 2011.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual stockholders’meeting presently scheduled to be held in May 2011.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual stockholders’meeting presently scheduled to be held in May 2011.78 PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a)(1) and (2) Financial Statements and SchedulesThe following consolidated financial information is included as a separate section of this annual report on Form 10-K:Report of Independent Registered Public Accounting Firm—Kilroy Realty Corporation F - 2 Consolidated Balance Sheets as of December 31, 2010 and 2009—Kilroy Realty Corporation F - 3 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009, and 2008—Kilroy RealtyCorporation F - 4 Consolidated Statements of Equity for the Years ended December 31, 2010, 2009, and 2008—Kilroy Realty Corporation F - 5 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009, and 2008—Kilroy RealtyCorporation F - 6 Report of Independent Registered Public Accounting Firm—Kilroy Realty, L.P. F - 8 Consolidated Balance Sheets as of December 31, 2010 and 2009—Kilroy Realty, L.P. F - 9 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009, and 2008—Kilroy Realty, L.P. F - 10 Consolidated Statements of Capital for the Years ended December 31, 2010, 2009, and 2008—Kilroy Realty, L.P. F - 11 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009, and 2008—Kilroy Realty, L.P. F - 12 Notes to Consolidated Financial Statements F - 14 Schedule II—Valuation and Qualifying Accounts F - 56 Schedule III—Real Estate and Accumulated Depreciation F - 57 All other schedules are omitted since the required information is not present in amounts sufficient to require submission of theschedule or because the information required is included in the financial statements and notes thereto.(3) ExhibitsExhibit Number Description 3.(i)1 Kilroy Realty Corporation Articles of Restatement(41) 3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P.(42) 3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P.(42) 3.(ii).1 Second Amended and Restated Bylaws of the Registrant(31) 3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws(35) 4.1 Form of Certificate for Common Stock of the Registrant(1) 4.2 Registration Rights Agreement dated January 31, 1997(1) 4.3 Registration Rights Agreement dated February 6, 1998(3) 4.4 Second Amended and Restated Registration Rights Agreement dated as of March 5, 2004(2) 4.5 Registration Rights Agreement dated as of October 31, 1997(4) 4.6 Registration Rights Agreement dated as of October 6, 2000(6) 4.7 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds tenpercent of the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,the Company agrees to furnish copies of these agreements to the Commission upon request 4.8 Note and Guarantee Agreement dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporationand the purchasers whose names appear in the acceptance form at the end of the Note and Guarantee Agreement(7)79 Exhibit Number Description 4.9 Form of 5.72% Series A Guaranteed Senior Note due 2010(7) 4.10 Form of 6.45% Series B Guaranteed Senior Note due 2014(7) 4.11† Kilroy Realty 2006 Incentive Award Plan(24) 4.12† Amendment to Kilroy Realty 2006 Incentive Award Plan(26) 4.13† Second Amendment to Kilroy Realty 2006 Incentive Award Plan(30) 4.14† Third Amendment to Kilroy Realty 2006 Incentive Award Plan(35) 4.15† Form of Restricted Stock Award Agreement(25) 4.16 Indenture, dated as of April 2, 2007, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, andU.S. Bank National Association, as trustee, including the form of 3.250% Exchangeable Senior Notes due 2012(28) 4.17 Registration Rights Agreement, dated April 2, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation, andJ.P. Morgan Securities Inc., Banc of America Securities LLC and Lehman Brothers Inc.(28) 4.18 Indenture, dated as of November 20, 2009, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, asguarantor, and U.S. Bank National Association, as trustee, including the form of 4.250% Exchangeable Senior Notes due2014 and the form of related guarantee(39) 4.19 Registration Rights Agreement, dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation,J.P. Morgan Securities Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated(39) 4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P.(42) 4.21 Indenture, dated May 24, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee, including the form of 6.625% Senior Notes due 2020 and the form of the relatedguarantee(43) 4.22 Registration Rights Agreement, dated May 24, 2010, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. MorganSecurities Inc., Banc of America Securities LLC and Barclays Capital Inc.(43) 4.23† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan(44) 4.24 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, andU.S. Bank National Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of relatedguarantee(45) 10.1 Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of March 5, 2004(2) 10.2 First Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as ofDecember 7, 2004(8) 10.3 Second Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as ofOctober 2, 2008(34) 10.4 Third Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P.(36) 10.5 Omnibus Agreement dated as of October 30, 1996 by and among Kilroy Realty, L.P. and the parties named therein(1) 10.6 Supplemental Representations, Warranties and Indemnity Agreement by and among Kilroy Realty, L.P. and the partiesnamed therein(1) 10.7 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries(1) 10.8† 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P.(1) 10.9 Lease Agreement dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase I(9) 10.10 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase I(9) 10.11 Lease Agreement dated July 17, 1985 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase III(10) 10.12 Lease Agreement dated April 21, 1988 by and between Kilroy Long Beach Associates and the Board of WaterCommissioners of the City of Long Beach, acting for and on behalf of the City of Long Beach, for Long Beach PhaseIV(10) 10.13 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase II(10)80 Exhibit Number Description 10.14 First Amendment to Lease dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III(10) 10.15 Second Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase III(10) 10.16 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase II(10) 10.17 Third Amendment to Lease Agreement dated October 10, 1994 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase III(10) 10.18 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (10) 10.19 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of LongBeach(10) 10.20 Property Management Agreement between Kilroy Realty Finance Partnership, L.P. and Kilroy Realty, L.P.(11) 10.21 Form of Environmental Indemnity Agreement(11) 10.22 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport Imperial Co.(12) 10.23 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Calabasas Associates(12) 10.24† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Sr.(1) 10.25† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Jr.(1) 10.26 License Agreement by and among the Registrant and the other persons named therein(12) 10.27 Purchase and Sale Agreement and Joint Escrow Instructions dated April 30, 1997 by and between Mission LandCompany, Mission-Vacaville, L.P. and Kilroy Realty, L.P.(13) 10.28 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 30, 1997 by and between Camarillo Partnersand Kilroy Realty, L.P.(13) 10.29 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997 by and between Kilroy Realty L.P. andPullman Carnegie Associates(14) 10.30 Amendment to Purchase and Sale Agreement and Escrow Instructions dated June 27, 1997 by and between PullmanCarnegie Associates and Kilroy Realty, L.P.(14) 10.31 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated May 12, 1997 by andbetween Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(15) 10.32 First Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated June 6,1997 by and between Shidler West Acquisition Company, L.L.C. and Kilroy Realty, L.P.(15) 10.33 Second Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions datedJune 12, 1997 by and between Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(15) 10.34 Agreement of Purchase and Sale and Joint Escrow Instructions dated June 12, 1997 by and between Mazda Motor ofAmerica, Inc. and Kilroy Realty, L.P.(14) 10.35 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated June 30, 1997 by and betweenMazda Motor of America, Inc. and Kilroy Realty, L.P.(14) 10.36 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica, California dated June 16, 1997 by andbetween Santa Monica Number Seven Associates L.P. and Kilroy Realty, L.P.(14) 10.37 Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and between Kilroy Realty, L.P. andMission Square Partners(16) 10.38 First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated August 22, 1997(16) 10.39 Second Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 5, 1997(16) 10.40 Third Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated September 19, 1997(16) 10.41 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 22, 1997(16) 10.42 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated September 23, 1997(16) 10.43 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1998 by and betweenKilroy Realty, L.P. and Mission Square Partners dated September 25, 1997(16)81 Exhibit Number Description 10.44 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 29, 1997(16) 10.45 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated October 2, 1997(16) 10.46 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated October 24, 1997(16) 10.47 Contribution Agreement dated October 21, 1997 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation andThe Allen Group and the Allens(17) 10.48 Purchase and Sale Agreement and Escrow Instructions dated December 11, 1997 by and between Kilroy Realty, L.P. andSwede-Cal Properties, Inc., Viking Investors of Southern California, L.P. and Viking Investors of Southern California II,L.P.(18) 10.49 Amendment to the Contribution Agreement dated October 14, 1998 by and between Kilroy Realty, L.P. and Kilroy RealtyCorporation and The Allen Group and the Allens dated October 21, 1997(19) 10.50 Secured Promissory Notes and Deeds of Trusts Aggregating $80.0 Million payable to Metropolitan Life InsuranceCompany dated January 10, 2002(20) 10.51 Secured Promissory Notes and Deeds of Trust Aggregating $115 million payable to Teachers Insurance and AnnuityAssociation of America(21) 10.52 Fourth Amended and Restated Revolving Credit Agreement dated October 22, 2004(22) 10.53 Fourth Amended and Restated Guaranty of Payment dated October 22, 2004(22) 10.54 Amendment No. 1 to Fourth Amended and Restated Credit Agreement dated June 30, 2005(38) 10.55 Amendment No. 2 to Fourth Amended and Restated Credit Agreement dated April 26, 2006(23) 10.56 Amendment No. 3 to Fourth Amended and Restated Credit Agreement(37) 10.57† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. effective asof January 1, 2007(27) 10.58† Addendum No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B.Kilroy, Jr. effective as of February 12, 2008(40) 10.59† Amendment No. 2 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B.Kilroy, Jr. effective as of December 31, 2009(40) 10.60† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective asof January 1, 2007(27) 10.61† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C.Hawken effective as of December 31, 2009(40) 10.62† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr. effectiveas of January 1, 2007(27) 10.63† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and RichardE. Moran Jr. effective as of December 31, 2009(40) 10.64 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch(28) 10.65 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N.A.(28) 10.66 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Lehman BrothersOTC Derivatives Inc.(28) 10.67 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation andJPMorgan Chase Bank, National Association, London Branch(29) 10.68 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N.A.(29) 10.69 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and LehmanBrothers OTC Derivatives Inc.(29) 10.70† Kilroy Realty Corporation 2007 Deferred Compensation Plan(32) 10.71† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Steven R. Scott effective as ofJanuary 1, 2007(32) 10.72† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Steven R.Scott effective as of December 31, 2009(40) 10.73† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as ofJanuary 1, 2007(32)82 Exhibit Number Description 10.74† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H.Rose effective as of December 31, 2009(40) 10.75† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as ofJanuary 1, 2007(32) 10.76† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and HeidiRoth effective as of December 31, 2009(40) 10.77† Kilroy Realty Corporation Stock Award Deferral Program(33) 10.78 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorganChase Bank, National Association, London Branch(39) 10.79 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N.A.(39) 10.80 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorganChase Bank, National Association, London Branch(39) 10.81 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N.A.(39) 10.82† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors(41) 10.83† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P.and Kilroy Realty Corporation(41) 10.84 Deed of Trust and Security Agreement dated January 26, 2010 between Kilroy Realty, L.P. and The NorthwesternMutual Life Insurance Company; related Promissory Note dated January 26, 2010 for $71 million payable to TheNorthwestern Mutual Life Insurance Company; and related Guarantee of Recourse Obligations dated January 26, 2010by Kilroy Realty Corporation(41) 10.85 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 12, 2010 by and between Kilroy Realty, L.P,a Delaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company(46) 10.86 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated May 21, 2010 by and betweenKilroy Realty, L.P, a Delaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liabilitycompany(46) 10.87 Revolving Credit Agreement dated August 10, 2010(47) 10.88 Guaranty of Payment dated August 10, 2010(47) 10.89 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 10.90 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 10.91 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P.(48) 10.92 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 12.1* Statement of Computation of Consolidated Ratio of Earnings of Kilroy Realty Corporation 12.2* Statement of Computation of Consolidated Ratio of Earnings of Kilroy Realty, L.P. 21.1* List of Subsidiaries of Kilroy Realty Corporation 21.2* List of Subsidiaries of Kilroy Realty, L.P. 23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation 23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P. 24.1* Power of Attorney (included on the signature pages of this Form 10-K) 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 year ended December 31,2010, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) ConsolidatedStatements of Income, (iii) Consolidated Statements of Changes in Equity and (iv) Consolidated Statements of CashFlows and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.(5)83 *Filed herewith†Management contract or compensatory plan or arrangement.(1)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553).(2)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2003.(3)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 11, 1998.(4)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K/A as filed with the Securities and Exchange Commission on December 19, 1997.(5)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 ofSections 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 thesesections.(6)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2000.(7)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004.(8)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 9, 2004.(9)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2 to Form S-11 (No. 333-15553).(10)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553).(11)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 5 to Form S-11 (No. 333-15553).(12)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553).(13)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 6, 1997.(14)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 15, 1997.(15)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 3, 1997.(16)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 1997.(17)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on November 21, 1997.(18)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 29, 1997.(19)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 1998.(20)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2001.(21)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2004.(22)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on October 28, 2004.(23)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2006.(24)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-8 filed with the Securities and Exchange Commissionon June 28, 2006.(25)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 8, 2007.(26)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2006.(27)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on March 22, 2007.(28)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 5, 2007.(29)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 11, 2007.(30)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2007.(31)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2008.(32)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007.(33)Previously filed by Kilroy Realty Corporation as an exhibit to Form 8-K as filed with the Securities and Exchange Commission on January 2, 2008.(34)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2008.(35)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2009.(36)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2009.84 (37)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 23, 2009.(38)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2005.(39)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on November 25, 2009.(40)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2008.(41)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009.(42)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 ExchangeCommission on August 18, 2010.(43)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 25, 2010.(44)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commissionon June 11, 2010.(45)Previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 4, 2010.(46)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2010.(47)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2010.(48)Previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJanuary 13, 2011.85 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty Corporation has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 10, 2011.KILROY REALTY CORPORATION By /s/ Heidi R. RothHeidi R. RothSenior Vice President and ControllerPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Kilroy Realty Corporation, herebyseverally constitute John B. Kilroy, Sr., John B. Kilroy, Jr., Jeffrey C. Hawken, Tyler H. Rose and Heidi R. Roth, and each of themsingly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacitiesindicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in ournames and in our capacities as officers and directors to enable Kilroy Realty Corporation to comply with the provisions of the SecuritiesExchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirmingour signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated.Name Title Date /s/ John B. Kilroy, Sr. John B. Kilroy, Sr. Chairman of the Board February 10, 2011 /s/ John B. Kilroy, Jr. John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer) February 10, 2011 /s/ Tyler H. RoseTyler H. Rose Executive Vice President andChief Financial Officer(Principal Financial Officer) February 10, 2011 /s/ Heidi R. RothHeidi R. Roth Senior Vice President and Controller(Principal Accounting Officer) February 10, 2011 /s/ Edward F. Brennan, Ph.D. Edward F. Brennan, Ph.D. Director February 10, 2011 /s/ William P. DickeyWilliam P. Dickey Director February 10, 2011 /s/ Scott S. IngrahamScott S. Ingraham Director February 10, 2011 /s/ Dale F. KinsellaDale F. Kinsella Director February 10, 201186 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty, L.P. has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized on February 10, 2011.KILROY REALTY, L.P. By /s/ Heidi R. RothHeidi R. RothSenior Vice President and ControllerPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Kilroy Realty Corporation, as solegeneral partner and on behalf of Kilroy Realty, L.P., hereby severally constitute John B. Kilroy, Sr., John B. Kilroy, Jr., Jeffrey C.Hawken, Tyler H. Rose and Heidi R. Roth, and each of them singly, our true and lawful attorneys with full power to them, and each ofthem singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendmentsto said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Kilroy RealtyCorporation, as sole general partner and on behalf of Kilroy Realty, L.P., to comply with the provisions of the Securities Exchange Act of1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures asthey may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated.Name Title Date /s/ John B. Kilroy, Sr.John B. Kilroy, Sr. Chairman of the Board February 10, 2011 /s/ John B. Kilroy, Jr.John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer) February 10, 2011 /s/ Tyler H. RoseTyler H. Rose Executive Vice President and Chief FinancialOfficer(Principal Financial Officer) February 10, 2011 /s/ Heidi R. RothHeidi R. Roth Senior Vice President and Controller (PrincipalAccounting Officer) February 10, 2011 /s/ Edward F. Brennan, Ph.D.Edward F. Brennan, Ph.D. Director February 10, 2011 /s/ William P. DickeyWilliam P. Dickey Director February 10, 2011 /s/ Scott S. IngrahamScott S. Ingraham Director February 10, 2011 /s/ Dale F. KinsellaDale F. Kinsella Director February 10, 201187 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 AND 2009 AND FORTHE THREE YEARS ENDED DECEMBER 31, 2010TABLE OF CONTENTS Page FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION: Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2010 and 2009 F-3 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009, and 2008 F-4 Consolidated Statements of Equity for the Years ended December 31, 2010, 2009, and 2008 F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009, and 2008 F-6 FINANCIAL STATEMENTS OF KILROY REALTY, L.P.: Report of Independent Registered Public Accounting Firm F-8 Consolidated Balance Sheets as of December 31, 2010 and 2009 F-9 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009, and 2008 F-10 Consolidated Statements of Capital for the Years ended December 31, 2010, 2009, and 2008 F-11 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009, and 2008 F-12 Notes to Consolidated Financial Statements for Kilroy Realty Corporation and Kilroy Realty, L.P. F-14 Schedule II—Valuation and Qualifying Accounts for Kilroy Realty Corporation and Kilroy Realty, L.P. F-56 Schedule III—Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P. F-57 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors andStockholders of Kilroy RealtyCorporation Los Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty Corporation (the “Company”) as of December 31,2010 and 2009, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the periodended December 31, 2010. Our audits also included the financial statement schedules listed in the Index at Item 15. These financialstatements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and financial statement schedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presentfairly, in all material respects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of December 31, 2010, based on the criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our reportdated February 10, 2011, expressed an unqualified opinion on the Company’s internal controls over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2011F-2 KILROY REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2010 2009 ASSETS REAL ESTATE ASSETS (Notes 3, 18 and 19): Land and improvements $491,333 $335,932 Buildings and improvements 2,435,173 1,920,543 Undeveloped land and construction in progress 290,365 263,608 Total real estate held for investment 3,216,871 2,520,083 Accumulated depreciation and amortization (672,429) (605,976)Total real estate assets, net 2,544,442 1,914,107 CASH AND CASH EQUIVALENTS 14,840 9,883 RESTRICTED CASH 1,461 2,059 MARKETABLE SECURITIES (Notes 13 and 16) 4,902 3,452 CURRENT RECEIVABLES, NET (Note 5) 6,258 3,236 DEFERRED RENT RECEIVABLES, NET (Note 5) 89,052 74,392 NOTE RECEIVABLE (Note 5) — 10,679 DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4) 131,066 51,832 DEFERRED FINANCING COSTS, NET (Notes 2 and 7) 16,447 8,334 PREPAID EXPENSES AND OTHER ASSETS, NET 8,097 6,307 TOTAL ASSETS $2,816,565 $2,084,281 LIABILITIES, NONCONTROLLING INTEREST AND EQUITY LIABILITIES: Secured debt, net (Notes 6 and 7) $313,009 $294,574 Exchangeable senior notes, net (Notes 6 and 7) 299,964 436,442 Unsecured senior notes, net (Notes 6 and 7) 655,803 144,000 Unsecured line of credit (Notes 6 and 7) 159,000 97,000 Accounts payable, accrued expenses and other liabilities 68,525 52,533 Accrued distributions (Note 10) 20,385 17,136 Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8) 79,322 66,890 Rents received in advance and tenant security deposits 29,189 18,230 Total liabilities 1,625,197 1,126,805 COMMITMENTS AND CONTINGENCIES (Note 15) NONCONTROLLING INTEREST (Note 9): 7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership 73,638 73,638 EQUITY (Notes 9 and 10): Stockholders’ Equity: Preferred Stock, $.01 par value, 30,000,000 shares authorized, 7.45% Series A Cumulative Redeemable Preferred stock, $.01 par value,1,500,000 shares authorized, none issued and outstanding — — 7.80% Series E Cumulative Redeemable Preferred stock, $.01 par value,1,610,000 shares authorized, issued and outstanding ($40,250 liquidation preference) 38,425 38,425 7.50% Series F Cumulative Redeemable Preferred stock, $.01 par value,3,450,000 shares authorized, issued and outstanding ($86,250 liquidation preference) 83,157 83,157 Common stock, $.01 par value, 150,000,000 shares authorized, 52,349,670 and 43,148,762 shares issued and outstanding, respectively 523 431 Additional paid-in capital 1,211,498 913,657 Distributions in excess of earnings (247,252) (180,722)Total stockholders’ equity 1,086,351 854,948 Noncontrolling Interest: Common units of the Operating Partnership 31,379 28,890 Total equity 1,117,730 883,838 TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY $2,816,565 $2,084,281 See accompanying notes to consolidated financial statementsF-3 KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended December 31, 2010 2009 2008 REVENUES: Rental income $274,708 $247,649 $251,520 Tenant reimbursements 24,326 28,075 30,986 Other property income (Note 17) 2,946 3,710 6,849 Total revenues 301,980 279,434 289,355 EXPENSES: Property expenses 58,067 49,709 48,861 Real estate taxes 27,494 24,330 22,063 Provision for bad debts (1,063) 569 4,051 Ground leases (Note 15) 984 1,597 1,617 General and administrative expenses (Note 17) 27,963 39,938 38,260 Acquisition-related expenses 2,248 — — Depreciation and amortization (Notes 2 and 4) 103,809 87,627 83,215 Total expenses 219,502 203,770 198,067 OTHER (EXPENSES) INCOME: Interest income and other investment gains (losses) (Note 16) 964 1,300 (93)Interest expense (Note 7) (59,941) (46,119) (45,346)(Loss) gain on early extinguishment of debt (Note 7) (4,564) 4,909 — Total other (expenses) income (63,541) (39,910) (45,439)INCOME FROM CONTINUING OPERATIONS 18,937 35,754 45,849 DISCONTINUED OPERATIONS (Note 19) (Expenses) revenues from discontinued operations — (224) 828 Net gain on dispositions of discontinued operations 949 2,485 234 Total income from discontinued operations 949 2,261 1,062 NET INCOME 19,886 38,015 46,911 Net income attributable to noncontrolling common units of the Operating Partnership (178) (1,025) (1,886)NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 19,708 36,990 45,025 PREFERRED DIVIDENDS AND DISTRIBUTIONS: Distributions to noncontrolling cumulative redeemable preferred units of the Operating Partnership (5,588) (5,588) (5,588)Preferred dividends (9,608) (9,608) (9,608)Total preferred dividends and distributions (15,196) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $4,512 $21,794 $29,829 Income from continuing operations available to common stockholders per common share—basic (Note 20) $0.05 $0.47 $0.88 Income from continuing operations available to common stockholders per common share—diluted (Note 20) $0.05 $0.47 $0.88 Net income available to common stockholders per share—basic (Note 20) $0.07 $0.53 $0.91 Net income available to common stockholders per share—diluted (Note 20) $0.07 $0.53 $0.91 Weighted average common shares outstanding—basic (Note 20) 49,497,487 38,705,101 32,466,591 Weighted average common shares outstanding—diluted (Note 20) 49,513,195 38,732,126 32,540,872 Dividends declared per common share $1.40 $1.63 $2.32 See accompanying notes to consolidated financial statements.F-4 KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF EQUITY(in thousands, except share and per share/unit data) Noncontrol- ling Interest Common Stock Total – Common Additional Distributions Stock- Units of the Preferred Number of Common Paid-in in Excess of holders’ Operating Total Stock Shares Stock Capital Earnings Equity Partnership Equity BALANCE AT DECEMBER 31, 2007 $121,582 32,765,893 $328 $695,152 $(90,562) $726,500 $40,534 $767,034 Net income 45,025 45,025 1,886 46,911 Repurchase of common stock (300,586) (3) (14,795) (14,798) (14,798)Issuance of share-based compensation awards (Note 12) 184,245 2 2,165 2,167 2,167 Noncash amortization of share-based compensation 9,630 9,630 9,630 Exercise of stock options 1,000 21 21 21 Exchange of common units of the Operating Partnership (Note 10) 435,596 4 7,157 7,161 (7,161) — Adjustment for noncontrolling interest (Note 2) 792 792 (792) — Preferred dividends and distributions (15,196) (15,196) (15,196)Dividends declared per common share and common unit ($2.32per share/unit) (76,319) (76,319) (4,564) (80,883)BALANCE AT DECEMBER 31, 2008 121,582 33,086,148 331 700,122 (137,052) 684,983 29,903 714,886 Net income 36,990 36,990 1,025 38,015 Issuance of common stock (Note 10) 10,062,500 100 191,572 191,672 191,672 Repurchase of common stock and restricted stock units (86,482) (2,725) (2,725) (2,725)Issuance of share-based compensation awards (Note 12) 55,998 7,753 7,753 7,753 Noncash amortization of share-based compensation 12,338 12,338 12,338 Equity Component of 4.25% Exchangeable Notes (Note 7) 19,835 19,835 19,835 Cost of capped call options on common stock (12,127) (12,127) (12,127)Allocation to the equity component of cash paid upon repurchaseof 3.25% Exchangeable Notes (Note 7) (2,323) (2,323) (2,323)Exchange of common units of the Operating Partnership (Note 10) 30,598 516 516 (516) — Adjustment for noncontrolling interest (Note 2) (1,304) (1,304) 1,304 — Preferred distributions and dividends (15,196) (15,196) (15,196)Dividends declared per common share and common unit ($1.63per share/unit) (65,464) (65,464) (2,826) (68,290)BALANCE AS OF DECEMBER 31, 2009 121,582 43,148,762 431 913,657 (180,722) 854,948 28,890 883,838 Net income 19,708 19,708 178 19,886 Issuance of common stock (Note 10) 9,200,000 92 299,755 299,847 299,847 Settlement of restricted stock units for shares of common stock(Note 12) 53,451 (1,296) (1,296) (1,296)Repurchase of common stock and restricted stock units (Note 12) (59,782) (2,121) (2,121) (2,121)Issuance of share-based compensation awards (Note 12) 3,239 2,151 2,151 2,151 Noncash amortization of share-based compensation 6,687 6,687 6,687 Exercise of stock options 4,000 83 83 83 Allocation to the equity component of cash paid upon repurchaseof 3.25% Exchangeable Notes (Note 7) (2,694) (2,694) (2,694)Adjustment for noncontrolling interest (Note 2) (4,724) (4,724) 4,724 — Preferred distributions and dividends (15,196) (15,196) (15,196)Dividends declared per common share and common unit ($1.40per share/unit) (71,042) (71,042) (2,413) (73,455)BALANCE AS OF DECEMBER 31, 2010 $121,582 52,349,670 $523 $1,211,498 $(247,252) $1,086,351 $31,379 $1,117,730 See accompanying notes to consolidated financial statements.F-5 KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $19,886 $38,015 $46,911 Adjustments to reconcile net income to net cash provided by operating activities (including discontinuedoperations): Depreciation and amortization of building and improvements and leasing costs 102,898 86,825 82,491 (Decrease) increase in provision for bad debts (1,063) 569 4,051 Depreciation of furniture, fixtures and equipment 911 827 784 Noncash amortization of share-based compensation awards 6,031 12,253 15,185 Noncash amortization of deferred financing costs and debt discounts 12,490 10,171 8,146 Noncash amortization of above/(below) market rents (Note 4) 1,377 (359) (633)Net gain on dispositions of discontinued operations (Note 19) (949) (2,485) (234)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8) (9,689) (9,757) (11,310)Loss (gain) on early extinguishment of debt (Note 7) 4,564 (4,909) — Other, net 543 (634)Changes in operating assets and liabilities: Marketable securities (Notes 13 and 16) (1,450) (1,564) (1,181)Current receivables (3,038) 1,611 (1,537)Deferred rent receivables (13,616) (6,911) (3,237)Other deferred leasing costs (2,395) (1,013) (16)Prepaid expenses and other assets (2,182) (897) (628)Accounts payable, accrued expenses and other liabilities (7,073) 4,374 (836)Deferred revenue 1,623 (675) 6,252 Rents received in advance and tenant security deposits 10,959 (1,110) 907 Net cash provided by operating activities 119,827 124,965 144,481 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties (Note 3) (637,620) — — Expenditures for operating properties (71,099) (35,532) (24,980)Expenditures for development and redevelopment properties and undeveloped land (21,832) (18,633) (69,774)Net proceeds received from dispositions of operating properties (Note 19) 14,978 4,933 275 Insurance proceeds received for property casualty loss — — 634 Decrease (increase) in restricted cash 3,120 (1,387) (126)Receipt of principal payments on note receivable (Note 5) 10,679 145 146 Net cash used in investing activities (701,774) (50,474) (93,825)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock (Note 10) 299,847 191,672 — Proceeds from the issuance of secured debt (Note 7) 71,000 — — Principal payments on secured debt (103,247) (21,766) (82,932)Proceeds from the issuance of unsecured debt (Note 7) 572,672 — — Repayments of unsecured debt (Note 7) (61,000) — — Borrowings on unsecured line of credit 660,000 142,000 163,500 Repayments on unsecured line of credit (598,000) (297,000) (22,500)Proceeds from issuance of exchangeable senior notes (Note 7) — 172,500 — Repurchase of exchangeable senior notes (Note 7) (151,097) (150,390) — Cost of capped call options on common stock — (12,127) — Financing costs (14,912) (9,325) (857)Increase in loan deposit (605) — Repurchase of common stock (3,417) (2,725) (14,798)Proceeds from exercise of stock options 83 — 21 Dividends and distributions paid to common stockholders and common unitholders (69,224) (71,804) (80,073)Dividends and distributions paid to preferred stockholders and preferred unitholders (15,196) (15,196) (15,196)Net cash provided by (used in) financing activities 586,904 (74,161) (52,835)Net increase (decrease) in cash and cash equivalents 4,957 330 (2,179)Cash and cash equivalents, beginning of year 9,883 9,553 11,732 Cash and cash equivalents, end of year $14,840 $9,883 $9,553 F-6 KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)(in thousands) Year Ended December 31, 2010 2009 2008 SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $7,697, $7,381, and $14,804 as of December 31, 2010,2009 and 2008, respectively $45,986 $36,808 $37,638 NONCASH INVESTING AND FINANCING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties $19,563 $11,222 $8,055 Tenant improvements funded directly by tenants to third-parties $4,758 $1,480 $22,749 Assumption of secured debt with property acquisition (Notes 3 and 7) $51,079 Assumption of other liabilities with property acquisitions (Note 3) $10,840 Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 10) $18,925 $15,705 $20,211 Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Note 10) $1,909 $1,909 $1,909 Issuance of share-based compensation awards (Note 12) $5,910 $18,001 $10,059 Exchange of common units of the Operating Partnership into shares of the Company’s common stock (Note 10) $— $516 $7,161 Accrual of public facility bond obligation (Note 7) $3,476 See accompanying notes to consolidated financial statements.F-7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Partners of Kilroy Realty, L.P.Kilroy Realty, L.P.Los Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty, L.P. (the “Operating Partnership”) as ofDecember 31, 2010 and 2009, and the related consolidated statements of operations, capital, and cash flows for each of the three years inthe period ended December 31, 2010. Our audits also included the financial statement schedules listed in the Index at Item 15. Thesefinancial statements and financial statement schedules are the responsibility of the Operating Partnership’s management. Ourresponsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the OperatingPartnership as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, inour opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as awhole, present fairly, in all material respects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theOperating Partnership’s internal control over financial reporting as of December 31, 2010, based on the criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our reportdated February 10, 2011, expressed an unqualified opinion on the Operating Partnership’s internal controls over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2011F-8 KILROY REALTY, L.P.CONSOLIDATED BALANCE SHEETS(in thousands, except unit data) December 31, 2010 2009 ASSETS REAL ESTATE ASSETS (Notes 3, 18 and 19): Land and improvements $491,333 $335,932 Buildings and improvements 2,435,173 1,920,543 Undeveloped land and construction in progress 290,365 263,608 Total real estate held for investment 3,216,871 2,520,083 Accumulated depreciation and amortization (672,429) (605,976)Total real estate assets, net 2,544,442 1,914,107 CASH AND CASH EQUIVALENTS 14,840 9,883 RESTRICTED CASH 1,461 2,059 MARKETABLE SECURITIES (Notes 13 and 16) 4,902 3,452 CURRENT RECEIVABLES, NET (Note 5) 6,258 3,236 DEFERRED RENT RECEIVABLES, NET (Note 5) 89,052 74,392 NOTE RECEIVABLE (Note 5) — 10,679 DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4) 131,066 51,832 DEFERRED FINANCING COSTS, NET (Notes 2 and 7) 16,447 8,334 PREPAID EXPENSES AND OTHER ASSETS, NET 8,097 6,307 TOTAL ASSETS $2,816,565 $2,084,281 LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL LIABILITIES:Secured debt, net (Notes 6 and 7) $313,009 $294,574 Exchangeable senior notes, net (Notes 6 and 7) 299,964 436,442 Unsecured senior notes, net (Notes 6 and 7) 655,803 144,000 Unsecured line of credit (Notes 6 and 7) 159,000 97,000 Accounts payable, accrued expenses and other liabilities 68,525 52,533 Accrued distributions (Note 10) 20,385 17,136 Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8) 79,322 66,890 Rents received in advance and tenant security deposits 29,189 18,230 Total liabilities 1,625,197 1,126,805 COMMITMENTS AND CONTINGENCIES (Note 15) 7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS (Note 9) 73,638 73,638 CAPITAL (Notes 9 and 11): Partners’ Capital: 7.80% Series E Cumulative Redeemable Preferred units,1,610,000 units issued and outstanding ($40,250 liquidation preference) 38,425 38,425 7.50% Series F Cumulative Redeemable Preferred units,3,450,000 units issued and outstanding ($86,250 liquidation preference) 83,157 83,157 Common units, 52,349,670 and 43,148,762 held by the general partner and1,723,131 and 1,723,131 held by common limited partners issued and outstanding, respectively 994,511 760,756 Total Partners’ Capital 1,116,093 882,338 Noncontrolling interests in consolidated subsidiaries 1,637 1,500 Total capital 1,117,730 883,838 TOTAL LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL $2,816,565 $2,084,281 See accompanying notes to consolidated financial statements.F-9 KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except unit and per unit data) Year Ended December 31, 2010 2009 2008 REVENUES: Rental income $274,708 $247,649 $251,520 Tenant reimbursements 24,326 28,075 30,986 Other property income (Note 17) 2,946 3,710 6,849 Total revenues 301,980 279,434 289,355 EXPENSES: Property expenses 58,067 49,709 48,861 Real estate taxes 27,494 24,330 22,063 Provision for bad debts (1,063) 569 4,051 Ground leases (Note 15) 984 1,597 1,617 General and administrative expenses (Note 17) 27,963 39,938 38,260 Acquisition-related expenses 2,248 — — Depreciation and amortization (Notes 2 and 4) 103,809 87,627 83,215 Total expenses 219,502 203,770 198,067 OTHER (EXPENSES) INCOME: Interest income and other investment gains (losses) (Note 16) 964 1,300 (93)Interest expense (Note 7) (59,941) (46,119) (45,346)(Loss) gain on early extinguishment of debt (Note 7) (4,564) 4,909 — Total other (expenses) income (63,541) (39,910) (45,439)INCOME FROM CONTINUING OPERATIONS 18,937 35,754 45,849 DISCONTINUED OPERATIONS (Note 19) (Expenses) revenues from discontinued operations — (224) 828 Net gain on dispositions of discontinued operations 949 2,485 234 Total income from discontinued operations 949 2,261 1,062 NET INCOME 19,886 38,015 46,911 Net income attributable to noncontrolling interests in consolidated subsidiaries (162) (201) (237)NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P. 19,724 37,814 46,674 PREFERRED DISTRIBUTIONS (15,196) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON UNITHOLDERS $4,528 $22,618 $31,478 Income from continuing operations available to common unitholders per unit—basic (Note 21) $0.05 $0.47 $0.87 Income from continuing operations available to common unitholders per unit—diluted (Note 21) $0.05 $0.47 $0.87 Net income available to common unitholders per unit—basic (Note 21) $0.07 $0.53 $0.90 Net income available to common unitholders per unit—diluted (Note 21) $0.07 $0.53 $0.90 Weighted average common units outstanding—basic (Note 21) 51,220,618 40,436,196 34,531,779 Weighted average common units outstanding—diluted (Note 21) 51,236,326 40,463,221 34,606,060 Distributions declared per common unit $1.40 $1.63 $2.32 See accompanying notes to consolidated financial statements.F-10 KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CAPITAL(in thousands, except unit and per unit data) Noncontrolling Partner’s Capital Interests Number of Total in Preferred Common Common Partners’ Consolidated Total Units Units Units Capital Subsidiaries Capital BALANCE AS OF DECEMBER 31, 2007 $121,582 34,955,218 $643,587 $765,169 $1,865 $767,034 Net income 46,674 46,674 237 46,911 Repurchase of common units (300,586) (14,798) (14,798) (14,798)Issuance of share-based compensation awards (Note 12) 184,245 2,167 2,167 2,167 Noncash amortization of share-based compensation 9,630 9,630 9,630 Exercise of stock options 1,000 21 21 21 Other 192 192 (192) — Preferred distributions (15,196) (15,196) (15,196)Distributions declared per common unit ($2.32 per unit) (80,883) (80,883) (80,883)BALANCE AS OF DECEMBER 31, 2008 121,582 34,839,877 591,394 712,976 1,910 714,886 Net income 37,814 37,814 201 38,015 Issuance of common units (Note 10) 10,062,500 191,672 191,672 191,672 Repurchase of common units and restricted stock units (86,482) (2,725) (2,725) (2,725)Issuance of share-based compensation awards (Note 12) 55,998 7,753 7,753 7,753 Noncash amortization of share-based compensation 12,338 12,338 12,338 Equity component of 4.25% Exchangeable Notes (Note 7) 19,835 19,835 19,835 Cost of capped call options (12,127) (12,127) (12,127)Allocation to the equity component of cash paid upon repurchaseof 3.25% Exchangeable Notes (Note 7) (2,323) (2,323) (2,323)Other 611 611 (611) — Preferred distributions (15,196) (15,196) (15,196)Distributions declared per common unit ($1.63 per unit) (68,290) (68,290) (68,290)BALANCE AS OF DECEMBER 31, 2009 121,582 44,871,893 760,756 882,338 1,500 883,838 Net income 19,724 19,724 162 19,886 Issuance of common units (Note 10) 9,200,000 299,847 299,847 299,847 Settlement of restricted stock units (Note 12) 53,451 (1,296) (1,296) (1,296)Repurchase of common units and restricted stock units (Note 12) (59,782) (2,121) (2,121) (2,121)Issuance of share-based compensation awards (Note 12) 3,239 2,151 2,151 2,151 Noncash amortization of share-based compensation 6,687 6,687 6,687 Exercise of stock options 4,000 83 83 83 Allocation to the equity component of cash paid upon repurchaseof 3.25% Exchangeable Notes (Note 7) (2,694) (2,694) (2,694)Other 25 25 (25) — Preferred distributions (15,196) (15,196) (15,196)Distributions declared per common unit ($1.40 per unit) (73,455) (73,455) (73,455)BALANCE AS OF DECEMBER 31, 2010 $121,582 54,072,801 $994,511 $1,116,093 $1,637 $1,117,730 See accompanying notes to consolidated financial statements.F-11 KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $19,886 $38,015 $46,911 Adjustments to reconcile net income to net cash provided by operating activities (including discontinuedoperations): Depreciation and amortization of building and improvements and leasing costs 102,898 86,825 82,491 (Decrease) increase in provision for bad debts (1,063) 569 4,051 Depreciation of furniture, fixtures and equipment 911 827 784 Noncash amortization of share-based compensation awards 6,031 12,253 15,185 Noncash amortization of deferred financing costs and debt discounts 12,490 10,171 8,146 Noncash amortization of above/(below) market rents (Note 4) 1,377 (359) (633)Net gain on dispositions of discontinued operations (Note 19) (949) (2,485) (234)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8) (9,689) (9,757) (11,310)Loss (gain) on early extinguishment of debt (Note 7) 4,564 (4,909) — Other, net 543 — (634)Changes in operating assets and liabilities: Marketable securities (Notes 13 and 16) (1,450) (1,564) (1,181)Current receivables (3,038) 1,611 (1,537)Deferred rent receivables (13,616) (6,911) (3,237)Other deferred leasing costs (2,395) (1,013) (16)Prepaid expenses and other assets (2,182) (897) (628)Accounts payable, accrued expenses and other liabilities (7,073) 4,374 (836)Deferred revenue 1,623 (675) 6,252 Rents received in advance and tenant security deposits 10,959 (1,110) 907 Net cash provided by operating activities 119,827 124,965 144,481 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties (Note 3) (637,620) — — Expenditures for operating properties (71,099) (35,532) (24,980)Expenditures for development and redevelopment properties and undeveloped land (21,832) (18,633) (69,774)Net proceeds received from dispositions of operating properties (Note 19) 14,978 4,933 275 Insurance proceeds received for property casualty loss — — 634 Decrease (increase) in restricted cash 3,120 (1,387) (126)Receipt of principal payments on note receivable (Note 5) 10,679 145 146 Net cash used in investing activities (701,774) (50,474) (93,825)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common units (Note 10) 299,847 191,672 — Proceeds from the issuance of secured debt (Note 7) 71,000 — — Principal payments on secured debt (103,247) (21,766) (82,932)Proceeds from the issuance of unsecured debt (Note 7) 572,672 — — Repayments of unsecured debt (Note 7) (61,000) — — Borrowings on unsecured line of credit 660,000 142,000 163,500 Repayments on unsecured line of credit (598,000) (297,000) (22,500)Proceeds from issuance of exchangeable senior notes (Note 7) — 172,500 — Repurchase of exchangeable senior notes (Note 7) (151,097) (150,390) — Cost of capped call options on common stock — (12,127) — Financing costs (14,912) (9,325) (857)Increase in loan deposit (605) — Repurchase of common stock (3,417) (2,725) (14,798)Proceeds from exercise of stock options 83 — 21 Dividends and distributions paid to common stockholders and common unitholders (69,224) (71,804) (80,073)Dividends and distributions paid to preferred stockholders and preferred unitholders (15,196) (15,196) (15,196)Net cash provided by (used in) financing activities 586,904 (74,161) (52,835)Net increase (decrease) in cash and cash equivalents 4,957 330 (2,179)Cash and cash equivalents, beginning of year 9,883 9,553 11,732 Cash and cash equivalents, end of year $14,840 $9,883 $9,553 F-12 KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)(in thousands) Year Ended December 31, 2010 2009 2008 SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $7,697, $7,381, and $14,804 as of December 31, 2010,2009 and 2008, respectively $45,986 $36,808 $37,638 NONCASH INVESTING AND FINANCING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties $19,563 $11,222 $8,055 Tenant improvements funded directly by tenants to third-parties $4,758 $1,480 $22,749 Assumption of secured debt with property acquisition (Notes 3 and 7) $51,079 Assumption of other liabilities with property acquisitions (Note 3) $10,840 Accrual of distributions payable to common unitholders (Note 11) $18,925 $15,705 $20,211 Accrual of distributions payable to preferred unitholders (Note 11) $1,909 $1,909 $1,909 Issuance of share-based compensation awards (Note 12) $5,910 $18,001 $10,059 Accrual of public facility bond obligation (Note 7) $3,476 See accompanying notes to consolidated financial statements.F-13 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThree Years Ended December 31, 20101. Organization and OwnershipOrganizationKilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in the premier officeand industrial submarkets along the West Coast. We own, develop, acquire and manage real estate assets primarily in the coastal regionsof Los Angeles, Orange County, San Diego, greater Seattle and the San Francisco Bay Area, which we believe have strategic advantagesand strong barriers to entry. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’scommon 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 RealtyFinance Partnership, L.P. (the “Finance Partnership”). We conduct substantially all of our operations through the Operating Partnership.Unless the context indicates otherwise, the term “Company” refers to Kilroy Realty Corporation and its consolidated subsidiaries and theterm “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The terms “we,” “our,” and “us” refer to theCompany or the Company and the Operating Partnership together, as the context requires. The descriptions of our business, employees,and properties apply to both the Company and the Operating Partnership.The following table of office buildings (the “Office Properties”) and industrial buildings (the “Industrial Properties”) summarizesour stabilized portfolio of operating properties as of December 31, 2010. As of December 31, 2010, all but one of our properties waslocated in California. Number of Rentable Number of Buildings Square Feet Tenants Percentage Occupied (unaudited) (unaudited) (unaudited) (unaudited) Office Properties(1) 100 10,395,208 365 87.5%Industrial Properties 40 3,602,896 58 93.9%Total Stabilized Portfolio 140 13,998,104 423 89.1%(1)Includes ten office buildings acquired in 2010 (see Note 3 to our consolidated financial statements included in this report for additional information).Our stabilized portfolio excludes undeveloped land, development and redevelopment properties currently under construction,“lease-up” properties, and one industrial property that we are in the process of repositioning for residential use. We define “lease-up”properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year followingcessation of major construction activities. As of December 31, 2010, we had no properties that were in the lease-up phase. During the yearended December 31, 2010, we commenced redevelopment on one of our properties that was previously occupied by a single tenant for over25 years. The redevelopment property encompasses approximately 300,000 rentable square feet of office space and is located in the ElSegundo submarket of Los Angeles county. As of December 31, 2010, we had one industrial property that we are currently in the processof repositioning for residential use. During the year ended December 31, 2010, we received notification that the zoning to allow highdensity residential improvements on the land underlying this industrial property was adopted by the City of Irvine and we are currentlyevaluating strategic opportunities for this property.As of December 31, 2010, the Company owned a 96.8% general partnership interest in the Operating Partnership. The remaining3.2% common limited partnership interest in the Operating Partnership as of December 31, 2010 was owned by non-affiliated investorsand certain of our directors and officers (see Note 9). Both the general and limited common partnership interests in the OperatingPartnership are denominated in common units. The number of common units held by the Company is at all times equivalent to thenumber of outstanding shares of the Company’s common stock, and the entitlements of all the common units to quarterly distributionsand payments in liquidation mirror those of the the Company’s common stockholders. TheF-14 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)common limited partners have certain redemption rights as provided in the Operating Partnership’s Fifth Amended and RestatedAgreement of Limited Partnership (as amended, the “Partnership Agreement”) (see Note 9).Kilroy Realty Finance, Inc., our wholly-owned subsidiary, is the sole general partner of the Finance Partnership and owns a 1.0%general partnership interest. The Operating Partnership owns the remaining 99.0% limited partnership interest. Kilroy Services, LLC(“KSLLC”), which is a wholly-owned subsidiary of the Operating Partnership, is the entity through which we conduct substantially allof our development activities. With the exception of the Operating Partnership, all of our subsidiaries, which include which include,Kilroy Realty TRS, Inc., Kilroy Realty Management, L.P., Kilroy RB, LLC, and Kilroy RB II, LLC, Kilroy Northside Drive, LLC,and Kilroy Realty 303, LLC are wholly-owned.2. Basis of Presentation and Significant Accounting PoliciesBasis of PresentationThe consolidated financial statements of the Company include the consolidated financial position and results of operations of theCompany, the Operating Partnership, the Finance Partnership, KSLLC, and all of our wholly-owned subsidiaries. The consolidatedfinancial statements of the Operating Partnership include the consolidated financial position and results of operations of the OperatingPartnership, the Finance Partnership, KSLLC, and all wholly-owned subsidiaries of the Operating Partnership. All intercompanybalances and transactions have been eliminated in the consolidated financial statements.The consolidated financial statements of the Company and the Operating Partnership also include a variable interest entity (“VIE”)of which we are deemed to be the primary beneficiary. During the year ended December 31, 2010, we established a bankruptcy-remoteVIE, Kilroy Realty Northside Drive, LLC, to hold the $52.6 million of assets and liabilities purchased and $51.1 million of secureddebt, net, assumed in connection with the acquisition of three office buildings in San Diego, California (see Notes 3 and 7). The assetsheld by this entity are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.Change in Statements of Operations Presentation for the CompanyCertain prior period amounts in the Company’s consolidated statement of operations have been reclassified to conform to the currentperiod presentation. We reclassified interest expense to be presented under Other (Expenses) Income in the Company’s consolidatedstatements of operations for all periods presented. Interest expense had previously been presented under Expenses.Significant Accounting PoliciesAcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions at fair value at theacquisition date. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to:land, buildings and improvements, and identified tangible and intangible assets and liabilities associated with in-place leases, includingtenant improvements, leasing costs, value of above-market and below-market leases, acquired in-place lease values, and tenantrelationships, if any.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value ofbuildings and improvements, tenant improvements, and leasing costs are based upon current market replacement costs and other relevantmarket rate information.The fair value of the above-market or below-market component of an acquired in-place lease is based upon the present value(calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over itsremaining term and (ii) management’s estimate of the rents that would be paid using fair market rental rates and rent escalations at thedate of acquisition over the remaining term of the lease. TheF-15 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)amounts recorded for above-market leases are included in deferred leasing costs and acquisition-related intangibles, net on the balancesheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. Theamounts recorded for below-market leases are included in deferred revenue and acquisition-related intangible liabilities, net and areamortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases.The fair value of acquired in-place leases is derived based on management’s assessment of lost revenue and costs incurred for theperiod required to lease the “assumed vacant” property to the occupancy level when purchased. The amount recorded for acquired in-placeleases is included in deferred leasing costs and acquisition-related intangible assets, net and amortized as an increase to depreciation andamortization expense over the remaining term of the applicable leases.We record undeveloped land acquisitions at the purchase price paid and capitalize the associated acquisition costs.Operating PropertiesOperating properties are generally carried at historical cost less accumulated depreciation. Properties held for sale are reported at thelower of the carrying value or the fair value less estimated cost to sell. The cost of operating properties includes the purchase price ordevelopment costs of the properties. Costs incurred for the renovation and betterment of the operating properties are capitalized to ourinvestment in that property. Maintenance and repairs are charged to expense as incurred.When evaluating properties to be held and used for potential impairment, we first evaluate whether there are any indicators ofimpairment for any of our properties. If any impairment indicators are present for a specific property, we then perform an undiscountedcash flow analysis and compare the net carrying amount of the property to the property’s estimated undiscounted future cash flow overthe anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the property, we thenperform an impairment loss calculation to determine if the fair value of the property is less than the net carrying value of the property. Ourimpairment loss calculation compares the net carrying amount of the property to the property’s estimated fair value, which may be basedon estimated discounted future cash flow calculations or third-party valuations or appraisals. We would recognize an impairment loss ifthe asset’s net carrying amount exceeds the asset’s estimated fair value. If we were to recognize an impairment loss, the estimated fair valueof the asset would become its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) overthe remaining useful life of that asset. We did not record any impairment losses for the periods presented.Development and Redevelopment PropertiesAll costs clearly associated with the acquisition, development, and construction of a development or redevelopment property arecapitalized as project costs. In addition, the following costs are capitalized as project costs during periods in which activities necessary toprepare the property for its intended use are in progress: pre-construction costs essential to the development of the property, interest, realestate taxes, insurance, and internal compensation and administrative costs that are clearly related to our development or redevelopmentactivities. • For development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognitioncommences, which is upon substantial completion of tenant improvements. • For development and redevelopment properties that are not pre-leased, we may not immediately build out the tenantimprovements. Therefore we cease capitalization when revenue recognition commences upon substantial completion of thetenant improvements, but in any event not later than one year after the cessation of major construction activities. We alsocease capitalization on a development orF-16 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) redevelopment property when activities necessary to prepare the property for its intended use have been suspended. • For development or redevelopment properties with multiple tenants and staged leasing, we cease capitalization and begindepreciation on the portion of the development or redevelopment property for which revenue recognition has commenced.Once major construction activity has ceased and the development or redevelopment property is in the lease-up phase, the costscapitalized to construction in progress are transferred to land and improvements, buildings and improvements, and deferred leasing costson our consolidated balance sheets as the historical cost of the property.Depreciation and Amortization of Buildings and ImprovementsThe cost of buildings and improvements and tenant improvements are depreciated using the straight-line method of accounting overthe estimated useful lives set forth in the table below. Depreciation expense for buildings and improvements, including discontinuedoperations, for the three years ended December 31, 2010, 2009, and 2008 was $86.3 million, $74.0 million, and $68.8 million,respectively.Asset Description Depreciable LivesBuildings and improvements 25 - 40 years Tenant improvements 1 - 20 years(1)(1)Tenant improvements are amortized over the shorter of the lease term or the estimated useful life.Discontinued Operations and Properties Held for SaleThe revenues and expenses of operating properties that have been sold, if material, and the revenues and expenses of properties thathave been classified as held for sale, if material, are reported in the consolidated statements of operations as discontinued operations forall periods presented through the date of the applicable disposition. The net gains (losses) on disposition of operating properties arereported in the consolidated statements of operations as discontinued operations in the period the properties are sold. In determiningwhether the revenues, expenses, and net gains (losses) on dispositions of operating properties are reported as discontinued operations, weevaluate whether we have any significant continuing involvement in the operations, leasing, or management of the sold property. If wewere to determine that we had any significant continuing involvement, the revenues, expenses and and net gain (loss) on dispositions ofthe operating property would not be recorded in discontinued operations.A property is classified as held for sale when certain criteria are met, including but not limited to the availability of the asset forimmediate sale, the existence of an active program to locate a buyer, and the probable sale or transfer of the asset within one year. If suchcriteria are met, we present the applicable assets and liabilities related to the property held for sale, if material, separately on the balancesheet and we would cease to record depreciation and amortization expense. Properties held for sale are reported at the lower of their carryingvalue or their estimated fair value less the estimated costs to sell. We did not have any properties classified as held for sale as ofDecember31, 2010 or 2009.Revenue RecognitionWe recognize revenue from rent, tenant reimbursements, parking, and other revenue sources once all of the following criteria are met: • the agreement has been fully executed and delivered; • services have been rendered; • the amount is fixed or determinable; andF-17 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) • the collectability of the amount is reasonably assured.Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the term of the related lease. Rentalrevenue recognition commences when the tenant takes possession or controls the physical use of the leased space. In order for the tenant totake possession, the leased space must be substantially ready for its intended use. To determine whether the leased space is substantiallyready for its intended use, management evaluates whether we are or the tenant is the owner of tenant improvements for accountingpurposes. When management concludes that we are the owner of tenant improvements, rental revenue recognition begins when the tenanttakes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, whenmanagement concludes that we are not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins whenthe tenant takes possession of or controls the space.When management concludes that we are the owner of tenant improvements for accounting purposes, management records the cost toconstruct the tenant improvements as a capital asset. In addition, management records the cost of certain tenant improvements paid for orreimbursed by tenants as capital assets when management concludes that we are the owner of such tenant improvements. For these tenantimprovements, management records the amount funded or reimbursed by tenants as deferred revenue, which is amortized on a straight-line basis as additional rental revenue over the term of the related lease.When management concludes that the tenant is the owner of tenant improvements for accounting purposes, management records ourcontribution towards those improvements as a lease incentive, which is included in deferred leasing costs on our consolidated balancesheets and amortized as a reduction to rental revenue on a straight-line basis over the term of the lease.Tenant ReimbursementsReimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, and otherrecoverable costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and recorded ona gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, havediscretion in selecting the supplier, and have credit risk.Other Property IncomeOther property income primarily includes amounts recorded in connection with lease terminations. Lease termination fees areamortized over the remaining lease term, if applicable. If there is no remaining lease term, they are recognized when received and realized.Other property income also includes miscellaneous income from tenants, such as fees related to the restoration of leased premises to theiroriginal condition and fees for late rental payments.Allowances for Uncollectible Tenant and Deferred Rent ReceivablesWe carry our current and deferred rent receivables net of allowances for uncollectible amounts. Our determination of the adequacy ofthese allowances is based primarily upon evaluations of individual receivables, current economic conditions, historical loss experience,and other relevant factors. The allowances are increased or decreased through the provision for bad debts on our consolidated statementsof income.Cash and Cash EquivalentsWe consider all highly-liquid investments with original maturities of three months or less to be cash equivalents.F-18 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Restricted CashRestricted cash consists of cash held as collateral to provide credit enhancement for the Operating Partnership’s mortgage debt,including cash reserves for capital expenditures, tenant improvements, and property taxes.Marketable Securities / Deferred Compensation PlanMarketable securities reported in our consolidated balance sheets represent the assets held in connection with the Kilroy RealtyCorporation 2007 Deferred Compensation Plan (the “Deferred Compensation Plan”) (see Note 13). We hold the Deferred CompensationPlan assets in a limited rabbi trust. As a result, the marketable securities are treated as trading securities for financial reporting purposesand are adjusted to fair value at the end of each accounting period, with the corresponding gains and losses recorded in interest incomeand other investment gains (losses).At the time eligible management employees (“Participants”) defer compensation or earn mandatory Company contributions, or if wewere to make a discretionary contribution, we record compensation cost and a corresponding deferred compensation plan liability, whichis included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheets. This liability is adjusted tofair value at the end of each accounting period based on the performance of the benchmark funds selected by each Participant, and theimpact of adjusting the liability to fair value is recorded as an increase or decrease to compensation cost.Deferred Leasing CostsCosts incurred in connection with successful property leasing are capitalized as deferred leasing costs. Deferred leasing costs consistprimarily of leasing commissions and also include certain internal payroll costs and lease incentives, which are amortized using thestraight-line method of accounting over the lives of the leases which generally range from one to 20 years. We reevaluate the remaininguseful lives of leasing costs as the creditworthiness of our tenants and economic and market conditions change. If we determine that theestimated remaining life of a lease has changed, we adjust the amortization period accordingly.Deferred Financing CostsCosts incurred in connection with debt financings are recorded as deferred financing costs. Deferred financing costs are generallyamortized using the straight-line method of accounting, which approximates the effective interest method, over the contractual terms of theapplicable financings. As of December 31, 2010 and 2009, deferred financing costs were reported net of accumulated amortization of$12.1 million and $9.7 million, respectively.Exchangeable Debt InstrumentsEffective January 1, 2009, we adopted new accounting provisions with respect to exchangeable debt instruments. This guidancerequires the initial proceeds from exchangeable debt that may be settled in cash, including partial cash settlements, to be bifurcatedbetween a liability component and an equity component associated with the embedded conversion option. The objective of the guidance isto require the liability and equity components of exchangeable debt to be separately accounted for in a manner such that the interestexpense on the exchangeable debt is not recorded at the stated rate of interest but rather at an effective rate that reflects the issuer’sconventional debt borrowing rate at the date of issuance. These new provisions were applied retrospectively to our financial statements tothe April 2007 issuance date of the 3.25% Exchangeable Senior Notes due 2012 (the “3.25% Exchangeable Notes”).We calculate the liability component of exchangeable debt based on the present value of the contractual cash flows discounted at acomparable market conventional debt borrowing rate at the date of issuance. The differenceF-19 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)between the principal amount and the fair value of the liability component is reported as a discount on the exchangeable debt that isaccreted as additional interest expense from the issuance date through the contractual maturity date using the effective interest method. Aportion of this additional interest expense is capitalized to the development and redevelopment balances qualifying for interestcapitalization each period. The liability component of the exchangeable debt is reported net of discounts on our consolidated balancesheets.We calculate the equity component of exchangeable debt based on the difference between the initial proceeds received from theissuance of the exchangeable debt and the fair value of the liability component at the issuance date. The equity component is included inadditional paid-in-capital, net of issuance costs, on our consolidated balance sheets. We allocate issuance costs for exchangeable debtbetween the liability and the equity components based on their relative values.Debt DiscountsOriginal issuance debt discounts and other discounts related to debt instruments are generally accreted on a straight-line basis,which approximates the effective interest method. The discounts are recorded as additional interest expense from the date of issuancethrough the contractual maturity date of the related debt.Noncontrolling Interests in the Company’s Consolidated Financial StatementsNoncontrolling interests in the Company’s consolidated financial statements represent the issued and outstanding 1,500,000Series A Preferred Units of the Operating Partnership (“Series A Preferred Units”) and common limited partnership interests in theOperating Partnership not held by the Company (“noncontrolling common units”).Effective January 1, 2009, we adopted new accounting provisions with respect to noncontrolling interests. This guidance requiredthat amounts formerly reported as minority interests be reported as noncontrolling interests on the our consolidated financial statements. Inconnection with the issuance of this guidance, certain revisions were also made to related SEC guidance that clarified that noncontrollinginterests with redemption provisions outside of the control of the issuer and noncontrolling interests with redemption provisions thatpermit the issuer to settle in either cash or common shares at the option of the issuer were subject to further evaluation to determine whetherpermanent or temporary equity classification was appropriate and to determine whether fair value or cost basis accounting wasappropriate.The Series A Preferred Units are presented in the temporary equity section of the Company’s consolidated balance sheets after totalliabilities and before equity and reported at redemption value, less issuance costs, given that the Series A Preferred Units contain a right ofredemption at the option of the holders in the event of certain corporate events (see Note 9).Noncontrolling common units are presented in the equity section of the Company’s consolidated balance sheets and reported at theirproportionate share of the net assets of the Operating Partnership. The accounting provisions we adopted in 2009 require thatnoncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common shares at the option of theissuer be further evaluated to determine whether equity or temporary equity classification on the balance sheet is appropriate. Since thecommon units contain such a provision, we evaluated this guidance and determined that the common units qualify for equity presentationin the Company’s consolidated financial statements (see Note 9).Net income attributable to noncontrolling common units is allocated based on their relative ownership percentage of the OperatingPartnership during the reported period. The noncontrolling interest ownership percentage is determined by dividing the number ofnoncontrolling common units by the total number of common units outstanding. The issuance or redemption of additional shares ofcommon stock or common units results in changes to the noncontrolling interest percentage as well as the total net assets of the Company.As a result, all equity transactions result in an allocation between equity and the noncontrollingF-20 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)interest in the Company’s consolidated balance sheets and statements of equity to account for the changes in the noncontrolling interestownership percentage as well as the change in total net assets of the Company.Preferred Partnership Interests on the Operating Partnership’s Consolidated Balance SheetsPreferred partnership interests of the Operating Partnership represent the issued and outstanding 1,500,000 7.45% Series A PreferredUnits, 1,610,000 7.80% Series E Cumulative Redeemable Preferred Units (“Series E Preferred Units”) and 3,450,000 7.50% Series FCumulative Redeemable Preferred Units (“Series F Preferred Units”).The Series A Preferred Units are presented in the temporary equity section of the Operating Partnership’s consolidated balance sheetsafter total liabilities and before equity and reported at redemption value, less issuance costs, given that the Series A Preferred Unitscontain a right of redemption at the option of the holders in the event of certain corporate events (see Note 9).The Series E and Series F Preferred Units are presented in the permanent equity section of the Operating Partnership’s consolidatedbalance sheets given that the Series E and Series F Preferred Units may redeemed only at our option (see Notes 9 and 11). The Companyis the holder of both the Series E and Series F Preferred Units and for each Series E and Series F Preferred Unit, the Company has anequivalent number of shares of 7.80% Series E Cumulative Redeemable Preferred Stock and shares of 7.50% Series F CumulativeRedeemable Preferred Stock publicly issued and outstanding.Common Partnership Interests on the Operating Partnership’s Consolidated Balance SheetsThe common units held by the Company and the noncontrolling common units held by the common limited partners are bothpresented in the permanent equity section of the Operating Partnership’s consolidated balance sheets in partners’ capital. The redemptionrights of the noncontrolling common units permit us to settle the redemption obligation in either cash or shares of the Company’s commonstock at our option (see Note 9).Noncontrolling Interests on the Operating Partnership’s Consolidated Balance SheetsNoncontrolling interests of the Operating Partnership represent the Company’s 1% general partnership interest in the FinancePartnership. This noncontrolling interest is presented in the permanent equity section of the Operating Partnership’s consolidated balancesheets given that these interests are not convertible or redeemable into any other ownership interest of the Company or the OperatingPartnership.Equity OfferingsUnderwriting commissions and offering costs incurred in connection with equity offerings are reflected as a reduction of additionalpaid-in capital.The net proceeds from any equity offering of the Company are contributed to the Operating Partnership in exchange for a number ofcommon units equivalent to the number of shares of common stock issued and are reflected in the Operating Partnership’s consolidatedfinancial statements as an increase in partners’ capital.Gains and Losses on Early Extinguishment of DebtGains and losses on early extinguishment of debt represents the gains and losses recorded in connection with the repurchases ofportions of our outstanding 3.25% Exchangeable Notes (see Note 7). We calculate the gain or loss on early extinguishment of debt as thedifference on the repurchase date between the estimated fair value of the liability component and the net carrying amount of therepurchased exchangeable debt. Deferred financing costs are written off against the gain on early extinguishment of debt or added to theloss on early extinguishment of debt in proportion to the exchangeable debt repurchased.F-21 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Share-based Incentive Compensation AccountingFor share-based awards in which the performance period precedes the grant date, we recognize compensation cost over the requisiteservice period, which includes both the performance and service vesting periods, using the accelerated attribution expense method. Therequisite service period begins on the date the Executive Compensation Committee authorizes the award and adopts any relevantperformance measures.During the performance period for a share-based award program, we estimate the total compensation cost of the potential futureawards. We then record compensation cost equal to the portion of the requisite service period that has elapsed through the end of thereporting period. For programs with performance-based measures, the total estimated compensation cost is based on our most recentestimate of the probable achievement of the pre-established specific corporate performance measures. These estimates are based on ourlatest internal forecasts for each performance measure. For programs with market measures, the total estimated compensation cost isbased on the fair value of the award at the applicable reporting date.For share-based awards for which there is no pre-established performance period, we recognize compensation cost over the servicevesting period, which represents the requisite service period, on a straight-line basis.In accordance with the provisions of our share-based incentive compensation plans, we accept the return of shares of Companycommon stock, at the current quoted market price, from certain key employee to satisfy minimum statutory tax-withholding requirementsrelated to shares that vested during the period.For share based awards granted by the Company, the Operating Partnership issues a number of common units equal to the numberof shares of common stock ultimately granted by the Company in respect of such awards.Basic and Diluted Net Income (Loss) Available to Common Stockholders per ShareBasic net income (loss) available to common stockholders per share is computed by dividing net income (loss) available forcommon stockholders, after the allocation of income to participating securities, by the weighted-average number of vested common sharesoutstanding, for the period. Diluted net income (loss) available to common stockholders per share is computed by dividing net income(loss) available for common stockholders, after the allocation of income to participating securities, by the sum of the weighted-averagenumber of common shares outstanding, for the period plus the assumed exercise of all dilutive securities. The impact of the outstandingcommon units is considered in the calculation of diluted net income (loss) available to common stockholders per share. The commonunits are not reflected in the diluted net income (loss) available to common stockholders per share calculation because the exchange ofcommon units into common stock is on a one for one basis, and the common units are allocated net income on a per share basis equal tothe common stock (see Note 20). Accordingly, any exchange would not have any effect on diluted net income (loss) available to commonstockholders per share.The dilutive effect of the outstanding nonvested shares of common stock (“nonvested shares”) and restricted stock units (“RSUs”)that have not yet been granted but are contingently issuable under the share-based compensation programs is reflected in the weightedaverage diluted shares calculation by application of the treasury stock method at the beginning of the quarterly period in which allnecessary conditions have been satisfied. The dilutive effect of stock options are reflected in the weighted average diluted outstandingshares calculation by application of the treasury stock method. The dilutive effect of Exchangeable Notes are reflected in the weightedaverage diluted outstanding shares calculation when the average quoted trading price of the Company’s common stock on the NYSE isabove the Exchangeable Notes exchange prices for the periods presented.Effective January 1, 2009, we adopted new accounting provisions which require that nonvested share-based payment awardscontaining nonforfeitable rights to dividends or dividend equivalents, such as nonvested shares and RSUs, be included in thecomputation of basic and diluted net income available to common stockholders per share pursuant to the two-class method. The newaccounting provisions were applied retrospectively to the net income available to common stockholders per share calculation for allperiods presented.F-22 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Basic and Diluted Net Income (Loss) Available to Common Unitholders per UnitBasic net income (loss) available to common unitholders per unit is computed by dividing net income (loss) available for commonunitholders, after the allocation of income to participating securities, by the weighted-average number of vested common units outstandingfor the period. Diluted net income (loss) available to common unitholders per unit is computed by dividing net income (loss) available forcommon unitholders, after the allocation of income to participating securities, by the sum of the weighted-average number of commonunits outstanding, for the period plus the assumed exercise of all dilutive securities.The dilutive effect stock options, Exchangeable Notes, outstanding nonvested shares, RSUs, and awards containing nonforfeitablerights of dividend equivalents, is reflected in diluted net income (loss) available to common unitholders per unit in the same manner asnoted above for net income (loss) available for common stockholders per share.Fair Value MeasurementsThe fair value of our financial assets and liabilities are disclosed in Note 16 to our consolidated financial statements. The onlyassets and liabilities recorded at fair value on a recurring basis in our consolidated financial statements are the marketable securities andthe related deferred compensation plan liability. We elected not to apply the fair value option for any of our eligible financial instruments orother items.We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whetherthe inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect marketdata obtained from independent sources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use ofobservable market data when available. The following is the fair value hierarchy: • Level 1—quoted prices for identical instruments in active markets; • Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments inmarkets that are not active; and model-derived valuations in which significant inputs and significant value drivers areobservable in active markets; and • Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significantvalue drivers are unobservable.We determine the fair value for the marketable securities and deferred compensation plan liability using quoted prices in activemarkets for identical assets. Our other financial instruments, which are only disclosed at fair value, are comprised of secured debt,unsecured senior notes, unsecured line of credit, Exchangeable Notes, and the note receivable.We determine the fair value of our secured debt, private unsecured senior note, and unsecured line of credit by performingdiscounted cash flow analyses using an appropriate market discount rate for similar types of instruments. We determine the fair value ofthe liability component of our Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest ratefor similar non-convertible conventional debt instruments. We determine the fair value of each of our two publicly traded unsecured seniornotes based on their quoted trading price at the end of the reporting period. We determine the all-in rates by obtaining period-end treasuryrates for fixed-rate debt, or period-end LIBOR rates for variable-rate debt, for maturities that correspond to the maturities of our debt andthen adding an appropriate credit spread obtained from third-party financial institutions. These market credit spreads take into accountfactors including, but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured orunsecured, and the loan-to-value ratio of the debt. These calculations are significantly affected by the assumptions used, including thediscount rate, credit spreads, and estimates of future cash flow.F-23 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)We estimate the fair value of the note receivable by using discounted cash flow analyses based on an appropriate market rate for asimilar type of instrument. Carrying amounts of our cash and cash equivalents, restricted cash, and accounts payable approximate fairvalue resulting from their short-term maturities.Income TaxesWe have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must distributeannually at least 90% of our adjusted taxable income, as defined in the Code, to our security holders and satisfy certain otherorganizational and operating requirements. For distributions with respect to our 2008 through 2011 taxable years, IRS guidance allows theCompany to satisfy up to 90% of this requirement through the distribution of shares of its common stock, if certain conditions are met.We generally will not be subject to federal income taxes if we distribute 100% of our taxable income for each year to our security holders. Ifwe fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes (including any applicable alternative minimumtax) on our taxable income at regular corporate rates and we may not be able to qualify as a REIT for four subsequent taxable years. Evenif we qualifiy for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to federal incometaxes and excise taxes on our undistributed taxable income. We believe that we have met all of the REIT distribution and technicalrequirements for the years ended December 31, 2010, 2009 and 2008, and we were not subject to any federal income taxes (see Note 22).We intend to continue to adhere to these requirements and maintain the Company’s REIT status.In addition, any taxable income from our taxable REIT subsidiary, which was formed in August 2002, is subject to federal, state,and local income taxes. For each of the years ended December 31, 2010, 2009, and 2008, the taxable REIT subsidiary had less than$30,000 of taxable income.Uncertain Tax PositionsWe include favorable tax positions in the calculation of tax liabilities if it is more likely than not that our adopted tax position willprevail if challenged by tax authorities.As a result of our REIT status, in computing our annual taxable income we are able to claim a dividends-paid deduction on our taxreturn for the full amount of common and preferred dividends paid to our stockholders. Since this dividends-paid deduction hashistorically exceeded our taxable income, the Company has historically had significant return of capital to its stockholders. In order for usto be required to record any unrecognized tax benefits or additional tax liabilities, any adjustment for potential uncertain tax positionswould need to exceed the return of capital.We evaluated the potential impact of identified uncertain tax positions for all tax years still subject to potential audit under state andfederal income tax law and concluded that our return of capital would not be materially affected for any of the years still subject topotential audit. As of December 31, 2010, the years still subject to audit are 2006 through 2010 under the California state income tax lawand 2007 through 2010 under the federal income tax law. We concluded that we did not have any unrecognized tax benefits or anyadditional tax liabilities as of December 31, 2010 and 2009.Concentration of Credit RiskAll of our operating and development properties are located in California with the exception of the operation of one property in thestate of Washington. The ability of the tenants to honor the terms of their leases is dependent upon the economic, regulatory, and socialfactors affecting the communities in which the tenants operate.As of December 31, 2010, our 15 largest tenants represented approximately 39.5% of total annualized base rental revenues.F-24 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)We have deposited cash with financial institutions that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to$250,000 per institution. As of December 31, 2010 and 2009, we had cash accounts in excess of FDIC insured limits.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.Recent Accounting PronouncementsIn December 2010, the Financial Accounting Standards Board issued new guidance clarifying that the disclosure of supplementaryproforma information for business combinations should be presented such that revenues and earnings of the combined entity arecalculated as though the relevant business combinations that occurred during the current reporting period had occurred as of the beginningof the comparable prior annual reporting period. The guidance also improves the usefulness of the supplementary proforma informationby requiring a description of the nature and amount of material, non-recurring proforma adjustments that are directly attributable to thebusiness combinations. As permitted by the new guidance, we early adopted these provisions and applied them to the supplementaryproforma disclosures for our acquisitions in Notes 26 and 27.3. AcquisitionsDuring the year ended December 31, 2010, we acquired the ten operating properties listed below from unrelated third parties. Unlessotherwise noted, we funded these acquisitions principally with the net proceeds from the issuance of the 6.625% unsecured senior notesdue in 2020 (see Note 7), 5.000% unsecured senior notes due in 2015 (see Note 7), the net proceeds from the Company’s public offeringof common stock (see Note 10), and borrowings under the unsecured line of credit (see Note 7): Rentable Occupancy Square as of Purchase Property Number of Feet December 31, 2010 Price Property Type Acquisition Buildings (unaudited) (unaudited) (in millions)(3) 2385 Northside DriveSan Diego, CA(1) Office March 17, 2010 1 88,795 71.8% $18.0 303 Second StreetSan Francisco, CA Office May 26, 2010 1 734,035 89.4% 233.3 999 Town & CountryOrange, CA Office June 18, 2010 1 98,551 100.0% 22.3 2211 Michelson DriveIrvine, CA Office June 24, 2010 1 271,556 93.7% 103.2 2355, 2365, 2375 Northside Drive San Diego,CA(2) Office June 30, 2010 3 190,634 75.4% 52.6 15050 NE 36th StreetRedmond, WA Office October 28, 2010 1 122,103 100% 46.0 100 First StreetSan Francisco, CA Office November 10, 2010 1 466,490 76.2% 191.5 2305 Historic Decatur RoadSan Diego, CA Office November 24, 2010 1 103,900 95.4% 30.9 Total 10 2,076,064 $697.8 (1)This property is a part of Mission City Corporate Center.F-25 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(2)These properties are part of Mission City Corporate Center. We assumed secured debt with an outstanding principal balance of $52.0 million, net of an initialdiscount of $0.9 million, in connection with this acquisition (see Notes 2 and 7).(3)Excludes acquisition-related costs.The related assets, liabilities, and results of operations of all acquired properties are included in the consolidated financial statementsas of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at therespective acquisition dates: 303 Second 100 First Street, San Street, San Francisco, Francisco, All Other CA(1) CA(1) Acquisitions(2) Total (in thousands) Assets Land $63,550 $49,150 $49,809 $162,509 Buildings and improvements(3) 154,203 131,239 195,825 481,267 Deferred leasing costs and acquisition-related intangible assets(4) 19,828 21,150 29,151 70,129 Restricted cash(5) 2,522 — — 2,522 Total assets acquired 240,103 201,539 274,785 716,427 Liabilities Deferred revenue and acquisition-related intangible liabilities(6) 3,210 9,920 3,737 16,867 Secured debt, net(7) — — 51,100 51,100 Accounts payable, accrued expenses and other liabilities (5) 3,565 4,430 2,845 10,840 Total liabilities assumed 6,775 14,350 57,682 78,807 Net assets and liabilities acquired(8) $233,328 $187,189 $217,103 $637,620 (1)The purchase of 303 Second Street, San Francisco, CA, and 100 First Street, San Francisco, CA, represent the two largest acquisitions and 61% of thetotal purchase price of the total acquisitions for the year ended December 31, 2010.(2)The purchase price of all other acquisitions completed during the year ended December 31, 2010 were individually less than 5%, and in aggregate less than10%, of the Company’s total assets as of December 31, 2009.(3)Represents buildings and improvements and tenant improvements.(4)Represents in-place leases (approximately $31.7 million with a weighted average amortization period of 6.0 years), above-market leases (approximately$21.3 million with a weighted average period of 5.8 years), and unamortized leasing commissions (approximately $17.1 million with a weighted averageamortization period of 4.5 years).(5)Represents unfunded tenant improvements and leasing commission obligations for in-place leases of which approximately $2.5 million was held in an escrowaccount as restricted cash at the date of acquisition. As of December 31, 2010, $6.4 million of obligations and $0.3 million of restricted cash remains includedon our consolidated balance sheet.(6)Represents below-market leases (weighted average amortization period of 10.9 years).(7)Represents the mortgage debt assumed in connection with the acquisition of Mission City Corporate Center (see Note 7).(8)Reflects the purchase price net of assumed secured debt and other lease related obligations.F-26 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)4. Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, netThe following table summarizes our deferred leasing costs, identified acquisition-related intangible assets (acquired value of leasingcosts, above-market and in-place leases) and intangible liabilities (acquired value of below-market leases), net as of December 31, 2010and 2009: December 31, 2010 2009 (in thousands) Deferred Leasing Costs and Acquisition-related Intangible Assets, net: Deferred leasing costs $128,980 $97,330 Accumulated amortization (45,869) (45,854)Deferred leasing costs, net 83,111 51,476 Above-market leases 21,321 — Accumulated amortization (2,163) — Above-market leases, net 19,158 — In-place leases 36,964 5,832 Accumulated amortization (8,167) (5,476)In-place leases, net 28,797 356 Total acquisition-related intangible assets, net(1) $131,066 $51,832 Acquisition-related Intangible Liabilities, net: Below-market leases $21,938 $5,132 Accumulated amortization (5,094) (4,369)Acquisition-related intangible liabilities, net(2) $16,844 $763 (1)Included in deferred leasing costs and acquisition-related intangible assets net on the consolidated balance sheets.(2)Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets (see Note 8).The following table sets forth amortization for the period related to acquisition-related intangibles for the years ended December 31,2010, 2009 and 2008: Year Ended December 31, 2010 2009 2008 (in thousands) Deferred Leasing Costs(1) $13,344 $12,431 $12,860 Net Above (Below)-Market Leases(2) 1,377 (359) (633)In-Place Leases(1) 3,266 431 793 Total $17,987 $12,503 $13,020 (1)Recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.(2)Net above-market leases are recorded as a decrease to rental income for the year ended December 31, 2010 and net below-market leases are recorded as anincrease to rental income for the years ended December 31, 2009 and 2008 in the consolidated statements of operations.F-27 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 acquisition-related intangibles as of December 31,2010 for future periods: Deferred Leasing NetAbove/(Below)- Year Ending Costs Market Leases(1) In-Place Leases (in thousands) 2011 $15,832 $2,265 $7,023 2012 14,210 1,786 5,449 2013 12,641 1,557 4,714 2014 11,324 1,398 4,290 2015 8,464 396 2,280 Thereafter 20,640 (5,088) 5,041 Total $83,111 $2,314 $28,797 (1)Represents estimated annual net amortization related to above / (below)-market leases. Amounts shown for 2011-2015 represent net above market leases whichwill be recorded as a decrease to rental income in the consolidated statement of operations, and amounts shown for the periods thereafter represent net below-market leases which will be recorded as increases to rental income in the consolidated statement of operations.5. ReceivablesCurrent Receivables, netCurrent receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balanceconsisted of the following as of December 31, 2010 and 2009: December 31, 2010 2009 (in thousands) Current Receivables $9,077 $6,299 Allowance for uncollectible tenant receivables (2,819) (3,063)Total current receivables, net $6,258 $3,236 Deferred Rent Receivables, netDeferred rent receivables, net consisted of the following as of December 31, 2010 and 2009: December 31, 2010 2009 (in thousands) Deferred rent receivables $92,883 $80,780 Allowance for deferred rent receivables (3,831) (6,388)Total deferred rent receivables, net $89,052 $74,392 Note ReceivableIn July 2010, we received $10.6 million in cash for the full repayment of the outstanding note receivable.6. Secured and Unsecured Debt of the CompanyIn this Note 6, the Company refers solely to Kilroy Realty Corporation and not to any of our subsidiaries. The Company itself doesnot hold any indebtedness. All of our secured and unsecured debt is held directly by the Operating Partnership.F-28 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)The Company generally guarantees all the Operating Partnership’s unsecured debt obligations including the unsecured line of credit(the “Credit Facility”), the 6.625% unsecured senior notes due 2020, the 5.00% unsecured senior notes due 2015, the 6.45% unsecuredsenior notes due 2014, and the Exchangeable Notes. As of December 31, 2010 and 2009, the Operating Partnership had $1.1 billion and$0.7 billion, respectively, outstanding in total under these unsecured debt obligations.In addition, although the remaining $0.3 billion of the Operating Partnership’s debt for both years is secured and non-recourse to theCompany, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud,misapplication of payments, and environmental liabilities.The Company and the Operating Partnership are both named parties to the capped call option transactions discussed further inNote 7.Debt Covenants and RestrictionsOne of the covenants contained within the $500 million Credit Facility as discussed further below in Note 7) prohibits the Companyfrom paying dividends in excess of 95% of funds from operations (“FFO”).7. Secured and Unsecured Debt of the Operating PartnershipSecured DebtThe following table sets forth the composition our secured debt as of December 31, 2010 and 2009: Fixed/Floating Annual Interest December 31, Type of Debt Rate Rate Maturity Date 2010 2009 (in thousands) Mortgage note payable Fixed 5.57% August 2012 $73,048 $74,497 Mortgage note payable Fixed 6.51% February 2017 70,344 — Mortgage note payable Fixed 6.70% December 2011 69,980 71,433 Mortgage note payable(1) Fixed 5.10% April 2012 51,357 — Mortgage note payable Fixed 7.20% April 2010 — 63,170 Line of credit LIBOR + 0.75 1.00%(2) April 2010 — 33,500 Mortgage note payable Fixed 4.95% August 2012 30,441 31,094 Mortgage note payable Fixed 7.15% May 2017 15,235 17,043 Public facility bonds (3) Fixed Various(3) Various(3) 2,604 3,321 Mortgage note payable Fixed 8.13% November 2014 — 516 Total $313,009 $294,574 (1)In June 2010, we assumed a mortgage note with an outstanding principal balance of $52.0 million in conjunction with the acquisition of Mission CityCorporate Center in San Diego, CA. This secured debt was recorded at fair value on date of the acquisition resulting in a discount of approximately$0.9 million of which $0.3 million was amortized in 2010 (see Note 3). The mortgage note and the three properties that secure the mortgage note are held in abankruptcy remote special purpose entity and are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.(2)The variable interest rate stated as of December 31, 2009 is based on LIBOR at the last repricing date in 2009.(3)The public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of the Company’s undevelopedland parcels, were issued in February 2008 by the City of Carlsbad. The Bonds have annual maturities from September 1, 2011 through September 1,2038, with interest rates ranging from 4.40% to 6.20%. Principal and interest payments for the Bonds will be charged through the assessment of specialproperty taxes.The Operating Partnership’s secured debt was collateralized by 29 operating properties as of December 31, 2010 with a combinednet book value of $389 million and 47 operating properties at December 31, 2009 with a combined net book value of $397 million. Ofthe 29 operating properties collateralized at December 31, 2010, threeF-29 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)properties are held separately in a bankruptcy remote special purpose entity for the $51.4 million mortgage debt and are not available tosatisfy the debts and other obligations of the Company or the Operating Partnership.As of December 31, 2010, six of the Operating Partnership’s seven secured loans contained restrictions that would require thepayment of prepayment penalties for the acceleration of outstanding debt. The mortgage notes payable are secured by deeds of trust oncertain of our properties and the assignment of certain rents and leases associated with those properties. The Bonds are secured byproperty tax payments.Exchangeable Senior NotesThe following table summarizes the balance and significant terms of the Exchangeable Notes outstanding as of December 31, 2010and 2009: 3.25% Exchangeable Notes 4.25% Exchangeable Notes December 31, December 31, December 31, December 31, 2010 2009 2010 2009 (in thousands) Principal amount $148,000 $298,000 $172,500 $172,500 Unamortized discount (4,004) (13,937) (16,532) (20,121)Net carrying amount of liability component $143,996 $284,063 $155,968 $152,379 Carrying amount of equity component $33,675 $36,369 $19,835 $19,835 Issuance date April 2007 November 2009Maturity date April 2012 November 2014Stated coupon rate 3.25%(1) 4.25%%(2)Effective interest rate(3) 5.45% 7.13%Exchange rate per $1,000 principal amount of the Exchangeable Notes, as adjusted(4) 11.3636 27.8307Exchange price, as adjusted(4) $88.00 $35.93Number of shares on which the aggregate consideration to be delivered on conversion isdetermined(4) 1,681,813 3,386,353 4,800,796 4,800,796 (1)Interest on the 3.25% Exchangeable Notes is payable semi-annually in arrears on April 15th and October 15th of each year.(2)Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year.(3)The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discount on the Exchangeable Notes (seeNote 2). 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 circumstancesincluding increases in our common dividends.The Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence ofcertain events as follows: (i) during any calendar quarter, if the closing sale price per share of the common stock of the Company is morethan 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in a specified period, (ii) duringthe five consecutive trading-day period following any five consecutive trading days in which the trading price per $1,000 principalamount of the Exchangeable Notes was less than 98% of the product of the closing sale price per share of the Company’s common stockmultiplied by the applicable exchange rate, (iii) if the Exchangeable Notes have been called for redemption, (iv) upon the occurrence ofspecified corporate transactions, (v) if the Company’s common stock ceases to be listed or approved for quotation for 30 consecutivetrading days, or (vi) on or after November 15, 2011 or on or after August 15, 2014 for the 3.25% Exchangeable Notes and 4.25%Exchangeable Notes, respectively.Upon exchange, the holders of the Exchangeable Notes will receive (i) cash up to the principal amount of the Exchangeable Notesand (ii) to the extent the exchange value exceeds the principal amount of the Exchangeable Notes, shares of the Company’s common stock.At any time prior to November 15, 2011 or August 15, 2014 for the 3.25% Exchangeable Notes and 4.25% Exchangeable Notes,respectively, the Operating Partnership may irrevocably elect, in its sole discretion without the consent of the holders of the ExchangeableNotes, to settle all of the future exchange obligations of the Exchangeable Notes in shares of common stock. Any shares of common stockdelivered for settlement will be based on a daily exchange value calculated on a proportionate basis for eachF-30 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)day of a 50 trading-day observation period or a 30 trading-day observation period for the 3.25% Exchangeable Notes and 4.25%Exchangeable Notes, respectively. The average trading price of the Company’s common stock on the NYSE for the years endedDecember 31, 2010 and 2009 was below the exchange price of the Exchangeable Notes for these respective periods, thus, the ExchangeableNotes were not considered in the money for the purposes of our diluted and earnings per share calculations for the years endedDecember 31, 2010 and 2009 (see Notes 20 and 21).Exchangeable Note Tender Offer and Note RepurchasesDuring the year ended December 31, 2010, we repurchased 3.25% Exchangeable Notes with an aggregate stated principal amount of$150.0 million for approximately $151.1 million in cash, including transaction costs, pursuant to a tender offer. As a result of thetransaction, we recorded a net loss on early extinguishment of debt of approximately $4.6 million and charged approximately$2.7 million, representing the amount of the cash repurchase proceeds allocated to the equity component, to additional paid-in capital.During the year ended December 31, 2009, we repurchased 3.25% Exchangeable Notes with an aggregate stated principal amount of$162.0 million for approximately $150.4 million in cash, including transaction costs. As a result of the transaction, we recorded a netgain on early extinguishment of debt of approximately $4.9 million and charged approximately $2.3 million, which represented theamount of the cash repurchase proceeds allocated to the equity component, to additional paid-in capital.Interest Expense for the Exchangeable NotesThe unamortized discount on the Exchangeable Notes is accreted as additional interest expense from the date of issuance through thematurity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to theExchangeable Notes based on the effective interest rates set forth above, before the effect of capitalized interest, for the years endedDecember 31, 2010, 2009, and 2008: Year Ended December 31, 2010 2009 2008 (in thousands) Contractual interest payments $14,565 $14,848 $14,950 Amortization of discount 7,965 8,485 8,145 Interest expense attributable to Exchangeable Notes $22,530 $23,333 $23,095 Capped Call TransactionsIn connection with the offerings of the Exchangeable Notes, we entered into capped call option transactions (“capped calls”) tomitigate the dilutive impact of the potential conversion of the Exchangeable Notes. The capped calls, as amended, are separatetransactions entered into by us with the relevant financial institutions, are not part of the terms of the Exchangeable Notes, and do notaffect the holders’ rights under the 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 Exchangeable Notes. The following table summarizes ourcapped call option positions as of December 31, 2010 and December 31, 2009: 3.25% Exchangeable Notes(1) 4.25% Exchangeable Notes (2) December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009Referenced shares of commonstock 1,121,201(3) 2,257,569(4) 4,800,796 4,800,796 Exchange price including effectof capped calls $102.72 $102.72 $42.81 $42.81 F-31 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(1)The capped calls mitigate the dilutive impact to us of the potential exchange of two-thirds of the 3.25% Exchangeable Notes into shares of common stock.(2)The capped calls mitigate the dilutive impact to us of the potential exchange of all of the 4.25% Exchangeable Notes into shares of common stock.(3)Subsequent to the repurchase of $150.0 million of aggregate stated principal of the 3.25% Exchangeable Notes, we had the above referenced outstandingcapped calls.(4)Subsequent to the repurchase of $162.0 million of aggregate stated principal of the 3.25% Exchangeable Notes, we had the above referenced outstandingcapped calls.The capped calls are expected to terminate upon the earlier of the maturity date of the related Exchangeable Notes or upon the dateupon which the Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of cappedcalls were recorded as a reduction to additional paid-in capital.Unsecured Senior NotesThe following table summarizes the balance and significant terms of the unsecured senior notes issued by the Operating Partnershipin 2010 as of December 31, 2010: December 31, 2010 6.625% Unsecured 5.000% Unsecured Senior Notes(1) Senior Notes(4) (in thousands) Principal amount $250,000(2) $325,000(5)Unamortized discount (2,006) (191)Net carrying amount $247,994 $324,809 Issuance date May 2010 November 2010 Maturity date June 2020 November 2015 Stated coupon rate 6.625%(3) 5.000%(6)Effective interest rate(7) 6.743% 5.014%(1)The 6.625% unsecured senior notes were initially issued in a private placement transaction. In November 2010 we completed an exchange offer of the privateunsecured notes for fully registered unsecured notes. The terms of the registered unsecured senior notes were substantially identical to the outstandingprivate unsecured senior notes, except for transfer restrictions and registration rights relating to the outstanding private unsecured senior notes. We did notreceive any additional proceeds as a result of the exchange offer.(2)The 6.625% unsecured senior notes had an original issuance discount of $2.1 million that is being amortized through the maturity date of the notes.(3)Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.(4)The 5.000% unsecured senior notes were issued in a registered public offering.(5)The 5.000% unsecured senior notes had an original issuance discount of $0.2 million that is being amortized through the maturity date of the notes.(6)Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.(7)Effective interest rate includes impact of the amortization of the original issuance discounts.We used the net proceeds from the two 2010 unsecured senior note offerings to fund operating property acquisitions and torepurchase $150.0 million in aggregate principal balance of the 3.25% Exchangeable Notes.In addition to the two new unsecured note issuances above, as of December 31, 2010 and 2009 we also had outstanding Series Bunsecured senior notes with an aggregate principal balance of $83.0 million that mature in August 2014. The series B notes require semi-annual interest payment each February and August based on a fixed annual interest rate of 6.45%. As of December 31, 2009 we also hadoutstanding Series A unsecured senior notes with an aggregate principal balance of $61.0 million and an interest rate of 5.72%. In August2010, we used borrowings under our prior $550.0 million unsecured line of credit (the “Prior Credit Facility”) to repay the Series Aunsecured senior notes upon maturity.Unsecured Line of CreditIn August 2010, we entered into a $500.0 million Credit Facility and used borrowings under the Credit Facility to repay, and thenterminate, the Prior Credit Facility. The Credit Facility has a term of three years plus a one year extension at our option and bears interestat an annual rate of LIBOR plus 2.675%. We may elect to borrow up to anF-32 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)additional $200.0 million under an accordion option, subject to bank approval. We expect to use borrowings under the Credit Facility forgeneral corporate purposes, to fund acquisitions, to finance development and redevelopment expenditures, and potentially to repay long-term debt. The following table summarizes the balance and significant terms of the Credit Facility and Prior Credit Facility as ofDecember 31, 2010 and December 31, 2009, respectively: Credit Facility Prior Credit Facility December 31, 2010 December 31, 2009 (in thousands) Outstanding borrowings $159,000 $97,000 Remaining borrowing capacity 341,000 453,000 Total borrowing capacity(1) $500,000 $550,000 Maturity date(2)(3) August 2013 April 2010 Interest rate (4) 2.99% 1.11%Fees (5) 0.575% 0.200%(1)We may elect to borrow, subject to bank approval, up to an additional $200 million under an accordion feature under the terms of the Credit Facility.(2)Under the terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.(3)In April 2010, we exercised an option to extend the maturity date of the Prior Credit Facility by one year.(4)As of December 31, 2010, the Credit Facility bore interest at an annual rate of LIBOR plus 2.675%. As of December 31, 2009, the Prior Credit Facility boreinterest at an annual rate of LIBOR plus 0.85% to 1.35% depending upon our leverage ratio at the time of borrowing.(5)As of December 31, 2010, the facility fee for the Credit Facility was at an annual rate of 0.575%. In addition, we also incurred debt origination and legalcosts of approximately $5 million in connection with the Credit Facility, which will be amortized as additional interest expense through the contractualmaturity date. As of December 31, 2009, the fee for unused funds for the Prior Credit Facility was at an annual rate of 0.15% to 0.20%, depending on thebalance of our daily average undrawn balance.Debt Covenants and RestrictionsThe Credit Facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictionsrequiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include amaximum ratio of total debt to total asset value, a minimum fixed charge coverage ratio, a minimum unsecured debt ratio, a minimumunencumbered asset pool debt service coverage ratio, and a minimum unencumbered debt yield. Noncompliance with one or more of thecovenants and restrictions could result in the full or partial principal balance of the associated debt becoming immediately due andpayable. We believe we were in compliance with all of our debt covenants as of December 31, 2010 and December 31, 2009.Debt MaturitiesThe following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts, as ofDecember 31, 2010:Year Ending (in thousands) 2011 $75,017 2012 304,292 2013 162,236 2014 258,969 2015 328,716 Thereafter 321,922 Total $1,451,152(1)(1)Includes full principal balance of outstanding debt before impact of all debt discounts.F-33 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Capitalized Interest and Loan FeesThe following table sets forth our gross interest expense, including debt discount and loan cost amortization, net of capitalizedinterest for the years ended December 31, 2010, 2009 and 2008. The capitalized amounts are a cost of development and increase thecarrying value of undeveloped land and construction in progress. Year Ended December 31, 2010 2009 2008 (in thousands) Gross interest expense $69,956 $55,802 $63,478 Capitalized interest (10,015) (9,683) (18,132)Interest expense $59,941 $46,119 $45,346 8. Deferred Revenue and Acquisition Related Liabilities, netDeferred revenue and acquisition-related liabilities, net consisted of the following at December 31, 2010 and 2009: December 31, 2010 2009 (in thousands) Deferred revenue related to tenant-funded tenant improvements $60,549 $64,804 Other deferred revenue 1,929 1,323 Acquisition-related liabilities—below-market leases, net(1) 16,844 763 Total $79,322 $66,890 (1)See Note 4 for additional information.Deferred Revenue Related to Tenant-funded Tenant ImprovementsDuring the years ended December 31, 2010, 2009, and 2008, $9.7 million, $9.8 million, and $11.3 million, respectively, ofdeferred revenue related to tenant-funded tenant improvements was amortized and recognized as rental income. The following is theestimated amortization of deferred revenue related to tenant-funded tenant improvements as of December 31, 2010 for the next five yearsand thereafter:Year Ending (in thousands) 2011 $9,014 2012 8,364 2013 7,909 2014 7,208 2015 6,181 Thereafter 21,873 Total $60,549 9. Noncontrolling Interests on the Company’s Consolidated Financial StatementsSeries A Preferred Units of the Operating PartnershipAs of both December 31, 2010 and 2009, the Operating Partnership had issued and outstanding 1,500,000 Series A Preferred Unitsrepresenting preferred limited partnership interests in the Operating Partnership with a redemption value of $50.00 per unit. There were nochanges in this noncontrolling interest for all years presented. The Series A Preferred Units have a right of redemption at the option of theholders in the event of certain change ofF-34 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)control events, certain repurchases of the Company’s publicly registered equity securities, an involuntary delisting of the Company’scommon stock from the NYSE, or a loss of the our REIT status.Distributions on the Series A Preferred Units accrue at an annual rate of 7.45%. The Series A Preferred Units, which may be calledby the Operating Partnership at a price equal to the liquidation value, have no stated maturity or mandatory redemption and are notconvertible into any other securities of the Operating Partnership. The Series A Preferred Units are exchangeable at the option of themajority of the holders for shares of the Company’s 7.45% Series A Cumulative Redeemable Preferred stock (“Series A Preferred Stock”)under certain circumstances:(i) if distributions on the series have not been timely made for any six prior quarters, or the Operating Partnership is likely tobecome a publicly traded partnership for federal income tax purposes;(ii) if the Series A Preferred Units would not be considered “stock and securities” for federal income tax purposes; and(iii) at any time following September 30, 2015.In addition, the Series A Preferred Units may also be exchanged for shares of Series A Preferred Stock of the Company if either theOperating Partnership or the initial holder of the Series A Preferred Units believe, based upon the opinion of counsel, that the character ofOperating Partnership’s assets and income would not allow it to qualify as a REIT if it were a corporation. In lieu of exchanging Series APreferred Units for Series A Preferred Stock, we may elect to redeem all or a portion of the Series A Preferred Units for cash in an amountequal to $50.00 per unit plus accrued and unpaid distributions. The Series A Preferred Units may only be exchanged in whole, but not inpart, and each exchange is subject to the REIT ownership limits contained in the Operating Partnership’s charter.The Operating Partnership makes quarterly distributions to the preferred unitholders each February, May, August, and November.As of December 31, 2010 and 2009, the accrued distribution payable to holders of Series A Preferred Units, which is included inSeries A Preferred Units noncontrolling interest on the balance sheet, was $0.7 million.Common Units of the Operating PartnershipThe Company owned a 96.8% and 96.2% common general partnership interest in the Operating Partnership as of December 31,2010 and 2009, respectively. The remaining 3.2% and 3.8% common limited partnership interest as of December 31, 2010 and 2009,respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrollingcommon units. There were 1,723,131 noncontrolling common units outstanding as of December 31, 2010 and 2009.The noncontrolling common units may be redeemed by unitholders for cash. We, at our option, may satisfy the cash redemptionobligation with shares of the Company’s common stock on a one-for-one basis. Whether satisfied in cash or shares of the Company’scommon stock, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quotedprice per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediatelypreceding the applicable balance sheet date. The aggregate value upon redemption of the then-outstanding noncontrolling common unitswas $61.4 million and $53.6 million as of December 31, 2010 and 2009, respectively. This redemption value does not necessarilyrepresent the amount that would be distributed with respect to each noncontrolling common unit in the event of a termination or liquidationof the Company and the Operating Partnership. In the event of a termination or liquidation of the Company and the OperatingPartnership, it is expected in most cases that each noncontrolling common unit would be entitled to a liquidating distribution equal to theamount payable with respect to each share of the Company’s common stock.F-35 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)10. Stockholders’ Equity of the CompanyPreferred StockAs of December 31, 2010 and 2009, the Company had 1,610,000 shares of its 7.80% Series E Cumulative Redeemable PreferredStock (“Series E Preferred Stock”) and 3,450,000 shares of its 7.50% Series F Cumulative Redeemable Preferred Stock (“Series FPreferred Stock”) issued and outstanding. The Series E Preferred Stock and the Series F Preferred Stock each have a liquidationpreference of $25.00 per share and may be redeemed at our option. Dividends on both the Series E Preferred Stock and Series F PreferredStock are cumulative and are payable quarterly in arrears on the 15th day of each February, May, August, and November. Neither theSeries E Preferred Stock nor the Series F Preferred Stock has a stated maturity and neither is subject to mandatory redemption or anysinking fund.Issuance of Common StockIn April 2010, the Company completed an underwritten public offering of 9,200,000 shares of its common stock. The net offeringproceeds, after deducting underwriting discounts and commissions and offering expenses, were approximately $299.8 million. We useda portion of the net proceeds from the offering to fund acquisitions, repay borrowings on the Prior Credit Facility, and for generalcorporate purposes.In June 2009, the Company completed an underwritten public offering of 10,062,500 shares of its common stock. The net offeringproceeds, after deducting underwriting discounts, commissions, and offering expenses, were approximately $191.7 million. TheCompany used the net proceeds from the offering to repay a portion of the borrowings under the Prior Credit Facility and for other generalcorporate purposes.Exchange of Noncontrolling Common Units of the Operating PartnershipDuring the years ended December 31, 2009 and 2008, 30,598, and 435,596 noncontrolling common units were redeemed forshares of the Company’s common stock on a one-for-one basis, respectively. No noncontrolling common units were exchanged during theyear ended December 31, 2010. Neither the Company nor the Operating Partnership received any proceeds from the issuance of thecommon stock to the noncontrolling common unitholders.Dividend Reinvestment and Direct Purchase PlanThe Company has a Dividend Reinvestment and Direct Purchase Plan (the “DRIP Plan”) designed to provide the Company’sstockholders and other investors with a convenient and economical method to purchase shares of the Company’s common stock. TheDRIP Plan provides existing common stockholders and other investors the opportunity to purchase additional shares of the Company’scommon stock by reinvesting cash dividends or making optional cash purchases within specified parameters. The DRIP Plan acquiresshares of the Company’s common stock from either new issuances directly from the Company, from the open market, or from privatelynegotiated transactions. As of December 31, 2010, no shares had been acquired under the DRIP Plan from new issuances.Share RepurchasesAn aggregate of 988,025 shares currently remain eligible for repurchase under a share-repurchase program approved by theCompany’s board of directors in prior periods. The Company did not repurchase shares of common stock under this program during theyears ended December 31, 2010 or 2009. During the year ended December 31, 2008, the Company repurchased 239,475 shares of itscommon stock in open market transactions for an aggregate price of approximately $11.5 million or $48.23 per share.F-36 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Accrued Dividends and DistributionsThe following tables summarize accrued dividends and distributions for the noted outstanding shares of common stock, preferredstock, and noncontrolling units as of December 31, 2010 and 2009: December 31, 2010 2009 (in thousands) Dividends and Distributions payable to: Common stockholders $18,322 $15,102 Noncontrolling common unitholders of the Operating Partnership 603 603 RSU holders(1) 250 221 Total accrued dividends and distribution to common stockholders and noncontrolling unitholders 19,175 15,926 Preferred stockholders 1,210 1,210 Total accrued dividends and distributions $20,385 $17,136 (1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12). December 31, 2010 2009Outstanding Shares and Units: Common stock(1) 52,349,670 43,148,762 Noncontrolling common units 1,723,131 1,723,131 RSUs 713,822 631,331 Series E preferred stock 1,610,000 1,610,000 Series F preferred stock 3,450,000 3,450,000 (1)The amount includes nonvested shares.11. Preferred and Common Units in the Operating Partnership’s Consolidated Financial StatementsSeries A Preferred Units of the Operating PartnershipFor a discussion of the Series A Preferred Units of the Operating Partnership including terms, redemption rights, distribution rightand exchange rights, please see Note 9.Series E Preferred Units and Series F Preferred UnitsAs of December 31, 2010 and 2009, the Operating Partnership had issued and outstanding 1,610,000 Series E Preferred Units and3,450,000 Series F Preferred Units representing preferred limited partnership interests in the Operating Partnership. The Company is thesole holder of both the Series E Preferred Units and Series F Preferred Units and for each Series E and Series F Preferred Unitoutstanding, the Company has an equivalent number of shares of Series E Preferred Stock and Series F Preferred Stock issued andoutstanding. The terms of the Series E and Series F Preferred Units are identical to the terms of the Series E and Series F Preferred Stockdiscussed in Note 10. Dividends for the Series E and Series F Preferred Units are paid to the Company. The Company then uses thesefunds to pay dividends to the holders of its Series E Preferred Stock and Series F Preferred Stock.Issuance of Common UnitsIn April 2010, the Company completed an underwritten public offering of 9,200,000 shares of the its common stock as discussed inNote 10. The net offering proceeds of approximately $299.8 million were contributed by the Company to the Operating Partnership inexchange for 9,200,000 common units.F-37 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)In June 2009, the Company completed an underwritten public offering of 10,062,500 shares of its common stock as discussed inNote 10. The net offering proceeds of approximately $191.7 million were contributed by the Company to the Operating Partnership inexchange for 10,062,500 common units.Common Units OutstandingThe Company owned 52,349,670 and 43,148,762 common units representing a 96.8% and 96.2% common general partnershipinterest in the Operating Partnership as of December 31, 2010 and 2009, respectively. The remaining 1,723,131 common unitsoutstanding, representing a 3.2% and 3.8% common limited partnership interest as of December 31, 2010 and 2009, respectively, wasowned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units. For afurther discussion of the noncontrolling common units, including exchanges during the years ended December 31, 2010 and 2009, pleaserefer to Notes 9 and 10.Accrued DistributionsThe following tables summarize accrued distributions for the noted common and preferred units as of December 31, 2010 and 2009: December 31, 2010 2009 (in thousands)Distributions payable to: General partner $18,322 $15,102 Common limited partners 603 603 RSU holders(1) 250 221 Total accrued distributions to common unitholders 19,175 15,926 Series E and Series F preferred unitholders 1,210 1,210 Total accrued distributions $20,385 $17,136 (1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12). December 31, 2010 2009Outstanding Units: Common units held by the general partner 52,349,670 43,148,762 Common units held by the limited partners 1,723,131 1,723,131 RSUs 713,822 631,331 Series E preferred units 1,610,000 1,610,000 Series F preferred units 3,450,000 3,450,000 12. Share-Based CompensationStockholder Approved Equity Compensation PlansWe establish share-based incentive compensation plans for the purpose of attracting and retaining officers, key employees, and non-employee board members. As of December 31, 2010, we had one share-based incentive compensation plan, the Kilroy Realty 2006Incentive Award Plan as amended (the “2006 Plan”), which was adopted by our board of directors and approved by our stockholders.In May 2009, our stockholders approved the third amendment to the 2006 Plan. The amendment increased the number of shares ofcommon stock authorized under the 2006 Plan by 1,595,000 shares.F-38 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)In May 2010, our stockholders approved the fourth amendment to the 2006 Plan. The amendment increased the number of shares ofcommon stock authorized under the 2006 Plan by 2,990,000 shares such that the total aggregate number of shares available for issuancepursuant to the 2006 Plan was 6,120,000 shares as of December 31, 2010. Both amendments also made certain changes regarding howawards are counted prospectively against the number of shares available for issuance under the 2006 Plan.As of December 31, 2010, 4,375,533 shares were available for grant under the 2006 Plan. The number of shares that remainsavailable for grant is calculated using the weighted share counting provisions set forth in the 2006 Plan, which are based on the type ofawards that are granted. The maximum number of shares available for grant subject to full value awards (which generally include equityawards other than options and stock appreciation rights) was 1,498,470 shares as of December 31, 2010.The Executive Compensation Committee, which is comprised of four independent directors, may grant the following share-basedawards as provided under the 2006 Plan: incentive stock options, nonqualified stock options, restricted stock (nonvested shares), stockappreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, RSUs, profitinterest units, performance bonus awards, performance-based awards, and other incentive awards to eligible individuals. For each awardgranted under our share-based incentive compensation programs, the Operating Partnership simultaneously issues to the Company anumber of common units equal to the number of shares of common stock ultimately paid by the Company in respect of such awards.All of our outstanding share-based awards issued prior to 2007 were issued under the 1997 Stock Option and Incentive Plan (the“1997 Plan”), which was terminated by our board of directors in September 2006. Any awards that were outstanding upon thetermination of the 1997 Plan continued in effect in accordance with the terms of such plan and the applicable award agreement followingtermination of the 1997 Plan.Stock Award Deferral ProgramWe have a Stock Award Deferral Program (the “RSU Program”) under the 2006 Plan, which has been effective since the fourthquarter of 2007. Under the RSU Program, participants may defer receipt of awards of nonvested shares that may be granted by electing toreceive an equivalent number of RSUs in lieu of nonvested shares. Each RSU represents the right to receive one share of our commonstock in the future and is subject to the same vesting conditions that would have applied if the award had been issued in nonvestedshares. RSUs carry with them the right to receive dividend equivalents such that participants receive additional, fully-vested RSUs at thetime dividends are paid equal to the value of the dividend paid on the shares underlying participant’s RSUs. Shares issued in settlementof vested RSUs will be distributed in a single lump sum distribution upon the earlier of (1) the date specified by the participant when theelection is made, which must be later than the final vesting date of the RSUs, or (2) upon other certain events specified under the RSUprogram.Share-Based Compensation ProgramsThe Executive Compensation Committee has historically awarded nonvested shares and RSUs under the following share-basedcompensation programs. These share-based awards were valued based on the quoted closing share price of the Company’s common stockon the NYSE on the grant date. Dividends are paid on all outstanding shares and RSUs whether vested or nonvested and are notforfeitable if the underlying shares or RSUs ultimately do not vest.Executive Officer Share-Based Compensation ProgramsThe Executive Compensation Committee has annually approved compensation programs that include the potential issuance of share-based awards to our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer (“the Executive Officers”) as part oftheir annual and long-term incentive compensation.F-39 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Historically, the number of nonvested shares or nonvested RSUs issued has been contingent upon certain corporate performance andmarket conditions. The share-based awards are generally issued in the first quarter after the end of the performance period, which is thesame as our fiscal year end. The share-based awards generally have a service vesting period, which has historically ranged from one tothree years, depending on the type of award.Key Employee Share-Based Compensation ProgramThe Executive Compensation Committee has historically awarded nonvested shares or nonvested RSUs to other key employees onan annual basis as part of their long-term incentive compensation. The share-based awards are generally issued in the first quarter, andthe individual share awards vest in equal annual installments over the applicable service vesting period, which has historically rangedfrom two to five years.Non-employee Board Members Share-Based Compensation ProgramThe Executive Compensation Committee awards nonvested shares or nonvested RSUs to non-employee board members on anannual basis as part of the board members’ annual compensation and to newly elected board members in accordance with our board ofdirectors compensation program. The share-based awards are generally issued in the second quarter, and the individual share awards vestin equal annual installments over the applicable service vesting period, which will be one year.Summary of Nonvested SharesA summary of our nonvested shares activity from January 1, 2010 through December 31, 2010 is presented below: Weighted- Average Grant-Date Nonvested Shares Shares Fair Value Outstanding at January 1, 2010 88,473 $59.05 Granted 3,239 30.88 Vested(1) (41,680) 57.64 Outstanding as of December 31, 2010 50,032 $58.40 (1)The total shares vested include 13,036 of shares that were then tendered to satisfy minimum statutory tax withholding requirements related to the restrictedshares that have vested in accordance with the terms of the 2006 Plan. We accept the return of shares at the current quoted market price of the Company’scommon stock to satisfy tax obligations.A summary of our nonvested and vested shares activity for the years ended December 31, 2010, 2009, and 2008 is presented below: Shares Granted Shares Vested Weighted- Average Total Vest- Non-Vested Grant-Date Date FairYear Ended Shares Issued Fair Value Vested Shares Value (1) (in thousands)2010 3,239 $30.88 (41,680) $1,398 2009(2) 4,958 20.17 (139,651) 4,134 2008 184,245 52.38 (198,912) 7,481 (1)Total fair value of shares vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the day of vesting.(2)In addition, during the year ended December 31, 2009, we issued 51,040 shares of common stock under a share-based compensation program that were fullyvested upon issuance. The grant date fair value per share of this award was $26.94.F-40 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Summary of Restricted Stock UnitsA summary of our RSU activity from January 1, 2010 through December 31, 2010 is presented below: Nonvested RSUs Weighted- Average Grant Date Nonvested and Vested Restricted Stock Units Amount Fair Value Vested RSUs Total RSUs Outstanding at January 1, 2010 269,294 $26.81 362,037 631,331 Granted 159,606 30.24 — 159,606 Vested (303,146) 27.34 303,146 — Settled(1) (53,451) (53,451)Issuance of dividend equivalents(2) 30,568 30,568 Canceled(1)(3) (54,232) (54,232)Outstanding as of December 31, 2010 125,754 $29.88 588,068 713,822 (1)On July 1, 2010, certain vested RSUs were settled in shares of the Company’s common stock given that this date was six months plus one day subsequentto one individual’s separation from service from the Company. For certain individuals without an elected distribution date greater than six months beyondseparation from service, RSUs are automatically settled in common shares six months plus one day subsequent to separation from service to comply with taxcode requirements. Of the total 97,593 RSUs held by this individual, 53,451 were settled for shares of the Company’s common stock and 44,142 RSUswere canceled to cover the statutory minimum tax withholding.(2)RSUs issued as dividend equivalents are vested upon issuance.(3)We accept the return of RSUs, at the current quoted market price of the Company’s common stock, to satisfy minimum statutory tax-withholdingrequirements related to either RSUs that have vested or RSU dividend equivalents in accordance with the terms of the 2006 Plan.A summary of our RSU activity for the years ended December 31, 2010, 2009, and 2008 is presented below: Shares Granted Weighted- Shares Vested Average Total Vest- Non-Vested Grant-Date Date Fair Year Ended RSUs Issued Fair Value Vested RSUs Value(1) (in thousands) 2010 159,606 $30.24 (303,146) $10,936 2009 589,805 26.71 (327,979) 10,017 2008 7,468 53.58 — — (1)Total fair value of RSUs vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the day of vesting.Compensation Cost Recorded During the PeriodThe total compensation cost for all share-based compensation programs was $7.4 million, $13.3 million, and $16.3 million for theyears ended December 31, 2010, 2009, and 2008, respectively. Included in the total $7.4 million of compensation cost for the year endedDecember 31, 2010 was the reversal of approximately $1.0 million of cumulative compensation expense previously recorded during theyears 2007 through 2010 for the 2007 Development Performance Plan, since the performance targets for this program were not ultimatelyachieved. Of the total share-based compensation cost, $1.4 million, $1.1 million, and $1.1 million was capitalized as part of real estateassets for the years ended December 31, 2010, 2009, and 2008, respectively. As of December 31, 2010, there was approximately$4.8 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensationarrangements that is expected to be recognized over a weighted-average period of 1.5 years. The remaining compensation cost related tothese nonvested incentive awards had been recognized in periods prior to December 31, 2010.The $4.8 million of unrecognized compensation cost does not reflect the potential future compensation cost for the approvedexecutive officer share-based compensation programs under which share-based awards have not yetF-41 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)been granted as of December 31, 2010. These programs have a performance period that precedes the grant date. We recordedapproximately $1.6 million related to these programs for the year ended December 31, 2010, which is included in the total $7.4 millioncompensation cost discussed above.13. Employee Benefit Plans401(k) PlanWe have a retirement savings plan designed to qualify under Section 401(k) of the Code (the “401(k) Plan”). Our employees areeligible to participate in the 401(k) Plan on the first day of the month after three months of service. The 401(k) Plan allows eligibleemployees (“401(k) Participants”) to defer up to 60% of their eligible compensation on a pre-tax basis, subject to certain maximumamounts allowed by the Code. The 401(k) Plan provides for a matching contribution by the Company in an amount equal to fifty centsfor each one dollar of participant contributions up to a maximum of 10% of the 401 (k) Participant’s annual salary. 401(k) Participantsvest immediately in the amounts contributed by us. For each of the years ended December 31, 2010, 2009, and 2008, we contributed$0.5 million to the 401(k) Plan.Deferred Compensation PlanIn 2007, we adopted the Deferred Compensation Plan, under which directors and certain management employees may defer receipt oftheir compensation, including up to 70% of their salaries and up to 100% of their director fees and bonuses, as applicable. In addition,employee participants will receive mandatory Company contributions to their Deferred Compensation Plan accounts equal to 10% of theirgross monthly salaries, without regard to whether such employees elect to defer salary or bonus compensation under the DeferredCompensation Plan. Our board of directors may, but has no obligation to, approve additional discretionary contributions by theCompany to Participant accounts. We hold the Deferred Compensation Plan assets in a limited rabbi trust, which is subject to the claimsof our creditors in the event of bankruptcy or insolvency.See Note 16 for further discussion of our Deferred Compensation Plan assets and related Deferred Compensation Plan liability as ofDecember 31, 2010 and 2009. Our liability under the Deferred Compensation Plan was fully funded as of December 31, 2010 and 2009.14. Future Minimum RentWe have operating leases with tenants that expire at various dates through 2027 and are either subject to scheduled fixed increases oradjustments in rent based on the Consumer Price Index. Generally, the leases grant tenants renewal options. Leases also provide foradditional rents based on certain operating expenses. Future contractual minimum rent under operating leases as of December 31, 2010 forfuture periods is summarized as follows:Year Ending (in thousands) 2011 $297,857 2012 286,620 2013 265,237 2014 242,347 2015 193,185 Thereafter 587,890 Total $1,873,136 F-42 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)15. Commitments and ContingenciesGeneralAs of December 31, 2010, we had commitments of approximately $65.2 million for contracts and executed leases directly related toour operating and redevelopment properties.In the normal course of business, we are required to post construction bonds to guarantee our performance of government-mandatedinfrastructure improvements. As of December 31, 2010, we had outstanding construction bonds of $2.1 million.Ground LeasesWe have noncancellable ground lease obligations on Kilroy Airport Center Phases I, II, and III in Long Beach, California with a leaseperiod expiring in July 2084. Rental rates are subject to adjustments every five years based on fair market value. During the third quarterof 2009, we exercised our option to terminate a ground lease at Kilroy Airport Center Phase IV in Long Beach. We had previously leasedthis land, which is adjacent to our Office Properties at Kilroy Airport Center, Long Beach, for potential future development opportunities.The minimum commitment under our ground leases as of December 31, 2010 for five years and thereafter was as follows:Year Ending (in thousands) 2011 $1,329 2012 1,096 2013 1,096 2014 1,040 2015 1,000 Thereafter(1) 68,542 Total $74,103 (1)One of our ground lease obligations is subject to a fair market value adjustment every 5 years; however, the lease includes ground rent subprotection andinfrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included aboveassumes the $1.0 million or annual lease rental obligation in effect as of December 31, 2010.LitigationWe and our properties are subject to litigation arising in the ordinary course of business. To our knowledge, neither we nor any ofour properties are presently subject to any litigation or threat of litigation which, if determined unfavorably to us, would have a materialadverse effect on our cash flow, financial condition, or results of operations.In the third quarter of 2010, we settled outstanding litigation related to certain premises at one of our properties that had beenabandoned by its former occupants. In connection with this legal settlement, we received a $3.6 million cash payment in 2010. Inaddition, in January 2011 we also received a $1.0 million cash payment relating to this matter. As a result, during the year endedDecember 31, 2010, we reversed approximately $1.0 million of our allowance for bad debts which was previously recorded in priorperiods for receivables related to the lease at this property.InsuranceWe maintain commercial general liability, auto liability, employers liability, umbrella/excess liability, special form property,difference in conditions including earthquake and flood, environmental, rental loss, and terrorism insurance covering all of ourproperties. Management believes the policy specifications and insured limits areF-43 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)appropriate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generallyuninsurable losses such as loss from governmental action, nuclear hazard, and war and military action. Some of our policies are subjectto limitations of coverage, qualifications, terms, conditions, and involve large deductibles or co-payments. In addition, our earthquakeinsurance policies include substantial self-insurance portions.Environmental MattersWe follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurancethat a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to theproperties that would have a material adverse effect on our financial condition, results of operations, and cash flow. Further, we are notaware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believewould require additional disclosure or the recording of a loss contingency.16. Fair Value Measurements and DisclosuresAssets and Liabilities Reported at Fair ValueThe only assets and liabilities we record at fair value in our consolidated financial statements are the marketable securities andrelated deferred compensation plan liability related our the Deferred Compensation Plan (see Note 13). We recorded net gains ofapproximately $0.4 million for the years ended December 31, 2010 and 2009 and a net loss of approximately $1.0 million for the yearended December 31, 2008 related to the change in fair value of the marketable securities, which was reported in interest income and otherinvestment gains (losses) in the consolidated statements of operations. We adjust the deferred compensation plan liability to fair value atthe end of each accounting period based on the performance of the benchmark funds selected by each Participant and the impact ofadjusting the liability is recorded as an increase or decrease to compensation cost. For each of the years ended December 31, 2010 and2009, we recorded approximately $0.4 million of total compensation cost resulting from the increase in the fair value of benchmarkfunds. For the year ended December 31, 2008, we recorded a net reduction of approximately $1.0 million to compensation cost resultingfrom a decline in the fair value of the benchmark funds.The following table sets forth the fair value of our marketable securities and related deferred compensation liability as ofDecember 31, 2010 and 2009: Fair Value (Level 1)(1) 2010 2009 (in thousands)Marketable Securities(2) $4,902 $3,452 Deferred Compensation Liability(3) $4,809 $3,353 (1)Based on quoted prices in active markets for identical securities.(2)The marketable securities are held in a limited rabbi trust.(3)The deferred compensation liability is reported on our consolidated balance sheets in accounts payable, accrued expenses, and other liabilities.F-44 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Financial Instruments Disclosed at Fair ValueThe following table sets forth the carrying value and the fair value of our other financial assets and liabilities as of December 31,2010 and 2009: December 31, 2010 2009 Carrying Fair Carrying Fair Value Value Value Value (in thousands)Assets Note receivable(1) $— $— $10,679 $10,849 Liabilities Secured debt 313,009 329,456 294,574 297,189 Exchangeable Notes 299,964 312,598 436,442 435,351 Unsecured senior notes 655,803 661,644 144,000 142,828 Credit Facility 159,000 159,659 — — Prior Credit Facility(2) — — 97,000 96,250 (1)This note receivable was re-paid in full during 2010 (see Note 5).(2)In August 2010, we entered into a new $500.0 million Credit Facility and used the borrowing under the Credit Facility to repay, and then terminate the$550.0 million Prior Credit Facility (see Note 7).17. Other Significant Transactions or EventsGeneral and administrative expenses for the year ended December 31, 2009 include a $7.0 million charge related to separationpayments resulting from the resignation, for personal reasons, of our former Chief Financial Officer in December 2009.2008 Lease TerminationsIn the second quarter of 2008, a tenant at one of our San Diego office properties notified us of its intent to cease its businessoperations and to not pay any future rental payments under its lease beyond June 2008. We held a $3.6 million letter of credit and a$0.3 million security deposit as credit support under the terms of the lease. At June 30, 2008, we increased our provision for bad debts byapproximately $3.1 million to reserve for the portion of the deferred rent receivable balance related to the lease that we estimated would notbe recoverable after the application of the letter of credit proceeds and security deposit. In July 2008, we entered into an agreement with thetenant to terminate the lease as of August 31, 2008. During the third quarter of 2008, we drew down the letter of credit and applied the$3.9 million letter of credit proceeds and security deposit to July and August rent and the outstanding deferred rent receivable andaccounts receivable balances. During the year ended December 31, 2008, we also recognized approximately $2.7 million of noncash rentalrevenue, which was primarily a result of the acceleration of the amortization of the deferred revenue balance related to tenant-funded tenantimprovements associated with this lease.In July 2008, we entered into an agreement with a tenant at one of our San Diego office properties to early terminate one of its leases in2008. The lease that was terminated encompassed approximately 90,000 rentable square feet of office space and was scheduled to expire inJuly 2014. The tenant had the option to early terminate this lease in 2010. The tenant vacated approximately 95% of the premises in thethird quarter of 2008 and the remaining premises during the first quarter of 2009. We recognized a net lease termination fee, which isincluded in other property income, of approximately $0.1 million and $5.0 million during the years ended December 31, 2009 and 2008,respectively.F-45 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)18. Segment DisclosureOur reportable segments consist of the two types of commercial real estate properties for which our chief operating decision-makersinternally evaluate operating performance and financial results: Office Properties and Industrial Properties. We also have certain corporatelevel activities including legal administration, accounting, finance, and management information systems, which are not consideredseparate operating segments.We evaluate the performance of our segments based upon net operating income. “Net Operating Income” is defined as operatingrevenues (rental income, tenant reimbursements, and other property income) less property and related expenses (property expenses, realestate taxes, ground leases, and provisions for bad debts) and excludes other income and expenses such as interest expense, depreciationand amortization, acquisition related expenses and corporate general and administrative expenses. There is no intersegment activity.The following tables reconcile the segment activity to consolidated net income for the years ended December 31, 2010, 2009, and2008, and the consolidated assets, consolidated expenditures, and tenant improvements as of December 31, 2010 and 2009: Year Ended December 31, 2010 2009 2008 (in thousands) Office Properties: Operating revenues(1) $271,878 $247,071 $256,066 Property and related expenses 78,229 68,824 70,099 Net Operating Income 193,649 178,247 185,967 Industrial Properties: Operating revenues(1) 30,102 32,363 33,289 Property and related expenses 7,253 7,381 6,493 Net Operating Income 22,849 24,982 26,796 Total Reportable Segments: Operating revenues(1) 301,980 279,434 289,355 Property and related expenses 85,482 76,205 76,592 Net Operating Income 216,498 203,229 212,763 Reconciliation to Consolidated Net Income: Total net operating income, as defined, for reportable segments 216,498 203,229 212,763 Unallocated (expense) income: General and administrative expenses (27,963) (39,938) (38,260)Acquisition-related expenses (2,248) — — Depreciation and amortization (103,809) (87,627) (83,215)Interest income and other net investment gains (losses) 964 1,300 (93)Interest expense (59,941) (46,119) (45,346)(Loss) gain on early extinguishment of debt (4,564) 4,909 — Income from continuing operations 18,937 35,754 45,849 Income from discontinued operations 949 2,261 1,062 Net income $19,886 $38,015 $46,911 (1)All operating revenues are comprised of amounts received from third-party tenants.F-46 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2010 2009 (in thousands) Assets: Office Properties: Land, buildings, and improvements, net $2,108,019 $1,498,427 Undeveloped land and construction in progress 290,365 263,608 Total assets(1) 2,611,206 1,878,004 Industrial Properties: Land, buildings, and improvements, net 146,058 152,072 Total assets(1) 159,612 165,563 Total Reportable Segments: Land, buildings, and improvements, net 2,254,077 1,650,499 Undeveloped land and construction in progress 290,365 263,608 Total assets(1) 2,770,818 2,043,567 Reconciliation to Consolidated Assets: Total assets for reportable segments 2,770,818 2,043,567 Other unallocated assets: Cash and cash equivalents 14,840 9,883 Restricted cash 1,461 2,059 Marketable securities 4,902 3,452 Note receivable — 10,679 Deferred financing costs, net 16,447 8,334 Prepaid expenses and other assets, net 8,097 6,307 Total consolidated assets $2,816,565 $2,084,281 (1)Includes land, buildings, and improvements, undeveloped land and construction in progress, current receivables, deferred rent receivable and deferredleasing costs, and acquisition-related intangible assets, all shown on a net basis. December 31, 2010 2009 (in thousands)Acquisitions and Capital Expenditures:(1) Office Properties: Expenditures for real estate acquisitions $713,905 $— Expenditures for development and redevelopment properties and undeveloped land 28,178 18,067 Expenditures for operating properties(2) 72,061 24,980 Industrial Properties: Expenditures for operating properties(2) 6,663 4,641 Total Reportable Segments: Expenditures for real estate acquisitions 713,905 — Expenditures for development and redevelopment properties and undeveloped land 28,178 18,067 Expenditures for operating properties(2) 78,724 29,621 F-47 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(1)Total consolidated acquisitions and capital expenditures are equal to the same amounts disclosed for total reportable segments.(2)Includes expenditures for building improvements, tenant improvements, and deferred leasing costs for our operating properties.19. Property DispositionsThe following table summarizes properties sold during the years ended December 31, 2010 and 2009. We did not sell any propertiesduring the year ended December 31, 2008. We recorded a net gain on the disposition of discontinued operations of $0.9 million and$2.5 million, for the years ended December 31, 2010 and 2009 respectively, related to these dispositions. Rentable Property Month of Number of Square Sales Location Type Disposition Buildings Feet Price (unaudited) (in millions) 2010 Dispositions 660 N. Puente StreetBrea, CA Industrial October 1 51,567 $5.0 601 Valencia AvenueBrea, CA Office December 1 60,891 5.4 603 Valencia AvenueBrea, CA Office December 1 45,900 5.4 Total 3 158,358 $15.8 2009 Disposition 12400 Industry StreetGarden Grove, CA Industrial June 1 64,200 $5.1 The following table summarizes the total income from discontinued operations within the statement of operations by the reportablesegments for the years ended December 31, 2010, 2009, and 2008: Year Ended December 31, 2010 2009 2008 (in thousands) Reportable Segments: Office Properties $(1,699) $— $433 Industrial Properties 2,648 2,261 629 Total income from discontinued operations $949 $2,261 $1,062 F-48 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)20. Net Income Available to Common Stockholders Per Share of the CompanyThe following table reconciles the numerator and denominator of the basic and diluted per-share computations for the Company’s netincome available to common stockholders for the years ended December 31, 2010, 2009, and 2008: Year Ended December 31, 2010 2009 2008 (in thousands, except share and per share amounts) Numerator: Income from continuing operations $18,937 $35,754 $45,849 Income from continuing operations attributable to noncontrolling commonunits of the Operating Partnership (148) (924) (1,823)Preferred distributions and dividends (15,196) (15,196) (15,196)Allocation to participating securities (nonvested shares and RSUs) (1,151) (1,293) (338)Numerator for basic and diluted income from continuing operations availableto common stockholders 2,442 18,341 28,492 Discontinued operations 949 2,261 1,062 Discontinued operations attributable to noncontrolling common units of theOperating Partnership (30) (101) (63)Numerator for basic and diluted net income available to commonstockholders $3,361 $20,501 $29,491 Denominator: Basic weighted average vested common shares outstanding 49,497,487 38,705,101 32,466,591 Effect of dilutive securities—stock options and contingently issuable shares 15,708 27,025 74,281 Diluted weighted average vested common shares and common shareequivalents outstanding 49,513,195 38,732,126 32,540,872 Basic earnings per share: Income from continuing operations available to common stockholders pershare $0.05 $0.47 $0.88 Discontinued operations per common share 0.02 0.06 0.03 Net income available to common stockholders per share $0.07 $0.53 $0.91 Diluted earnings per share: Income from continuing operations available to common stockholders pershare $0.05 $0.47 $0.88 Discontinued operations per common share 0.02 0.06 0.03 Net income available to common stockholders per share $0.07 $0.53 $0.91 As of December 31, 2010, 2009, and 2008, the effect of the assumed exchange of the Exchangeable Notes was not included in thenet income available to common stockholder per share calculation as it was antidilutive to income from continuing operations available tocommon stockholders since the average quoted trading price of theF-49 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Company’s common stock on the NYSE for the periods presented was below the Exchangeable Notes exchange prices.21. Net Income Available to Common Unitholders per Unit of the Operating PartnershipThe following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unitcomputations for net income available to common unitholders for the years ended December 31, 2010, 2009, and 2008: Year Ended December 31, 2010 2009 2008 (in thousands, except unit and per unit amounts) Numerator: Income from continuing operations $18,937 $35,754 $45,849 Income from continuing operations attributable to noncontrolling interests inconsolidated subsidiaries (162) (201) (237)Preferred distributions (15,196) (15,196) (15,196)Allocation to participating securities (nonvested units and RSUs) (1,151) (1,293) (338)Numerator for basic and diluted income from continuing operations availableto common unitholders 2,428 19,064 30,078 Discontinued operations 949 2,261 1,062 Numerator for basic and diluted net income available to common unitholders $3,377 $21,325 $31,140 Denominator: Basic weighted average vested common units outstanding 51,220,618 40,436,196 34,531,779 Effect of dilutive securities-stock options and contingently issuable units 15,708 27,025 74,281 Diluted weighted average vested units and common unit equivalentsoutstanding 51,236,326 40,463,221 34,606,060 Basic earnings per unit: Income from continuing operations available to common unitholders per unit $0.05 $0.47 $0.87 Discontinued operations per common unit 0.02 0.06 0.03 Net income available to common unitholders per unit $0.07 $0.53 $0.90 Diluted earnings per unit: Income from continuing operations available to common unitholders per unit $0.05 $0.47 $0.87 Discontinued operations per common unit 0.02 0.06 0.03 Net income available to common unitholders per unit $0.07 $0.53 $0.90 As of December 31, 2010,2009, and 2008, the effect of the assumed exchange of the Exchangeable Notes was not included in the netincome available to common unitholder per unit calculation as it was antidilutive to income from continuing operations available tocommon unitholders since the average quoted trading price of the Company’s common stock on the NYSE for the periods presented wasbelow the Exchangeable Notes exchange prices.F-50 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)22. Tax Treatment of DistributionsThe following table reconciles the dividends declared per common share to the dividends paid per common share during the yearsended December 31, 2010, 2009, and 2008 as follows: Year Ended December 31, Dividends 2010 2009 2008 Dividends declared per common share $1.400 $1.630 $2.320 Less: Dividends declared in the current year and paid in the following year (0.350) (0.350) (0.580)Add: Dividends declared in the prior year and paid in the current year 0.350 0.580 0.555 Dividends paid per common share $1.400 $1.860 $2.295 The income tax treatment for the dividends to common stockholders reportable for the years ended December 31, 2010, 2009, and2008 as identified in the table above was as follows: Year Ended December 31, Common Shares 2010 2009 2008 Ordinary income $— —% $0.421 22.64% $1.645 71.70%Return of capital 1.400 100.00 1.418 76.25 0.650 28.30 Capital gains(1) — — 0.013 0.69 — — Unrecaptured section 1250 gains — — 0.008 0.42 — — $1.400 100.00% $1.860 100.00% $2.295 100.00%(1)Capital gains are comprised entirely of 15% rate gains.The income tax treatment for the dividends to Series E preferred stockholders reportable for the years ended December 31, 2010,2009, and 2008 was as follows: Year Ended December 31, Preferred Shares 2010 2009 2008 Ordinary income $1.950 100.00% $1.837 94.22% $1.950 100.00%Capital gains(1) — — 0.070 3.58 — — Unrecaptured section 1250 gains — — 0.043 2.20 — — $1.950 100.00% $1.950 100.00% $1.950 100.00%(1)Capital gains are comprised entirely of 15% rate gains.The income tax treatment for the dividends to Series F preferred stockholders reportable for the years ended December 31, 2010,2009, and 2008 was as follows: Year Ended December 31, Preferred Shares 2010 2009 2008 Ordinary income $1.875 100.00% $1.767 94.22% $1.875 100.00%Capital gains(1) — — 0.067 3.58 — — Unrecaptured section 1250 gains — — 0.041 2.20 — — $1.875 100.00% $1.875 100.00% $1.875 100.00%(1)Capital gains are comprised entirely of 15% rate gains.F-51 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)23. Quarterly Financial Information of the Company (Unaudited)Summarized quarterly financial data for the years ended December 31, 2010 and 2009 was as follows: 2010 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per share amounts) Revenues from continuing operations $66,819 $72,416 $79,804 $82,941 Net Operating Income from continuing operations(1) 48,795 51,033 56,866 59,804 Income from continuing operations 8,877 1,956 3,669 4,435 Loss on early extinguishment of debt — (4,564) — — Discontinued operations — — — 949 Net income 8,877 1,956 3,669 5,384 Net income attributable to Kilroy Realty Corporation 8,685 2,016 3,673 5,334 Preferred dividends and distributions (3,799) (3,799) (3,799) (3,799)Net income (loss) available to common stockholders 4,886 (1,783) (126) 1,535 Net income (loss) available to common stockholders per share—basic(2) 0.11 (0.04) (0.01) 0.02 Net income (loss) available to common stockholders per share—diluted(2) 0.11 (0.04) (0.01) 0.02 2009 Quarter Ended(3) March 31, June 30, September 30, December 31, (in thousands, except per share amounts) Revenues from continuing operations $72,512 $71,050 $68,494 $67,379 Net Operating Income from continuing operations(1) 52,233 53,165 49,166 48,667 Income from continuing operations 11,862 10,993 12,230 671 Gain on early extinguishment of debt — — 3,119 1,790 Discontinued operations (89) 2,350 — — Net income 11,773 13,343 12,230 671 Net income attributable to Kilroy Realty Corporation 11,376 12,916 11,910 790 Preferred dividends and distributions (3,799) (3,799) (3,799) (3,799)Net income available to common stockholders 7,577 9,117 8,111 (3,009)Net income available to common stockholders per share—basic(2) 0.23 0.25 0.17 (0.08)Net income available to common stockholders per share—diluted(2) 0.23 0.25 0.17 (0.08)(1)See Note 18 for definition of Net Operating Income.(2)The summation of the quarterly net income available to common stockholders per share (basic and diluted) does not equal the annual number reported on theconsolidated statement of operations primarily resulting from the impact of the April 2010 and June 2009 equity offerings.(3)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statement of operations resulting from roundingdifferences.F-52 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)24. Quarterly Financial Information of the Operating Partnership (Unaudited)Summarized quarterly financial data for the years ended December 31, 2010 and 2009 was as follows: 2010 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations $66,819 $72,416 $79,804 $82,941 Net Operating Income from continuing operations(1) 48,795 51,033 56,866 59,804 Income from continuing operations 8,877 1,956 3,669 4,435 Loss on early extinguishment of debt — (4,564) — — Discontinued operations — — — 949 Net income 8,877 1,956 3,669 5,384 Net income attributable to the Operating Partnership 8,832 1,905 3,628 5,359 Preferred distributions (3,799) (3,799) (3,799) (3,799)Net income (loss) available to common unitholders 5,033 (1,894) (171) 1,560 Net income (loss) available to common unitholders per unit—basic(2) 0.11 (0.04) (0.01) 0.02 Net income (loss) available to common unitholders per unit—diluted(2) 0.11 (0.04) (0.01) 0.02 2009 Quarter Ended(3) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations $72,512 $71,050 $68,494 $67,379 Net Operating Income from continuing operations(1) 52,233 53,165 49,166 48,667 Income from continuing operations 11,862 10,993 12,230 671 Gain on early extinguishment of debt — — 3,119 1,790 Discontinued operations (89) 2,350 — — Net income 11,773 13,343 12,230 671 Net income attributable to the Operating Partnership 11,709 13,274 12,169 666 Preferred dividends and distributions (3,799) (3,799) (3,799) (3,799)Net income available to common unitholders 7,910 9,475 8,370 (3,133)Net income available to common unitholders per unit—basic(2) 0.23 0.25 0.17 (0.08)Net income available to common unitholders per unit—diluted(2) 0.23 0.25 0.17 (0.08)(1)See Note 18 for definition of Net Operating Income.(2)The summation of the quarterly net income available to common unitholders per unit (basic and diluted) does not equal the annual number reported on theconsolidated statement of operations primarily resulting from the impact of the April 2010 and June 2009 equity offerings.(3)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statement of operations resulting from roundingdifferences.25. Subsequent EventsOn January 18, 2011, aggregate dividends, distributions, and dividend equivalents of $19.2 million were paid to commonstockholders, common unitholders, and RSU holders of record on December 31, 2010.On January 26, 2011, the Executive Compensation Committee granted 66,208 shares of restricted stock and 97,597 RSUs to theExecutive Officers and other key employees under the 2006 Plan.In January 2011, we entered into a new secured mortgage loan with a principal balance of $135 million. The mortgage debt isscheduled to mature in February 2018. The mortgage debt, which bears contractual interest at a rateF-53 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)of 4.27%, requires interest only payments for the first two years with a 30-year amortization schedule thereafter, and is secured by our 303Second Street property in San Francisco, California.In January 2011, we completed the acquisition of a 91,000 rentable square foot office building in San Francisco, California for apurchase price of approximately $33.0 million.26. Pro Forma Results of the Company (Unaudited)The following unaudited pro forma consolidated results of operations of the Company for the year ended December 31, 2010 and2009 assumes that the acquisitions of 303 Second Street and 100 First Street, in San Francisco, California, were completed as ofJanuary 1, 2009. Pro forma data may not be indicative of the results that would have been reported had the acquisitions actually occurredas of January 1, 2009, nor does it intend to be a projection of future results. Year Ended(1) December 31, 2010 2009Revenues $326,260 $323,747 Net income available to common stockholders(2) 6,587 30,380 Net income available to common stockholders per share—basic(2) $0.11 $0.75 Net income available to common stockholders per share—diluted(2) $0.11 $0.75 (1)The purchase of 303 Second Street and 100 First Street represent the two largest acquisitions and 61% of the total purchase price of the Company’s totalacquisitions for the year ended December 31, 2010. The purchase price of all other acquisitions completed during the year ended December 31, 2010 wereindividually less than 5%, and in aggregate less than 10%, of the Company’s total assets as of December 31, 2009.(2)The pro forma earnings for the year ended December 31, 2010 were adjusted to exclude non-recurring, acquisition-related expenses of $0.8 million incurredin 2010 for 303 Second Street and 100 First Street. The pro forma data for the year ended December 31, 2009 were adjusted to include these charges.The following table summarizes actual results for certain operating data, which is included and reported in our consolidated results,for the properties at 303 Second Street and 100 First Street, in San Francisco, California, from May 26, 2010 and November 10, 2010,the dates of acquisition, respectively, through December 31, 2010: Acquisition to Date 2010 (in thousands)Revenues $17,506 Net income from continuing operations(1) $4,012 (1)Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.F-54 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)27. Pro Forma Results of the Operating Partnership (Unaudited)The following unaudited pro forma consolidated results of operations of the Operating Partnership for the year ended December 31,2010 and 2009 assumes that the acquisitions of 303 Second Street and 100 First Street, in San Francisco, California, were completed asof January 1, 2009. Pro forma data may not be indicative of the results that would have been reported had the acquisitions actuallyoccurred as of January 1, 2009, nor does it intend to be a projection of future results. Year Ended(1) December 31, 2010 2009Revenues $326,260 $323,747 Net income available to common unitholders(2) 6,649 31,454 Net income available to common unitholders per unit—basic(2) $0.11 $0.75 Net income available to common unitholders per unit—diluted(2) $0.11 $0.75 (1)The purchase of 303 Second Street and 100 First Street represent the two largest acquisitions and 61% of the total purchase price of the Company’s totalacquisitions for the year ended December 31, 2010. The purchase price of all other acquisitions completed during the year ended December 31, 2010 wereindividually less than 5%, and in aggregate less than 10%, of the Company’s total assets as of December 31, 2009.(2)The pro forma earnings for the year ended December 31, 2010 were adjusted to exclude non-recurring, acquisition-related expenses of $0.8 million incurredin 2010 for 303 Second Street and 100 First Street. The pro forma data for the year ended December 31, 2009 were adjusted to include these charges.The following table summarizes actual results for certain operating data, which is included and reported in our consolidated results,for the properties at 303 Second Street and 100 First Street, in San Francisco, California, from May 26, 2010 and November 10, 2010,the dates of acquisition, respectively, through December 31, 2010: Acquisition to Date 2010 (in thousands) Revenues $17,506 Net income from continuing operations(1) $4,012 (1)Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.F-55 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2010, 2009, and 2008(in thousands) Balance at Charged to Balance Beginning Costs and at End of Period Expenses Deductions of PeriodAllowance for Uncollectible TenantReceivables Year ended December 31, 2010— Allowance for uncollectible tenant receivables $3,063 $16 $(260) $2,819 Year ended December 31, 2009— Allowance for uncollectible tenant receivables $3,980 $906 $(1,823) $3,063 Year ended December 31, 2008— Allowance for uncollectible tenant receivables $3,437 $675 $(132) $3,980 Allowance for Unbilled Deferred Rent Year ended December 31, 2010— Allowance for deferred rent $6,388 $(1,079) $(1,478) $3,831 Year ended December 31, 2009— Allowance for deferred rent $7,339 $(337) $(614) $6,388 Year ended December 31, 2008— Allowance for deferred rent $8,034 $3,376 $(4,071) $7,339 F-56 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2010 Gross Amounts at Which Initial Cost Costs Carried at Close of Period Date of Buildings Capitalized Buildings Acquisition Rentable and Subsequent to and (A)/ Square Property Encumb- Improve- Acquisition/ Improve- Accumulated Depreciation Construction Feet(3) Location rances Land ments Improvement Land ments Total Depreciation Life(1) (C)(2) (unaudited) (in thousands) Office Properties: 23925 Park SorrentoCalabasas, California $15,235(6) $50 $2,346 $271 $50 $2,617 $2,667 $1,145 35 2001(C) 11,789 23975 Park SorrentoCalabasas, California (6) 765 17,720 4,545 765 22,265 23,030 9,083 35 2002(C) 100,592 24025 Park SorrentoCalabasas, California (6) 845 15,896 2,726 845 18,622 19,467 8,468 35 2000(C) 102,264 26541 Agoura RoadCalabasas, California 1,979 9,630 9,539 1,979 19,169 21,148 7,882 35 1997(A) 90,156 5151 Camino RuizCamarillo, California 3,151 13,798 3,187 3,187 16,949 20,136 7,359 35 1997(A) 187,861 5153 Camino RuizCamarillo, California 675 2,957 1,199 656 4,175 4,831 2,079 35 1997(A) 38,655 5155 Camino RuizCamarillo, California 675 2,957 1,464 659 4,437 5,096 2,448 35 1997(A) 38,856 2240 E. Imperial HighwayEl Segundo, California 1,044 11,763 23,438 1,075 35,170 36,245 14,871 35 1983(C) 122,870 2250 E. Imperial HighwayEl Segundo, California 2,579 29,062 21,722 2,564 50,799 53,363 37,187 35 1983(C) 293,261 2260 E. Imperial HighwayEl Segundo, California 35 1983(C) (5)909 Sepulveda BoulevardEl Segundo, California 70,344(7) 3,577 34,042 37,307 3,577 71,349 74,926 14,959 35 2005(C) 241,607 999 Sepulveda BoulevardEl Segundo, California (7) 1,407 34,326 9,553 1,407 43,879 45,286 10,601 35 2003(C) 127,901 3750 Kilroy Airport WayLong Beach, California 1,941 10,163 12,104 12,104 7,684 35 1989(C) 10,457 3760 Kilroy Airport WayLong Beach, California 17,467 7,569 25,036 25,036 17,270 35 1989(C) 165,278 3780 Kilroy Airport WayLong Beach, California 22,319 12,827 35,146 35,146 26,517 35 1989(C) 219,745 3800 Kilroy Airport WayLong Beach, California 19,408 15,877 35,285 35,285 15,375 35 2000(C) 192,476 3840 Kilroy Airport WayLong Beach, California 13,586 9,919 23,505 23,505 11,189 35 1999(C) 136,026 3880 Kilroy Airport WayLong Beach, California 9,704 1,089 10,793 10,793 4,297 35 1997(A) 98,243 3900 Kilroy Airport WayLong Beach, California 12,615 5,823 18,438 18,438 9,051 35 1997(A) 126,840 Kilroy Airport Center, Phase IVLong Beach, California(4) 2,088 2,088 2,088 2,088 35 12100 W. Olympic BoulevardLos Angeles, California 352 45,611 12,216 9,633 48,546 58,179 12,078 35 2003(C) 150,167 12200 W. Olympic BoulevardLos Angeles, California 4,329 35,488 13,239 3,977 49,079 53,056 22,740 35 2000(C) 150,302 12312 W. Olympic BoulevardLos Angeles, California 3,325 12,202 582 3,399 12,710 16,109 5,020 35 1997(A) 78,000 1633 26th StreetSanta Monica, California 2,080 6,672 1,701 2,040 8,413 10,453 4,357 35 1997(A) 44,915 2100 Colorado AvenueSanta Monica, California 5,474 26,087 8,820 5,476 34,905 40,381 11,023 35 1997(A) 94,844 3130 Wilshire BoulevardSanta Monica, California 8,921 6,579 9,052 9,188 15,364 24,552 7,955 35 1997(A) 88,339 501 Santa Monica BoulevardSanta Monica, California 4,547 12,044 5,801 4,551 17,841 22,392 7,808 35 1998(A) 73,115 2829 Townsgate RoadThousand Oaks, California 5,248 8,001 4,978 5,248 12,979 18,227 5,915 35 1997(A) 81,067 12225 El Camino RealDel Mar, California 1,700 9,633 1,127 1,683 10,777 12,460 3,329 35 1998(A) 60,148 12235 El Camino RealDel Mar, California 1,507 8,543 4,482 1,530 13,002 14,532 5,189 35 1998(A) 54,673 12340 El Camino RealDel Mar, California (7) 4,201 13,896 7,085 4,201 20,981 25,182 5,424 35 2002(C) 87,405 12390 El Camino RealDel Mar, California (7) 3,453 11,981 1,222 3,453 13,203 16,656 6,126 35 2000(C) 72,332 F-57 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2010 Gross Amounts at Which Initial Cost Costs Carried at Close of Period Date of Buildings Capitalized Buildings Acquisition Rentable and Subsequent to and (A)/ Square Property Encumb- Improve- Acquisition/ Improve- Accumulated Depreciation Construction Feet(3) Location rances Land ments Improvement Land ments Total Depreciation Life(1) (C)(2) (unaudited) (in thousands) 12348 High Bluff DriveDel Mar, California 1,629 3,096 3,344 1,629 6,440 8,069 3,960 35 1999(C) 38,710 12400 High Bluff DriveDel Mar, California 15,167 40,497 10,705 15,167 51,202 66,369 12,454 35 2004(C) 208,464 3579 Valley Centre DriveDel Mar, California 73,048(8) 2,167 6,897 6,925 2,858 13,131 15,989 4,437 35 1999(C) 52,375 3611 Valley Centre DriveDel Mar, California (8) 4,184 19,352 10,845 5,259 29,122 34,381 12,607 35 2000(C) 130,178 3661 Valley Centre DriveDel Mar, California (8) 4,038 21,144 8,814 4,725 29,271 33,996 11,201 35 2001(C) 129,752 3721 Valley Centre DriveDel Mar, California (8) 4,297 18,967 5,668 4,254 24,678 28,932 6,066 35 2003(C) 114,780 3811 Valley Centre DriveDel Mar, California 30,441(9) 3,452 16,152 20,054 4,457 35,201 39,658 10,921 35 2000(C) 112,067 6200 Greenwich DriveGovernor Park, California 1,583 5,235 2,753 1,722 7,849 9,571 4,508 35 1999(C) 71,000 6220 Greenwich DriveGovernor Park, California 3,213 10,628 16,156 3,426 26,571 29,997 6,356 35 1997(A) 141,214 15051 Avenue of ScienceI-15 Corridor, California 2,888 5,780 5,543 2,888 11,323 14,211 4,328 35 2002(C) 70,617 15073 Avenue of ScienceI-15 Corridor, California 2,070 5,728 1,494 2,070 7,222 9,292 3,232 35 2002(C) 46,759 15231 Avenue of ScienceI-15 Corridor, California 2,233 8,830 4,286 2,233 13,116 15,349 2,247 35 2005(C) 65,638 15253 Avenue of ScienceI-15 Corridor, California 1,548 6,423 1,649 1,548 8,072 9,620 1,327 35 2005(C) 37,437 15333 Avenue of ScienceI-15 Corridor, California 2,371 16,500 1,971 2,371 18,471 20,842 2,528 35 2006(C) 78,880 15378 Avenue of ScienceI-15 Corridor, California 3,565 3,796 1,871 3,565 5,667 9,232 2,783 35 1998(A) 68,910 15004 Innovation DriveI-15 Corridor, California 1,858 62,528 1,858 62,528 64,386 5,184 35 2008(C) 150,801 15435 Innovation DriveI-15 Corridor, California 2,143 6,311 2,813 2,046 9,221 11,267 3,804 35 2000(C) 51,500 15445 Innovation DriveI-15 Corridor, California 2,143 6,311 5,234 2,046 11,642 13,688 4,070 35 2000(C) 51,500 13280 Evening Creek DriveSouth I-15 Corridor, California 3,701 8,398 2,379 3,701 10,777 14,478 979 35 2008(C) 42,971 13290 Evening Creek DriveSouth I-15 Corridor, California 5,229 11,871 1,459 5,229 13,330 18,559 832 35 2008(C) 61,176 13480 Evening Creek DriveNorth I-15 Corridor, California 7,997 41,756 7,997 41,756 49,753 3,589 35 2008(C) 149,817 13500 Evening Creek DriveNorth I-15 Corridor, California 7,581 35,903 9,917 7,580 45,821 53,401 8,615 35 2004(A) 147,533 13520 Evening Creek DriveNorth I-15 Corridor, California 7,581 35,903 11,993 7,580 47,897 55,477 9,230 35 2004(A) 141,368 7525 Torrey Santa Fe56 Corridor, California 2,348 28,035 4,009 2,348 32,044 34,392 4,112 35 2007(C) 103,979 7535 Torrey Santa Fe56 Corridor, California 2,950 33,808 5,929 2,950 39,737 42,687 5,229 35 2007(C) 130,243 7545 Torrey Santa Fe56 Corridor, California 2,950 33,708 8,054 2,950 41,762 44,712 5,815 35 2007(C) 130,354 7555 Torrey Santa Fe56 Corridor, California 2,287 24,916 3,653 2,287 28,569 30,856 3,625 35 2007(C) 101,236 2355 Northside DriveMission Valley, California 52,000(11) 4,066 8,332 212 4,066 8,544 12,610 320 35 2010(A) 50,425 2365 Northside DriveMission Valley, California (11) 7,359 15,257 137 7,359 15,394 22,753 376 35 2010(A) 91,260 2375 Northside DriveMission Valley, California (11) 3,947 8,146 73 3,947 8,219 12,166 247 35 2010(A) 48,949 2385 Northside DriveMission Valley, California 2,752 14,513 2,752 14,513 17,265 425 35 2010(A) 88,795 2305 Historic Decatur RoadPoint Loma, California 5,240 22,220 5,240 22,220 27,460 63 35 2010(A) 103,900 F-58 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2010 Gross Amounts at Which Initial Cost Costs Carried at Close of Period Date of Buildings Capitalized Buildings Acquisition Rentable and Subsequent to and (A)/ Square Property Encumb- Improve- Acquisition/ Improve- Accumulated Depreciation Construction Feet(3) Location rances Land ments Improvement Land ments Total Depreciation Life(1) (C)(2) (unaudited) (in thousands) 10020 Pacific Mesa BoulevardSorrento Mesa, California 8,007 52,189 15,349 8,007 67,538 75,545 9,413 35 2007(C) 318,000 4910 Directors PlaceSorrento Mesa, California 2,240 13,039 2,149 2,240 15,188 17,428 470 35 2009(C) 50,925 4921 Directors Place Sorrento Mesa, California 3,792 11,091 4,702 3,792 15,793 19,585 887 35 2008(C) 55,500 4939 Directors Place Sorrento Mesa, California 2,225 12,698 4,360 2,198 17,085 19,283 5,719 35 2002(C) 60,662 4955 Directors Place Sorrento Mesa, California 2,521 14,122 6,839 3,179 20,303 23,482 8,596 35 2000(C) 76,246 5005 Wateridge Vista Drive Sorrento Mesa, California 2,558 5,694 (8,252) 35 1999(C) 61,460 5010 Wateridge Vista Drive Sorrento Mesa, California 4,548 10,122 13,226 9,334 18,562 27,896 8,148 35 1999(C) 111,318 10243 Genetic Center Drive Sorrento Mesa, California 4,632 19,549 11 4,632 19,560 24,192 6,850 35 2001(C) 102,875 6055 Lusk Avenue Sorrento Mesa, California 3,935 8,008 5,951 3,942 13,952 17,894 4,669 35 1997(A) 93,000 6260 Sequence Drive Sorrento Mesa, California 3,206 9,803 1,077 3,212 10,874 14,086 4,364 35 1997(A) 130,536 6290 Sequence Drive Sorrento Mesa, California 2,403 7,349 4,907 2,407 12,252 14,659 4,499 35 1997(A) 90,000 6310 Sequence Drive Sorrento Mesa, California 2,940 4,946 27 2,941 4,972 7,913 2,492 35 2000(C) 62,415 6340 Sequence Drive Sorrento Mesa, California 2,434 7,302 9,964 2,464 17,236 19,700 6,619 35 1998(A) 66,400 6350 Sequence Drive Sorrento Mesa, California 4,941 14,824 (4,796) 4,922 10,047 14,969 4,774 35 1998(A) 132,600 10390 Pacific Center Court Sorrento Mesa, California 3,267 5,779 7,501 3,267 13,280 16,547 3,612 35 2002(C) 68,400 10394 Pacific Center Court Sorrento Mesa, California 2,696 7,134 (901) 1,671 7,258 8,929 2,619 35 1998(A) 59,630 10398 Pacific Center Court Sorrento Mesa, California 1,947 5,152 1,326 1,222 7,203 8,425 2,125 35 1998(A) 43,645 10421 Pacific Center Court Sorrento Mesa, California 2,926 7,979 19,901 2,926 27,880 30,806 8,570 35 1998(A) 79,871 10445 Pacific Center Court Sorrento Mesa, California 2,247 5,945 246 1,809 6,629 8,438 2,294 35 1998(A) 48,709 10455 Pacific Center Court Sorrento Mesa, California 4,044 10,701 (2,436) 3,780 8,529 12,309 3,135 35 1998(A) 90,000 10350 Barnes CanyonSorrento Mesa, California 1,648 4,360 1,575 1,459 6,124 7,583 3,531 35 1998(A) 38,018 10120 Pacific HeightsSorrento Mesa, California 2,397 6,341 (75) 2,111 6,552 8,663 3,301 35 1998(A) 52,540 5717 Pacific Center Boulevard Sorrento Mesa, California 2,693 6,280 4,220 2,693 10,500 13,193 2,119 35 2001(C) 67,995 4690 Executive Drive UTC, California (7) 1,623 7,926 2,328 1,623 10,254 11,877 4,279 35 1999(A) 47,212 9455 Towne Center Drive UTC, California 3,936 3,510 3,118 4,328 7,446 1,800 35 1998(A) 45,195 9785 Towne Center Drive UTC, California 2,722 9,932 (1,076) 2,329 9,249 11,578 3,105 35 1999(A) 75,534 9791 Towne Center Drive UTC, California 1,814 6,622 1,122 2,217 7,341 9,558 2,463 35 1999(A) 50,466 4175 E. La Palma AvenueAnaheim, California 1,518 2,612 2,509 1,518 5,121 6,639 2,920 35 1997(A) 43,263 8101 Kaiser Boulevard Anaheim, California 2,369 6,180 1,983 2,377 8,155 10,532 3,600 35 1997(A) 59,790 2211 Michelson Irvine, California 9,319 82,836 49 9,319 82,885 92,204 1,583 35 2010(A) 271,556 111 Pacifica Irvine, California 5,165 4,653 3,566 5,166 8,218 13,384 4,040 35 1997(A) 67,496 999 Town & Country Orange, California 7,867 9,579 147 7,867 9,726 17,593 226 35 2010(A) 98,551 F-59 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2010 Gross Amounts at Which Initial Cost Costs Carried at Close of Period Date of Buildings Capitalized Buildings Acquisition Rentable and Subsequent to and (A)/ Square Property Encumb- Improve- Acquisition/ Improve- Accumulated Depreciation Construction Feet(3) Location rances Land ments Improvement Land ments Total Depreciation Life(1) (C)(2) (unaudited) (in thousands) 303 Second Street San Francisco, California 63,550 154,153 851 63,550 155,004 218,554 3,577 35 2010(A) 734,035 100 First Street San Francisco, California 49,150 131,238 76 49,150 131,314 180,464 863 35 2010(A) 466,490 15050 N.E. 36th StreetRedmond, California 9,260 34,650 9,260 34,650 43,910 183 35 2010(A) 122,103 TOTAL OFFICE PROPERTIES $241,068 $417,025 $1,655,655 $614,771 $432,953 $2,254,498 $2,687,451 $579,432 10,395,208 Industrial Properties: 2031 E. Mariposa Avenue El Segundo, California $132 $867 $3,806 $132 $4,673 $4,805 $3,892 35 1954(C) 192,053 1000 E. Ball Road Anaheim, California 838 1,984 1,263 838 3,247 4,085 3,095 35 1956(C)/1974(A) 100,000 1230 S. Lewis Street Anaheim, California 395 1,489 2,488 395 3,977 4,372 3,430 35 1982(C) 57,730 1250 N. Tustin Avenue Anaheim, California 2,098 4,158 774 2,098 4,932 7,030 2,009 35 1998(A) 84,185 3125 E. Coronado Street Anaheim, California 69,980(10) 3,669 4,341 1,514 3,669 5,855 9,524 2,191 35 1997(A) 144,000 3130/3150 Miraloma Anaheim, California (10) 3,335 3,727 230 3,335 3,957 7,292 1,615 35 1997(A) 144,000 3250 E. Carpenter Avenue Anaheim, California 2,556 2,556 2,556 1,108 35 1998(C) 41,225 3340 E. La Palma Avenue Anaheim, California 67 1,521 6,570 67 8,091 8,158 5,837 35 1966(C) 153,320 3355 E. La Palma Avenue Anaheim, California (10) 1,704 3,235 2,670 1,983 5,626 7,609 3,110 35 1999(C) 98,200 4123 E. La Palma Avenue Anaheim, California 1,690 2,604 3,008 1,690 5,612 7,302 3,093 35 1997(A) 70,863 4155 E. La Palma Avenue Anaheim, California 1,148 2,681 1,174 1,148 3,855 5,003 1,897 35 1997(A) 74,618 5115 E. La Palma Avenue Anaheim, California (10) 2,462 6,675 4,804 2,464 11,477 13,941 4,781 35 1997(A) 286,139 5325 E. Hunter Avenue Anaheim, California (10) 1,728 3,555 940 1,728 4,495 6,223 2,123 35 1997(A) 110,487 1145 N. Ocean Boulevard Anaheim, California (10) 1,171 2,224 650 1,303 2,742 4,045 1,309 35 1999(C) 65,447 1201 N. Miller Street Anaheim, California (10) 3,620 6,875 (2,564) 2,145 5,786 7,931 3,298 35 1999(C) 119,612 1211 N. Miller Street Anaheim, California (10) 2,129 4,044 4,012 3,234 6,951 10,185 2,754 35 1999(C) 200,646 1231 N. Miller Street Anaheim, California (10) 2,023 3,842 3,007 1,984 6,888 8,872 2,037 35 1999(C) 113,242 950 W. Central Avenue Brea, California 101 1,114 674 110 1,779 1,889 711 35 1997(A) 24,000 1050 W. Central Avenue Brea, California 139 1,532 356 117 1,910 2,027 776 35 1997(A) 30,000 1150 W. Central Avenue Brea, California 139 1,532 205 132 1,744 1,876 748 35 1997(A) 30,000 895 Beacon Street Brea, California 253 2,785 113 224 2,927 3,151 1,237 35 1997(A) 54,795 955 Beacon Street Brea, California 177 1,950 93 172 2,048 2,220 836 35 1997(A) 37,916 1125 Beacon Street Brea, California 227 2,507 420 261 2,893 3,154 1,265 35 1997(A) 49,178 925 Lambert Road Brea, California (10) 1,829 3,861 1,606 1,831 5,465 7,296 2,392 35 1999(C) 80,000 1075 Lambert Road Brea, California (10) 1,497 3,159 1,382 1,495 4,543 6,038 1,989 35 1999(C) 98,811 1675 MacArthur Boulevard Costa Mesa, California (10) 2,076 2,114 452 2,076 2,566 4,642 1,008 35 1997(A) 50,842 25902 Towne Center DriveFoothill Ranch, California (10) 3,334 8,243 6,040 4,949 12,668 17,617 6,782 35 1998(C) 309,685 12681/12691 Pala DriveGarden Grove, California 471 2,115 3,054 471 5,169 5,640 4,929 35 1980(A) 84,700 F-60 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2010 Gross Amounts at Which Initial Cost Costs Carried at Close of Period Date of Buildings Capitalized Buildings Acquisition Rentable and Subsequent to and (A)/ Square Property Encumb- Improve- Acquisition/ Improve- Accumulated Depreciation Construction Feet(3) Location rances Land ments Improvement Land ments Total Depreciation Life(1) (C)(2) (unaudited) (in thousands) 7421 Orangewood Avenue Garden Grove, California 612 3,967 1,725 612 5,692 6,304 2,446 35 1997(A) 82,602 7091 Belgrave Avenue Garden Grove, California 486 3,092 329 505 3,402 3,907 1,482 35 1997(A) 70,000 12271 Industry Street Garden Grove, California 131 833 (200) 125 639 764 256 35 1997(A) 20,000 12311 Industry Street Garden Grove, California 168 1,070 (330) 135 773 908 337 35 1997(A) 25,000 7261 Lampson Avenue Garden Grove, California 318 2,022 (174) 429 1,737 2,166 660 35 1997(A) 47,092 12472 Edison Way Garden Grove, California 374 2,379 676 318 3,111 3,429 1,202 35 1997(A) 55,576 12442 Knott Street Garden Grove, California 392 2,499 2,488 356 5,023 5,379 2,064 35 1997(A) 58,303 2055 S.E. Main Street Irvine, California 772 2,343 596 772 2,939 3,711 1,148 35 1997(A) 47,583 1951 E. Carnegie Avenue Santa Ana, California 1,830 3,630 1,614 1,844 5,230 7,074 2,326 35 1997(A) 100,000 2525 Pullman Street Santa Ana, California 4,283 3,276 2,590 4,283 5,866 10,149 1,689 35 2002(A) 103,380 14831 Franklin Avenue Tustin, California 1,112 1,065 341 1,113 1,405 2,518 730 35 1997(A) 36,256 2911 Dow Avenue Tustin, California 1,124 2,408 800 1,124 3,208 4,332 1,187 35 1998(A) 51,410 17150 Von Karman Irvine, California 4,848 7,342 1,741 6,713 7,218 13,931 7,218 35 1997(A) (12)TOTAL INDUSTRIAL PROPERTIES $69,980 $54,902 $120,660 $63,493 $58,380 $180,675 $239,055 $92,997 3,602,896 TOTAL OPERATIONS PROPERTIES $311,048 $471,927 $1,776,315 $678,264 $491,333 $2,435,173 $2,926,506 $672,429 13,998,104 Undeveloped land and construction in progress(14) $2,604(13) $198,121 $28,370 $63,874 $198,121 $92,244 $290,365 TOTAL ALL PROPERTIES $313,652(15) $670,048 $1,804,685 $742,138 $689,454 $2,527,417 $3,216,871 $672,429 13,998,104 (1)The initial costs of buildings are depreciated over 35 years using a straight-line method of accounting; improvements capitalized subsequent to acquisition aredepreciated over the shorter of the lease term or useful life, generally ranging from one to 20 years.(2)Represents our date of construction or acquisition, or our predecessor, the Kilroy Group.(3)Includes square footage from our stabilized portfolio.(4)These costs represent infrastructure costs incurred in 1989. During the third quarter of 2009, we exercised our option to terminate the ground lease atKilroy Airport Center, Phase IV in Long Beach, California. We had previously leased this land, which is adjacent to our Office Properties at Kilroy AirportCenter, Long Beach, for potential future development opportunities.(5)Excludes 286,151 square feet in lease-up at December 31, 2010.(6)These properties secure a $15.2 million mortgage note.(7)These properties secure a $70.3 million mortgage note.(8)These properties secure a $73.0 million mortgage note.(9)This property secures a $30.4 million mortgage note.(10)These properties secure a $70.0 million mortgage note.(11)These properties secure a $52.0 million mortgage note.(12)We recently re-entitled this property to allow residential use; therefore the property is excluded from the stabilized portfolio. The property encompassesapproximately 157,000 square feet.(13)Represents the principal balance of the public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements onone of our undeveloped land parcels. The Bonds are secured by property tax payments.(14)Includes initial cost of redevelopment building transferred to construction in progress during the year ended December 31, 2010.(15)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $0.6 million as of December 31, 2010.The aggregate gross cost of property included above for federal income tax purposes approximated $2.9 billion as of December 31,2010.F-61 KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2010The following table reconciles the historical cost of total real estate held for investment from January 1, 2008 to December 31, 2010: Year Ended December 31, 2010 2009 2008 (in thousands) Total real estate held for investment, beginning of year $2,520,083 $2,475,596 $2,370,004 Additions during period: Acquisitions 643,776 — — Improvements, etc. 86,754 47,688 105,592 Total additions during period 730,530 47,688 105,592 Deductions during period: Cost of real estate sold (17,456) (3,201) — Other(1) (16,286) — — Total deductions during period (33,742) (3,201) — Total real estate held for investment, end of year $3,216,871 $2,520,083 $2,475,596 (1)Related to the redevelopment property transferred to construction in progress during the year ended December 31, 2010.The following table reconciles the accumulated depreciation from January 1, 2008 to December 31, 2010: Year Ended December 31, 2010 2009 2008 (in thousands) Accumulated depreciation, beginning of year $605,976 $532,769 $463,932 Additions during period: Depreciation of real estate 86,288 73,961 68,837 Total additions during period 86,288 73,961 68,837 Deductions during period: Write-offs related to sale (3,549) (754) — Other(1) (16,286) — — Total deductions during period (19,835) (754) — Accumulated depreciation, end of year $672,429 $605,976 $532,769 (1)Related to the redevelopment property transferred to construction in progress during the year ended December 31, 2010.F-62 EXHIBIT INDEXExhibit Number Description 3.(i)1 Kilroy Realty Corporation Articles of Restatement(41) 3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P.(42) 3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P.(42) 3.(ii).1 Second Amended and Restated Bylaws of the Registrant(31) 3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws(35) 4.1 Form of Certificate for Common Stock of the Registrant(1) 4.2 Registration Rights Agreement dated January 31, 1997(1) 4.3 Registration Rights Agreement dated February 6, 1998(3) 4.4 Second Amended and Restated Registration Rights Agreement dated as of March 5, 2004(2) 4.5 Registration Rights Agreement dated as of October 31, 1997(4) 4.6 Registration Rights Agreement dated as of October 6, 2000(6) 4.7 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds tenpercent of the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,the Company agrees to furnish copies of these agreements to the Commission upon request 4.8 Note and Guarantee Agreement dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporationand the purchasers whose names appear in the acceptance form at the end of the Note and Guarantee Agreement(7) 4.9 Form of 5.72% Series A Guaranteed Senior Note due 2010(7) 4.10 Form of 6.45% Series B Guaranteed Senior Note due 2014(7) 4.11† Kilroy Realty 2006 Incentive Award Plan(24) 4.12† Amendment to Kilroy Realty 2006 Incentive Award Plan(26) 4.13† Second Amendment to Kilroy Realty 2006 Incentive Award Plan(30) 4.14† Third Amendment to Kilroy Realty 2006 Incentive Award Plan(35) 4.15† Form of Restricted Stock Award Agreement(25) 4.16 Indenture, dated as of April 2, 2007, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, andU.S. Bank National Association, as trustee, including the form of 3.250% Exchangeable Senior Notes due 2012(28) 4.17 Registration Rights Agreement, dated April 2, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation, andJ.P. Morgan Securities Inc., Banc of America Securities LLC and Lehman Brothers Inc.(28) 4.18 Indenture, dated as of November 20, 2009, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, asguarantor, and U.S. Bank National Association, as trustee, including the form of 4.250% Exchangeable Senior Notes due2014 and the form of related guarantee(39) 4.19 Registration Rights Agreement, dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation,J.P. Morgan Securities Inc., and Merrill Lynch, Pierce, Fermer & Smith Incorporated(39) 4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P.(42) 4.21 Indenture, dated May 24, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee, including the form of 6.625% Senior Notes due 2020 and the form of the relatedguarantee(43) 4.22 Registration Rights Agreement, dated May 24, 2010, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. MorganSecurities Inc., Banc of America Securities LLC and Barclays Capital Inc.(43) 4.23† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan(44) 4.24 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, andU.S. Bank National Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of relatedguarantee(45)F-63 Exhibit Number Description 10.1 Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of March 5, 2004(2) 10.2 First Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as ofDecember 7, 2004(8) 10.3 Second Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as ofOctober 2, 2008(34) 10.4 Third Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. (36) 10.5 Omnibus Agreement dated as of October 30, 1996 by and among Kilroy Realty, L.P. and the parties named therein(1) 10.6 Supplemental Representations, Warranties and Indemnity Agreement by and among Kilroy Realty, L.P. and the partiesnamed therein(1) 10.7 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries(1) 10.8† 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P.(1) 10.9 Lease Agreement dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase I(9) 10.10 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase I(9) 10.11 Lease Agreement dated July 17, 1985 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase III(10) 10.12 Lease Agreement dated April 21, 1988 by and between Kilroy Long Beach Associates and the Board of WaterCommissioners of the City of Long Beach, acting for and on behalf of the City of Long Beach, for Long Beach PhaseIV(10) 10.13 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase II(10) 10.14 First Amendment to Lease dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III(10) 10.15 Second Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase III(10) 10.16 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase II(10) 10.17 Third Amendment to Lease Agreement dated October 10, 1994 by and between Kilroy Long Beach Associates and theCity of Long Beach for Kilroy Long Beach Phase III(10) 10.18 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach(10) 10.19 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of LongBeach(10) 10.20 Property Management Agreement between Kilroy Realty Finance Partnership, L.P. and Kilroy Realty, L.P.(11) 10.21 Form of Environmental Indemnity Agreement(11) 10.22 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport Imperial Co.(12) 10.23 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Calabasas Associates(12) 10.24† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Sr.(1) 10.25† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Jr.(1) 10.26 License Agreement by and among the Registrant and the other persons named therein(12) 10.27 Purchase and Sale Agreement and Joint Escrow Instructions dated April 30, 1997 by and between Mission LandCompany, Mission-Vacaville, L.P. and Kilroy Realty, L.P.(13)F-64 Exhibit Number Description 10.28 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 30, 1997 by and between Camarillo Partnersand Kilroy Realty, L.P.(13) 10.29 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997 by and between Kilroy Realty L.P. andPullman Carnegie Associates(14) 10.30 Amendment to Purchase and Sale Agreement and Escrow Instructions dated June 27, 1997 by and between PullmanCarnegie Associates and Kilroy Realty, L.P.(14) 10.31 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated May 12, 1997 by andbetween Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(15) 10.32 First Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated June 6,1997 by and between Shidler West Acquisition Company, L.L.C. and Kilroy Realty, L.P.(15) 10.33 Second Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions datedJune 12, 1997 by and between Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(15) 10.34 Agreement of Purchase and Sale and Joint Escrow Instructions dated June 12, 1997 by and between Mazda Motor ofAmerica, Inc. and Kilroy Realty, L.P.(14) 10.35 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated June 30, 1997 by and betweenMazda Motor of America, Inc. and Kilroy Realty, L.P.(14) 10.36 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica, California dated June 16, 1997 by andbetween Santa Monica Number Seven Associates L.P. and Kilroy Realty, L.P.(14) 10.37 Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and between Kilroy Realty, L.P. andMission Square Partners(16) 10.38 First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated August 22, 1997(16) 10.39 Second Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 5, 1997(16) 10.40 Third Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 19, 1997(16) 10.41 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 22, 1997(16) 10.42 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and betweenKilroy Realty, L.P. and Mission Square Partners dated September 23, 1997(16) 10.43 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1998 by and betweenKilroy Realty, L.P. and Mission Square Partners dated September 25, 1997(16) 10.44 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated September 29, 1997(16) 10.45 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated October 2, 1997(16) 10.46 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by andbetween Kilroy Realty, L.P. and Mission Square Partners dated October 24, 1997(16) 10.47 Contribution Agreement dated October 21, 1997 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation andThe Allen Group and the Allens(17) 10.48 Purchase and Sale Agreement and Escrow Instructions dated December 11, 1997 by and between Kilroy Realty, L.P. andSwede-Cal Properties, Inc., Viking Investors of Southern California, L.P. and Viking Investors of Southern California II,L.P.(18) 10.49 Amendment to the Contribution Agreement dated October 14, 1998 by and between Kilroy Realty, L.P. and Kilroy RealtyCorporation and The Allen Group and the Allens dated October 21, 1997(19) 10.50 Secured Promissory Notes and Deeds of Trusts Aggregating $80.0 Million payable to Metropolitan Life InsuranceCompany dated January 10, 2002(20)F-65 Exhibit Number Description 10.51 Secured Promissory Notes and Deeds of Trust Aggregating $115 million payable to Teachers Insurance and AnnuityAssociation of America(21) 10.52 Fourth Amended and Restated Revolving Credit Agreement dated October 22, 2004(22) 10.53 Fourth Amended and Restated Guaranty of Payment dated October 22, 2004(22) 10.54 Amendment No. 1 to Fourth Amended and Restated Credit Agreement dated June 30, 2005(38) 10.55 Amendment No. 2 to Fourth Amended and Restated Credit Agreement dated April 26, 2006(23) 10.56 Amendment No. 3 to Fourth Amended and Restated Credit Agreement(37) 10.57† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. effective asof January 1, 2007(27) 10.58† Addendum No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B.Kilroy, Jr. effective as of February 12, 2008(40) 10.59† Amendment No. 2 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B.Kilroy, Jr. effective as of December 31, 2009(40) 10.60† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective asof January 1, 2007(27) 10.61† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C.Hawken effective as of December 31, 2009(40) 10.62† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr. effectiveas of January 1, 2007(27) 10.63† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and RichardE. Moran Jr. effective as of December 31, 2009(40) 10.64 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch(28) 10.65 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N. A.(28) 10.66 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Lehman BrothersOTC Derivatives Inc.(28) 10.67 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation andJPMorgan Chase Bank, National Association, London Branch(29) 10.68 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N. A.(29) 10.69 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and LehmanBrothers OTC Derivatives Inc.(29) 10.70† Kilroy Realty Corporation 2007 Deferred Compensation Plan(32) 10.71† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Steven R. Scott effective as ofJanuary 1, 2007(32) 10.72† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Steven R.Scott effective as of December 31, 2009(40) 10.73† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as ofJanuary 1, 2007(32) 10.74† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H.Rose effective as of December 31, 2009(40) 10.75† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as ofJanuary 1, 2007(32) 10.76† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and HeidiRoth effective as of December 31, 2009(40) 10.77† Kilroy Realty Corporation Stock Award Deferral Program(33)F-66 Exhibit Number Description 10.78 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorganChase Bank, National Association, London Branch(39) 10.79 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N. A.(39) 10.80 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorganChase Bank, National Association, London Branch(39) 10.81 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank ofAmerica, N. A.(39) 10.82† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors(41) 10.83† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P.and Kilroy Realty Corporation(41) 10.84 Deed of Trust and Security Agreement dated January 26, 2010 between Kilroy Realty, L.P. and The Northwestern MutualLife Insurance Company; related Promissory Note dated January 26, 2010 for $71 million payable to The NorthwesternMutual Life Insurance Company; and related Guarantee of Recourse Obligations dated January 26, 2010 by KilroyRealty Corporation(41) 10.85 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 12, 2010 by and between Kilroy Realty, L.P, aDelaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company(46) 10.86 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated May 21, 2010 by and betweenKilroy Realty, L.P, a Delaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liabilitycompany(46) 10.87 Revolving Credit Agreement dated August 10, 2010(47) 10.88 Guaranty of Payment dated August 10, 2010(47) 10.89 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 10.90 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 10.91 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P.(48) 10.92 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC(48) 12.1* Statement of Computation of Consolidated Ratio of Earnings of Kilroy Realty Corporation 12.2* Statement of Computation of Consolidated Ratio of Earnings of Kilroy Realty, L.P. 21.1* List of Subsidiaries of Kilroy Realty Corporation 21.2* List of Subsidiaries of Kilroy Realty, L.P. 23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation 23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P. 24.1* Power of Attorney (included on the signature pages of this Form 10-K) 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.F-67 Exhibit Number Description 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 year ended December 31,2010, formatted in XBRL (extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) ConsolidatedStatements of Income, (iii) Consolidated Statements of Changes in Equity and (iv) Consolidated Statements of CashFlows and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.(5)* Filed herewith† Management contract or compensatory plan or arrangement.(1)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553).(2)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2003.(3)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 11, 1998.(4)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K/A as filed with the Securities and Exchange Commission on December 19, 1997.(5)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 ofSections 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 thesesections.(6)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2000.(7)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004.(8)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 9, 2004.(9)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2 to Form S-11 (No. 333-15553).(10)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-ll (No. 333-15553).(11)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 5 to Form S-11 (No. 333-15553).(12)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553).(13)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 6, 1997.(14)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 15, 1997.(15)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 3, 1997.(16)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 1997.(17)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on November 21, 1997.(18)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 29, 1997.(19)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 1998.(20)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2001.(21)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2004.(22)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on October 28, 2004.(23)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2006.(24)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-8 filed with the Securities and Exchange Commissionon June 28, 2006.(25)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 8, 2007.(26)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2006.(27)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on March 22, 2007.(28)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 5, 2007.(29)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 11, 2007.(30)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2007.F-68 (31)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2008.(32)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007.(33)Previously filed by Kilroy Realty Corporation as an exhibit to Form 8-K as filed with the Securities and Exchange Commission on January 2, 2008.(34)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2008.(35)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2009.(36)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2009.(37)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 23, 2009.(38)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2005.(39)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on November 25, 2009.(40)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2008.(41)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009.(42)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 ExchangeCommission on August 18, 2010.(43)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 25, 2010.(44)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-8 as filed with the Securities and Exchange Commissionon June 11, 2010.(45)Previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 4, 2010.(46)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2010.(47)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2010.(48)Previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJanuary 13, 2011.F-69 Exhibit 12.1KILROY REALTY CORPORATIONStatement of Computation of Ratio of Earnings to Fixed Charges(in thousands, except ratios) Year Ended December 31, 2010 2009 2008 2007 2006 Earnings: Income from continuing operations 18,937 $35,754 $45,849 $44,560 $47,741 Plus Fixed Charges: Interest expense (including amortization of loan costs) 59,941 46,119 45,346 40,762 43,541 Capitalized interest and loan costs 10,015 9,683 18,132 19,516 11,309 Estimate of interest within rental expense 997 871 871 871 871 Distributions on Cumulative Redeemable Preferred units 5,588 5,588 5,588 5,588 5,588 Fixed Charges 76,541 62,261 69,937 66,737 61,309 Plus: Amortization of capitalized interest(1) 4,348 4,067 3,669 3,132 2,691 Less: Capitalized interest and loan costs (10,015) (9,683) (18,132) (19,516) (11,309)Less: Distributions on Cumulative Redeemable Preferredunits (5,588) (5,588) (5,588) (5,588) (5,588) Earnings 84,223 86,811 95,735 89,325 94,844 Combined Fixed Charges and Preferred Dividends: Fixed Charges (from above) 76,541 62,261 69,937 66,737 61,309 Preferred Dividends 9,608 9,608 9,608 9,608 9,608 Combined Fixed Charges and Preferred Dividends 86,149 $71,869 $79,545 $76,345 $70,917 Consolidated ratio of earnings to fixed charges 1.10x 1.39x 1.37x 1.34x 1.55x Consolidated ratio of earnings to combined fixed chargesand preferred dividends 0.98x 1.21x 1.20x 1.17x 1.34x Deficiency $1,926 (1) Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis oftotal interest costs and loan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations beforethe effect of noncontrolling interest plus fixed charges and amortization of capital interest, reduced by capitalized interest and loan costs and distributions oncumulative redeemable preferred units. Fixed charges consist of interest costs, whether expensed or capitalized, amortization of loan costs, an estimate of theinterest within rental expense, and distributions on cumulative redeemable preferred units.We have computed the consolidated ratio of earnings to combined fixed charges and preferred dividends by dividing earnings by combined fixed charges andpreferred dividends. Earnings consist of income from continuing operations before the effect of noncontrolling interest plus fixed charges and amortization ofcapitalized interest, reduced by capitalized interest and loan costs and distributions on Series A cumulative redeemable preferred units. Fixed charges consist ofinterest costs, whether expensed or capitalized, amortization of loan costs, an estimate of the interest within rental expense, and distributions on Series Acumulative redeemable preferred units. Exhibit 12.2KILROY REALTY, L.P.Statement of Computation of Ratio of Earnings to Fixed Charges(in thousands, except ratios) Year Ended December 31, 2010 2009 2008 2007 2006 Earnings: Income from continuing operations 18,937 $35,754 $45,849 $44,560 $47,741 Plus Fixed Charges: Interest expense (including amortization of loan costs) 59,941 46,119 45,346 40,762 43,541 Capitalized interest and loan costs 10,015 9,683 18,132 19,516 11,309 Estimate of interest within rental expense 997 871 871 871 871 Fixed Charges 70,953 56,673 64,349 61,149 55,721 Plus: Amortization of capitalized interest(1) 4,348 4,067 3,669 3,132 2,691 Less: Capitalized interest and loan costs (10,015) (9,683) (18,132) (19,516) (11,309) Earnings $84,223 $86,811 $95,735 $89,325 $94,844 Ratio of earnings to fixed charges 1.19x 1.53x 1.49x 1.46x 1.70x (1) Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis oftotal interest costs and loan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations beforethe effect of noncontrolling interest plus fixed charges and amortization of capital interest and reduced by capitalized interest and loan costs. Fixed chargesconsist of interest costs, whether expensed or capitalized, amortization of loan costs and an estimate of the interest within rental expense. EXHIBIT 21.1SUBSIDIARIES OF KILROY REALTY CORPORATION NAME OF SUBSIDIARY STATE OF INCORPORATION OR ORGANIZATION OR FORMATION Kilroy Realty, L.P. DelawareKilroy Realty Finance, Inc. DelawareKilroy Realty Finance Partnership, LP. DelawareKilroy Services, LLC DelawareKilroy Realty TRS, Inc. DelawareKilroy Realty Management, L.P. DelawareKilroy RB, LLC DelawareKilroy RB II, LLC DelawareKilroy Realty Northside Drive, LLC DelawareKilroy Realty 303, LLC Delaware EXHIBIT 21.2SUBSIDIARIES OF KILROY REALTY, L.P. NAME OF SUBSIDIARY STATE OF INCORPORATION OR ORGANIZATION OR FORMATION Kilroy Realty Finance Partnership, LP. DelawareKilroy Services, LLC DelawareKilroy Realty TRS, Inc. DelawareKilroy Realty Management, L.P. DelawareKilroy RB, LLC DelawareKilroy RB II, LLC DelawareKilroy Realty Northside Drive, LLC DelawareKilroy Realty 303, LLC Delaware EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-165117, 333-153584, 333-153583, and 333-144190 on Forms S-3 andRegistration Statements Nos. 333-43227, 333-77739, 333-135385, 333-161954 and 333-167452 on Forms S-8 of our reports dated February 10, 2011,relating to the financial statements and financial statement schedules of Kilroy Realty Corporation and the effectiveness of Kilroy Realty Corporation’s internalcontrol over financial reporting, appearing in this Annual Report on Form 10-K of Kilroy Realty Corporation for the year ended December 31, 2010./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2011 EXHIBIT 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-153584-01 on Form S-3 of our reports dated February 10, 2011, relating to thefinancial statements and financial statement schedules of Kilroy Realty, L.P. and the effectiveness of Kilroy Realty, L.P.’s internal control over financialreporting, appearing in this Annual Report on Form 10-K of Kilroy Realty, L.P. for the year ended December 31, 2010./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2011 EXHIBIT 31.1Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John B. Kilroy, Jr., certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 thefinancial 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 inExchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 mostrecent 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’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 arereasonably 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 internalcontrol over financial reporting. Date: February 10, 2011 /s/ John B. Kilroy, Jr.John B. Kilroy, Jr. President and Chief Executive Officer EXHIBIT 31.2Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Tyler H. Rose, certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 thefinancial 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 inExchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 arereasonably 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 internalcontrol over financial reporting. Date: February 10, 2011 /s/ Tyler H. RoseTyler H. Rose Executive Vice President and Chief Financial Officer EXHIBIT 31.3Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John B. Kilroy, Jr., certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 thefinancial 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 inExchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 mostrecent 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’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 arereasonably 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 internalcontrol over financial reporting. Date: February 10, 2011 /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. EXHIBIT 31.4Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Tyler H. Rose, certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 thefinancial 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 inExchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 arereasonably 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 internalcontrol over financial reporting. Date: February 10, 2011 /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. EXHIBIT 32.1Certification 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 Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2010 (the “Report”) fully complies with therequirements 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: February 10, 2011 The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, and is not being filed as part of the Report or as a separate disclosuredocument 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, orthe Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation languagecontained 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 theCompany and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32.2Certification 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 Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2010 (the “Report”) fully complies with therequirements 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. RoseTyler H. Rose Executive Vice President and Chief Financial Officer Date: February 10, 2011 The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, and is not being filed as part of the Report or as a separate disclosuredocument 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, orthe Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation languagecontained 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 theCompany and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32.3Certification 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, thesole general partner of Kilroy Realty, L.P. (the “Operating Partnership”) hereby certifies, to his knowledge, that: (i) the accompanying Annual Report on Form 10-K of the Operating Partnership for the fiscal year ended December 31, 2010 (the “Report”) fullycomplies 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 OperatingPartnership. /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: February 10, 2011 The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, and is not being filed as part of the Report or as a separate disclosuredocument 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 languagecontained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will beretained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32.4Certification 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, thesole general partner of Kilroy Realty, L.P. (the “Operating Partnership”) hereby certifies, to his knowledge, that: (i) the accompanying Annual Report on Form 10-K of the Operating Partnership for the fiscal year ended December 31, 2010 (the “Report”) fullycomplies 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 OperatingPartnership. /s/ Tyler H. RoseTyler H. Rose Executive Vice President and Chief Financial Officer Kilroy Realty Corporation, sole general Partner of Kilroy Realty, L.P. Date: February 10, 2011 The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, and is not being filed as part of the Report or as a separate disclosuredocument 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 languagecontained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will beretained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.
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