Kilroy Realty
Annual Report 2011

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(MARK ONE)SANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011OR£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 Realty CorporationMaryland95-4598246 (State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) Kilroy Realty, L.P.Delaware95-4612685 (State or other jurisdiction ofincorporation or organization)(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) 481-8400Securities registered pursuant to Section 12(b) of the Act:RegistrantTitle of each className of each exchange on which registeredKilroy Realty CorporationCommon Stock, $.01 par valueNew York Stock ExchangeKilroy Realty Corporation7.80% Series E Cumulative RedeemablePreferred Stock, $.01 par valueNew York Stock ExchangeKilroy Realty Corporation7.50% Series F Cumulative RedeemablePreferred Stock, $.01 par valueNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:RegistrantTitle of each classKilroy Realty, L.P.Common Units Representing Limited PartnershipInterestsIndicate 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 x No £Kilroy Realty, L. P. Yes x No £Indicate 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 £ No xKilroy Realty, L. P. Yes £ No xIndicate 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 preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Kilroy Realty Corporation Yes x No £Kilroy Realty, L. P. Yes x No £Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Kilroy Realty Corporation Yes x No £Kilroy Realty, L. P. Yes x No £ Indicate 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, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate 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 x Large accelerated filero Accelerated filero Non-accelerated filer(Do not check if a smaller reporting company)o Smaller reporting company Kilroy Realty, L.P. o Large accelerated filero Accelerated filerx Non-accelerated filer(Do not check if a smaller reporting company)o Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Kilroy Realty Corporation Yes £ No xKilroy Realty, L. P. Yes £ No xThe aggregate market value of the voting and non-voting common shares held by non-affiliates of Kilroy Realty Corporation was approximately $2,308,759,615 based on thequoted closing price on the New York Stock Exchange for such shares on June 30, 2011.As of February 8, 2012, 58,857,343 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 2012 Annual Meeting of Stockholders to be filed not later than 120 days after the end of theregistrant’s fiscal year are incorporated by reference into Part III of this Form 10-K.EXPLANATORY NOTE This report combines the annual reports on Form 10-K for the year ended December 31, 2011 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unlessstated otherwise or the context otherwise requires, references to "Kilroy Realty Corporation" or the "Company," "we," "our," and "us" mean Kilroy RealtyCorporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to "Kilroy Realty, L.P." or the "Operating Partnership"mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidated subsidiaries. The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of December 31, 2011, the Companyowned an approximate 97.2% common general partnership interest in the Operating Partnership. The remaining approximate 2.8% common limitedpartnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the OperatingPartnership, the Company exercises exclusive and complete discretion over the Operating Partnership's day-to-day management and control and can cause it toenter into certain major transactions including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure, anddistribution policies. There are a few differences between the Company and the Operating Partnership which are reflected in the disclosures in this Form 10-K. We believe it isimportant to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnershipoperate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in theOperating Partnership. As a result, the Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership,issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under anyindebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Companyeither directly or through its subsidiaries, conducts the operations of the Company's business and is structured as a limited partnership with no publiclytraded equity. Except for net proceeds from equity issuances by the Company, which the Company is required to contribute to the Operating Partnership inexchange for partnership units, the Operating Partnership generates the capital required by the Company's business through the Operating Partnership'soperations, by the Operating Partnership's incurrence of indebtedness or through the issuance of partnership units. Noncontrolling interests and stockholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of theCompany and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners' capitalin the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements. The Operating Partnership'sfinancial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P. This noncontrolling interest represents the Company's 1%indirect general partnership interest in Kilroy Realty Finance Partnership, L.P., which is directly held by Kilroy Realty Finance, Inc., a wholly-ownedsubsidiary of the Company. The differences between stockholders' equity, partners' capital and noncontrolling interests result from the differences in theequity issued by the Company and the Operating Partnership, 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 results in the followingbenefits:•Combined reports better reflect how management and the analyst community view the business as a single operating unit;•Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling them to view the business as a wholeand in the same manner as management;•Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and•Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review. To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separatesections for each of the Company and the Operating Partnership:•consolidated financial statements;•the following notes to the consolidated financial statements:◦Note 6, Secured and Unsecured Debt of the Company;◦Note 7, Secured and Unsecured Debt of the Operating Partnership;◦Note 9, Noncontrolling Interests on the Company's Consolidated Financial Statements;2◦◦Note 10, Stockholders' Equity of the Company;◦Note 11, Preferred and Common Units in the Operating Partnership's Consolidated Financial Statements;◦Note 20, Net Income Available to Common Stockholders Per Share of the Company;◦Note 21, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;◦Note 23, Quarterly Financial Information of the Company (Unaudited);◦Note 24, Quarterly Financial Information of the Operating Partnership (Unaudited);◦Note 26, Pro Forma Results of the Company (Unaudited); and◦Note 27, Pro Forma Results of the Operating Partnership (Unaudited);•"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of theCompany"; and•"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of theOperating Partnership". This report also includes separate sections under Item 9A. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of theCompany and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisitecertifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, asamended (the "Exchange Act"), and 18 U.S.C. §1350.3TABLE OF CONTENTS PART I PageItem 1. Business5Item 1A. Risk Factors14Item 1B. Unresolved Staff Comments32Item 2. Properties33Item 3. Legal Proceedings50Item 4. Mine Safety Disclosures50 PART II Item 5. Market for Kilroy Realty Corporation's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities51 Market for Kilroy Realty, L.P.'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities51Item 6. Selected Financial Data - Kilroy Realty Corporation53 Selected Financial Data - Kilroy Realty, L.P.55Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations57Item 7A. Quantitative and Qualitative Disclosures About Market Risk110Item 8. Financial Statements and Supplementary Data111Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure111Item 9A. Controls and Procedures112Item 9B. Other Information116 PART III Item 10. Directors, Executive Officers and Corporate Governance116Item 11. Executive Compensation116Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters116Item 13. Certain Relationships and Related Transactions, and Director Independence116Item 14. Principal Accountant Fees and Services116 PART IV Item 15. Exhibits and Financial Statement Schedules118 SIGNATURES126 PART IThis document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of theExchange Act, including information concerning projected future occupancy and rental rates, lease expirations, debt maturity, potential investments, strategiessuch as capital recycling, development and redevelopment activity, projected construction costs, dispositions, future executive incentive compensation andother forward-looking financial data, as well as the discussion in “Item 7: Management's Discussion and Analysis of Financial Condition and Results ofOperations-Factors That May Influence Future Results of Operations.” Forward-looking statements are based on our current expectations, beliefs andassumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes incircumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and eventsmay vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions offuture performance, results or outcomes. All forward-looking statements are based on currently available information and speak only as of the date on thisreport was filed with the Securities and Exchange Commission (the “SEC”).ITEM 1.BUSINESSThe CompanyWe are a self-administered REIT active in office and industrial submarkets along the West Coast. We own, develop, acquire and manage real estate assets,consisting primarily of Class A real estate properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Areaand greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings ofhigh quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintainedand managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code").As of December 31, 2011, our stabilized portfolio was comprised of the following office buildings (the "Office Properties") and industrial buildings (the"Industrial Properties"). As of December 31, 2011, all of our properties and all of our business was currently conducted in the state of California with theexception of the ownership and operation of six office properties located in the state of Washington: Number ofBuildings RentableSquare Feet Number ofTenants Percentage OccupiedOffice Properties (1)104 11,421,112 419 90.1% Industrial Properties39 3,413,354 63 100.0% Total Stabilized Portfolio(2)143 14,834,466 482 92.4% (1)Includes 20 office buildings acquired in 2011 and 2010 (see Note 3 to our consolidated financial statements included in this report for additional information).(2)Excludes five office buildings and one industrial building sold in 2011 and 2010 and two office buildings classified as held for sale at December 31, 2011 (see Note 19 to our consolidated financial statements included in thisreport for additional information).Our stabilized portfolio excludes undeveloped land, four office redevelopment properties that are currently under construction and two properties held-for-sale.We own our interests in all of our Office Properties and Industrial Properties through the Operating Partnership and Kilroy Realty Finance Partnership,L.P. (the “Finance Partnership”), a Delaware limited partnership. We conduct substantially all of our operations through the Operating Partnership of which asof December 31, 2011, we owned a 97.2% general partnership interest. The remaining 2.8% common limited partnership interest in the Operating Partnershipas of December 31, 2011 was owned by non-affiliated investors and certain of our directors and officers. Kilroy Realty Finance, Inc., a wholly-ownedsubsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% general partnership interest. The Operating Partnershipowns the remaining 99.0% limited partnership interest. We conduct substantially all of our development activities through Kilroy Services, LLC (“KSLLC”),which is a wholly-owned subsidiary of the Operating Partnership. With the exception of the Operating Partnership, all of the Company's subsidiaries, whichinclude, Kilroy Realty TRS, Inc., Kilroy Realty Management, L.P., Kilroy RB, LLC, Kilroy RB II, LLC, Kilroy Realty Northside Drive, LLC and KilroyRealty 303, LLC, are wholly-owned.5The following diagram illustrates our organizational structure as of December 31, 2011:6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 organized in the state ofDelaware on October 2, 1996. Our principal executive offices are located at 12200 W. Olympic Boulevard, Suite 200 Los Angeles, California 90064. Ourtelephone number at that location is (310) 481-8400. Our website is located at www.kilroyrealty.com. The information found on, or otherwise accessiblethrough, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with orfurnish to the 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. In addition, thepublic 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. Allreports that we will file with the SEC will also be available free of charge on our website at www.kilroyrealty.com as soon as reasonably practicable after wefile 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—CorporateGovernance” 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 growthin Net Operating Income (defined below) and FFO (defined below) as well as maximization of long-term stockholder value. These factors and strategiesinclude: •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 management team possessing corecapabilities in all aspects of real estate ownership, including property management, leasing, marketing, financing, accounting, legal, constructionmanagement, redevelopment, and new development;•our ability to capitalize on inflection points in a real estate cycle to add quality assets to our portfolio at substantial discounts to long-term value,through either acquisition or development;•our strong financial position that has and will continue to allow us to pursue attractive acquisition and redevelopment opportunities;•our access to development, redevelopment, acquisition, and leasing opportunities as a result of our extensive experience and significant workingrelationships with major West Coast property owners, corporate tenants, municipalities, and landowners given our over 60-year presence in the WestCoast markets;•our capital recycling program (see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations —LiquiditySources” for additional information pertaining to the Company's capital recycling program and related 2011 property dispositions); and•our existing pipeline of undeveloped land holdings.“Net Operating Income” is defined as operating revenues (rental income, tenant reimbursements, and other property income) less property and relatedexpenses (property expenses, real estate taxes, provision for bad debts, and ground leases) before depreciation. “FFO” is funds from operations as defined bythe National Association of Real Estate Investment Trusts (“NAREIT”). See “Item 7: Management’s Discussion and Analysis of Financial Condition andResults of Operations —Results of Operations” and “—Non-GAAP Supplemental Financial Measures: Funds From Operations” for a reconciliation of thesemeasures to generally accepted accounting principles (“GAAP”) net income available for common stockholders.7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;8•structuring leases to maximize returns and internal growth;•managing portfolio credit risk through effective underwriting, including the use of credit enhancements and interests in collateral to mitigate portfoliocredit risk;•managing operating expenses through the efficient use of internal management, leasing, marketing, financing, accounting, legal, and constructionmanagement 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;•building substantially all of our recent development projects to Leadership in Energy and Environmental Design (LEED) specifications, achievinggold or silver certification levels for several of our buildings, and actively pursuing LEED certification for much of our existing portfolio;•continuing to effectively manage capital improvements to enhance our properties’ competitive advantages in their respective markets and improve theefficiency of building systems;•enhancing our management team with individuals who have extensive local experience and are highly knowledgeable in their respective markets; and•attracting and retaining motivated employees by providing financial and other incentives to meet our operating and financial goals.Acquisition Strategies. We believe we are well positioned to acquire properties as the result of our extensive experience, strong financial position, andability to access capital. We continue to actively monitor our target markets and focus on acquiring additional high quality 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, repositioning and leasing that should result in increasedoccupancy and rental revenues.Development and Redevelopment Strategies. We and our predecessors have developed office and industrial properties primarily located in Californiasince 1947. As of December 31, 2011, our development pipeline included 110.2 gross acres of undeveloped land, with which we believe we will have thepotential to develop over two million rentable square feet of office space in the future, depending upon economic conditions. Our strategy with respect todevelopment is to:•maintain a disciplined approach by emphasizing pre-leasing, commencing development in stages, or phasing, and cost control;•continue to execute our build-to-suit philosophy in which we develop properties to be leased by specific committed tenants providing for lower-riskdevelopment;•be the premier provider of two- to six-story campus style office buildings on the West Coast;•reinvest capital from dispositions of nonstrategic assets into new state-of-the-market development and acquisition assets with higher cash flow andrates of return; and•evaluate redevelopment opportunities in supply-constrained markets since such efforts generally achieve similar returns to new development withreduced entitlement risk and shorter construction periods.Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing buildings pursuant to a formalplan, the intended result of which is a higher economic return on the property. We may engage in the additional development or redevelopment of office and/orindustrial properties when market conditions support a favorable risk−adjusted return on such development or redevelopment. We expect that our significantworking relationships with tenants, municipalities, and landowners on the West Coast will give us further access to development opportunities. We cannotassure you that we will be able to successfully develop or redevelop any of our properties or that we will have access to additional development orredevelopment opportunities.9Financing Strategies. Our financing policies and objectives are determined by our board of directors. Our goal is to limit our dependence on leverageand maintain a conservative ratio of debt-to-total market capitalization. As of December 31, 2011, our total debt as a percentage of total market capitalizationwas 42.4%, and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 47.0%, both of which werecalculated based on the quoted closing price per share of the Company's common stock of $38.07 on December 31, 2011 (see "Item 7: Management'sDiscussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of the Company - Capitalization" for additionalinformation). Our financing strategies include:•maintaining financial flexibility, including a low secured to unsecured debt ratio, to maximize our ability to access a variety of both public andprivate capital sources;•maintaining a staggered debt maturity schedule in which the maturity dates of our debt are spread over several years to l10imit risk exposure at any particular point in the capital and credit market cycles;•completing financing in advance of the need for capital; and•managing 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 public or private debt orequity securities and other bank and/or institutional borrowings, and dispositions of nonstrategic assets. There can be no assurance that we will be able toobtain 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 FinancialCondition and Results of Operations —Factors That May Influence Future Results of Operations” and “Item 1A: Risk Factors”.Significant TenantsAs of December 31, 2011, our fifteen largest tenants in terms of annualized base rental revenues represented approximately 34.9% of our total annualizedbase rental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, 2011 determined on a straight-line basis overthe term of the related lease in accordance with GAAP.For further information on our fifteen largest tenants and 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 of which own propertiessimilar to ours in the same submarkets in which our properties are located. For further discussion of the potential impact of competitive conditions on ourbusiness, see “Item 1A: Risk Factors”.Segment and Geographic Financial InformationFor the year ended December 31, 2011, our only reportable segment is our Office Properties segment. During the year ended December 31, 2011, theamount of revenues and Net Operating Income generated by our Industrial Properties, in relation to our total consolidated operating portfolio revenues and NetOperating Income fell below the required 10% quantitative reporting thresholds for the Industrial Properties to be considered a reportable segment under GAAP.For information about our Office Properties and Industrial Properties revenues and long-lived assets and other financial information, see Note 18 to ourconsolidated financial statements included in this report and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results ofOperations —Results of Operations.”All of our properties are located and all of our business is currently conducted in the state of California with the exception of the ownership and operationof six office properties located in the state of Washington.EmployeesAs of December 31, 2011, we employed 169 people through the Operating Partnership, KSLLC, and Kilroy Realty TRS, Inc. We believe that relationswith our employees are good.11Government Regulations Relating to the EnvironmentMany laws and governmental regulations relating to the environment are applicable to our properties, and changes in these laws and regulations, or theirinterpretation 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 similar environmental siteassessments on all of our properties. We generally obtain these assessments prior to the acquisition of a property and may later update them as required forsubsequent financing of the property or as requested by a tenant. Site assessments are generally performed to American Society for Testing and Materialsstandards then-existing for Phase I site assessments and typically include a historical review, a public records review, a visual inspection of the surveyed site,and the issuance of a written report. These assessments do not generally include any soil samplings or subsurface investigations. Depending on the age of theproperty, the Phase I may have included an assessment of asbestos-containing materials. For properties where asbestos-containing materials were identified orsuspected, an operations and maintenance plan was generally prepared and implemented.Historical operations at or near some of our properties, including the presence of underground or above ground storage tanks, may have caused soil orgroundwater contamination. In some instances, the prior owners of the affected properties conducted remediation of known contamination in the soils on ourproperties, and we do not believe that further clean-up of the soils is requ12ired. We are not aware of any such condition, liability, or concern by any other means that would give rise to material environmental liability. However, theassessments may have failed to reveal all environmental conditions, liabilities, or compliance concerns; there may be material environmental conditions,liabilities, or compliance 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 ofland or operations near our properties, such as the presence of underground storage tanks. We cannot be certain that costs of future environmental compliancewill not have an adverse effect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfyour debt service obligations and to pay dividends and distributions to security holders.Use of hazardous materials by some of our tenants. Some of our tenants handle hazardous substances and wastes on our properties as part of theirroutine operations. Environmental laws and regulations may subject these tenants, and potentially us, to liability resulting from such activities. We generallyrequire our tenants in their leases to comply with these environmental laws and regulations and to indemnify us for any related liabilities. As of December 31,2011, other than routine cleaning materials, approximately 6% of our tenants handled hazardous substances and/or wastes on less than 5% of the aggregatesquare footage of our properties as part of their routine operations. These tenants are primarily involved in the life sciences and the light industrial andwarehouse business. The hazardous substances and wastes are primarily comprised of diesel fuel for emergency generators and small quantities of lab andlight 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 our properties, and managementdoes 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 environmental laws and regulations, wemay be liable for the costs of removal, remediation, or disposal of certain hazardous or toxic substances present or released on our properties. These lawscould impose liability without regard to whether we are responsible for, or even knew of, the presence or release of the hazardous materials. Governmentinvestigations and remediation actions may have substantial costs, and the presence or release of hazardous substances on a property could result ingovernmental clean-up actions, personal injury actions, or similar claims by private plaintiffs.Potential environmental liabilities may exceed our environmental insurance coverage limits. We carry what we believe to be commercially reasonableenvironmental insurance to cover potential liability for soil and groundwater contamination and the presence of asbestos-containing materials at the affectedsites identified in the environmental site assessments. Our environmental insurance policies are subject to various terms, conditions, qualifications, andlimitations of coverage. Therefore, we cannot provide any assurance that our insurance coverage will be sufficient or that our liability, if any, will not have amaterial adverse effect on our financial condition, results of operations, cash flows, quoted trading price of our securities, and our ability to satisfy our debtservice obligations and to pay dividends and distributions to security holders. 13ITEM 1ARISK FACTORSThe following section sets forth material factors that may adversely affect our business and operations. The following factors, as well as the factorsdiscussed in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Resultsof Operations” and other information contained in this report, should be considered in evaluating 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. In the U.S., marketand economic conditions continue to be challenging with tight credit conditions and modest growth. While recent economic data reflects moderate economicgrowth in the United States, the cost and availability of credit may continue to be adversely affected by governmental budget and global economic factors.Concern about continued stability of the economy and credit markets generally, and the strength of counterparties specifically, has led many lenders andinstitutional investors to reduce, and in some cases, cease to provide funding to borrowers. Volatility in the U.S. and international capital markets and concernover a return to recessionary conditions in global economies, and in the California economy in particular, may adversely affect our liquidity and financialcondition and the liquidity and financial condition of our tenants. If these market conditions continue, they may limit our ability and the ability of our tenantsto timely refinance maturing liabilities and access the capital markets to meet liquidity needs.Our operations and those of our tenants may be adversely affected by the impact of California economic conditions and California's budgetdeficit. As of December 31, 2011, all but six of our properties and one parcel of undeveloped land are located in California. The continuing economic crisishas particularly affected the economy of California. The State of California began its fiscal year on July 1, 2011 with a significant reported deficit, whichcontinues to impact and aggravate current weak economic conditions within the State. In addition, because of continuing California budget deficits, there isalso the possibility that the14California State Legislature could enact new tax legislation, increasing tax rates in California. New legislation also could cut funding for government programsthat are relied upon by our tenants. The economic and legislative environment within the State could have an adverse impact on businesses operating inCalifornia, including us and our tenants.These factors could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which would adversely impactour financial condition, results of operations, cash flows, the quoted trading price of the Company's common stock and of the Operating Partnership'spublicly-traded notes, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trendsin the real estate industry. Our economic performance and the value of our real estate assets, and consequently the market value of the Company's securities,are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this naturewould adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debtservice obligations and to pay dividends and distributions to our security holders.Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and thevalue of our real estate assets may include: •local oversupply or reduction in demand for office, industrial, or other commercial space, which may result in decreasing rental rates andgreater concessions to tenants;•inability to collect rent from tenants•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. 15We depend upon significant tenants and the loss of a significant tenant could adversely affect our financial condition, revenues and results ofoperations. As of December 31, 2011, our fifteen largest tenants represented approximately 34.9% of total annualized base rental revenues. See furtherdiscussion on the composition of our tenants by industry and our largest tenants under “Item 1: Business —Significant Tenants” and “Item 2: Properties—Significant Tenants.”Our financial condition, results of operations, ability to borrow funds, and cash flows would be adversely affected if any of our significant tenants failsto renew its lease(s), renew its lease(s) on terms less favorable to us, or becomes bankrupt or insolvent or otherwise unable to satisfy its lease obligations.Downturn in tenants' businesses may reduce our cash flows. For the year ended December 31, 2011, we derived approximately 98.2% of ourrevenues from continuing operations from rental income and tenant reimbursements. A tenant may experience a downturn in its business, which may weakenits financial condition and result in its failure to make timely rental payments or result in defaults under our leases. In the event of default by a tenant, we mayexperience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment. The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in acase under federal bankruptcy law, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might permit the tenant toreject and terminate its lease with us. Our claim against the tenant for unpaid and future rent could be subject to a statutory cap that might be substantially lessthan the remaining rent actually owed under the lease. Therefore, our claim for unpaid rent would likely not be paid in full. Any losses resulting from thebankruptcy of any of our existing tenants could adversely impact our financial condition, results of operations, cash flows, 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.A large percentage of our tenants' operate in a concentrated group of industries and downturns in these industries could adversely affect ourfinancial condition, revenues and results of operations. As of December 31, 2011, 33% of our tenants operated in the technology and media industry, 17%in the finance, insurance and real estate industry, and 17% in the education and health services industry. For a further discussion of the composition of ourtenants by industry, see “Item 2: Properties—Significant Tenants.” An economic downturn in any of these industries, or in any industry in which asignificant number of our tenants currently or may in the future operate, could negatively impact the financial condition of such tenants and cause them to failto make timely rental payments or default on lease obligations, fail to renew their leases or renew their leases on terms less favorable to us, become bankrupt orinsolvent, or otherwise become unable to satisfy their obligations to us. As a result, a downturn in an industry in which a significant number of our tenantsoperate could adversely affect our financial conditions and result of operations.16We may be unable to renew leases or re-lease available space. We had office and industrial space representing approximately 7.6%, of the totalsquare footage of our properties that was not occupied as of December 31, 2011. In addition, leases representing approximately 8.2% and 13.4% of the leasedrentable square footage of our properties are scheduled to expire in 2012 and 2013, respectively. Above market rental rates on some of our properties may forceus to renew or re-lease expiring leases at rates below current lease rates. As of December 31, 2011, we believe that the weighted average cash rental rates for ouroverall portfolio, including recently acquired properties, are approximately 5% to 10% above the current average quoted market rental rates, and weightedaverage cash rental rates for leases scheduled to expire during 2012 are approximately 10% to 15% above the current average quoted market rental rates,although individual properties within any particular submarket presently may be leased at, above, or below the current market rental rates within thatsubmarket. We cannot provide any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the currentrental rates. If the average rental rates for our properties decrease or existing tenants do not renew their leases, 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 to pay dividends and distributions to oursecurity holders could be adversely affected.We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties. We are subject togovernmental regulations that may have a material adverse effect on 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.Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act of 1990 (the “ADA”) pursuant to which allpublic 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 substantially comply with requirements under applicable governmental regulations, noneof our properties have been audited or investigated for compliance by any regulatory agency. If we were not in compliance with material provisions of the ADAor other regulations affecting our properties, we might be required to take remedial action, which could include making modifications or renovations toproperties. 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,17our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations andto 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 ourability to develop, redevelop, or use our properties resulting from changes in the existing land use rules and regulations could have an adverse effect on ourfinancial position, results of operations, cash flows, quoted trading price of our securities, our ability to satisfy our debt service obligations and to paydividends and distributions to our security holders.Our debt level reduces cash available for distribution and may expose us to the risk of default under our debt obligations. Payments of principaland interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay in cash the distributions necessary to maintain theCompany's REIT qualification. See “—Risks Related to the Company's Status as a REIT—Loss of the Company's REIT status would have significantadverse consequences to us and the value of the Company's common stock.” Our level of debt and the limitations imposed by our debt agreements may havesubstantial 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 of our originalindebtedness;•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 and receive an assignmentof 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 our securities, and ourability to satisfy our debt service obligations and to pay dividends and distributions to our security18holders could be adversely affected. In addition, foreclosures could create taxable income without accompanying cash proceeds,which could require us to borrow or sell assets to raise the funds necessary to meet the REIT distribution requirements discussed below, even if such actionsare not on favorable terms. As of December 31, 2011, we had approximately $1.8 billion aggregate principal amount of indebtedness, $253.3 million of whichis contractually due prior to December 31, 2012. Our total debt and preferred equity at December 31, 2011 represented 47.0% 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 andthe Operating Partnership's common units). For calculation of our market capitalization and additional information on debt maturities see “Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company—Capitalization.”Our credit facility, and if entered into, the Term Loan (as defined herein) includes financial covenants relating to our operations, which couldlimit our ability to make distributions to our stockholders. The Operating Partnership's unsecured revolving credit facility (the “Credit Facility”) containsfinancial covenants that could limit the amount of distributions payable by us on our common stock and preferred stock. We rely on cash distributions wereceive from the Operating Partnership to pay distributions on our common stock and preferred stock and to satisfy our other cash needs, and the CreditFacility provides that the Operating Partnership may not, in any year, make partnership distributions to us or other holders of its partnership interests in anaggregate 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 been deducted fromconsolidated funds from operations for such year) in an amount sufficient to permit us to pay dividends to our stockholders which wereasonably believe are necessary to (a) maintain our qualification as a REIT for federal and state income tax purposes and (b) avoid the paymentof federal or state income or excise tax.In addition, the Credit Facility provides that, if the Operating Partnership fails to pay when due any principal of or interest on any borrowings under theCredit Facility, then the Operating Partnership may make only those partnership distributions to us and other holders of its partnership interests necessary toenable us to make distributions to our stockholders which we reasonably believe are necessary to maintain our status as a REIT for federal and state incometax purposes. We expect that the proposed term loan discussed under “Item 7: Management's Discussion and Analysis of Financial Condition and Results ofOperations-Liquidity19and Capital Resources of the Operating Partnership-Liquidity Sources-New Term Loan” will contain covenants substantially similar to those in the CreditFacility. Any limitation on our ability to make distributions to our stockholders, whether as a result of these provisions in the Credit Facility or the Term Loan(if entered into) or otherwise, could have a material adverse effect on the market 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 with several developers,owners, and operators of office, industrial, and other commercial real estate, many of which own properties similar to ours in the same submarkets in whichour properties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates untiltheir available space is leased. As previously mentioned, as of December 31, 2011 we believe that the weighted average cash rental rates for our overall portfolioare 5% to 10% above the current average quoted market rental rates. If our competitors offer space at rental rates below the rates currently charged by us forcomparable space, we may be pressured to reduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As aresult, our financial condition, 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 may adversely affect ourfinancial condition and results of operations. We carry comprehensive liability, fire, extended coverage, rental loss, and terrorism insurance covering all ofour properties. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage, andindustry practice. We do not carry insurance for generally uninsurable losses such as loss from riots or acts of God. Some of our policies, like those coveringlosses resulting from floods, are subject to limitations involving large deductibles or co-payments. If our properties suffer uninsured losses or if losses are notfully covered by our insurance policies, the payment for such losses could adversely affect our financial condition and results of operations.We are subject to environmental and health and safety laws and regulations, and any costs to comply with, or liabilities arising under, such lawsand regulations could be material. As an owner, operator, manager, and developer of real properties, we are subject to environmental and health and safetylaws and regulations. Certain of these laws and regulations impose joint and several liability, without regard to fault, for investigation and clean-up costs oncurrent and former owners and operators of real property and persons who have disposed of or released hazardous substances into the environment. At some ofthe properties, there are asbestos-containing materials, or tenants routinely handle hazardous substances as part of their operations. In addition, historicaloperations, including the presence of underground storage tanks, have caused soil or groundwater contamination at or near some of the properties. Although webelieve that the prior owners of the affected properties conducted remediation of known20soil contamination at these properties, we cannot assure you that all such contamination has been remediated. The discovery of previously unknowncontamination or the compliance with existing or new environmental or health and safety laws and regulations could require us to incur costs or liabilities thatcould be material. See "Item 1: Business — Government Regulations Relating to the Environment" for a description of environmental regulations to which weare subject. Earthquake damage to our properties could have an adverse effect on our financial condition and operating results. All of our properties arelocated in earthquake-prone areas. We carry earthquake insurance on our properties in an amount and with deductibles that management believes arecommercially reasonable. However, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. In addition, wemay discontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for earthquake insurance exceeds the value of thecoverage discounted for the risk of loss. If we experience a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in thedamaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourseindebtedness, we would continue to be liable for the indebtedness, even if the properties were irreparable.We may be unable to complete acquisitions and successfully operate acquired properties. We continually evaluate the market of available propertiesand may continue to acquire office and industrial properties and undeveloped land when strategic opportunities exist. Our ability to acquire properties onfavorable 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 with significant 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 unable to complete suchacquisitions since they remain subject to customary conditions to closing including the completion of due diligence investigations tomanagement's satisfaction;•we may be unable to finance acquisitions on favorable terms or at all;21•we may spend more than budgeted amounts in operating costs or to make necessary improvements or renovations to acquired properties;•we may lease acquired properties at economic lease terms different than projected;•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 acquisition related costs.If we cannot finance property acquisitions on favorable terms or operate acquired properties to meet financial expectations, 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 to pay dividends anddistributions to our security holders could be adversely affected.We may be unable to successfully complete and operate acquired, developed, and redeveloped properties. There are significant risks associatedwith property acquisition, development, and redevelopment including the possibility that: •we may be unable to lease acquired, developed, or redeveloped properties at projected economic lease terms or within budgeted timeframes;•we may not complete development or redevelopment properties on schedule or within budgeted amounts;•we may expend funds on and devote management's time to acquisition, development, or redevelopment properties that we may not complete;•we may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, and building, occupancy, andother required governmental permits and authorizations;•we may encounter delays, refusals, unforeseen cost increases, and other impairments resulting from third-party litigation; and•we may fail to obtain the financial results expected from properties we acquire, develop, or redevelop.22If one or more of these events were to occur in connection with our acquired properties, undeveloped land, or development or redevelopment propertiesunder construction, we could be required to recognize an impairment loss. These events could also have an adverse impact on our financial condition, resultsof operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends anddistributions to our security holders. While we historically have acquired, developed, and redeveloped office properties in California markets, we acquired six properties in the state ofWashington since January 1, 2010 and may in the future acquire, develop, or redevelop properties for other uses and expand our business to other geographicregions where we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment. Presently, we do not possessthe same level of familiarity with development of property types other than mixed-use, office and industrial, or with certain outside markets, which couldadversely affect our ability to acquire, develop or redevelop properties or to achieve expected performance.We could default on leases for land on which some of our properties are located. As of December 31, 2011, we owned seven office buildings,located on various land parcels and regions, which we lease individually on a long-term basis. As of December 31, 2011, we had approximately 1.3 millionaggregate rentable square feet, or 9.0% of our total stabilized portfolio, of rental space located on these leased parcels. In addition, we had ground leaseobligations for the land securing two redevelopment properties encompassing approximately 508,000 rentable square feet. We have an option to purchase theland securing the redevelopment property encompassing 410,000 rentable square feet. If we default under the terms of any particular lease, we may lose theownership rights 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 at all. Theloss of the ownership rights to these properties or an increase of rental expense could have an 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 to oursecurity holders.Real estate assets are illiquid, and we may not be able to sell our properties when we desire. Our investments in our properties are relativelyilliquid, limiting our ability to sell our properties quickly in response to changes in economic or other conditions. In addition, the Code generally imposes a100% prohibited transaction tax on the Company on profits derived from sales of properties held primarily for sale to customers in the ordinary course ofbusiness, which effectively limits our ability to sell properties other than on a selected basis. These restrictions on our ability to sell our properties could havean adverse effect on23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 topay dividends 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 to our securityholders. We may purchase securities issued by entities which own real estate and may, in the future, also invest in mortgages. In general, investments inmortgages 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.Owning these securities may not entitle us to control the ownership, operation, and management of the underlying real estate. In addition, we may haveno control over the distributions with respect to these securities, which could adversely affect our ability to pay dividends and distributions to our securityholders.Future terrorist activity or engagement in war by the U.S. may have an adverse effect on our financial condition and operating results. Terroristattacks in the U.S. and other acts of terrorism or war, may result in declining economic activity, which could harm the demand for and the value of ourproperties. In addition, the public perception that certain locations are at greater risk for attack, such as major airports, ports, and rail facilities, may decreasethe demand for and the value of our properties near these sites. A decrease in demand could make it difficult for us to renew or re-lease our properties at thesesites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties through damage, destruction, orloss, and the availability of insurance for these acts may be less, and cost more, which could adversely affect our financial condition. To the extent that ourtenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.Terrorist acts and engagement in war by the U.S. also may adversely affect the markets in which our securities trade and may cause further erosion ofbusiness and consumer confidence and spending and may result in increased volatility in national and international financial markets and economies. Anyone 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 reachstabilized occupancy, increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our access tocapital or increase our cost of raising capital. Risks Related to our Organizational StructureLoss of our key personnel could harm our operations and adversely affect the quoted trading price of our securities The leadership andperformance of our executive and senior officers, particularly John B. Kilroy, Jr., President and Chief Executive Officer, Jeffrey C. Hawken, Executive VicePresident and Chief Operating Officer, Eli Khouri, Executive Vice President and Chief Investment Officer, and Tyler H. Rose, Executive Vice President andChief Financial Officer, play a key role in the success of the Company. They are integral to the Company's success for many reasons, including that each hasa strong national or regional reputation in our industry and investment community. In addition, they have significant relationships with investors, lenders,tenants and industry personnel, which benefit the Company. Our future performance will be substantially dependent on our ability to retain and motivate theseindividuals. The loss or limited availability of the services of our key personnel could materially and adversely affect our business, results of operations andfinancial condition and could be negatively perceived in the capital markets. 24Our growth depends on external sources of capital that are outside of our control and the inability to obtain capital on terms that are acceptableto us, or at all, could adversely affect our financial condition and results of operations. The Company is required under the Code to distribute at least 90%of its taxable income (subject to certain adjustments and excluding any net capital gain) and the Operating Partnership is required to make distributions to theCompany to allow the Company to satisfy these REIT distribution requirements. Because of these distribution requirements, the Operating Partnership isrequired to make distributions to the Company, and we may not be able to fund future capital needs, including any necessary acquisition financing, fromoperating cash flow. Consequently, management relies on third-party sources of capital to fund our capital needs. We may not be able to obtain financing onfavorable terms or at all. Any additional debt we incur will increase our leverage. Access to third-party sources of capital depends, in part, on general marketconditions and the availability of credit, the market's perception of our growth potential, our current and expected future earnings, our cash flows and cashdistributions, and the quoted trading 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 to pay dividends and distributions to oursecurity holders may be adversely affected.25Our common limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may bein the best interests of all our security holders. The Company may not withdraw as the Operating Partnership's general partner or transfer its generalpartnership interest in the Operating Partnership without the approval of the holders of at least 60% of the units representing common limited partnershipinterests, including the common units held by the Company in its capacity as the Operating Partnership's general partner. In addition, the Company may notengage in a merger, consolidation, or other combination or the sale of substantially all of its assets or such similar transaction, without the approval of theholders of 60% of the common units, including the common units held by the Company in its capacity as the Operating Partnership's general partner. Theright of our common limited partners to vote on these transactions could limit our ability to complete a change of control transaction that might otherwise be inthe best interest of all our security holders.In certain circumstances, our limited partners must approve our dissolution and the disposition of properties contributed by the limitedpartners. For as long as limited partners own at least 5% of all of the Operating Partner's partnership interests, we must obtain the approval of limitedpartners holding a majority of the units representing common limited partnership interests before we may dissolve. As of December 31, 2011, limited partnersowned approximately 2.8% of the Operating Partner's partnership interests, of which 2.2% was owned by John B. Kilroy, Sr. and John B. Kilroy, Jr. Inaddition, we agreed to use commercially reasonable efforts to minimize the tax consequences to common limited partners resulting from the repayment,refinancing, replacement, or restructuring of debt, or any sale, exchange, or other disposition of any of our other assets. The exercise of one or more of theseapproval rights by the limited 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 over our affairs. John B.Kilroy, Sr. is the Chairman of our board of directors and the father of John B. Kilroy, Jr., our President and Chief Executive Officer. Each is a member of ourboard of directors, and together, as of December 31, 2011, they beneficially owned approximately 3.4% of the total outstanding shares of the Company'scommon stock. The percentage of outstanding shares of common stock beneficially owned includes 282,304 shares of common stock, 401,291 restrictedstock units that were vested and held by John B. Kilroy, Jr. at December 31, 2011, and assumes the exchange into shares of the Company's common stock ofthe 1,335,135 common units of the Operating Partnership held by Messrs. Kilroy (which are redeemable in exchange for, at the option of the Company, anequal number of shares of the Company's common stock).Pursuant to the Company's charter, no other stockholder may own, actually or constructively, more than 7.0% (by value or by number of shares,whichever is more restrictive) of the outstanding Company common stock without obtaining a waiver from the board of directors. The board of directors haswaived the ownership limits 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 outstanding common stock,excluding Operating Partnership units that are exchangeable into shares of Company common stock. Consequently, Messrs. Kilroy have substantial influenceon the Company, and because the Company is the manager of the Operating Partnership, on the Operating Partnership, and could exercise their influence in amanner that is not in the best interest of our stockholders, noteholders or unitholders. Also, they may, in the future, have a substantial influence on theoutcome of any matters submitted to our stockholders or unitholders for approval. There are restrictions on the ownership of the capital stock of the Company, which limit the opportunities for a change of control at a premium toexisting security holders. Provisions of the Maryland General Corporation Law, the Company's charter and bylaws, and the Operating Partnership'spartnership agreement may delay, deter, or prevent a change of control over us, or the removal of existing management. Any of these actions might prevent oursecurity holders from receiving a premium for their common shares or common units over the then-prevailing market price of the shares of the Company'scommon stock.The Code contains stringent ownership limits on the Company's capital stock as a result of its decision to be taxed as a REIT, including: 26•no more than 50% in value of the Company's capital stock may be owned, actually or constructively, by five or fewer individuals, includingsome entities, during the last half of a taxable year;•beneficial ownership of the Company's common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxableyear, 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, actually or constructivelyown 10% or more of one of the Operating Partnership's tenants, a tenant of the Company or any partnership in which the Operating Partnershipor the Company is a partner, then any rents received from that tenant will not be qualifying income for purposes of the Code's REIT grossincome tests, regardless of whether the rent is received directly or through a partnership.The Company's charter also establishes ownership limits to protect the Company's REIT status. No single stockholder may own, either actually orconstructively, absent a waiver from the board of directors, more than 7.0% (by value or by number of27shares, whichever is more restrictive) of the Company's common stock outstanding. Similarly, absent a waiver from the board of directors, no single holder ofthe Company's 7.45% Series A Cumulative Redeemable Preferred stock (the “Series A Preferred Stock”), if issued, may actually or constructively own anyclass or series of the Company's preferred stock, so that their total capital stock ownership would exceed 7.0% (by value) of the Company's total outstandingshares of capital stock; no single holder of the Company's 7.8% Series E Cumulative Redeemable Preferred stock (the “Series E Preferred Stock”) mayactually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of the Company's Series E Preferred Stock;and no single holder of the Company's 7.5% Series F Cumulative Redeemable Preferred stock (the “Series F Preferred Stock”) may actually or constructivelyown 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 the Company's REIT status andif it believes that the waiver would be in our best interest. The board of directors has waived the ownership limits with respect to John B. Kilroy, Sr., John B.Kilroy, Jr., members of their families, and some of their affiliated entities. These named individuals and entities may own either actually or constructively, inthe aggregate, up to 19.6% of the Company's outstanding common stock, excluding units that are exchangeable into shares of common stock. The board ofdirectors has also waived the ownership limits 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% ExchangeableNotes, the “Exchangeable Notes”) and certain of their affiliated entities to beneficially own up to 9.8%, in the aggregate, of the Company's common stock inconnection 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 excess shares, the excess shareswill be automatically transferred from the transferee or owner to a trust for the benefit of a qualified charitable organization, the purported transferee or ownerwill have no right to vote those excess shares, and the purported transferee or owner will have no right to receive dividends or other distributions from thoseexcess shares. The Company's charter contains provisions that may delay, deter, or prevent a change of control transaction. The following provisions of theCompany's charter may delay or prevent a change of control over us, even if a change of control might be beneficial to our security holders, deter tender offersthat may be beneficial to our security holders, or limit security holders' opportunity to receive a potential premium for their shares and/or units if an investorattempted to gain shares beyond the Company's ownership limits or otherwise 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, includingconvertible 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. The issuance of preferred stock could delay or preventa tender offer or a change of control even if a tender offer or a change of control was in our security holder's interest. As of December 31, 2011,5,060,000 shares of the Company's preferred stock were issued and outstanding, consisting of 1,610,000 shares of the Company's Series EPreferred Stock and 3,450,000 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's outstanding SeriesA Cumulative Redeemable 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, but only for cause andthen only by the affirmative vote of the holders of at least two thirds of the votes of the Company's capital stock entitled to be cast in the electionof directors.The board of directors may change investment and financing policies without unitholder or stockholder approval, causing us to become morehighly leveraged, which may increase our risk of default under our debt obligations.28We are not limited in our ability to incur debt. Our financing policies and objectives are determined by the board of directors. Our goal is to limit ourdependence on leverage and maintain a conservative ratio of debt to total market capitalization. However, our organizational documents do not limit the amountor percentage of indebtedness, funded or otherwise, that we may incur. As of December 31, 2011, we had approximately $1.8 billion aggregate principalamount of indebtedness outstanding, which represented 42.4% of our total market capitalization. Our total debt and the liquidation value of our preferredequity as a percentage of total market capitalization was approximately 47.0% as of December 31, 2011. See “Item 7: Management's Discussion and Analysisof Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company— Capitalization” for a calculation of our marketcapitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debt outstandingwould result in an increase in our debt service, which could adversely affect cash flow and our ability to pay dividends and distributions to our securityholders. Higher leverage also increases the risk of default on our obligations and limits our ability to obtain additional financing in the future.29We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable, which may diluteunitholder or stockholder investment. The Company may issue shares of our common stock, preferred stock, or other equity or debt securities withoutstockholder approval, including the issuance of shares to satisfy REIT dividend distribution requirements. Similarly, the Operating Partnership may offer itscommon or preferred units for contributions of cash or property without approval by its unitholders. Further, under certain circumstances, the Company mayissue shares of our common stock in exchange for the Operating Partnership's outstanding Exchangeable Notes. Existing security holders have no preemptiverights to acquire any of these securities, 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 in decreasing the quotedtrading price per share of the Company's common stock and of the Operating Partnership's publicly-traded notes. Management cannot predict whetherfuture issuances of shares of the Company's common stock or the availability of shares for resale in the open market will result in decreasing the market priceper share of the Company's common stock. As of December 31, 2011, 58,819,717 shares of the Company's common stock and 5,060,000 shares of theCompany's preferred stock, consisting of 1,610,000 shares of Series E Preferred Stock and 3,450,000 shares of Series F Preferred Stock, were issued andoutstanding, and an additional 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, 2011, the Company had reserved for future issuance the following shares of common stock: 1,718,131 shares issuable upon theexchange, at the Company's option, of the Operating Partnership's common units; 3,773,622 shares remained available for grant under our 2006 IncentiveAward Plan (see Note 12 to our consolidated financial statements); 842,675 shares issuable upon settlement of restricted stock units ("RSUs"); and 5,000shares issuable upon exercise of outstanding options, as well as 1,681,813 and 4,800,796 shares potentially issuable under certain circumstances, inexchange for the 3.25% Exchangeable Notes and 4.25% Exchangeable Notes, respectively. The Company has a currently effective registration statementregistering 1,718,131 shares of our common stock for possible issuance to the holders of the Operating Partnership's common units. That registrationstatement also registers 306,808 shares of common stock held by certain stockholders for possible resale. The Company also has currently effectiveregistration statements registering the 1,681,813 shares of our common stock that may potentially be issued in exchange for the Operating Partnership'spresently outstanding 3.25% 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 freely traded in the publicmarkets.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's common stock. TheCompany currently operates in a manner that is intended to allow the Company to qualify as a REIT for federal income tax purposes under the Code. If theCompany were to lose its REIT status, the Company would face adverse tax consequences that would substantially reduce the funds available for distributionto our stockholders 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 taxable income and would besubject 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 years following the yearduring which the Company was disqualified.30In addition, if the Company failed to qualify as a REIT, the Company will not be required to make distributions to our stockholders, and alldistributions to our stockholders will be subject to tax as regular corporate dividends to the extent of its current and accumulated earnings and profits. As aresult of all these factors, the Company's failure to qualify as a REIT also could impair our ability to expand our business and raise capital and couldadversely affect the value and quoted trading price 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 limited judicial andadministrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code isgreater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirelywithin our control may affect the Company's ability to continue to qualify as a REIT. For example, to qualify as a REIT, at least 95% of the Company's grossincome in any year must be derived from qualifying sources. Also, the Company must make distributions to stockholders aggregating annually at least 90%of the Company's net taxable income (subject to certain adjustments and excluding any net capital gains). For distributions with respect to our 2008 through2011 taxable years, IRS guidance allows the Company to satisfy up to 90% of this requirement through the distribution of shares of its common stock, ifcertain conditions are met. In addition, legislation, new regulations, administrative31interpretations, or court decisions may adversely affect the Company's security holders or the Company's ability to qualify as a REIT for federal income taxpurposes or the desirability of an investment in a REIT relative to other investments. Although management believes that we are organized and operate in amanner to permit the Company to continue to qualify as a REIT, we cannot provide assurances that we have qualified or will continue to qualify as a REIT fortax purposes. We have not requested and do not plan to request a ruling from the IRS regarding our qualification as a REIT. To maintain the Company's REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions. Toqualify as a REIT, the Company generally must distribute to our stockholders at least 90% of the Company's net taxable income each year (subject to certainadjustments and excluding any net capital gains) and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of ournet 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 byus in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains, and 100% of our undistributed income from prioryears. For distributions with respect to our 2008 through 2011 taxable years, IRS guidance allows the Company to satisfy up to 90% of this requirementthrough the distribution of shares of its common stock, if certain conditions are met. To maintain the Company's REIT status and avoid the payment offederal income and excise taxes, the Operating Partnership may need to borrow funds on a short-term basis and loan the proceeds to the Company so we canmeet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needscould result from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes, or the effect ofnondeductible capital expenditures, the creation of reserves, or required debt or amortization payments.ITEM 1B.UNRESOLVED STAFF COMMENTSNone. 32ITEM 2.ITEM 2.PROPERTIESGeneralAs of December 31, 2011, our stabilized portfolio of operating properties was comprised of the following office and industrial properties. Number ofBuildings RentableSquare Feet Number ofTenants Percentage Occupied at December 31,2011Office Properties104 11,421,112 419 90.1% Industrial Properties39 3,413,354 63 100.0% Total Stabilized Portfolio143 14,834,466 482 92.4% All of our properties are located and all of our business is currently conducted in the state of California with the exception of the ownership and operationof six office properties located in the state of Washington.Our stabilized portfolio excludes undeveloped land, four office redevelopment properties that are currently under construction and two properties held-for-sale (see "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Influence Future Results ofOperations — Development and Redevelopment Programs). We own all of our properties through the Operating Partnership and the Finance Partnership. Allour properties are held in fee except for the nine office buildings which are held subject to long-term ground leases for the land (See Note 15 to our consolidatedfinancial statements included in this report for additional information regarding our ground lease obligations).In general, the Office Properties are leased to tenants on a full service gross or modified gross basis, and the Industrial Properties are leased to tenants on atriple net basis. Under a full service lease, the landlord is obligated to pay the tenant’s proportionate share of real estate taxes, insurance, and operatingexpenses up to the amount incurred during the tenant’s first year of occupancy (“Base Year”) or a negotiated amount approximating the tenant’s pro rata shareof real estate taxes, insurance, and operating expenses (“Expense Stop”). The tenant pays its pro rata share of increases in expenses above the Base Year orExpense Stop. A modified gross lease is similar to a full service gross lease, except tenants are obligated to pay their proportionate share of certain operatingexpenses, usually electricity, directly to the service provider. Under a triple net lease and a modified net lease, tenants pay their proportionate share of real estatetaxes, operating costs, and utility costs.We believe that all of our properties are well maintained and do not require significant capital improvements. As of December 31, 2011, we managed all ofour 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 owned as of December 31,2011.33Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)Office Properties: Los Angeles and Ventura Counties 23925 Park Sorrento,Calabasas, California1 2001 11,789 100.0% $421 $35.7123975 Park Sorrento,Calabasas, California1 2002 100,592 93.1% 3,252 35.7324025 Park Sorrento,Calabasas, California1 2000 102,264 64.6% 2,483 37.5626541 Agoura RoadCalabasas, California1 1988 90,156 100.0% 1,628 18.065151 Camino Ruiz,Camarillo, California2 1982 187,861 —% — —5153 Camino Ruiz,Camarillo, California1 1982 38,655 51.7% 407 20.385155 Camino Ruiz,Camarillo, California1 1982 38,856 51.4% — —2240 E. Imperial Highway,El Segundo, California1 1983/2008 122,870 100.0% 4,027 32.772250 E. Imperial Highway,El Segundo, California1 1983 298,728 99.6% 9,578 32.53Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)909 Sepulveda Blvd.,El Segundo, California1 1972/2005 241,607 88.6% 5,515 25.63999 Sepulveda Blvd.,El Segundo, California1 1962/2003 128,504 87.4% 2,528 24.483750 Kilroy Airport Way,Long Beach, California(4)1 1989 10,457 86.1% 100 18.363760 Kilroy Airport Way,Long Beach, California1 1989 165,278 90.6% 4,316 29.223780 Kilroy Airport Way,Long Beach, California1 1989 219,745 86.7% 5,224 28.043800 Kilroy Airport Way,Long Beach, California1 2000 192,476 93.6% 5,123 29.333840 Kilroy Airport Way,Long Beach, California1 1999 136,026 100.0% 4,915 36.133900 Kilroy Airport Way,Long Beach, California1 1987 126,840 91.8% 2,874 24.7312100 W. Olympic Blvd.,Los Angeles, California1 2003 150,167 72.0% 4,246 39.2812200 W. Olympic Blvd.,Los Angeles, California1 2000 150,302 99.0% 4,413 38.9212312 W. Olympic Blvd,Los Angeles, California(3)1 1950/1997 78,000 100.0% 2,108 27.031633 26th Street,Santa Monica, California1 1972/1997 44,915 100.0% 1,271 28.302100 Colorado Avenue,Santa Monica, California3 1992/2009 102,864 54.3% 2,413 43.173130 Wilshire Blvd.,Santa Monica, California1 1969/1998 88,339 91.2% 2,564 32.51501 Santa Monica Blvd.,Santa Monica, California1 1974 73,115 96.0% 2,667 38.872829 Townsgate Road,Thousand Oaks, California1 1990 81,067 90.6% 2,013 27.40Subtotal/Weighted Average—Los Angeles and Ventura Counties28 2,981,473 83.5% 74,086 30.85San Diego County 12225 El Camino Real,Del Mar, California(5)1 1998 60,148 97.8% 1,960 33.3112235 El Camino Real,Del Mar, California(5)1 1998 54,673 90.4% 1,795 36.3212340 El Camino Real,Del Mar, California(5)1 2002 87,405 86.9% 3,276 43.1412390 El Camino Real,12390 El Camino Real,Del Mar, California(5)1 2000 72,332 100.0% 3,069 42.4312348 High Bluff Drive,Del Mar, California(5)1 1999 38,710 100.0% 1,332 34.4112400 High Bluff Drive,Del Mar, California(5)1 2004 208,464 100.0% 9,897 47.483579 Valley Centre Drive,Del Mar, California(12)1 1999 52,375 79.0% 1,572 37.993611 Valley Centre Drive,Del Mar, California(5)1 2000 130,178 95.6% 4,349 36.873661 Valley Centre Drive,Del Mar, California(5)1 2001 129,752 99.4% 3,870 32.553721 Valley Centre Drive,Del Mar, California(5)1 2003 114,780 100.0% 3,767 32.823811 Valley Centre Drive,Del Mar, California(6)1 2000 112,067 100.0% 5,199 46.396200 Greenwich Drive,Governor Park, California(6)1 1999 71,000 100.0% 1,637 23.066220 Greenwich Drive,Governor Park , California(5)1 1996 141,214 100.0% 4,286 30.3534Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)15051 Avenue of Science,I-15 Corridor, California(6)1 2002 70,617 100.0% 2,035 28.8215073 Avenue of Science,I-15 Corridor, California(6)1 2002 46,759 100.0% 1,233 26.3715231 Avenue of Science,I-15 Corridor, California(13)1 2005 65,638 100.0% 1,331 20.2815253 Avenue of Science,I-15 Corridor, California(6)1 2005 37,437 100.0% 610 16.2915333 Avenue of Science,I-15 Corridor, California(5)1 2006 78,880 46.4% 765 20.8915378 Avenue of Science,I-15 Corridor, California(6)1 1990 68,910 100.0% 978 14.1915435 Innovation Drive,I-15 Corridor, California(5)1 2000 51,500 63.5% 732 22.3915445 Innovation Drive,I-15 Corridor, California(5)1 2000 51,500 100.0% 1,214 23.5713280 Evening Creek Drive South,I-15 Corridor, California(7)1 2008 42,971 49.5% 454 21.3513290 Evening Creek Drive South,I-15 Corridor, California1 2008 61,176 —% — —13480 Evening Creek Drive North,I-15 Corridor, California(5)1 2008 149,817 100.0% 7,779 51.9213500 Evening Creek Drive North,I-15 Corridor, California(5)1 2004 147,533 100.0% 6,471 43.8613520 Evening Creek Drive North,I-15 Corridor, California(5)1 2004 141,368 89.9% 4,500 36.257525 Torrey Santa Fe,56 Corridor, California(6)1 2007 103,979 100.0% 3,012 28.977535 Torrey Santa Fe,56 Corridor, California(6)1 2007 130,243 100.0% 3,693 28.357545 Torrey Santa Fe,56 Corridor, California(6)1 2007 130,354 100.0% 3,609 27.697555 Torrey Santa Fe,56 Corridor, California(6)1 2007 101,236 100.0% 3,175 31.362355 Northside Drive,Mission Valley, California(5)1 1990 50,425 84.5% 1,208 28.342365 Northside Drive,Mission Valley, California(5)1 1990 91,260 82.4% 2,189 29.092375 Northside Drive,Mission Valley, California(5)1 1990 48,949 83.0% 1,135 31.572385 Northside Drive,Mission Valley, California(5)1 2008 88,795 76.3% 2,135 31.522305 Historic Decatur Road,Point Loma, California(16)1 2009 103,900 95.3% 3,796 38.3210020 Pacific Mesa Blvd,Sorrento Mesa, California(3)1 2007 318,000 100.0% 7,683 24.164910 Directors Place,Sorrento Mesa, California(6)1 2009 50,925 44.2% 855 38.014921 Directors Place,Sorrento Mesa, California(5)1 2008 56,136 100.0% 1,347 24.004939 Directors Place,Sorrento Mesa, California(6)1 2002 60,662 100.0% 2,276 37.524955 Directors Place,Sorrento Mesa, California(6)1 2008 76,246 100.0% 2,881 37.795005 Wateridge Vista Drive,Sorrento Mesa, California1 1999 61,460 —% — —10770 Wateridge Circle,Sorrento Mesa, California(18)1 1989 174,310 97.5% 3,073 18.086055 Lusk Avenue,Sorrento Mesa, California(3)1 1997 93,000 100.0% 1,554 16.716260 Sequence Drive,Sorrento Mesa, California(6)1 1997 130,536 100.0% 1,717 13.1535Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)6290 Sequence Drive,Sorrento Mesa, California(6)1 1997 90,000 100.0% 2,098 23.316310 Sequence Drive,Sorrento Mesa, California(6)1 2000 62,415 100.0% 1,133 18.156340 Sequence Drive,Sorrento Mesa, California(6)1 1998 66,400 100.0% 1,341 20.206350 Sequence Drive,Sorrento Mesa, California1 1998 132,600 100.0% 2,507 18.9110390 Pacific Center Court,Sorrento Mesa, California(6)1 2002 68,400 100.0% 2,771 40.5110394 Pacific Center Court,Sorrento Mesa, California(6)1 1995 59,630 100.0% 1,077 18.0610398 Pacific Center Court,Sorrento Mesa, California(6)1 1995 43,645 100.0% 698 15.9910421 Pacific Center Court,Sorrento Mesa, California(17)1 1995/2002 75,899 100.0% 1,076 14.1810445 Pacific Center Court,Sorrento Mesa, California(6)1 1995 48,709 100.0% 831 17.0610455 Pacific Center Court,Sorrento Mesa, California1 1995 90,000 100.0% 1,112 12.365717 Pacific Center Blvd,Sorrento Mesa, California(3)1 2001/2005 67,995 100.0% 1,503 22.104690 Executive Drive,UTC, California(8)1 1999 47,212 100.0% 1,067 22.609455 Towne Center Drive,UTC, California1 1998 45,195 —% — —9785 Towne Center Drive,UTC, California(3)1 1999 75,534 100.0% 1,374 18.199791 Towne Center Drive,UTC, California(3)1 1999 50,466 100.0% 916 18.15Subtotal/Weighted Average—San Diego County59 5,181,720 92.5% 138,953 29.15Orange County 4175 E. La Palma Avenue,Anaheim, California1 1985 43,263 75.8% 596 18.178101 Kaiser Blvd.Anaheim, California1 1988 59,790 96.5% 1,135 19.672211 Michelson,Irvine, California(19)1 2007 271,556 92.3% 9,416 38.07111 Pacifica,Irvine Spectrum, California1 1991 67,496 97.1% 1,366 22.29999 Town & Country,Orange, California1 1977/2009 98,551 100.0% 2,919 29.62Subtotal/Weighted Average—Orange County5 540,656 93.4% 15,432 31.00San Francisco 303 Second Street,San Francisco, California1 1988 734,035 96.9% 26,114 36.84100 First Street,San Francisco, California1 1988 466,490 94.3% 17,915 41.85250 Brannan Street,San Francisco, California(5)1 1907/2001 92,948 100.0% 3,983 42.85201 Third Street,San Francisco, California1 1983 332,076 88.5% 9,073 31.73301 Brannan Street,San Francisco, California(5)1 1909/1989 74,430 66.1% 1,850 37.604040 Civic Center,San Rafael, California1 1979/1994 126,787 93.1% 2,580 22.17Subtotal/Weighted Average—San Francisco6 1,826,766 93.3% 61,515 36.59Greater Seattle 36Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)601 108th Avenue NE,Bellevue, Washington(3)1 2000 488,470 88.1% 11,634 27.6410220 NE Points Drive,Kirkland, Washington(3)1 1987 49,851 89.5% 1,148 25.9810230 NE Points Drive,Kirkland, Washington(3)1 1988 98,982 83.4% 2,220 27.3810210 NE Points Drive,Kirkland, Washington(3)1 1990 84,641 87.5% 1,719 23.203933 Lake Washington Blvd NE,Kirkland, Washington(3)1 1993 46,450 100.0% 1,209 26.0315050 N.E. 36th Street,Redmond, Washington(3)1 1998 122,103 100.0% 3,130 25.63Subtotal/Weighted Average—Greater Seattle6 890,497 89.9% 21,060 26.70TOTAL/WEIGHTED AVERAGEOFFICE PROPERTIES104 11,421,112 90.1% 311,046 30.69Industrial Properties: Orange County 1000 E. Ball Road,Anaheim, California1 1956 100,000 100.0% 757 7.571230 S. Lewis Road,Anaheim, California1 1982 57,730 100.0% 388 6.721250 N. Tustin Avenue,Anaheim, California1 1984 84,185 100.0% 593 7.043125 E. Coronado Street,Anaheim, California1 1970 144,000 100.0% 598 4.153130/3150 Miraloma,Anaheim, California1 1970 144,000 100.0% 838 5.823250 E. Carpenter,Anaheim, California1 1998 41,225 100.0% 314 7.623340 E. La Palma Avenue,Anaheim, California1 1966 153,320 100.0% 661 4.313355 E. La Palma Avenue,Anaheim, California1 1999 98,200 100.0% 923 9.404123 E. La Palma Avenue,Anaheim, California(10)1 1985 70,863 100.0% 645 9.114155 E. La Palma Avenue,Anaheim, California(9)1 1985 74,618 100.0% 766 10.285115 E. La Palma Avenue,Anaheim, California1 1967/1998 286,139 100.0% 2,078 7.265325 E. Hunter Avenue,Anaheim, California1 1983 110,487 100.0% 475 4.301145 N. Ocean Boulevard,Anaheim, California1 1999 67,500 100.0% 358 5.301201 N. Miller Street,Anaheim, California1 1999 119,612 100.0% 863 7.211211 N. Miller Street,Anaheim, California1 1999 200,646 100.0% 1,349 6.721231 N. Miller Street,Anaheim, California1 1999 113,700 100.0% 541 4.76950 W. Central Avenue,Brea, California1 1983 24,000 100.0% 214 8.921050 W. Central Avenue,Brea, California(14)1 1984 30,000 100.0% 266 8.871150 W. Central Avenue,Brea, California1 1984 30,000 100.0% 278 9.27895 Beacon Street,Brea, California1 1987 54,795 100.0% 304 5.55955 Beacon Street,Brea, California1 1987 37,916 100.0% 212 5.5937Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)Office Properties: Los Angeles and Ventura Counties 23925 Park Sorrento,Calabasas, California1 2001 11,789 100.0% $421 $35.7123975 Park Sorrento,Calabasas, California1 2002 100,592 93.1% 3,252 35.7324025 Park Sorrento,Calabasas, California1 2000 102,264 64.6% 2,483 37.5626541 Agoura RoadCalabasas, California1 1988 90,156 100.0% 1,628 18.065151 Camino Ruiz,Camarillo, California2 1982 187,861 —% — —5153 Camino Ruiz,Camarillo, California1 1982 38,655 51.7% 407 20.385155 Camino Ruiz,Camarillo, California1 1982 38,856 51.4% — —2240 E. Imperial Highway,El Segundo, California1 1983/2008 122,870 100.0% 4,027 32.772250 E. Imperial Highway,El Segundo, California1 1983 298,728 99.6% 9,578 32.53Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)909 Sepulveda Blvd.,El Segundo, California1 1972/2005 241,607 88.6% 5,515 25.63999 Sepulveda Blvd.,El Segundo, California1 1962/2003 128,504 87.4% 2,528 24.483750 Kilroy Airport Way,Long Beach, California(4)1 1989 10,457 86.1% 100 18.363760 Kilroy Airport Way,Long Beach, California1 1989 165,278 90.6% 4,316 29.223780 Kilroy Airport Way,Long Beach, California1 1989 219,745 86.7% 5,224 28.043800 Kilroy Airport Way,Long Beach, California1 2000 192,476 93.6% 5,123 29.333840 Kilroy Airport Way,Long Beach, California1 1999 136,026 100.0% 4,915 36.133900 Kilroy Airport Way,Long Beach, California1 1987 126,840 91.8% 2,874 24.7312100 W. Olympic Blvd.,Los Angeles, California1 2003 150,167 72.0% 4,246 39.2812200 W. Olympic Blvd.,Los Angeles, California1 2000 150,302 99.0% 4,413 38.9212312 W. Olympic Blvd,Los Angeles, California(3)1 1950/1997 78,000 100.0% 2,108 27.031633 26th Street,Santa Monica, California1 1972/1997 44,915 100.0% 1,271 28.302100 Colorado Avenue,Santa Monica, California3 1992/2009 102,864 54.3% 2,413 43.173130 Wilshire Blvd.,Santa Monica, California1 1969/1998 88,339 91.2% 2,564 32.51501 Santa Monica Blvd.,Santa Monica, California1 1974 73,115 96.0% 2,667 38.872829 Townsgate Road,Thousand Oaks, California1 1990 81,067 90.6% 2,013 27.40Subtotal/Weighted Average—Los Angeles and Ventura Counties28 2,981,473 83.5% 74,086 30.85San Diego County 12225 El Camino Real,Del Mar, California(5)1 1998 60,148 97.8% 1,960 33.3112235 El Camino Real,Del Mar, California(5)1 1998 54,673 90.4% 1,795 36.3212340 El Camino Real,Del Mar, California(5)1 2002 87,405 86.9% 3,276 43.1412390 El Camino Real,Del Mar, California(5)1 2000 72,332 100.0% 3,069 42.4312348 High Bluff Drive,Del Mar, California(5)1 1999 38,710 100.0% 1,332 34.4112400 High Bluff Drive,Del Mar, California(5)1 2004 208,464 100.0% 9,897 47.483579 Valley Centre Drive,Del Mar, California(12)1 1999 52,375 79.0% 1,572 37.993611 Valley Centre Drive,Del Mar, California(5)1 2000 130,178 95.6% 4,349 36.873661 Valley Centre Drive,Del Mar, California(5)1 2001 129,752 99.4% 3,870 32.553721 Valley Centre Drive,Del Mar, California(5)1 2003 114,780 100.0% 3,767 32.823811 Valley Centre Drive,Del Mar, California(6)1 2000 112,067 100.0% 5,199 46.396200 Greenwich Drive,Governor Park, California(6)1 1999 71,000 100.0% 1,637 23.066220 Greenwich Drive,Governor Park , California(5)1 1996 141,214 100.0% 4,286 30.35Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)15051 Avenue of Science,I-15 Corridor, California(6)1 2002 70,617 100.0% 2,035 28.8215073 Avenue of Science,I-15 Corridor, California(6)1 2002 46,759 100.0% 1,233 26.3715231 Avenue of Science,I-15 Corridor, California(13)1 2005 65,638 100.0% 1,331 20.2815253 Avenue of Science,I-15 Corridor, California(6)1 2005 37,437 100.0% 610 16.2915333 Avenue of Science,I-15 Corridor, California(5)1 2006 78,880 46.4% 765 20.8915378 Avenue of Science,I-15 Corridor, California(6)1 1990 68,910 100.0% 978 14.1915435 Innovation Drive,I-15 Corridor, California(5)1 2000 51,500 63.5% 732 22.3915445 Innovation Drive,I-15 Corridor, California(5)1 2000 51,500 100.0% 1,214 23.5713280 Evening Creek Drive South,I-15 Corridor, California(7)1 2008 42,971 49.5% 454 21.3513290 Evening Creek Drive South,I-15 Corridor, California1 2008 61,176 —% — —13480 Evening Creek Drive North,I-15 Corridor, California(5)1 2008 149,817 100.0% 7,779 51.9213500 Evening Creek Drive North,I-15 Corridor, California(5)1 2004 147,533 100.0% 6,471 43.8613520 Evening Creek Drive North,I-15 Corridor, California(5)1 2004 141,368 89.9% 4,500 36.257525 Torrey Santa Fe,56 Corridor, California(6)1 2007 103,979 100.0% 3,012 28.977535 Torrey Santa Fe,56 Corridor, California(6)1 2007 130,243 100.0% 3,693 28.357545 Torrey Santa Fe,56 Corridor, California(6)1 2007 130,354 100.0% 3,609 27.697555 Torrey Santa Fe,56 Corridor, California(6)1 2007 101,236 100.0% 3,175 31.362355 Northside Drive,Mission Valley, California(5)1 1990 50,425 84.5% 1,208 28.342365 Northside Drive,Mission Valley, California(5)1 1990 91,260 82.4% 2,189 29.092375 Northside Drive,Mission Valley, California(5)1 1990 48,949 83.0% 1,135 31.572385 Northside Drive,Mission Valley, California(5)1 2008 88,795 76.3% 2,135 31.522305 Historic Decatur Road,Point Loma, California(16)1 2009 103,900 95.3% 3,796 38.3210020 Pacific Mesa Blvd,Sorrento Mesa, California(3)1 2007 318,000 100.0% 7,683 24.164910 Directors Place,Sorrento Mesa, California(6)1 2009 50,925 44.2% 855 38.014921 Directors Place,Sorrento Mesa, California(5)1 2008 56,136 100.0% 1,347 24.004939 Directors Place,Sorrento Mesa, California(6)1 2002 60,662 100.0% 2,276 37.524955 Directors Place,Sorrento Mesa, California(6)1 2008 76,246 100.0% 2,881 37.795005 Wateridge Vista Drive,Sorrento Mesa, California1 1999 61,460 —% — —10770 Wateridge Circle,Sorrento Mesa, California(18)1 1989 174,310 97.5% 3,073 18.086055 Lusk Avenue,Sorrento Mesa, California(3)1 1997 93,000 100.0% 1,554 16.716260 Sequence Drive,Sorrento Mesa, California(6)1 1997 130,536 100.0% 1,717 13.15Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)6290 Sequence Drive,Sorrento Mesa, California(6)1 1997 90,000 100.0% 2,098 23.316310 Sequence Drive,Sorrento Mesa, California(6)1 2000 62,415 100.0% 1,133 18.156340 Sequence Drive,Sorrento Mesa, California(6)1 1998 66,400 100.0% 1,341 20.206350 Sequence Drive,Sorrento Mesa, California1 1998 132,600 100.0% 2,507 18.9110390 Pacific Center Court,Sorrento Mesa, California(6)1 2002 68,400 100.0% 2,771 40.5110394 Pacific Center Court,Sorrento Mesa, California(6)1 1995 59,630 100.0% 1,077 18.0610398 Pacific Center Court,Sorrento Mesa, California(6)1 1995 43,645 100.0% 698 15.9910421 Pacific Center Court,Sorrento Mesa, California(17)1 1995/2002 75,899 100.0% 1,076 14.1810445 Pacific Center Court,Sorrento Mesa, California(6)1 1995 48,709 100.0% 831 17.0610455 Pacific Center Court,Sorrento Mesa, California1 1995 90,000 100.0% 1,112 12.365717 Pacific Center Blvd,Sorrento Mesa, California(3)1 2001/2005 67,995 100.0% 1,503 22.104690 Executive Drive,UTC, California(8)1 1999 47,212 100.0% 1,067 22.609455 Towne Center Drive,UTC, California1 1998 45,195 —% — —9785 Towne Center Drive,UTC, California(3)1 1999 75,534 100.0% 1,374 18.199791 Towne Center Drive,UTC, California(3)1 1999 50,466 100.0% 916 18.15Subtotal/Weighted Average—San Diego County59 5,181,720 92.5% 138,953 29.15Orange County 4175 E. La Palma Avenue,Anaheim, California1 1985 43,263 75.8% 596 18.178101 Kaiser Blvd.Anaheim, California1 1988 59,790 96.5% 1,135 19.672211 Michelson,Irvine, California(19)1 2007 271,556 92.3% 9,416 38.07111 Pacifica,Irvine Spectrum, California1 1991 67,496 97.1% 1,366 22.29999 Town & Country,Orange, California1 1977/2009 98,551 100.0% 2,919 29.62Subtotal/Weighted Average—Orange County5 540,656 93.4% 15,432 31.00San Francisco 303 Second Street,San Francisco, California1 1988 734,035 96.9% 26,114 36.84100 First Street,San Francisco, California1 1988 466,490 94.3% 17,915 41.85250 Brannan Street,San Francisco, California(5)1 1907/2001 92,948 100.0% 3,983 42.85201 Third Street,San Francisco, California1 1983 332,076 88.5% 9,073 31.73301 Brannan Street,San Francisco, California(5)1 1909/1989 74,430 66.1% 1,850 37.604040 Civic Center, San Rafael, California1 1979/1994 126,787 93.1% 2,580 22.17Subtotal/Weighted Average—San Francisco6 1,826,766 93.3% 61,515 36.59Greater Seattle Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)601 108th Avenue NE,Bellevue, Washington(3)1 2000 488,470 88.1% 11,634 27.6410220 NE Points Drive,Kirkland, Washington(3)1 1987 49,851 89.5% 1,148 25.9810230 NE Points Drive,Kirkland, Washington(3)1 1988 98,982 83.4% 2,220 27.3810210 NE Points Drive,Kirkland, Washington(3)1 1990 84,641 87.5% 1,719 23.203933 Lake Washington Blvd NE,Kirkland, Washington(3)1 1993 46,450 100.0% 1,209 26.0315050 N.E. 36th Street,Redmond, Washington(3)1 1998 122,103 100.0% 3,130 25.63Subtotal/Weighted Average—Greater Seattle6 890,497 89.9% 21,060 26.70TOTAL/WEIGHTED AVERAGEOFFICE PROPERTIES104 11,421,112 90.1% 311,046 30.69Industrial Properties: Orange County 1000 E. Ball Road,Anaheim, California1 1956 100,000 100.0% 757 7.571230 S. Lewis Road,Anaheim, California1 1982 57,730 100.0% 388 6.721250 N. Tustin Avenue,Anaheim, California1 1984 84,185 100.0% 593 7.043125 E. Coronado Street,Anaheim, California1 1970 144,000 100.0% 598 4.153130/3150 Miraloma,Anaheim, California1 1970 144,000 100.0% 838 5.823250 E. Carpenter,Anaheim, California1 1998 41,225 100.0% 314 7.623340 E. La Palma Avenue,Anaheim, California1 1966 153,320 100.0% 661 4.313355 E. La Palma Avenue,Anaheim, California1 1999 98,200 100.0% 923 9.404123 E. La Palma Avenue,Anaheim, California(10)1 1985 70,863 100.0% 645 9.114155 E. La Palma Avenue,Anaheim, California(9)1 1985 74,618 100.0% 766 10.285115 E. La Palma Avenue,Anaheim, California1 1967/1998 286,139 100.0% 2,078 7.265325 E. Hunter Avenue,Anaheim, California1 1983 110,487 100.0% 475 4.301145 N. Ocean Boulevard,Anaheim, California1 1999 67,500 100.0% 358 5.301201 N. Miller Street,Anaheim, California1 1999 119,612 100.0% 863 7.211211 N. Miller Street,Anaheim, California1 1999 200,646 100.0% 1,349 6.721231 N. Miller Street,Anaheim, California1 1999 113,700 100.0% 541 4.76950 W. Central Avenue,Brea, California1 1983 24,000 100.0% 214 8.921050 W. Central Avenue,Brea, California(14)1 1984 30,000 100.0% 266 8.871150 W. Central Avenue,Brea, California1 1984 30,000 100.0% 278 9.27895 Beacon Street,Brea, California1 1987 54,795 100.0% 304 5.55955 Beacon Street,Brea, California1 1987 37,916 100.0% 212 5.59Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/11(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)1125 Beacon Street, Brea, California1 1988 49,178 100.0% 420 8.54925 Lambert Road,Brea, California(11)1 1999 80,000 100.0% 521 6.511075 Lambert Road,Brea, California(11)1 1999 98,811 100.0% 590 5.971675 MacArthur Blvd,Costa Mesa, California1 1986 50,842 100.0% 577 11.3525902 Towne Center Drive,Foothill Ranch, California1 1998 309,685 100.0% 2,459 7.9412681/12691 Pala Drive,Garden Grove, California(15)1 1970 84,700 100.0% 632 7.467421 Orangewood Avenue,Garden Grove, California(6)1 1981 82,602 100.0% 643 7.787091 Belgrave Avenue,Garden Grove, California1 1971 70,000 100.0% 310 4.4312271 Industry Street,Garden Grove, California(5)1 1972 20,000 100.0% 159 7.9512311 Industry Street,Garden Grove, California(5)1 1972 25,000 100.0% 196 7.847261 Lampson Avenue,Garden Grove, California1 1974 47,092 100.0% 330 7.0112472 Edison Way,Garden Grove, California1 1984 55,576 100.0% 416 7.4912442 Knott Street,Garden Grove, California1 1985 58,303 100.0% 344 5.902055 S.E. Main Street,Irvine, California1 1973 47,583 100.0% 541 11.371951 E. Carnegie Avenue,Santa Ana, California1 1981 100,000 100.0% 746 7.462525 Pullman Street,Santa Ana, California1 1976 103,380 100.0% 548 5.3014831 Franklin Avenue,Tustin, California1 1978 36,256 100.0% 222 6.122911 Dow Avenue,Tustin, California1 1998 51,410 100.0% 316 6.15TOTAL/WEIGHTED AVERAGEINDUSTRIAL PROPERTIES39 3,413,354 100.0% 23,391 6.85TOTAL/WEIGHTED AVERAGE ALLPROPERTIES143 14,834,466 92.4% 334,437 24.68_________________(1)Based on all leases at the respective properties in effect as of December 31, 2011. Includes month-to-month leases as of December 31, 2011.(2)Reflects annualized contractual base rent calculated on a straight-line basis in accordance with GAAP, excluding the amortization of deferred revenue related to tenant-funded tenant improvements, lease incentive amortization,above/below market rent amortization, and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2011.(3)For these properties, the leases are written on a triple net basis.(4)For this property, leases of approximately 5,000 rentable square feet are written on a modified gross basis, and a lease of approximately 2,000 rentable square feet is written on a full service gross basis.(5)For these properties, the leases are written on a modified gross basis.38(6)For these properties, the leases are written on a modified net basis.(7)For this property, a lease of approximately 20,000 rentable square feet is written on a modified net basis, and leases of approximately 17,000 rentable square feet are written on a modified gross basis. The remaining 6,000rentable square feet is currently being marketed for lease.(8)For this property, leases of approximately19,000 rentable square feet are written on a modified net basis, and leases of approximately 28,000 rentable square feet are written on a modified gross basis.(9)For this property, leases of approximately 15,000 rentable square feet are written on a full service gross basis, leases of approximately 42,000 rentable square feet are written on a triple net basis, and leases of approximately18,000 rentable square feet are written on a modified net basis.(10)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 rentable square feet is written on a triple net basis.(11)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 rentable square feet is written on a modified gross basis.(12)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 is currently being marketed for lease.(13)For this property, a lease of approximately 47,000 rentable square feet is written on a modified net basis. Leases for 18,000 rentable square feet are written on a modified gross basis.(14)For this property, leases of approximately 30,000 rentable square feet are written on a modified gross basis.(15)For this property, a lease of approximately 70,000 rentable square feet is written on a modified net basis, and a lease of approximately 15,000 rentable square feet is written on a triple net basis.(16)For this property, leases of approximately 84,000 rentable square feet are written on a modified gross basis, and a lease of approximately 17,000 rentable square feet is written39on a gross basis.(17)For this property, leases of approximately 76,000 rentable square feet are written on a modified net basis.(18)For this property, leases of approximately 123,000 rentable square feet are written on a modified net basis. Leases for 47,000 rentable square feet are written on a modified gross basis.(19)For this property, leases of approximately 230,000 rentable square feet are written on a direct expense stop basis. Leases for 21,000 rentable square feet are written on a full service gross basis.40In Process Redevelopment PropertiesAs of December 31, 2011, we had the following in-process office redevelopment properties. Construction Period Project Start Date EstimatedCompl. Date EstimatedStabilization Date (1) EstimatedRentable SquareFeet % Leased 2260 E. Imperial HighwayEl Segundo, California (2) 3Q 2010 4Q 2012 4Q 2012 299,000 100%3880 Kilroy Airport WayLong Beach, California (3) 3Q 2011 2Q 2012 2Q 2013 98,000 50%5010 Wateridge Vista DriveSorrento Mesa, California (4) 3Q 2011 3Q 2012 3Q 2012 111,000 100%370 Third St.San Francisco, California (5) 4Q 2011 4Q 2012 4Q 2013 410,000 37% 918,000 67%_______________________(1)Based on management's estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.(2)The tenant is obligated to begin paying cash rent in December 2012, however, completion of tenant improvements and physical occupancy may occur in phases.(3)The redevelopment will occur in two phases and the existing tenant will occupy approximately 50% during both redevelopment phases. Capitalized carry costs will be prorated based on occupancy during redevelopment.(4)The redevelopment project includes one of our undeveloped land parcels, Sorrento Gateway Lot 7.(5)This building was acquired in December 2011 and is subject to a ground lease. Approximately 9% of the project is currently leased and occupied by an existing tenant and will not be redeveloped. Costs will be capitalized on theapproximately 91% of the project that is being redeveloped. 41Future Development Pipeline and Other Land HoldingsThe following tables set forth certain information relating to our undeveloped land pipeline and our other land holdings as of December 31, 2011.Future Development Pipeline Project Submarket Gross Site AcreageSAN DIEGO, CALIFORNIA Carlsbad Oaks—Lots 4, 5, 7 & 8 Carlsbad 32.0Pacific Corporate Center—Lot 8 Sorrento Mesa 5.0Rancho Bernardo Corporate Center I-15 Corridor 21.0One Paseo Del Mar 23.0Santa Fe Summit—Phase II and III 56 Corridor 21.8Sorrento Gateway—Lot 2 Sorrento Mesa 6.3Subtotal 109.1GREATER SEATTLE, WASHINGTON Plaza at Yarrow Bay - Building 5 Kirkland 1.1Total 110.242Other Land Holdings Project Submarket Gross Site AcreageIRVINE, CALIFORNIA 17150 Von Karman (1) Irvine 8.5 ______________________(1)During the fourth quarter of 2011, we completed demolition of the industrial building at this site to prepare for the possible sale of the land since we successfully obtained entitlements to reposition this site for residential use. Theultimate decision to sell this site and the timing of any potential future sale will depend upon market conditions and other factors.Properties Held for SaleAs of December 31, 2011, the following properties were classified as held for sale.PropertyProperty Type Number of Buildings Rentable Square Feet15004 Innovation Drive, San Diego, CA (1)Office 1 150,80110243 Genetic Center Drive, San Diego, CA (1)Office 1 102,875_______________(1)On January 30, 2012, we sold these two buildings to an unaffiliated third party for a net sales price of $146.1 million.43Significant TenantsThe following table sets forth information about our fifteen largest tenants based upon annualized base rental revenues, as defined below, as ofDecember 31, 2011.Tenant NameProduct Type Annualized Base RentalRevenue(1) Percentage of TotalAnnualized Base RentalRevenue(1) Lease Expiration Date (in thousands) Intuit, Inc.Office $15,126 4.5% Various(2)Bridgepoint Education, Inc.Office 15,099 4.5 Various(3)DIRECTV, Inc. (4)Office 11,378 3.4 September 2027Delta Dental of CaliforniaOffice 10,276 3.1 May 2015CareFusion Corporation (5)Office 10,087 3.0 Various(6)AMN Healthcare, Inc.Office 8,192 2.5 July 2018Wells Fargo (5)Office 6,850 2.1 Various(7)Hewlett-Packard CompanyOffice 6,187 1.9 Various(8)Fish & Richardson P.C.Office 6,071 1.8 October 2018Scripps HealthOffice 5,199 1.6 June 2021BP BiofuelsOffice 5,128 1.5 Various(9)Epson America, Inc.Office 4,915 1.5 October 2019Avnet, Inc.Office 4,163 1.2 Various(10)Scan Health Plan (5)Office 4,075 1.2 Various(11)Mitchell International, Inc.Office 3,775 1.1 October 2025Total $116,521 34.9% _______________________________________(1)Represents annualized contractual base rent calculated on a straight-line basis in accordance with GAAP, excluding the above/below market rent amortization and expense reimbursement revenue, for leases which rentalrevenue is being recognized by us as of December 31, 2011. (2)The Intuit Inc. leases, which contribute $1.6 million and $13.5 million of annualized base rental revenues, expire in August 201244and August 2017, respectively.(3)The Bridgepoint Education Inc. leases, which contribute $1.0 million, $6.3 million, and $7.8 million of annualized base rental revenues, expire in February 2017, July 2018, and September 2018, respectively.(4)In November 2011, we executed a new lease with DIRECTV, Inc. ("DIRECTV") for approximately 299,000 rentable square feet at 2260 E. Imperial Highway in Los Angeles, CA. This lease will increase our annualized baserental revenues and percentage of total annualized base rental revenues from DIRECTV to approximately $22.2 million and 6.5%, respectively, and is expected to commence in the fourth quarter of 2012. DIRECTV isexpected to become our largest tenant upon commencement of this lease.(5)We have entered into leases with various affiliates of the tenant listed above.(6)The CareFusion Corporation leases, which contribute $0.8 million and $9.3 million of annualized base rental revenues, expire in February 2012 and August 2017, respectively.(7)The Wells Fargo leases, which contribute $0.1 million, $1.5 million, $1.0 million, $0.4 million, $0.4 million, $1.9 million, $0.7 million, $0.1 million, and $0.7 million of annualized rental revenues, expire in February 2013,September 2013, November 2014, August 2015, July 2016, September 2017, January 2019, February 2019, and May 2019, respectively.(8)The Hewlett-Packard Company leases, which contribute $4.3 million and $1.9 million of annualized base rental revenues, expire in April 2012 and July 2015, respectively.(9)The BP Biofuels leases, which contribute $2.9 million and $2.3 million of annualized base rental revenues, expire in November 2015 and March 2017, respectively.(10)The Avnet, Inc. leases, which contribute $3.8 million and $0.4 million of annualized base rental revenues, expire in February 2013 and January 2018, respectively.(11)The Scan Heath Plan leases, which contribute $0.4 million and $3.6 million of annualized base rental revenues, expire in February 2012 and June 2015, respectively.45 The following pie chart sets forth the composition of our tenant base by industry based on Standard Industrial Classifications as of December 31, 2011.46Lease ExpirationsThe following table sets forth a summary of our lease expirations for the Office Properties and Industrial Properties for each of the next ten years beginningwith 2012, assuming that none of the tenants exercise renewal options or termination rights. See further discussion of our lease expirations under“Item 1A: Risk Factors”.Lease Expirations (1)47Year of LeaseExpiration# of ExpiringLeases Total Square Feet % of Total LeasedSquare Feet Annualized Base Rent(000’s)(2) % of TotalAnnualized BaseRent(2) Annualized Rent perSquare Foot (2)OfficeProperties: 201277 789,870 5.8% $22,499 6.7% $28.48201392 1,147,504 8.5% 32,760 9.8% 28.55201482 1,072,876 7.9% 29,197 8.8% 27.212015123 1,967,110 14.5% 59,849 17.9% 30.42201658 671,864 5.0% 16,863 5.0% 25.10201757 1,582,686 11.7% 47,105 14.1% 29.76201818 835,325 6.2% 35,437 10.6% 42.42201920 598,685 4.4% 20,642 6.2% 34.48202014 577,993 4.3% 16,588 4.9% 28.7020219 322,396 2.4% 11,510 3.3% 35.702022 andbeyond11 569,201 4.2% 18,596 5.6% 32.67 561 10,135,510 74.9% $311,046 92.9% $30.69Year of LeaseExpiration# of ExpiringLeases Total Square Feet % of Total Leased SquareFeet Annualized Base Rent(000’s)(2) % of Total AnnualizedBase Rent(2) Annualized Rent per SquareFoot (2)IndustrialProperties: 20128 318,738 2.4% $2,212 0.7% $6.94201310 665,357 4.9% 4,857 1.4% 7.30201420 610,642 4.5% 4,828 1.4% 7.91201511 655,351 4.9% 4,314 1.3% 6.5820165 139,845 1.0% 823 0.3% 5.8920174 149,482 1.1% 888 0.3% 5.9420183 186,878 1.3% 1,189 0.4% 6.3620193 196,910 1.5% 1,664 0.5% 8.4520201 50,842 0.3% 577 0.2% 11.3520213 371,633 2.7% 1,681 0.5% 4.522022 andbeyond1 67,500 0.5% 358 0.1% 5.30 69 3,413,178 25.1% $23,391 7.1% $6.85Total Portfolio630 13,548,688 100.0% $334,437 100.0% $24.68_______________________(1)The information presented reflects leasing activity through December 31, 2011. For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rentinformation presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases and vacant space as of December 31, 2011.(2)Reflects annualized contractual base rent calculated on a straight-line basis in accordance with GAAP, excluding the amortization of deferred revenue related to tenant-funded tenant improvements, lease incentive amortization,above/below market rent amortizat48ion, and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net.49Secured DebtAs of December 31, 2011, the Operating Partnership had six outstanding mortgage notes payable, which were secured by certain of our properties. Oursecured debt represents an aggregate indebtedness of approximately $351.0 million. See additional information regarding our secured debt in“Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources—Liquidity Sources,”Notes 6 and 7 to our consolidated financial statements, and Schedule III—Real Estate and Accumulated Depreciation included with this report. Managementbelieves that, as of December 31, 2011, the value of the properties securing the applicable secured obligations in each case exceeded the principal amount of theoutstanding obligation.ITEM 3.LEGAL PROCEEDINGSWe and our properties are subject to routine litigation incidental to our business. As of December 31, 2011, we are not a defendant in, and our propertiesare not subject to, any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect upon our financial condition,results of operations, or cash flows.ITEM 4.MINE SAFETY DISCLOSURESNone. 50PART IIITEM 5.MARKET FOR KILROY REALTY CORPORATION'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER 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 this report was filed, therewere approximately 99 registered holders of the Company's common stock. The following table illustrates the high, low, and closing prices by quarter, as wellas dividends declared, during 2011 and 2010 as reported on the NYSE. 2011High Low Close Per Share CommonStock DividendsDeclaredFirst quarter$39.24 $36.61 $38.83 $0.3500Second quarter41.94 38.04 39.49 0.3500Third quarter41.58 30.01 31.30 0.3500Fourth quarter38.57 29.25 38.07 0.35002010High Low Close Per Share CommonStock DividendsDeclaredFirst quarter$32.60 $26.75 $30.84 $0.3500Second quarter36.72 29.73 29.73 0.3500Third quarter34.39 27.54 33.14 0.3500Fourth quarter36.72 32.64 36.47 0.3500The Company pays distributions to common stockholders quarterly each January, April, July, and October at the discretion of the board of directors.Distribution amounts depend on our FFO, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of theCode, and such other factors as the board of directors deems relevant.MARKET FOR KILROY REALTY , L.P.'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES 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 16 holdersof record of our common limited partnership units (including the Company’s general partnership interest).The following table reports the distributions per common limited partnership unit declared during the years ended December 31, 2011 and 2010.2011 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.35002010 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.3500During 2011, the operating partnership redeemed 5,000 common limited partnership units for the same number of shares of the Company’s commonstock. During 2010, the operating partnership did not redeem any common limited partnership units for shares of the Company's common stock.51PERFORMANCE GRAPHThe following line graph compares the change in cumulative stockholder return on shares of the Company's common stock to the cumulative total returnof the NAREIT All Equity REIT Index, the Standard & Poor’s 500 Stock Index, and the SNL REIT Office Index for the five-year period ended December 31,2011. We include an additional index, the SNL REIT Office Index, to the performance graph since management believes it provides additional information toinvestors about our performance relative to a more specific peer group. The SNL REIT Office Index is a published and widely recognized index that comprises22 office equity REITs, including us. The graph assumes the investment of $100 in us and each of the indices on December 31, 2006 and, as required by theSEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.52ITEM 6.ITEM 6.SELECTED FINANCIAL DATA - KILROY REALTY CORPORATION The following tables set forth selected consolidated financial and operating data on an historical basis for the Company. The following data should be readin conjunction with our financial statements and notes thereto and “Item 7: Management's Discussion and Analysis of Financial Condition and Results ofOperations” included below in this report.The consolidated balance sheet data as of December 31, 2011and 2010 and the consolidated statement of operations data for the years ended December 31,2011, 2010 and 2009 have been derived from the historical consolidated financial statements of Kilroy Realty Corporation audited by Deloitte & Touche LLP,an independent registered public accounting firm. The consolidated balance sheet data as of December 31, 2009, 2008 and 2007 and the consolidatedstatement of operations data for the years ended December 31, 2008 and 2007 have been derived from the historical consolidated financial statements of KilroyRealty Corporation and adjusted for the impact of subsequent accounting changes requiring retrospective application, if any.Kilroy Realty Corporation Consolidated(in thousands, except share, per share, square footage and occupancy data) Year Ended December 31, 2011 2010 2009 2008 2007Statements of Operations Data: Total revenues from continuing operations$367,131 $287,396 $264,804 $279,942 $249,006Income from continuing operations5,059 10,302 28,032 40,972 39,496Income from discontinued operations62,430 9,584 9,983 5,939 83,821Net income available to common stockholders50,819 4,512 21,794 29,829 101,164Per-Share Data: Weighted average common shares outstanding-basic56,717,121 49,497,487 38,705,101 32,466,591 32,379,997Weighted average common shares outstanding-diluted56,717,121 49,497,487 38,732,126 32,540,872 32,408,966(Loss) income from continuing operations available to commonstockholders per common share-basic$(0.20) $(0.12) $0.28 $0.74 $0.67(Loss) income from continuing operations available to commonstockholders per common share-diluted$(0.20) $(0.12) $0.28 $0.74 $0.67Net income available to common stockholders per share-basic$0.87 $0.07 $0.53 $0.91 $3.09Net income available to common stockholders per share-diluted$0.87 $0.07 $0.53 $0.91 $3.09Dividends declared per common share$1.40 $1.40 $1.63 $2.32 $2.22 53 December 31, 2011 2010 2009 2008 2007Balance Sheet Data: Total real estate held for investment, before accumulateddepreciation and amortization$3,798,690 $3,216,871 $2,520,083 $2,475,596 $2,370,004Total assets3,446,795 2,816,565 2,084,281 2,102,918 2,069,810Total debt1,821,286 1,427,776 972,016 1,142,348 1,072,659Total noncontrolling interest - preferred units(1)73,638 73,638 73,638 73,638 73,638Total preferred stock121,582 121,582 121,582 121,582 121,582Total equity(2)1,327,482 1,117,730 883,838 714,886 767,034Other Data: Funds From Operations(3)$136,173 $106,639 $107,159 $113,972 $107,324Cash flows provided by (used in): Operating activities138,256 119,827 124,965 144,481 147,500Investing activities(634,283) (701,774) (50,474) (93,825) (244,802)Financing activities485,964 586,904 (74,161) (52,835) 97,086Property Data: Office Properties: Rentable square footage11,421,112 10,395,208 8,708,466 8,650,126 8,088,769Occupancy90.1% 87.5% 80.6% 86.2% 93.7%Industrial Properties: Rentable square footage3,413,354 3,602,896 3,654,463 3,718,663 3,869,969Occupancy100.0% 93.9% 88.2% 96.3% 94.7%_______________________(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 net income or loss calculated in accordance with GAAP, excludingextraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization(excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identifythe operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting theoperations 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 allother REITs. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallenwith market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludesdepreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a moreappropriate basis on which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone would provide. However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary tomaintain the operating performance of our properties, which are significant economic costs and 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 real estate assets, and net gain (loss) from dispositions of operatingproperties. For additional information, see "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -Non-GAAP Supplemental Financial Measure: Funds From Operations”including a reconciliation of our GAAP net income available for common stockholders to FFO for the periods presented.54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 datashould be read in conjunction with our financial statements and notes thereto and “Item 7: Management's Discussion and Analysis of Financial Condition andResults of Operations” included below in this report.The consolidated balance sheet data as of December 31, 2011and 2010 and the consolidated statement of operations data for the years ended December 31,2011, 2010 and 2009 have been derived from the historical consolidated financial statements of Kilroy Realty, L.P. audited by Deloitte & Touche LLP, anindependent registered public accounting firm. The consolidated balance sheet data as of December 31, 2009, 2008 and 2007 and the consolidated statementof operations data for the years ended December 31, 2008 and 2007 have been derived from the historical consolidated financial statements of Kilroy Realty,L.P. and adjusted for the impact of subsequent accounting changes requiring retrospective application, if any.Kilroy Realty, L.P. Consolidated(in thousands, except unit, per unit, square footage and occupancy data) Year Ended December 31, 2011 2010 2009 2008 2007Statements of Operations Data: Total revenues from continuing operations$367,131 $287,396 $264,804 $279,942 $249,006Income from continuing operations5,059 10,302 28,032 40,972 39,496Income from discontinued operations62,430 9,584 9,983 5,939 83,821Net income available to common unitholders51,764 4,528 22,618 31,478 107,797Per Unit Data: Weighted average common units outstanding-basic58,437,444 51,220,618 40,436,196 34,531,779 34,615,769Weighted average common units outstanding-diluted58,437,444 51,220,618 40,463,221 34,606,060 34,644,738(Loss) income from continuing operations available to commonunitholders per common unit-basic$(0.20) $(0.12) $0.28 $0.73 $0.66(Loss) income from continuing operations available to commonunitholders per common unit-diluted$(0.20) $(0.12) $0.28 $0.73 $0.66Net income available to common unitholders per unit-basic$0.86 $0.07 $0.53 $0.90 $3.09Net income available to common unitholders per unit-diluted$0.86 $0.07 $0.53 $0.90 $3.09Distributions declared per common unit$1.40 $1.40 $1.63 $2.32 $2.22 55 December 31, 2011 2010 2009 2008 2007Balance Sheet Data: Total real estate held for investment, beforeaccumulated depreciation and amortization$3,798,690 $3,216,871 $2,520,083 $2,475,596 $2,370,004Total assets3,446,795 2,816,565 2,084,281 2,102,918 2,069,810Total debt1,821,286 1,427,776 972,016 1,142,348 1,072,659Series A redeemable preferred units (1)73,638 73,638 73,638 73,638 73,638Total preferred capital121,582 121,582 121,582 121,582 121,582Total capital (2)1,327,482 1,117,730 883,838 714,886 767,034Other Data: Cash flows provided by (used in): Operating activities138,256 119,827 124,965 144,481 147,500 Investing activities(634,283) (701,774) (50,474) (93,825) (244,802) Financing activities485,964 586,904 (74,161) (52,835) 97,086Property Data: Office Properties: Rentable square footage11,421,112 10,395,208 8,708,466 8,650,126 8,088,769 Occupancy90.1% 87.5% 80.6% 86.2% 93.7%Industrial Properties: Rentable square footage3,413,354 3,602,896 3,654,463 3,718,663 3,869,969 Occupancy100.0% 93.9% 88.2% 96.3% 94.7%_______________________(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.56ITEM 7.ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes theretoappearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there are nomaterial differences in the results of operations between the two reporting entities.Forward-Looking StatementsStatements contained in this “Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations” that are not historicalfacts may be forward-looking statements, including statements or information concerning projected future occupancy and rental rates, lease expirations, debtmaturity, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, dispositions, futureexecutive incentive compensation, pending, potential or proposed acquisitions and other forward-looking financial data, as well as the discussion in “—Factors That May Influence Future Results of Operations”, “—Liquidity and Capital Resource of the Company”, and “—Liquidity and Capital Resourcesof the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,”“should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similarexpressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are notguarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors thatare difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from thoseindicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results oroutcomes. Numerous factors could cause actual future events to differ materially from those indicated in forward-looking statements, including, among others:•global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants;•adverse economic or real estate conditions in California and Washington including with respect to California's continuing budget deficits;•risks associated with investment in real estate assets which are illiquid, and trends in the real estate industry;•defaults on or non-renewal of leases by tenants;•any significant downturn in tenants' businesses;•the ability to re-lease property at or above current market rates;•costs to comply with government regulations;•the availability of cash for distribution and for debt service and exposure of risk of default under debt obligations;•significant competition, which may decrease the occupancy and rental rates of properties;•potential losses that may not be covered by insurance;•the ability to complete acquisitions and dispositions on announced terms;•the ability to successfully operate acquired properties;•the ability to successfully complete development and redevelopment properties on schedule and within budgeted amounts;•defaults on leases for land on which properties are located;•adverse changes to, or implementations of, applicable laws, regulations or legislation;•environmental uncertainties and risks related to natural disasters; and•the ability to maintain its status as a REIT.The factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance. For adiscussion of additional risk factors, see the factors included in this report under the caption “Risk Factors,” and in our other filings with the SEC. Allforward-looking statements are based on currently available information and speak only as of the date of this report. We assume no obligation to update anyforward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so inconnection with our ongoing requirements under federal securities laws.Company OverviewWe are a self-administered REIT active in office and industrial submarkets along the West Coast. We own, develop, acquire and manage real estate assets,consisting primarily of Class A real estate properties in the coastal regions of Los Angeles, Orange County, San Diego County, greater Seattle and the SanFrancisco Bay Area, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our properties through theOperating Partnership and the Finance Partnership, and57conduct substantially all of our operations through the Operating Partnership. We owned a 97.2% and 96.8% general partnership interest in the OperatingPartnership as of December 31, 2011 and 2010, respectively. All our properties are held in fee except for the nine office buildings which are held subject tolong-term ground leases for the land (See Note 15 to our consolidated financial statements included in this report for additional information regarding ourground lease obligations).2011 HighlightsIn summary, we made significant progress on several fronts during 2011, and are well-positioned for continued long-term growth through our strongleasing performance, well timed acquisitions and redevelopment efforts, ongoing capital recycling program, and successful financing activities.Leasing - During 2011, we executed leases on 2.6 million square feet, our highest annual leasing performance since our formation in 1997. This leasingactivity included a lease signed with DIRECTV for approximately 630,000 rentable square feet, which could increase to 720,000 rentable square feet over theterm of the lease. The lease includes approximately 333,000 of rentable square feet that they currently occupy and an additional building encompassing299,000 rentable square feet that is currently under redevelopment. As a result of our successful leasing efforts, occupancy in our stabilized portfolioincreased 330 basis points to 92.4% as of December 31, 2011, up from 89.1% as of December 31, 2010.Acquisitions - We remain a disciplined buyer of office properties and continue to focus on value add opportunities in West Coast markets populated by highgrowth tenants in a variety of industries, including technology, media, healthcare, entertainment and services. During 2010, we acquired ten buildings, two ofwhich were in the San Francisco Bay Area and one of which was in greater Seattle. During 2011, we continued to expand our portfolio in the San FranciscoBay Area and greater Seattle through the acquisitions of ten buildings, five in each respective region, for a total purchase price of $605.1 million. We alsoacquired one building in San Diego for $32.7 million. As a result of the 2011 acquisitions, our total portfolio has increased by approximately 2.0 millionsquare feet.Redevelopment - During 2011, we continued the redevelopment of one existing office property and commenced the redevelopment of two additional existingoffice properties to upgrade and modernize the buildings and adjacent common areas. The projects have a total estimated investment of approximately $117.5million at completion, including the $37.6 million net carrying val58ue of the projects at the commencement of redevelopment. Construction for all projects is currently expected to be completed in 2012 and the properties wereapproximately 90% pre-leased as of December 31, 2011.In addition, in December 2011, we commenced redevelopment at one of our newly acquired properties in San Francisco that was 9% occupied upon closing.Redevelopment was commenced on the balance of the building upon acquisition and construction is currently expected to be completed in 2012. We have alsopre-leased an additional 28% of space in the building. The project has a total estimated investment of approximately $147.9 million at completion.Capital Recycling Program - We have utilized our capital recycling program to provide additional capital to fund potential acquisitions, to financedevelopment and redevelopment expenditures, to potentially repay long-term debt and for other general corporate purposes. Our general strategy is to target thedisposition of mature properties or those that have limited upside for us and redeploy some or all of the capital into acquisitions where we can add additionalvalue to generate higher returns (see "—Factors that May Influence Future Operations" below for additional information).Financings - In addition to obtaining funding from our capital recycling program, we successfully completed a variety of financing and capital raisingactivities to fund our continued growth (see "— Liquidity and Capital Resources of the Operating Partnership" below for additional information).Critical Accounting PoliciesThe preparation of financial statements in conformity with GAAP requires us to make estimates, assumptions, and judgments that affect the reportedamounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesand expenses for the reporting periods.Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that require our management teamto make significant estimates and/or assumptions about matters that are uncertain at the time the estimates and/or assumptions are made or where we arerequired to make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations. Criticalaccounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates, assumptions,and judgments could have a material impact to our financial statements.The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in thepreparation of our consolidated financial statements. This discussion of our critical accounting policies is intended to supplement the description of ouraccounting policies in the footnotes to our consolidated financial statements and59to provide additional insight 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 on our conclusion as towhether 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 oftenant improvements for accounting purposes, we record the cost to construct the tenant improvements as an asset, and we commence rental revenuerecognition when the tenant takes possession of or controls the finished space, which is typically 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 to significant judgment. Inmaking that determination, we consider numerous factors and perform a detailed evaluation of each60individual lease. 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 installation of the tenantimprovements; •whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance wasspent 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 without compensating the landlordfor any lost utility or diminution in fair value; and •whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term.In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of suchtenant improvements using the factors discussed above. For these tenant-funded tenant improvements, we record the amount funded or reimbursed by tenantsas deferred revenue, which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leasedpremises. During the years ended December 31, 2011, 2010, and 2009, we recorded $4.3 million, $5.4 million, and $2.0 million, respectively, of tenant-funded tenant improvements. Leases at our development and redevelopment properties generally have higher tenant-funded tenant improvements and we expectthe trend to increase if our development and redevelopment activities increase. For those periods, we also recognized $9.3 million, $9.7 million, and $9.8million, respectively, of noncash rental revenue related to the amortization of deferred revenue recorded 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 record our contributiontowards those improvements as a lease incentive, which is amortized as a reduction to rental revenue on a straight-line basis 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 a lease-by-lease basis andhas a significant impact on the amount of noncash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenantimprovements, and can also have a significant effect on the timing of our overall revenue recognition.Tenant Reimbursement RevenueReimbursements from tenants consist of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs, includingcapital expenditures. Calculating tenant reimbursement revenue requires an in-depth analysis of the complex terms of each underlying lease. Examples ofjudgments 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 applicable underlying lease; and 61•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 incurred based on our bestestimate of the amounts to be recovered. Throughout the year, we perform analyses to properly match tenant reimbursement revenue with reimbursable costsincurred to date. Additionally, during the fourth quarter of each year, we perform preliminary reconciliations and accrue additional tenant reimbursementrevenue or refunds. Subsequent to year end, we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant forany cumulative annual adjustments in the first and second quarters of each year for the previous year’s activity. Our historical experience for the years endedDecember 31, 2011, 2010, and 2009 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 receivables62and deferred rent receivables. Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common areamaintenance expenses, property taxes, and other costs recoverable from tenants. Deferred rent receivables represent the amount by which the cumulativestraight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement. As of December 31, 2011 and 2010, current receivableswere carried net of an allowance for uncollectible amount of $2.6 million and $2.8 million, respectively, and deferred rent receivables were carried net of anallowance for uncollectible accounts of $3.4 million and $3.8 million, respectively.Management’s determination of the adequacy of the allowance for uncollectible current tenant receivables and the allowance for deferred rent receivables isperformed using a methodology that incorporates a specific identification analysis and an aging analysis and includes an overall evaluation of our historicalloss trends and the current economic and business environment. This determination requires significant judgment and estimates about matters that areuncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economictrends and conditions. Since these factors 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 factors such as the age andnature of the receivables, the payment history and financial condition of the tenant, our assessment of the tenant’s ability to meet its lease obligations, and thestatus of negotiations of any disputes with the tenant. With respect to the allowance for deferred rent receivables, given the longer-term nature of thesereceivables, the specific identification methodology analysis evaluates each of our significant tenants and any tenants on our internal watchlist and relies onfactors such as each tenant’s financial condition and its ability to meet its lease obligations. We evaluate our reserve levels quarterly based on changes in thefinancial condition of tenants and our assessment of the tenant’s ability to meet its lease obligations, overall economic conditions, and the current businessenvironment.For the years ended December 31, 2011, 2010, and 2009, we recorded a total provision for bad debts for both current tenant receivables and deferred rentreceivables of approximately 0.2%, (0.4)%, and 0.2%, respectively, of rental revenue. The negative provision for the year ended December 31, 2010 reflects thereversal of approximately $1.0 million of a provision for bad debts recorded in prior years against outstanding receivables from a former tenant due to thesettlement of outstanding litigation with the former tenant in 2010. Excluding the $1.0 million reversal of the provision in 2010, our historical experience hasbeen that actual write-offs of current tenant receivables and deferred rent receivables has approximated the provision for bad debts recorded for the years endedDecember 31, 2011, 2010, and 2009. 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 available to common stockholders would be approximately $3.6 million, $3.0 million, and $2.8 million for the years endedDecember 31, 2011, 2010, and 2009, respectively.Operating Property AcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions at fair value at the acquisition date. Weassess and consider fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates thatwe deem appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends,and market and economic conditions. 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, including tenant improvements,leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any.Costs directly associated with an operating property acquisition are expensed as incurred.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value of63buildings and improvements, tenant improvements, and leasing costs are based upon current market replacement costs and other relevant market rateinformation.The fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value (calculated using amarket discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii)management's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remainingnon-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewaloptions, if applicable, for below-market operating leases. The amounts recorded for above-market operating leases are included in deferred leasing costs andacquisition-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 theapplicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related liabilities, net on the balancesheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options, if applicable. Our below-market operating leases generally do not include fixed rate or below-market renewal options.The fair value of acquired in-place leases is derived based on management's assessment of lost revenue and costs incurred for the period required to leasethe “assumed vacant” property to the occupancy level when purchased. This fair value is based on a variety of considerations including, but not necessarilylimited to: (1) the value associated with avoiding the cost of originating the acquired in-place leases; (2) the value associated with lost revenue related to tenantreimbursable operating costs estimated to be incurred during the assumed lease-up period; and (3) the value associated with lost rental revenue from existingleases during the assumed lease-up period. Factors considered by us in performing these analyses include an estimate of the carrying costs during the expectedlease-up periods, current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and otheroperating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand at market rates. In estimatingcosts to execute similar leases, we consider leasing commissions, legal and other related expenses. The amount recorded for acquired in-place leases is includedin deferred leasing costs and acquisition-related intangibles, net on the balance sheet and amortized as an increase to depreciation and amortization expense overthe remaining term of the applicable leases. If a lease were to be terminated or if termination were determined to be likely prior to its contractual expiration (forexample 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 property acquisitions requires us tomake significant judgments and assumptions about the numerous inputs discussed above. The use of different assumptions in these fair value calculationscould significantly affect the reported amounts of the allocation of our acquisition related assets and liabilities and the related amortization and depreciationexpense 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 torental income, respectively, our judgments 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 carrying amount of a given assetmay not be recoverable. We evaluate our real estate assets for impairment on a property-by-property basis. Indicators we use to determine whether animpairment 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 continued operating or cash flowlosses at a specific property; •deterioration in rental rates for a specific property as evidenced by sudden significant rental rate decreases or continuous rental rate decreases overnumerous 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 absorption rates or continuousincreases in market vacancy and/or negative absorption rates over numerous quarters, which could signal a decrease in future cash flow forproperties within that submarket; •significant increases in property sales yields, continuous increases in property sales yields over several quarters, or recent property sales at a losswithin a given submarket, each of which could signal a decrease in the market value of properties;64 •significant change in strategy or use of a specific property or any other event that could result in a decreased holding period, including classifying aproperty as held for sale, or significant development delay; •evidence of material physical damage to the property; and65 •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 any indicators of impairment. Ifany impairment indicators are present for a specific real estate asset, we then perform an undiscounted cash flow analysis and compare the net carryingamount of the real estate asset to the real estate asset’s estimated undiscounted future cash flow over the anticipated holding period. If the estimatedundiscounted future cash flow is less than the net carrying amount of the real estate asset, we perform an impairment loss calculation to determine if the fairvalue of the real estate asset is less than the net carrying value of the real estate asset. Our impairment loss calculation compares the net carrying amount of thereal estate asset to the real estate asset’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-partyvaluations 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 werecognize an impairment loss, the estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will bedepreciated (amortized) over the remaining useful life of that asset.Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to applyjudgment to estimate future cash flow and property fair values, including selecting the discount or capitalization rate that reflects the risk inherent in futurecash flow. Estimating projected cash flow is highly subjective as it requires assumptions related to future rental rates, tenant allowances, operatingexpenditures, property taxes, capital improvements, and occupancy levels. We are also required to make a number of assumptions relating to future economicand market events and prospective operating trends. Determining the appropriate capitalization rate also requires significant judgment and is typically basedon many factors including 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 actual market capitalizationrates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.Because of the economic and market environment, circumstances indicated that an analysis for potential impairment of certain of our properties wasnecessary in each of the years ended December 31, 2011, 2010, and 2009. As a result, for each property where such an indicator occurred and/or forproperties within a given submarket where such an indicator occurred, we completed an impairment evaluation. After completing this process, we determinedthat for each of the properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not recordany impairment losses for these periods. In addition, we completed an impairment evaluation for our properties held for sale and determined that for both of theheld for sale properties the fair value less estimated costs to sell exceeded the net carrying amount and thus we did not record any impairment losses for our twoheld for sale properties.Cost Capitalization and DepreciationWe capitalize costs associated with development and redevelopment activities, capital improvements, tenant improvements, and leasing activities. Amountscapitalized are depreciated or amortized over estimated useful lives determined by management. We depreciate buildings and improvements based on theestimated useful life of the asset, and we amortize tenant improvements and leasing costs over the shorter of the estimated useful life or estimated remaining lifeof the related lease. All capitalized costs are depreciated or amortized using the straight-line method.Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significantjudgment. 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.Our historical experience has demonstrated that we have not had material write-offs of assets and that our depreciation and amortization estimates havebeen reasonable and appropriate.66Factors That May Influence Future Results of OperationsAcquisitions. During the year ended December 31, 2011, we acquired eleven office buildings in eight transactions for approximately $637.8 million, andduring the year ended December 31, 2010 we acquired ten office buildings in eight transactions for approximately $697.8 million (see Note 3 to ourconsolidated financial statements included in this report for additional67information). We generally finance our acquisitions through the assumption of existing debt, new debt and equity offerings, borrowings under our unsecuredline of credit and proceeds from our capital recycling program.As a key component of our growth strategy, we continually evaluate selected property acquisition opportunities as they arise. As a result, at any point intime we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence review, whichmay include potential acquisitions under contract. As of the date of this report, we were in negotiations for possible acquisitions of four properties in WestCoast markets aggregating approximately 1.1 million rentable square feet for estimated purchase prices aggregating approximately $379.0 million (whichincludes the assumption of debt aggregating approximately $89.0 million). We cannot provide assurance that we will enter into agreements to acquire theseproperties. If we do enter into definitive agreements, those agreements will be subject to satisfaction of closing conditions and the acquisitions may not becompleted. In the future, we may enter into agreements to acquire other properties, and those agreements typically will be subject to the satisfaction of closingconditions. We cannot provide assurance that we will enter into any agreements to acquire properties, or that the potential acquisitions contemplated by anyagreements we may enter into in the future will be completed. Costs associated with acquisitions are expensed as incurred and we may be unable to complete anacquisition after making a nonrefundable deposit or incurring acquisition-related costs. In addition, acquisitions are subject to various other risks anduncertainties. During the year ended December 31, 2011, we incurred approximately $4.1 million of third-party acquisition costs.Capital Recycling Program. As part of our current strategy, we intend to dispose of certain office and industrial assets from tine to time and then use theproceeds to fund acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. Aspart of this strategy, we intend, when practical, to enter into like-kind exchanges under Section 1031 of the Code to defer some or all of the taxable gains on thesales, if any, for federal and state income tax purposes.During the year ended December 31, 2011, we disposed of two office buildings and one industrial building in two transactions for approximately $66.1million at a net gain of $51.6 million (see Note 19 to our consolidated financial statements included in this report for more information). On January 30,2012, we completed the disposition of two additional buildings for approximately $146.1 million at a net gain of approximately $73.0 million. Thedispositions were structured to qualify as like-kind exchanges under Section 1031 of the Code, but as of the date of this report, approximately $42.4 million ofthe sales proceeds have yet to be reinvested in qualifying replacement property.As part of our capital recycling program strategy, we are currently in negotiations for the disposition of one land holding. We also continue to evaluateopportunities for the potential disposition of additional properties, including the potential sale of all or a portion of, or the sale of an equity interest in all or aportion of, our industrial properties. The timing of any potential transaction depends on market conditions and, in any event, we cannot assure you that wewill dispose of this land holding or any additional properties, or that future acquisitions and/or dispositions, if any, will qualify as like-kind exchanges underSection 1031 of the Code.68Leasing Activity and Changes in Rental Rates. The amount of net rental income generated by our properties depends principally on our ability tomaintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties, newly acquiredproperties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability tomaintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affect our rental income in future periods.The following tables set forth certain information regarding leasing activity during the year ended December 31, 2011.Information on Leases CommencedFor Leases that Commenced During the Year Ended December 31, 2011 1st & 2nd Generation(1) 2nd Generation(1) Number ofLeases(2) RentableSquare Feet(2) Changes inRents(3)(5) Changesin CashRents(4)(5) RetentionRates(6) WeightedAverageLease Term(in months) New Renewal New Renewal Office Properties72 49 712,838709,427 7.5 %(6.2)%60.7%110Industrial Properties8 8 233,470321,687 (17.0)%(27.5)%98.2%69Total portfolio80 57 946,308 1,031,114 4.3 %(9.1)%68.9%97Information on Leases Executed(7) For Leases Signed During the Year Ended December 31, 2011 1st & 2nd Generation(1) 2nd Generation(1) Number ofLeases(2) RentableSquare Feet(2) Changes inRents(3)(5) Changesin CashRents(4)(5) WeightedAverageLease Term(in months) New Renewal New Renewal Office Properties69 61 607,588866,204 8.8%(3.5)%107Industrial Properties6 7 116,489469,724 10.5%(7.4)%98Total portfolio75 68 724,077 1,335,928 8.9%(4.2)%105_______________(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 capitalexpenditures to maintain the current market revenue stream.(2)Represents leasing activity for leases that commenced or signed 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 the space was vacant longer than one year, or vacant when the propertywas 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 space was vacant longer than one year, or vacant when the property wasacquired.(5)Excludes commenced and executed leases of approximately 766,000 and 621,900 rentable square feet, respectively, for which the space was vacant longer than one year or we are leasing the space for the first time. Spacevacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison.(6)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.(7)During the year, 12 leases totaling approximately 176,000 rentable square feet were signed but not commenced as of December 31, 2011. Additionally, during the year, leases totaling approximately 524,200 rentable squarefeet executed on redevelopment properties are not reflected in the table.As of December 31, 2011, we believe that the weighted average cash rental rates for our overall portfolio, including recently acquired properties, areapproximately 5% to 10% above the current average market rental rates, although individual properties within any particular submarket presently may beleased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above, below,or at the average cash rental rate of our portfolio.In general, rental rates have stabilized in many of our submarkets over the last several quarters. Our rental rates and occupancy are impacted by generaleconomic conditions, including the pace of regional economic growth and access to capital. Therefore, we cannot give any assurance that leases will be renewedor that available space will be re-leased at rental rates equal to or above the current market rates. Additionally, decreased demand and other negative trends orunforeseeable events that impair our ability to timely renew or re-lease space could have further negative effects on our future financial condition, results ofoperations, and cash flows.Scheduled Lease Expirations. In addition to the 1.1 million rentable square feet, or 7.6%, of currently available space in our stabilized portfolio, leasesrepresenting approximately 8.2% and 13.4% of the occupied square footage of our stabilized portfolio are scheduled to expire in 2012 and 2013, respectively.The leases scheduled to expire in 2012 and 2013 represent approximately691.9 million rentable square feet of office space, or 16.5% of our total annualized base rental revenue, and 1.0 million rentable square feet of industrial space,or 2.1% of our total annualized base rental revenue, respectively. We believe that the weighted average cash rental rates are approximately 10% to 15% above thecurrent average quoted market rates for leases scheduled to expire during 2012, although individual properties within any particular submarket presently maybe leased either above, below, or at the current quoted market rates within that submarket, and the average rental rates for individual submarkets may beabove, below, or at the average cash rental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions andthe market conditions 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 to come from ourdevelopment pipeline and redevelopment opportunities both within our existing portfolio and at potential acquisition properties. Redevelopment opportunities arethose projects in which we spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intendedresult of which is a higher economic return on the property. As of December 31, 2011, we had four redevelopment projects under construction (see "Item 2:Properties — In Process Redevelopment Properties" for additional information).During the year ended December 31, 2010 we commenced the redevelopment of one of our buildings in the El Segundo submarket of Los Angeles Countywhich encompasses approximately 299,000 rentable square feet. We are currently upgrading and modernizing the building and adjacent common areas since itwas previously occupied by a former tenant for more than 25 years. The redevelopment project has a total estimated investment of approximately $59.2million at completion, including the $9.1 million net carrying value of the project at the commencement of redevelopment. Construction is currently expected tobe completed in the fourth quarter of 2012. The building is 100% pre-leased to DIRECTV. Upon commencement of the lease for the 299,000 rentable squarefeet at this building, we project that DIRECTV will become our largest tenant based on annualized base rental revenue (see "Item 2: Properties — SignificantTenants" for additional information).In the third quarter of 2011, we commenced the redevelopment of two of our existing office properties to upgrade and modernize the buildings and adjacentcommon areas. One office property is located in the Long Beach submarket of Los Angeles and encompasses approximately 98,000 rentable square feet. Theredevelopment will occur in two phases and the existing tenant will occupy approximately 50% of the property during both redevelopment phases. Theredevelopment project has a total estimated investment of approximately $19.6 million at completion, including the $6.3 million net carrying value of theproject at the commencement of redevelopment. Construction is currently expected to be completed in the second quarter of 2012.The second office redevelopment property is located in the Sorrento Mesa submarket of San Diego and encompasses approximately 111,000 rentablesquare feet. The property is 100% pre-leased to a single tenant. As part of the redevelopment, we are incorporating one of our undeveloped land parcels. Theredevelopment project has a total estimated investment of approximately $38.7 million at completion, including the $22.2 million net carrying value of theproject at the commencement of redevelopment.70Construction is currently expected to be completed in the third quarter of 2012.In the fourth quarter of 2011, we commenced redevelopment on one of our acquired properties located in the South of MarketDistrict submarket of San Francisco, which encompasses approximately 410,000 rentable square feet. The redevelopment project has a total estimatedinvestment of approximately $147.9 million at completion, including the $88.5 million net carrying value of the project at the commencement ofredevelopment. Construction is currently expected to be completed in the fourth quarter of 2012. The building is currently 9% occupied and upon acquisition,we pre-leased an additional 28% by executing an 11-year lease for 70,000 square feet that is set to commence after the completion of construction. As ofDecember 31, 2011, the building is approximately 37% leased.In recent periods we have delayed the timing and reduced the scope of our development program, which impacts the average development andredevelopment asset balances qualifying for interest and other carry cost capitalization. During the year ended December 31, 2011, we did not capitalizeinterest on six of our seven development pipeline properties with an aggregate investment of approximately $148.1 million, as it was determined these projectsdid not qualify for interest and other carry cost capitalization under GAAP. As of December 31, 2011, our development pipeline included 110.2 gross acres ofland with an aggregate investment of approximately $270.3 million. 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 and redevelopmentopportunities throughout the West Coast. In addition, we plan to continue to focus on enhancing the entitlements for our existing development land pipeline,and performing additional activities to prepare for the time when development will again be economically attractive.We also plan to continue to evaluate other redevelopment opportunities within our property portfolio.Incentive Compensation. Our Executive Compensation Committee determines compensation, including equity and cash incentive programs, for ourexecutive officers in accordance with the terms and conditions of applicable agreements and incentive award programs. Incentive compensation for ourexecutive officers for 2011 and 2012 was structured to allow the Executive Compensation Committee to evaluate a variety of key factors and metrics at the endof the year and make a determination of71incentive compensation for executive officers based on the Company's and management's overall performance. The programs approved by the ExecutiveCompensation Committee have historically provided for equity and cash compensation to be earned by our executive officers based on the attainment of certainperformance measures, including total shareholder return, financial, operating, development and other metrics. As a result, accrued incentive compensationand compensation expense for future incentive compensation awards could be affected by our operating and development performance, financial results, totalshareholder return, market conditions and other performance conditions. Consequently, we cannot predict the amounts that will be recorded in future periodsrelated to such incentive compensation.Share-Based Compensation. As of December 31, 2011, there was $4.3 million of total unrecognized compensation cost related to outstanding nonvestedshares of restricted common stock and nonvested RSUs issued under share-based compensation arrangements. That cost is expected to be recognized over aweighted-average period of 1.8 years. Additional unrecognized compensation cost of $6.4 million related to 59,938 shares of restricted common stock and92,795 nonvested RSUs issued under share-based compensation arrangements subsequent to December 31, 2011 is expected to be recognized over a weighted-average period of 5.0 years. The Executive Compensation Committee is also currently evaluating a long-term incentive stock option program for approximately20 key members of our senior management team, including our executive officers, which would provide for 10-year stock options that would vest over a five-year period. We presently expect this program to be implemented in 2012. Our Executive Compensation Committee is also evaluating alternatives to restructureemployment agreements with our executive management team to revise certain provisions that were market at the time of our initial public offering in 1997.The revisions are expected to include long-term restricted stock awards that would be earned based on a combination of time vesting and the satisfaction ofperformance-based criteria. Share-based compensation expense for potential future awards could be affected by our operating and development performance,financial results, total shareholder return, and market conditions. Consequently, we cannot predict the amounts that will be recorded in future periods for suchshare-based awards. See Note 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 from December 31, 2010 toDecember 31, 2011: 72 Office Properties Industrial Properties Total Number ofBuildings RentableSquare Feet Number ofBuildings RentableSquare Feet Number ofBuildings RentableSquare FeetTotal as of December 31, 2010 100 10,395,208 40 3,602,896 140 13,998,104Acquisitions (1) 10 1,568,945 10 1,568,945Property moved to the redevelopmentportfolio (2) (209,561) (2) (209,561)Dispositions (2) (90,558) (1) (192,053) (3) (282,611)Properties held for sale (2) (253,676) (2) (253,676)Remeasurement 10,754 2,511 13,265Total as of December 31, 2011 104 11,421,112 39 3,413,354 143 14,834,466_______________________(1)Excludes 370 3rd Street in San Francisco, California, which was added to our redevelopment portfolio upon acquisition.73Occupancy InformationThe following table sets forth certain information regarding our stabilized portfolio:Stabilized Portfolio OccupancyRegionNumber ofBuildings Square FeetTotal Occupancy at (1)12/31/2011 12/31/2010 12/31/2009Office Properties: Los Angeles and VenturaCounties28 2,981,473 83.5% 89.3% 88.8%San Diego County59 5,181,720 92.5 86.4 76.8Orange County5 540,656 93.4 93.1 49.8San Francisco Bay Area6 1,826,766 93.3 84.3 —Greater Seattle6 890,497 89.9 100.0 — 104 11,421,112 90.1 87.5 80.6Industrial Properties: Los Angeles County— — — 100.0 100.0Orange County39 3,413,354 100.0 93.5 87.6 39 3,413,354 100.0 93.9 88.2Total Stabilized Portfolio143 14,834,466 92.4% 89.1% 82.8% Average Occupancy Stabilized Portfolio (1) Core Portfolio (2) 2011 2010 201122010Office Properties89.4% 84.2% 89.7% 86.1%Industrial Properties97.5% 87.3% 97.3% 86.4%Total91.3% 85.1% 92.0% 86.2% ______________(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, 2010 and still owned and stabilized as of December 31, 2011. As of December 31, 2011, the Office Properties and Industrial Properties represented approximately 93.0% and 7.0%, respectively, of our total annualizedbase rental revenue. During the year ended December 31, 2011, the Office Properties and74Industrial Properties represented approximately 92.7% and 7.3%, respectively, of our total Net Operating Income, as defined.Current Regional Information Although real estate fundamentals continue to be challenging in many of our regional submarkets, we have started to see a general increase in occupancyacross our portfolio, and we have generally seen a modest decrease in vacancy rates across many of our regional submarkets as well as a stabilization in rentalrates and lease concession packages.Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized office portfolio of 3.0 million rentable square feet was 83.5%occupied with approximately 491,300 available rentable square feet as of December 31, 2011 compared to 89.3% occupied with approximately 328,800available rentable square feet as of December 31, 2010. The decrease in occupancy is primarily attributable to 205,000 of rentable square feet related to a leasewith one tenant in buildings along the 101-Corridor in Ventura County. The tenant vacated the properties upon expiration of the lease.As of December 31, 2011, an aggregate of approximately 178,900 and 360,200 rentable square feet are scheduled to expire in this region during 2012 and2013, respectively. The aggregate rentable square feet under the leases scheduled to expire in this region during 2012 and 2013 represents approximately 4.0% ofour occupied rentable square feet and 4.5% of our annualized base rental revenues in our total stabilized portfolio. As of December 31, 2011, we have leasedapproximately 122,200 rentable square feet in this region that was vacant at December 31, 2011. The new leases are scheduled to commence at various datesduring the first and second quarters of 2012.San Diego County. Our San Diego stabilized office portfolio of 5.2 million rentable square feet was 92.5% occupied with75approximately 391,100 available rentable square feet as of December 31, 2011 compared to 86.4% occupied with approximately 744,300 available rentablesquare feet as of December 31, 2010. The increase in occupancy is primarily attributable to two properties representing 214,200 rentable square feet that werevacant at December 31, 2010, but were removed from the stabilized portfolio during 2011. One of the properties was moved to the redevelopment portfolio andthe other property was held for sale as of December 31, 2011.As of December 31, 2011, leases representing an aggregate of approximately 469,700 and 313,400 rentable square feet are scheduled to expire during 2012 and2013, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in this region in 2012 and 2013 represents approximately5.8% of our occupied rentable square feet and 5.9% of our annualized base rental revenues in our total stabilized portfolio.Orange County. As of December 31, 2011, our Orange County stabilized industrial portfolio of approximately 3.4 million rentable square feet was100.0% occupied compared to 93.5% occupied with approximately 220,100 available rentable square feet as of December 31, 2010.Our Orange County stabilized office portfolio of approximately 540,700 rentable square feet was 93.4% occupied with approximately 35,500 available rentablesquare feet as of December 31, 2011 compared to 93.1% occupied with approximately 37,300 available rentable square feet as of December 31, 2010.As of December 31, 2011, leases representing an aggregate of approximately 341,400 and 724,100 rentable square feet are scheduled to expire during 2012 and2013, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in 2012 and 2013 represents approximately 7.8% of ouroccupied rentable square feet and 2.8% of our annualized base rental revenues in our total stabilized portfolio. Of the 1,065,500 rentable square feet scheduledto expire in 2012 and 2013, approximately 984,100 rentable square feet is industrial space.San Francisco Bay Area. As of December 31, 2011, our San Francisco Bay Area stabilized office portfolio of 1.8 million rentable square feet was 93.3%occupied with approximately 121,900 available rentable square feet compared to 84.3% occupied with approximately 188,900 available rentable square feet asof December 31, 2010. The increase in occupancy is primarily attributable to nine leases encompassing approximately 222,700 rentable square feet thatcommenced during 2011. Additionally, during the year ended December 31, 2011, four of the buildings we acquired in the San Francisco Bay Areaencompassing approximately 626,200 rentable square feet were added to the stabilized portfolio. These four buildings were added to our stabilized officeportfolio upon acquisition and were approximately 88.5% occupied as of December 31, 2011. As of December 31, 2011, leases representing an aggregate of approximately 90,000 and 273,700 rentable square feet are scheduled to expire during 2012and 2013, respectively. The aggregate rentable square feet under leases scheduled to expire in this region during 2012 and 2013 represents approximately 2.7%of our occupied rentable square feet and 4.0% of our annualized base rental revenues in our total stabilized portfolio. As of December 31, 2011, we have leasedapproximately 45,000 rentable square feet in this region that was vacant at December 31, 2011. The new leases are scheduled to commence at various datesduring the first and second quarters of 2012.Greater Seattle. As of December 31, 2011, our Greater Seattle stabilized office portfolio of 0.9 million rentable square feet76was 89.9% occupied with approximately 90,300 available rentable square feet as of December 31, 2011 compared to being 100.0% occupied as ofDecember 31, 2010. The decrease in occupancy is primarily attributable to the acquisitions of five office buildings encompassing approximately 768,400rentable square feet during the year ended December 31, 2011 that were 88.3% occupied at December 31, 2011.As of December 31, 2011, leases representing an aggregate of approximately 28,700 and 141,300 rentable square feet are scheduled to expire during 2012and 2013, respectively. The aggregate rentable square feet under leases scheduled to expire in this region during 2012 and 2013 represents approximately 1.2%of our occupied rentable square feet and 1.4% of our annualized base rental revenues in our total stabilized portfolio.77Results of OperationsManagement internally evaluates the operating performance and financial results of our portfolio based on Net Operating Income for the consolidatedportfolio. We define “Net Operating Income (Loss)” as operating revenues (rental income, tenant reimbursements, and other property income) less operatingexpenses (property expenses, real estate taxes, provision for bad debts, and ground leases). The Net Operating Income information presented within thisManagement's Discussion and Analysis of Financial Condition and Results of Operations is the same Net Operating Income information disclosed in oursegment information in Note 18 to our consolidated financial statements.78Year Ended December 31, 2011 Compared to Year Ended December 31, 2010The following table reconciles our Net Operating Income, as defined to our net income for the years ended December 31, 2011 and 2010. Year Ended December 31, DollarChange PercentageChange 2011 2010 ($ in thousands)Net Operating Income, as defined$259,318 $203,665 $55,653 27.3 %Unallocated (expense) income: General and administrative expenses(28,148) (27,963) (185) 0.7Acquisition-related expenses(4,053) (2,248) (1,805) 80.3Depreciation and amortization(133,220) (99,611) (33,609) 33.7Interest income and other net investment gains571 964 (393) (40.8)Interest expense(89,409) (59,941) (29,468) 49.2Loss on early extinguishment of debt— (4,564) 4,564 100.0Income from continuing operations5,059 10,302 (5,243) (50.9)%Income from discontinued operations10,843 8,635 2,208 25.6 %Net gain on dispositions of discontinued operations51,587 949 50,638 5,335.9 %Net income$67,489 $19,886 $47,603 239.4 %79The following tables summarize the Net Operating Income (Loss), as defined, for our total portfolio for the years ended December 31, 2011 and 2010. 2011 2010 Core Portfolio(1) AcquisitionsPortfolio(2) Other Total Portfolio Core Portfolio(1) AcquisitionsPortfolio(2) Other Total Portfolio (in thousands) (in thousands)Operating revenues: Rental income$236,434 $94,520 $1,535 $332,489 $227,561 $28,901 $5,072 $261,534Tenant reimbursements20,466 7,287 223 27,976 21,093 471 1,354 22,918Other property income6,065 569 32 6,666 2,538 106 300 2,944Total262,965 102,376 1,790 367,131 251,192 29,478 6,726 287,396Property and related expenses: Property expenses48,083 23,524 1,262 72,869 46,867 7,045 2,477 56,389Real estate taxes20,870 10,112 1,539 32,521 21,449 3,033 1,860 26,342Provision for bad debts644 — — 644 16 — — 16Ground leases1,136 446 197 1,779 973 — 11 984Total70,733 34,082 2,998 107,813 69,305 10,078 4,348 83,731Net Operating Income (Loss), asdefined$192,232 $68,294 $(1,208) $259,318 $181,887 $19,400 $2,378 $203,665________________________(1)Properties owned and stabilized as of January 1, 2010 and still owned and stabilized as of December 31, 2011.(2)Includes results, from the dates of acquisition through the periods presented, for the ten office buildings we acquired during 2010 and ten office buildings we acquired during 2011 that were added to the stabilized portfolio.The following table compares the Net Operating Income, as defined, for our total portfolio for the years ended December 31, 2011 and 2010. Year Ended December 31, 2011 As Compared to the Year Ended December 31, 2010 Core Portfolio Acquisitions Portfolio Total Portfolio Dollar Change Percentage Change Dollar Change Percentage Change Dollar Change Percentage Change ($ in thousands) Operating revenues: Rental income$8,873 3.9 % $65,619 227.0% $70,955 27.1%Tenant reimbursements(627) (3.0) 6,816 1,447.1 5,058 22.1Other property income3,527 139.0 463 436.8 3,722 126.4Total11,773 4.7 72,898 247.3 79,735 27.7Property and related expenses: Property expenses1,216 2.6 16,479 233.9 16,480 29.2Real estate taxes(579) (2.7) 7,079 233.4 6,179 23.5Provision for bad debts628 3,925.0 — — 628 3,925.0Ground leases163 16.8 446 100.0 795 80.8Total1,428 2.1 24,004 238.2 24,082 28.8Net Operating Income, as defined$10,345 5.7 % $48,894 252.0% $55,653 27.3%80Net Operating Income increased $55.7 million, or 27.3%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010primarily resulting from:•An increase of $48.9 million attributable to ten office buildings we acquired during 2010 and ten office buildings we acquired during 2011 that wereadded to the stabilized portfolio (the "Acquisitions Portfolio");•An increase of $10.3 million attributable to the properties owned and stabilized as of January 1, 2010 and still owned and stabilized as of December31, 2011 (the "Core Portfolio") primarily as a result of:▪An increase in rental income of $8.9 million primarily resulting from an increase in average occupancy of 5.8%, from 86.2% for the yearended December 31, 2010, to 92.0% for the year ended December 31, 2011;•An increase in other property income due to the receipt of a $3.7 million cash distribution under a bankruptcy claim related to a formertenant that defaulted on their lease in 2009 partially offset by:•A decrease in tenant reimbursements of $0.6 million primarily the result of the renewal of several leases, which resulted in the reset of thebase year expense level;•An increase in our provision for bad debts of $0.6 million primarily as a result of changes in our estimates of collectability for twowatchlist tenants; and•An offsetting decrease of $3.6 million generated by one office building that was moved from the stabilized portfolio to the redevelopment portfolio in2010 and two office buildings that were moved to the redevelopment portfolio from the stabilized portfolio upon commencement of redevelopment in2011 (the "Redevelopment Properties"). The reduction in Net Operating Income is due to the expiration of the leases at two of the office buildings.Upon expiration of these leases, we commenced redevelopment of these properties. See "Factors that May Influence Future Operations —Development and Redevelopment Programs" for additional information.Other Income and ExpensesGeneral and Administrative ExpensesGeneral and administrative expenses decreased $0.2 million, or 0.7%, for the year ended December 31, 2011 compared to the year ended December 31,2010 primarily as a result of a net decrease in compensation expense resulting from:81•A decrease in share-based compensation expense (see Note 12 to our consolidated financial statements included in this report for more information);and•An adjustment to decrease our deferred compensation plan liability to fair value (see Note 16 to our consolidated financial statements included in thisreport and the discussion under the caption "— Interest Income and Other Net Investment Gains" below for more information).These decreases were partially offset by an increase in compensation expense associated with the growth of the Company primarily as a result of theongoing acquisition activities.Depreciation and AmortizationDepreciation and amortization increased by $33.6 million, or 33.7%, for the year ended December 31, 2011 compared to the year ended December 31,2010, primarily related to the Acquisitions Portfolio.Interest Income and Other Net Investment GainsTotal interest income and other net investment gains decreased by approximately $0.4 million, or 40.8%, for the year ended December 31, 2011 comparedto the year ended December 31, 2010, primarily as a result of a decrease in the fair value of the marketable securities held in connection with our deferredcompensation plan (see Note 16 to our consolidated financial statements included in this report for additional information). The decrease to interest income andother net investment gains resulting from the decrease in the fair value of the marketable securities offsets the decrease in compensation expense discussed inthe general and administrative expenses section above.82Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest, for theyears ended December 31, 2011 and 2010: 2011 2010 DollarChange PercentageChange ($ in thousands)Gross interest expense$98,539 $69,956 $28,583 40.9 %Capitalized interest(9,130) (10,015) 885 (8.8)%Interest expense$89,409 $59,941 $29,468 49.2 %Gross interest expense, before the effect of capitalized interest, increased $28.6 million, or 40.9% for the year ended December 31, 2011 compared to theyear ended December 31, 2010 resulting from an increase in our average outstanding debt balances primarily as a result of our acquisition activity.Capitalized interest decreased $0.9 million, or 8.8%, for the year ended December 31, 2011 compared to the year ended December 31, 2010 primarilyattributable to a decrease in our average development and redevelopment asset balances qualifying for interest capitalization. We anticipate capitalized interest toincrease in the upcoming year due to increased redevelopment activity that commenced in the latter half of 2011 (see "Factors That May Influence FutureResults of Operations" for additional information).Year Ended December 31, 2010 Compared to Year Ended December 31, 2009The following table reconciles our Net Operating Income, as defined, to our net income for the years ended December 31, 2010 and 2009. 83 Year Ended December 31, DollarChange PercentageChange 2010 2009 ($ in thousands) Net Operating Income, as defined$203,665 $192,170 $11,495 6.0 %Unallocated (expense) income: General and administrative expenses(27,963) (39,938) 11,975 (30.0)Acquisition-related expenses(2,248) — (2,248) 100.0Depreciation and amortization(99,611) (84,290) (15,321) 18.2Interest income and other net investment gains964 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) (1.9)Income from continuing operations10,302 28,032 (17,730) (63.2)Income from discontinued operations8,635 7,498 1,137 15.2Net gain on dispositions of discontinued operations949 2,485 (1,536) (61.8)Net income$19,886 $38,015 $(18,129) (47.7)%84The following tables summarize the Net Operating Income, as defined, for our total portfolio for the years ended December 31, 2010 and 2009. 2010 2009 Core Portfolio(1) AcquisitionsPortfolio(2) Other Total Portfolio Core Portfolio(1) AcquisitionsPortfolio(2) Other Total Portfolio ($ in thousands)Operating revenues: Rental income$228,910 $28,901 $3,724 $261,535 $227,814 $— $6,577 $234,391Tenant reimbursements21,290 471 1,157 22,918 24,361 — 2,342 26,703Other property income2,538 106 299 2,943 3,703 — 7 3,710Total252,738 29,478 5,180 287,396 255,878 — 8,926 264,804Property and related expenses: Property expenses47,109 7,045 2,235 56,389 44,848 — 2,591 47,439Real estate taxes21,590 3,033 1,719 26,342 21,721 — 1,454 23,175Provision for bad debts16 — — 16 423 — — 423Ground leases971 — 13 984 1,584 — 13 1,597Total69,686 10,078 3,967 83,731 68,576 — 4,058 72,634Net Operating Income$183,052 $19,400 $1,213 $203,665 $187,302 $— $4,868 $192,170(1)Properties owned and stabilized at January 1, 2009 and still owned and stabilized as of December 31, 2011.(2)Includes results from the dates of acquisition through the periods presented, for the ten office buildings we acquired during 2010. No buildings were acquired during 2009.85 Year Ended December 31, 2010 As Compared to the Year Ended December 31, 2009 2010 Core Portfolio 2010 Acquisitions Portfolio 2010 Total Portfolio Dollar Change Percentage Change Dollar Change Percentage Change Dollar Change Percentage Change ($ in thousands)Operating revenues: Rental income$1,096 0.5 % $28,901 100.0% $27,144 11.6 %Tenant reimbursements(3,071) (12.6) 471 100.0 (3,785) (14.2)Other property income(1,165) (31.5) 106 100.0 (767) (20.7)Total(3,140) (1.2) 29,478 100.0 22,592 8.5Property and related expenses: Property expenses2,261 5.0 7,045 100.0 8,950 18.9Real estate taxes(131) (0.6) 3,033 100.0 3,167 13.7Provision for bad debts(407) (96.2) — — (407) (96.2)Ground leases(613) (38.7) — — (613) (38.4)Total1,110 1.6 10,078 100.0 11,097 15.3Net Operating Income$(4,250) (2.3)% $19,400 100.0% $11,495 6.0 %Net Operating Income increased $11.5 million, or 6.0%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009primarily resulting from:•An increase of $19.4 million attributable to the ten office buildings we acquired during 2010; and•An offsetting decrease of $4.3 million attributable to the properties owned and stabilized as of January 1, 2009 and still owned and stabilized as ofDecember 31, 2011 (the "2010 Core Portfolio") primarily as a result of:•An increase of $1.1 million, or 0.5%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009 generatedby a 0.6% increase in average occupancy for the 2010 Core Portfolio from 85.6% for the year ended December 31, 2009 to 86.2% for theyear ended December 31, 2010;•An offsetting decrease of $3.1 million in tenant reimbursements primarily as the result of the renewal of several86leases during 2010, which resulted in the reset of the base year expense level;•An offsetting decrease of $1.2 million in other property income due to a reduction of lease termination fees and other miscellaneous income;•An offsetting increase to property expenses of approximately $2.3 million primarily resulting from:•$0.8 million in property expenses attributable to a casualty loss and costs associated with the initial clean-up and repair at one ofour properties in Los Angeles that sustained damage from water intrusion;•$0.7 million in property expenses attributable to an increase in certain recurring operating costs such as repairs and maintenance,property management expenses, janitorial and other service-related costs;•$0.4 million in property expenses attributable to an increase in nonreimbursable legal fees related to tenant defaults that occurredduring 2009 and•An offsetting decrease of $3.7 million primarily attributable to one redevelopment property 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.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 year ended 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 incentivecompensation expenses.Depreciation and Amortization ExpenseDepreciation and amortization expense increased $15.3 million, or 18.2%, for the year ended December 31, 2010 compared to the year ended December 31,2009 primarily as the result of:•Approximately $12.3 million related to the 2010 Acquisitions Portfolio; and•Approximately $4.2 million related to the change in estimated useful life of the industrial property that we moved during the third quarter of 2010from our stabilized portfolio into redevelopment to prepare the land for the potential sale to residential developers since we successfully obtainedentitlements to reposition this site for residential use.Interest Income and Other Net Investment GainsTotal interest income and other net investment gains decreased by $0.3 million, or 25.8%, for the year ended December 31, 2010 compared to the yearended December 31, 2009 primarily as the result of a decrease of $0.3 million in interest income for the year ended December 31, 2010 as compared to the yearended December 31, 2009 attributable to the repayment of the note receivable in July 2010.Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts and loan cost amortization, net of capitalized interest for the years endedDecember 31, 2010 and 2009. 2010 2009 DollarChange PercentageChange ($ 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 theyear ended December 31, 2009 resulting from an increase in our average outstanding debt balances during 2010. In addition, our weighted average effectiveinterest rate increased from approximately 5.2% for the year ended December 31, 2009 to approximately 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 anincrease in our weighted average interest rate, which caused a corresponding increase in the capitalization rate applied to development and redevelopment assetbalances qualifying for interest capitalization.87(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 millionrelated to the repurchase of the 3.25% Exchangeable Notes with an aggregate stated principal amount of $150.0 million. During the year ended December 31,2009, we recorded a gain on early extinguishment of debt of approximately $4.9 million resulting from the repurchase of the 3.25% Exchangeable Notes withan aggregate stated principal amount of $162.0 million. (See Note 7 to our consolidated financial statements included in this report for additional informationpertaining to these repurchases).88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 Corporation on an unconsolidatedbasis, and excludes the Operating Partnership and all other subsidiaries.The Company's business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company's sourceof capital. The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations and borrowings availableunder its Credit Facility, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend paymentsto its preferred and common stockholders. Cash flows from operating activities generated by the Operating Partnership for the year ended December 31, 2011were sufficient to cover the Company's payment of cash dividends to its stockholders. However, there can be no assurance that the Operating Partnership'ssources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distributions to the Company. Theunavailability of capital could adversely affect the Operating Partnership's ability to make distributions to the Company, which would in turn, adverselyaffect the Company's ability to pay cash dividends to its stockholders.The Company is a well-known seasoned issuer with an effective shelf registration statement for the public issuance of preferred or common equitysecurities and guarantees of debt securities, and for the public issuance by the Operating Partnership of debt securities. As circumstances warrant, theCompany may issue securities from time to time on an opportunistic basis, depending upon market conditions and available pricing. When the Companyreceives proceeds from preferred or common equity issuances, it is required by the Operating Partnership's partnership agreement to contribute the proceedsfrom its equity issuances to the Operating Partnership in exchange for corresponding interest in preferred or common partnership units of the OperatingPartnership. The Operating Partnership may use the proceeds to repay debt, including borrowings under its Credit Facility, develop new or existing properties,to make acquisitions of properties, portfolios of properties, or for general corporate purposes.As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes,and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenuesand expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled "—Liquidity and Capital Resources of the Operating Partnership" should be read in conjunction with this section to understand the liquidity and capitalresources of the Company on a consolidated basis and how the Company is operated as a whole. Distribution RequirementsThe Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gain) on an annual basis tomaintain qualification as a REIT for federal income tax purposes. As a result of this distribution requirement, the Operating Partnership cannot rely onretained earnings to fund its on-going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company maybe required to use borrowings under the Operating Partnership's Credit Facility, if necessary, to meet REIT distribution requirements and maintain its REITstatus. The Company may also need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, as well aspotential developments of new or existing properties or acquisitions.While historically the Company has satisfied its distribution requirement by making cash distributions to its shareholders, for distributions with respectto our 2008 through 2011 taxable years, IRS guidance allows the Company to satisfy up to 90% of this requirement through the distribution of shares of theCompany's common stock, if certain conditions are met. The Company intends to continue to make, but has not committed to make, regular quarterly cashdistributions to common stockholders and common unitholders from cash flow from operating activities. All such distributions are at the discretion of theboard of directors. The Company has historically distributed amounts in excess of our taxable income resulting in a return of capital to its stockholders andthe Company currently believes it has the ability to maintain distributions at the 2011 levels to meet its REIT requirements for 2012. The Company considersmarket factors and its performance in addition to REIT requirements in determining our distribution levels. In addition, one of the covenants contained withinthe Credit Facility prohibits the Company from paying dividends in excess of 95% of FFO. Amounts accumulated for distribution to stockholders areinvested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with the Company's intention to maintain itsqualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmentalagency securities, certificates of deposit, and interest-bearing bank deposits.On December 8, 2011, the Board of Directors declared a regular quarterly cash dividend of $0.35 per common share payable on January 17, 2012 tostockholders of record on December 30, 2011 and caused a $0.35 per Operating Partnership unit cash distribution to be paid in respect of the OperatingPartnership's common limited partnership interests, including those owned by89the Company. These dividends and distributions are equivalent to an annual rate of $1.40 per share, which in aggregate totals approximately $85.9 million ofannualized common dividends and distributions per year based on common shares, restricted stock units, and common units outstanding at December 31,2011.On December 8, 2011, the Board of Directors declared a dividend of $0.4875 per share on the Company's Series E Preferred Stock and a dividend of$0.46875 per share on the Company's Series F Preferred Stock for the period commencing on and including November 15, 2011 and ending on andincluding February 14, 2012. The Company is also required to make quarterly cash distributions to the 7.45% Series A Preferred unitholders of $0.7 million,payable on February 15, 2012. Dividends and distributions payable to the Series E and Series F Preferred stockholders and the Series A Preferredunitholders, total approximately $15.2 million of annualized preferred dividends and distributions per year. Debt Covenants One of the covenants contained within the Credit Facility prohibits the Company from paying dividends in excess of 95% of FFO.Capitalization As of December 31, 2011, our total debt as a percentage of total market capitalization was 42.4% and our total debt and liquidation value of our preferredequity as a percentage of total market capitalization was 47.0%, which was calculated based on the closing price per share of the Company's common stock of$38.07 on December 31, 2011 as shown in the table below.90 Shares/Units atDecember 31, 2011 Aggregate Principal Amount or $ Value Equivalent % of Total Market CapitalizationDebt: ($ in thousands) Credit Facility $182,000 4.2%3.25% Exchangeable Notes due 2012 (1) 148,000 3.44.25% Exchangeable Notes due 2014 (1) 172,500 4.0Unsecured Senior Notes due 2014 83,000 1.9Unsecured Senior Notes due 2015 (1) 325,000 7.5Unsecured Senior Notes due 2018 (1) 325,000 7.5Unsecured Senior Notes due 2020 (1) 250,000 5.8Secured debt (1) 351,029 8.1 Total debt $1,836,529 42.4%Equity and Noncontrolling Interest: 7.450% Series A Cumulative Redeemable Preferred units (2)1,500,000 $75,000 1.7%7.800% Series E Cumulative Redeemable Preferred stock (3)1,610,000 40,250 0.97.500% Series F Cumulative Redeemable Preferred stock (3)3,450,000 86,250 2.0Common units outstanding (4)(5)1,718,131 65,409 1.5Common shares outstanding (5)58,819,717 2,239,267 51.5Total equity and noncontrolling interests 2,506,176 57.6 Total Market Capitalization $4,342,705 100.0% _______________(1)Represents gross aggregate principal amount due at maturity before the effect of the unamortized discounts and premiums as of December 31, 2011.(2)Value based on $50.00 per unit liquidation preference.(3)Value based on $25.00 per share liquidation preference.(4)Represents common units not owned by the Company.(5)Value based on closing price per share of the Company's common stock of $38.07 as of December 31, 2011. 91Liquidity and Capital Resources of the Operating Partnership In this "Liquidity and Capital Resources of the Operating Partnership" section, the terms "we," "our," and "us" refer to the Operating Partnership or theOperating 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 through our capital recycling program.Liquidity Uses •Property or undeveloped land acquisitions;•Property operating and corporate expenses;•Capital expenditures, tenant improvement and leasing costs;•Debt service and principal payments, including debt maturities;•Distributions to common and preferred security holders;92•Development and redevelopment costs; and•Outstanding debt repurchases.General StrategyOur general strategy is to maintain a conservative balance sheet with a top credit profile and to maintain a capital structure that allows for financialflexibility and diversification of capital resources. We manage our capital structure to reflect a long−term investment approach and utilize multiple sources ofcapital to meet our long−term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forthabove under the caption “ —Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above. We believe our conservative leverageand staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and,therefore, we are well−positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we mayfinance, as necessary, with future public and private issuances of debt and equity securities.2011 Financing ActivitiesDuring 2011, we completed a variety of capital raising activities which significantly extended our debt maturities and enabled us to fund eleven buildingacquisitions in eight separate transactions. This financing and acquisition activity increased our consolidated total assets by approximately 22% as comparedto December 31, 2010, without significantly increasing our total debt as a percentage of total market capitalization. The following financing activities occurredduring 2011 (see Notes 7 and 10 to our consolidated financial statements included in this report for additional information):•During the fourth quarter of 2011 we issued 355,305 shares under our at-the-market stock offering program. We commenced this at-the-marketstock offering program, pursuant to which we may sell up to $200.0 million aggregate gross sales price of the Company's common stock fromtime to time, in July 2011 (see "— Liquidity Sources" below for additional information).•In November 2011, the Operating Partnership used borrowings under the Credit Facility to repay a secured mortgage loan with an outstandingprincipal balance of $52.0 million that was scheduled to mature in April 2012.•In October 2011, the Operating Partnership used borrowings under the Credit Facility to repay a secured mortgage loan with an outstandingprincipal balance of $68.7 million that was scheduled to mature in December 2011.•In July 2011, the Operating Partnership issued $325.0 million in aggregate principal amount of 4.80% unsecured senior notes due in 2018 (seeNote 7 to our consolidated financial statements included in this report for additional information).93•In June 2011, the Operating Partnership amended the terms of the Credit Facility to, among other things, extend the maturity date to August 2015,reduce the interest rate to an annual rate of LIBOR plus 1.750% and reduce the facility fee to an annual rate of 0.35% (see Note 7 to ourconsolidated financial statements included in this report for additional information).•In April 2011, the Operating Partnership assumed secured debt with a principal balance of $30.0 million in conjunction with the acquisition offour office buildings in Kirkland, Washington (see Note 7 to our consolidated financial statements included in this report for additionalinformation).•In April 2011, the Company completed an underwritten public offering of 6,037,500 shares of its common stock. The net offering proceeds,after deducting underwriting discounts and commissions and offering expenses, of approximately $221.0 million were contributed to theOperating Partnership (see Notes 10 and 11 to our consolidated financial statements included in this report for additional information).•In January 2011, the Operating Partnership borrowed $135.0 million under a mortgage loan. The mortgage loan is secured by one property in SanFrancisco, bears interest at an annual rate of 4.27%, requires interest-only payments for the first two years with a 30-year amortization schedulethereafter, and is scheduled to mature on February 1, 2018.Liquidity SourcesCredit FacilityIn August 2010 we entered into a $500.0 million Credit Facility, the terms of which were amended in June 2011 to extend the maturity date, and reducethe interest rate and facility fee. The following table summarizes the terms of our Credit Facility as of December 31, 2010 and as amended as of December 31,2011:94 December 31, 2011 December 31, 2010 (in thousands)Outstanding borrowings$182,000 $159,000Remaining borrowing capacity318,000 341,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)2.05% 2.99%Facility fee - annual rate (3)0.350% 0.575%Maturity date (4)August 2015 August 2013________________________(1) We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the Credit Facility.(2)The Credit Facility interest rate was calculated based on an annual rate of LIBOR plus 1.750% and 2.675% as of December 31, 2011 and December 31, 2010, respectively.(3)The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we also incurred debt origination and legal costsof approximately $5.0 million when we entered into the Credit Facility in August 2010 and an additional $3.3 million when we amended the Credit Facility in June 2011. The unamortized balance of these costs will beamortized as additional interest expense over the extended term of the Credit Facility.(4)Under the original and amended terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.We are currently in discussions to amend the Credit Facility to reduce the FMV Cap Rate (as defined in the Credit Facility) from 7.50% to 6.75%. TheFMV Cap Rate is a term that appears in formulae that are used to calculate the value of some of our assets for purposes of certain covenants under the CreditFacility, and a reduction in the FMV Cap Rate will, under these formulae, result in a higher asset value, all other factors being equal. We expect to complete theamendment to the Credit Facility in March 2012. However, we cannot assure you that we will amend the Credit Facility on these terms or on this timeline, or atall.New Term LoanWe are currently in discussions with prospective lenders regarding a new unsecured term loan (the “Term Loan”), the proceeds of which will be used forgeneral corporate purposes, which may include repaying outstanding indebtedness. We expect that the Operating Partnership will be the borrower and that theCompany will guarantee the Operating Partnership's obligations under the term loan. We currently expect that the principal amount of the Term Loan will be$150.0 million and that the Operating Partnership will have the option to elect to borrow, subject to approval by the applicable agent bank of any new lendersand other conditions, up to an additional $100.0 million under an accordion feature. We expect that the Term Loan will have a four-year term with, subject tocertain conditions, a one-year extension option and will accrue interest based on an annual rate of LIBOR plus a pre-determined spread of up to 220 basispoints based on the Operating Partnership's credit ratings (175 basis points based on the operating partnership's current credit ratings). We anticipate that theTerm Loan will contain covenants and restrictions substantially similar to those in the Credit Facility, that will require, among other things, compliance withcertain financial ratios and reporting requirements and that could limit distributions payable by us on our common stock and preferred stock on terms95similar to those described in “Item 1A: Risk Factors - Risks Related to Business and Operations - Our credit facility, and if entered into, the Term Loanincludes financial covenants relating to our operations, which could limit our ability to make distributions to our stockholders". We expect to enter into theTerm Loan in March 2012, although we cannot assure you that we will enter into the Term Loan on these terms, on this timeline, or at all.Capital Recycling ProgramAs part of our current strategy, we intend to dispose of certain office and industrial assets from time to time and then use the proceeds to fund acquisitions,to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we intend,when practical, to enter into like-kind exchanges under Section 1031 of the Code to defer some or all of the taxable gains, if any, on the sales for federal andstate income tax purposes. During the year ended December 31, 2011, we disposed of three office buildings in two transactions for approximately $66.1million and recorded a net gain of $51.6 million. As of December 31, 2011 two of our San Diego office buildings were classified as held for sale and inJanuary 2012, we sold these two buildings to an unaffiliated third party for a sales price of $146.1 million for a net gain of approximately $73.0 million. Aspart of our capital recycling program strategy, we are currently in negotiations for the disposition of one land holding. We also continue to evaluateopportunities for the potential disposition of additional properties, including the potential sale of all or a portion of, or the sale of an equity interest in all or aportion of, our industrial properties.At-the-Market Stock Offering ProgramIn July 2011, we commenced an at-the-market stock offering program under which we may offer and sell shares of our common stock having an aggregategross sales price of up to $200 million from time to time. As of December 31, 2011, we sold 355,305 shares of common stock under the program in exchangefor aggregate gross proceeds of $13.0 million. After commissions of $0.2 million, the net proceeds from sales totaled $12.8 million. We used the net proceedsfor general corporate purposes and to repay borrowings under our Credit Facility. As of December 31, 2011, approximately $187.0 million in our commonstock could be sold under this program. Actual sales will depend upon a variety of factors including but not limited to market conditions, the trading price ofthe Company's common stock, and our capital needs. We have no obligation to sell shares under this program.Exchangeable Notes, Unsecured Senior Notes, and Secured DebtThe aggregate principal amount of Exchangeable Notes, unsecured senior notes, and secured debt of the Operating Partnership outstanding as ofDecember 31, 2011 was as follows:96 Aggregate Principal Amount Outstanding ($ in thousands)3.25% Exchangeable Notes due 2012 (1) $148,0004.25% Exchangeable Notes due 2014 (1) 172,500Unsecured Senior Notes due 2014 83,000Unsecured Senior Notes due 2015 (1) 325,000Unsecured Senior Notes due 2018 (1) 325,000Unsecured Senior Notes due 2020 (1) 250,000Secured Debt (1) 351,029Total Exchangeable Notes, Unsecured Senior Notes, and Secured Debt $1,654,529 _______________(1)Represents gross aggregate principal amount before the effect of the unamortized discounts and premiums as of December 31, 2011.97Debt CompositionThe composition of the Operating Partnership's aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt as ofDecember 31, 2011 and 2010 was as follows: Percentage of Total Debt Weighted Average Interest Rate 2011 2010 2011 2010Secured vs. unsecured: Unsecured (1)80.9% 78.4% 4.7% 4.8%Secured19.1 21.6 5.2 6.0Variable-rate vs. fixed-rate: Variable-rate9.9 11.0 2.0 2.9Fixed-rate (1)90.1 89.0 5.1 5.3Total stated rate (1) 4.8 5.1GAAP effective rate (2) 5.2 5.7Total GAAP effective rate including debt issuance costs 5.6% 6.3% _______________(1)Excludes the impact of the amortization of any debt discounts/premiums.(2) Includes the impact of the amortization of any debt discounts/premiums, excluding debt issuance costs.98Liquidity UsesContractual ObligationsThe following table provides information with respect to our contractual obligations as of December 31, 2011. The table: (i) indicates the maturities andscheduled principal repayments of our secured debt, Exchangeable Notes, unsecured senior notes, and Credit Facility; (ii) indicates the scheduled interestpayments of our fixed-rate and variable-rate debt as of December 31, 2011; (iii) provides information about the minimum commitments due in connection withour ground lease obligations and ot99her lease and contractual commitments; and (iv) provides estimated redevelopment commitments as of December 31, 2011. Note that the table does not reflectour available debt maturity extension options and reflects gross aggregate principal amounts before the effect of unamortized discounts/premiums. Payment Due by Period Less than1 Year(2012) 1–3 Years(2013-2014) 3–5 Years(2015-2016) More than5 Years(After 2016) Total (in thousands)Principal payments—secured debt (1)$105,304 $13,316 $38,933 $193,476 $351,029Principal payments—Exchangeable Notes (2)148,000 172,500 320,500Principal payments—unsecured senior notes (3) 83,000 325,000 575,000 983,000Principal payments—Credit Facility 182,000 182,000Interest payments—fixed-rate debt (4)78,376 143,524 99,980 90,471 412,351Interest payments—variable-rate debt (5)4,368 8,736 2,548 15,652Ground lease obligations (6)30,510 3,660 3,660 131,382 169,212Lease and contractual commitments (7)40,437 4,308 1,835 46,580Redevelopment commitments (8)79,000 79,000Total$485,995 $429,044 $653,956 $990,329 $2,559,324________________________(1) Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $0.8 million as of December 31, 2011.(2) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $13.6 million as of December 31, 2011.(3) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $2.4 million as of December 31, 2011.(4)As of December 31, 2011, 90.1% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates,interest payment dates, and scheduled maturity dates.(5)As of December 31, 2011, 9.9% of our debt bore interest at variable rates all of which was incurred under the Credit Facility. The variable interest rate payments are based on LIBOR plus a spread of 1.750% as ofDecember 31, 2011. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on outstanding principal balances as of December 31, 2011, the scheduled interestpayment 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 and infrastructure rent credits which currently limit our annual rentalobligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, 2011. One of our ground leaseobligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annualpercentage rent for the previous five years. Currently gross income does not exceed the threshold requiring us to pay percentage rent. The contractual obligations for that ground lease included above assumes the annuallease rental obligation in effect as of December 31, 2011. One of our ground leases that has a contractual 2022 expiration date has an option for the Company to purchase the land from November 2012 through October2013. This table assumes that the Company exercises the purchase option at the end of 2012 for an estimated purchase price not to exceed $27.5 million.(7)Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures may fluctuate.(8)Amounts represent contractual commitments for redevelopment contracts and projects under construction as of December 31, 2011. The timing of these expenditures may fluctuate based on the ultimate progress ofconstruction.Potential Future Capital RequirementsDebt MaturitiesWe had three debt instruments, with a combined principal balance of $249.3 million as of December 31, 2011, that are scheduled to mature in 2012. Oneof these debt instruments, our 3.25% Exchangeable Notes with a principal balance of $148.0 million, is scheduled to mature in April 2012. In addition, two ofour secured loans, with an aggregate principal balance of $101.3 million, are scheduled to mature in August 2012. We are currently evaluating severalrefinancing options, including the issuance of secured and unsecured debt, and borrowings under our Credit Facility to repay the remaining principal amountsof the maturing loans.Potential Future AcquisitionsIn 2010 we acquired ten buildings for approximately $637.6 million in cash and in 2011 we acquired eleven buildings for approximately $603.3 million incash, all of which we funded through various capital raising activities, and in selected instances,100the assumption of existing indebtedness. We continually evaluate selected acquisition opportunities as they arise. As a result, at any point in time, we mayhave one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence review, which may includepotential acquisitions under contract. We expect that any material acquisitions will be funded with borrowings under our Credit Facility, the public or privateissuance of debt or equity securities, or through the101disposition of assets under our capital recycling program.Redevelopment and Development OpportunitiesAs of December 31, 2011, we had four redevelopment projects under construction. These projects have a total estimated investment of approximately $265million, of which we have incurred approximately $151 million as of December 31, 2011. Of the remaining $114 million yet to be incurred, we are currentlycontractually obligated to pay approximately $79 million over the next year as shown in our contractual obligations table above. We may also incur up toapproximately $24 million in additional leasing related costs for these projects over the next year, depending on leasing activity. Ultimate timing of theseexpenditures may fluctuate given the ultimate progress and leasing status of the redevelopment projects.In addition, we continually evaluate the size, timing, costs, and scope of our development program and, as necessary, scale activity to reflect the marketconditions and the real estate fundamentals that exist in our strategic submarkets. Therefore, depending on future market conditions, we anticipate that wemay have additional spending for our future development pipeline projects during 2012 and beyond.Potential Future Leasing Costs and Capital ImprovementsGiven the current economic conditions, the amounts we are required to spend on tenant improvements and leasing costs would need to remain at currentlevels for us to be able to execute leases at current market terms, as evidenced in the table below. The amounts we ultimately incur for tenant improvements andleasing costs will depend on actual leasing activity. Tenant improvements and leasing costs generally fluctuate in any given period depending on factors suchas the type of property, the term of the lease, the type of the lease, the involvement of external leasing agents, and overall market conditions. Capitalexpenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to maintain our properties.We currently project we could spend up to $35 million in capital improvements, tenant improvements, and leasing costs in 2012 for properties within ourstabilized portfolio, depending on leasing activity, in addition to approximately $40 million of lease and contractual commitments discussed in our capitalcommitments table above.The following tables set forth our historical actual capital expenditures, and tenant improvements and leasing costs for deals commenced, excluding tenant-funded tenant improvements, for renewed and re-tenanted space within our stabilized portfolio for each of the three years during the period ended December 31,2011 on a per square foot basis. 102 Year Ended December 31, 2011 2010 2009Office Properties: Capital Expenditures: Capital expenditures per square foot$0.71 $1.36 $0.86Tenant Improvement and Leasing Costs (1) Replacement tenant square feet468,530 637,155 221,229Tenant improvements per square foot leased$24.95 $28.03 $27.47Leasing commissions per square foot leased$11.46 $9.30 $9.64Total per square foot$36.41 $37.33 $37.11Renewal tenant square feet709,427 691,531 680,977Tenant improvements per square foot leased$27.73 $12.67 $10.38Leasing commissions per square foot leased$9.27 $8.31 $8.00Total per square foot$37.00 $20.98 $18.38Total per square foot per year$4.01 $5.49 $4.18Average remaining lease term (in years)9.2 5.3 5.5Industrial Properties: Capital Expenditures: Capital expenditures per square foot$0.47 $0.41 $0.85Tenant Improvement and Leasing Costs (1) Replacement tenant square feet233,470 508,105 248,380Tenant improvements per square foot leased$11.83 $5.02 $2.54Leasing commissions per square foot leased$2.92 $2.55 $2.19Total per square foot$14.75 $7.57 $4.73Renewal tenant square feet321,687 278,700 545,143Tenant improvements per square foot leased$1.59 $2.15 $1.49Leasing commissions per square foot leased$0.66 $2.32 $3.02Total per square foot$2.24 $4.46 $4.50Total per square foot per year$1.31 $0.96 $0.74Average remaining lease term (in years)5.8 6.8 6.2________________________(1)Includes only tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation tenants. The 2011 increase in office tenant improvements per square foot leased is primarily due to the execution of one significant lease renewal in 2011. Excluding this one lease, office tenant improvements per square foot leased would generally be consistent with prior years. We believe that all of ourproperties are well maintained and do not require significant capital improvements, and we currently anticipate future capital expenditure levels to beconsistent with historical levels.Distribution RequirementsFor a discussion of our dividend and distribution requirements, see "Liquidity and Capital Resources of the Company - Distribution Requirements."Other Potential Future Liquidity UsesWe may seek to repurchase our Exchangeable Notes depending on prevailing market conditions, our liquidity requirements, and other factors.We have the ability to repurchase preferred stock in open market transactions. We may repurchase the Company's outstanding preferred stock in thefuture depending upon market conditions and our liquidity and financial position.An aggregate of 988,025 common shares of common stock of the Company currently remain eligible for repurchase under a share-repurchase programapproved by our board of directors. We did not repurchase shares of common stock under this program during the year ended December 31, 2011. We mayrepurchase additional shares of the Company's common stock in the future depending upon market conditions.103Factors That May Influence Future Sources of Capital and Liquidity of the Company and Operating PartnershipWe continue to evaluate sources of financing for our business activities, including borrowings under the Credit Facility, issuance of public and privateequity securities, unsecured debt and fixed-rate secured mortgage financing, and proceeds from the disposition of nonstrategic assets through our capitalrecycling program. However, the Operating Partnership's ability to obtain new financing or refinance existing borrowings on favorable terms could be impactedby various factors including the state of economic conditions, significant tenant defaults, a decline in the demand for office or industrial properties, a decreasein market rental rates or market values of real estate assets in our submarkets, and the amount of future borrowings. These events could result in thefollowing:•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 the future;•A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership's ability to incur additional debt,refinance existing debt at competitive rates, or comply with its existing debt obligations; and•A decrease in the value of the Company's common stock, which could impact our ability to issue equity.In addition to the factors noted above, the Operating Partnership's credit ratings are subject to ongoing evaluation by credit rating agencies and may bechanged or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. In the event that the Operating Partnership's credit ratingsare downgraded, we may incur higher borrowing costs and may experience difficulty in obtaining additional financing or refinancing existing indebtedness.Debt CovenantsThe Credit Facility, unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certainfinancial ratios and reporting requirements. Key existing financial covenants and their covenant levels include:Credit Facility (as defined in the Credit Agreement): Covenant Level Actual Performance atDecember 31, 2011Total debt to total asset value less than 60% 40%Fixed charge coverage ratio greater than 1.5x 2.3xUnsecured debt ratio greater than 1.67x 2.17xUnencumbered asset pool debt service coverage greater than 2.0x 3.5x Unsecured Senior Notes due 2015, 2018 and 2020 (as defined in theIndenture): Total debt to total asset value less than 60% 46%Interest coverage greater than 1.5x 2.9xSecured debt to total asset value less than 40% 9%Unencumbered asset pool value to unsecured debt greater than 150% 223%The Operating Partnership was in compliance with all its debt covenants as of December 31, 2011. Our current expectation is that the OperatingPartnership will continue to meet the requirements of its debt covenants in both the short and long term. However, in the event of an economic slow down orcontinued volatility in the credit markets, there is no certainty that the Operating Partnership will be able to continue to satisfy all the covenant requirements.104Historical Cash Flow SummaryOur historical cash flow activity for the year ended December 31, 2011 as compared to the year ended December 31, 2010 was as follows: 105 Year Ended December 31, 2011 2010 DollarChange PercentageChange ($ in thousands)Net cash provided by operating activities$138,256 $119,827 $18,429 15.4 %Net cash used in investing activities(634,283) (701,774) 67,491 (9.6)Net cash provided by financing activities485,964 586,904 (100,940) (17.2)Operating ActivitiesOur cash flows from operations depends on numerous factors including the occupancy level of our portfolio, the rental rates achieved on our leases, thecollectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions and related financing activities, andother general and administrative costs. Our net cash provided by operating activities increased by $18.4 million, or 15.4%, for the year ended December 31,2011 compared to the year ended December 31, 2010 primarily as the result of an increase in cash Net Operating Income generated primarily from ourAcquisitions Portfolio partially offset by increased interest expense attributable to the increase in our average outstanding debt balances as a result of ouracquisition activity. See additional information under the capital "—Rental Operations."Investing ActivitiesOur net cash used in investing activities is generally used to fund property acquisitions, recurring and nonrecurring capital expenditures for our operatingproperties, and development and redevelopment projects. Our net cash used in investing activities decreased $67.5 million, or 9.6%, for the year endedDecember 31, 2011 compared to the year ended December 31, 2010. This net decrease was primarily attributable to a reduction of $34.3 million in cash paidfor acquisitions and an increase of $49.2 million in our net proceeds from the disposition of operating properties. Financing ActivitiesOur net cash provided by financing activities is generally impacted by our capital raising activities net of dividends and distributions paid to common andpreferred security holders. Net cash provided by financing activities decreased by $100.9 million, or 17.2%, for the year ended December 31, 2011 comparedto the year ended December 31, 2010, and was primarily attributable to the following:•A net decrease of approximately $96.2 million provided by our various capital raising activities. Although we had increased acquisition activity in2011, we financed a portion of this through $64.2 million of net proceeds from dispositions that we generated from our capital recycling program;and•A decrease of $10.8 million as a result of the dividends paid on the 6.0 million common shares we issued in our April 2011 equity offering.Off-Balance Sheet ArrangementsAs of December 31, 2011 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 OperationsThe Company calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFOas net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable realestate and impairment write-downs associated with depreciable real estate, 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 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, it facilitatescomparisons of operating106performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO107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 amortizationcosts or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economiccosts and could materially impact our results from operations.The following table presents our FFO for the years ended December 31, 2011, 2010, 2009, 2008, and 2007: Year ended December 31, 2011 2010 2009 2008 2007 (in thousands)Net income available to common stockholders$50,819 $4,512 $21,794 $29,829 $101,164Adjustments: Net income attributable to noncontrolling common units of theOperating Partnership1,474 178 1,025 1,886 6,957Depreciation and amortization of real estate assets135,467 102,898 86,825 82,491 73,708Net gain on dispositions of discontinued operations(51,587) (949) (2,485) (234) (74,505)Funds From Operations(1)$136,173 $106,639 $107,159 $113,972 $107,324_______________________(1)Reported amounts are attributable to common stockholders and common unitholders. The following table presents our weighted average common shares and common units outstanding for the years ended December 31, 2011, 2010, 2009,2008, and 2007: Year Ended December 31, 2011 2010 2009 2008 2007Weighted average common shares outstanding56,717,121 49,497,487 38,705,101 32,466,591 32,379,997Weighted average common units outstanding1,720,323 1,723,131 1,731,095 2,065,188 2,235,772Effect of participating securities—nonvestedshares and restricted stock units924,747 812,865 785,582 372,444 312,552Total basic weighted average shares / unitsoutstanding59,362,191 52,033,483 41,221,778 34,904,223 34,928,321Effect of dilutive securities—ExchangeableNotes, stock options and contingently issuableshares187,134 15,708 27,025 74,281 28,969Total diluted weighted average shares / unitsoutstanding59,549,325 52,049,191 41,248,803 34,978,504 34,957,290108InflationSince the majority of our leases require tenants to pay most operating expenses, including real estate taxes, utilities, insurance, and increases in commonarea maintenance expenses, we do not believe our exposure to increases in costs and operating expenses resulting from inflation is material.New Accounting PronouncementsThere are currently no recently issued accounting pronouncements that are expected to have a material effect on our financial condition and results ofoperations in future periods.109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 and procedures. Thesepolicies include maintaining prudent amounts of debt, including a greater amount of fixed-rate debt as compared to variable-rate debt in our portfolio, and mayinclude the periodic use of derivative instruments. As of December 31, 2011 and 2010, we did not have any interest-rate sensitive derivative assets orliabilities.Information about our changes in interest rate risk exposures from December 31, 2010 to December 31, 2011 is incorporated herein by reference from "Item7: Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership.”Market RiskAs of December 31, 2011, approximately 9.9% of our total outstanding debt of $1.8 billion was subject to variable interest rates. The remaining 90.1%bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes.In general, interest rate fluctuations applied to our variable-rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuationsapplied to our fixed-rate debt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated andneed to be refinanced. However, interest rate fluctuations will impact the fair value of the fixed-rate debt instruments.We generally determine the fair value of our secured debt and unsecured line of credit by performing discounted cash flow analyses using an appropriatemarket discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturities of our fixed-rate debtand then adding an appropriate credit spread based on information obtained from third-party financial institutions. We calculate the market rate of ourunsecured line of credit by obtaining the period-end LIBOR rate and then adding an appropriate credit spread based on information obtained from third-partyfinancial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period,whether the debt is secured or unsecured, and the loan-to-value ratio of the debt to the collateral. These calculations are significantly affected by theassumptions used, including the discount rate, credit spreads, and estimates of future cash flow. We determine the fair value of the liability component of ourExchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate based upon spreads for our publicly traded debt.We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end of the reporting period. See Note16 to our consolidated financial statements included in this report for additional information on the fair value of our financial assets and liabilities as ofDecember 31, 2011 and December 31, 2010.As of December 31, 2011, the total outstanding balance of our variable-rate debt was comprised of borrowings on our Credit Facility of $182.0 millionand was indexed to LIBOR plus a spread of 1.750% (weighted average interest rate was 2.05% ). As of December 31, 2010, the total outstanding balance ofour variable-rate debt was comprised of borrowings of $159.0 million on our Credit Facility, which was indexed to LIBOR plus a spread of 2.675%(weighted average interest rate was 2.99%). Assuming no changes in the outstanding balance of our existing variable-rate debt as of December 31, 2011, a 100basis point increase in the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, by approximately $1.8 million.Comparatively, if interest rates were 100 basis points higher as of December 31, 2010, our projected annual interest expense, before the effect of capitalization,would have been $1.6 million higher.The total carrying value of our fixed-rate debt, including our Exchangeable Notes, was approximately $1.6 billion and $1.3 billion as of December 31,2011 and 2010, respectively. The total estimated fair value of our fixed-rate debt was approximately $1.7 billion and $1.3 billion as of December 31, 2011 and2010, respectively. For sensitivity purposes, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt ofapproximately $64.2 million, or 3.8%, as of December 31, 2011. Comparatively, a 100 basis point increase in the discount rate equates to a decrease in thetotal fair value of our fixed-rate debt of approximately $47.2 million, or 3.6%, as of December 31, 2010.110The above sensitivity analyses do not consider interrelationships between different market movements, which could result in additional changes in the fairvalue of our debt and Exchangeable Notes, beyond the amounts calculated. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the index included at Item 15: Exhibits, Financial Statement Schedules. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.111 ITEM 9A.CONTROLS AND PROCEDURES Kilroy Realty CorporationThe Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed toensure that information required to be disclosed in our reports under the Exchange Act, is processed, recorded, summarized, and reported within the timeperiods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosurecontrols and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonableassurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures.As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of the end of theperiod covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer 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 Company's internal control over financialreporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, the Company'sinternal 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 Chief Financial Officer andeffected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies andprocedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and thatour receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the consolidated financialstatements.Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reportingis supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The Company has used the criteria set forthin the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internalcontrol over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as ofDecember 31, 2011.Deloitte & Touche LLP, the Company's independent registered public accounting form, has audited the Company's financial statements and has issued areport on the effectiveness of the Company's internal control over financial reporting.112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, 2011, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is toexpress an opinion on the Company'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 requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe 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 principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's 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 the assets of the company; (2) providereasonable assurance that transactions 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 and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sassets 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 improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based onthe criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedules as of and for the year ended December 31, 2011, of the Company and our report dated February 8, 2012,expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012113Kilroy Realty, L.P.The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) thatare designed to ensure that information required to be disclosed in our reports under the Exchange Act, is processed, recorded, summarized, and reportedwithin the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including theChief Executive Officer and Chief Financial Officer of its general partner, as appropriate, to allow for timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluatingthe cost-benefit relationship of possible controls and procedures.As required by SEC Rule 13a-15(b), the Operating Partnership carried out an evaluation, under the supervision and with the participation ofmanagement including the Chief Executive Officer and Chief Financial Officer of its general partner, of the effectiveness of the design and operation of thedisclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief FinancialOfficer of its general partner concluded, as of that time, that our disclosure controls 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's internal control overfinancial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, theOperating 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 Chief Financial Officer ofthe Operating Partnership's general partner and effected by the board of directors, management, and other personnel of its general partner to provide reasonableassurance regarding the reliability 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 reasonable detail, accurately andfairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations ofmanagement and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofassets that could have a material effect on the consolidated financial statements.Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financialreporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The Operating Partnership has usedthe criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission toassess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operatedeffectively as of December 31, 2011.Deloitte & Touche LLP, the Operating Partnership's independent registered public accounting form, has audited the Operating Partnership's financialstatements and has issued a report on the effectiveness of the Operating Partnership's internal control over financial reporting.114REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders 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, 2011, based oncriteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheOperating Partnership's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Operating Partnership'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 requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe 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 principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's 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 the assets of the company; (2) providereasonable assurance that transactions 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 and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sassets 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 improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31,2011, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedules as of and for the year ended December 31, 2011, of the Operating Partnership and our report dated February 8,2012, expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012115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 presentlyscheduled to be held in May 2012.ITEM 11.EXECUTIVE COMPENSATIONThe information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presentlyscheduled to be held in May 2012.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presentlyscheduled to be held in May 2012.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 presentlyscheduled to be held in May 2012.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 presentlyscheduled to be held in May 2012.116PART IV117ITEM 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 CorporationF - 2Report of Independent Registered Public Accounting Firm - Kilroy Realty, L.P.F - 8Consolidated Balance Sheets as of December 31, 2011 and 2010 - Kilroy Realty CorporationF - 3Consolidated Statements of Operations for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty CorporationF - 4Consolidated Statements of Equity for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty CorporationF - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty CorporationF - 6Consolidated Balance Sheets as of December 31, 2011 and 2010 - Kilroy Realty, L.P.F - 9Consolidated Statements of Operations for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty, L.P.F - 10Consolidated Statements of Capital for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty, L.P.F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010, and 2009 - Kilroy Realty, L.P.F - 12Notes to Consolidated Financial StatementsF - 14Schedule II—Valuation and Qualifying AccountsF - 76Schedule III—Real Estate and Accumulated DepreciationF - 77All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because theinformation required is included in the financial statements and notes thereto.(3) Exhibits ExhibitNumber Description3.(i)1 Kilroy Realty Corporation Articles of Restatement (37)3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P. (38)3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (38)3.(ii).1 Second Amended and Restated Bylaws of the Registrant (29)3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws (33)3.(ii).3 Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of March 5, 2004 (2)3.(ii).4 First Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as of December 7, 2004(8)3.(ii).5 Second Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as of October 2,2008 (32)3.(ii).6 Third Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P.(34)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)118ExhibitNumber Description4.7 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percent ofthe total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees tofurnish copies of these agreements to the Commission upon request4.8 Note and Guarantee Agreement dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and thepurchasers 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 (22)4.12† Amendment to Kilroy Realty 2006 Incentive Award Plan (24)4.13† Second Amendment to Kilroy Realty 2006 Incentive Award Plan (28)4.14† Third Amendment to Kilroy Realty 2006 Incentive Award Plan (33)4.15† Form of Restricted Stock Award Agreement (23)4.16 Indenture, dated as of April 2, 2007, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 3.250% Exchangeable Senior Notes due 2012(26)4.17 Registration Rights Agreement, dated April 2, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation, and J.P. Morgan SecuritiesInc., Banc of America Securities LLC and Lehman Brothers Inc. (26)4.18 Indenture, dated as of November 20, 2009, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee, including the form of 4.25% Exchangeable Senior Notes due 2014 and the form of relatedguarantee (35)4.19 Registration Rights Agreement, dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. MorganSecurities Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (35)4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P. (38)4.21 Indenture, dated May 24, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 6.625% Senior Notes due 2020 and the form of the related guarantee. (39)4.22 Registration Rights Agreement, dated May 24, 2010, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. Morgan Securities Inc.,Banc of America Securities LLC and Barclays Capital Inc. (39)4.23† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan (40)4.24 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of related guarantee (41)4.25 Indenture, dated March 1, 2011, by and among Kilory Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee(45)4.26 Supplemental Indenture, dated July 5, 2011, among Kilory Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee(46)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 parties named 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 for Kilroy LongBeach Phase I (9)10.10 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and the City of LongBeach 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 for Kilroy LongBeach Phase III (10)119ExhibitNumber Description10.12 Lease Agreement dated April 21, 1988 by and between Kilroy Long Beach Associates and the Board of Water Commissioners of theCity of Long Beach, acting for and on behalf of the City of Long Beach, for Long Beach Phase IV (10)10.13 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase II (10)10.14 First Amendment to Lease dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach forKilroy Long Beach Phase III (10)10.15 Second Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and the City of LongBeach 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 the City of LongBeach 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 the City of LongBeach 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 Long Beach (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 Land Company, 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 Partners and KilroyRealty, L.P. (13)10.29 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997 by and between Kilroy Realty L.P. and Pullman CarnegieAssociates (14)10.30 Amendment to Purchase and Sale Agreement and Escrow Instructions dated June 27, 1997 by and between Pullman CarnegieAssociates and Kilroy Realty, L.P. (14)10.31 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated May 12, 1997 by and between ShidlerWest 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 andbetween 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 dated June 12, 1997 byand 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 of America, Inc. andKilroy Realty, L.P. (14)10.35 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated June 30, 1997 by and between Mazda Motorof 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 and between SantaMonica 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. and MissionSquare Partners (16)10.38 First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and between Kilroy 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 and between KilroyRealty, 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 between KilroyRealty, L.P. and Mission Square Partners dated September 19, 1997 (16)120ExhibitNumber Description10.41 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and between KilroyRealty, 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 between KilroyRealty, 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 between KilroyRealty, 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 and between KilroyRealty, 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 and between KilroyRealty, 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 between KilroyRealty, 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 and The AllenGroup and the Allens (17)10.48 Purchase and Sale Agreement and Escrow Instructions dated December 11, 1997 by and between Kilroy Realty, L.P. and Swede-CalProperties, 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 Realty Corporationand 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 Insurance Company datedJanuary 10, 2002 (20)10.51 Secured Promissory Notes and Deeds of Trust Aggregating $115 million payable to Teachers Insurance and Annuity Association ofAmerica (21)10.57† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. effective as of January 1,2007 (25)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 (36)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 (36)10.60† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of January 1,2007 (25)10.61† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawkeneffective as of December 31, 2009 (36)10.62† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr. effective as of January1, 2007 (25)10.63† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr.effective as of December 31, 2009 (36)10.64 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank, NationalAssociation, London Branch (26)10.65 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (26)10.66 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch (27)10.67 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N.A. (27)10.68† Kilroy Realty Corporation 2007 Deferred Compensation Plan (30)10.71† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1,2007 (30)10.72† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effectiveas of December 31, 2009 (36)10.73† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007(30)10.74† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective asof December 31, 2009 (36)121ExhibitNumber Description10.75† Kilroy Realty Corporation Stock Award Deferral Program (31)10.76 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (35)10.77 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (35)10.78 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (35)10.79 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (35)10.80† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (37)10.81† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P. and KilroyRealty Corporation (37)10.82 Deed of Trust and Security Agreement dated January 26, 2010 between Kilroy Realty, L.P. and The Northwestern Mutual LifeInsurance Company; related Promissory Note dated January 26, 2010 for $71 million payable to The Northwestern Mutual LifeInsurance Company; and related Guarantee of Recourse Obligations dated January 26, 2010 by Kilroy Realty Corporation (37)10.83 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 12, 2010 by and between Kilroy Realty, L.P, a Delawarelimited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company (42)10.84 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated May 21, 2010 by and between Kilroy Realty,L.P, a Delaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company (42)10.85 Revolving Credit Agreement dated August 10, 2010 (43)10.86 Guaranty of Payment dated August 10, 2010 (43)10.87 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC(44)10.88 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC(44)10.89 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P.(44)10.90 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC(44)10.91 First Amendment to Revolving Credit Agreement, dated June 22, 2011(47)10.92 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Barclays Capital Inc.(48)10.93 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Wells Fargo Securities, LLC(48)10.94 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Merrill Lynch, Pierce, Fenner &Smith Incorporated(48)10.95 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and J.P. Morgan Securities LLC(48)12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined FixedCharges and Preferred Dividends of Kilroy Realty Corporation12.2* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges of Kilroy Realty, L.P.21.1* List of Subsidiaries of Kilroy Realty Corporation21.2* List of Subsidiaries of Kilroy Realty, L.P.23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P.24.1* Power of Attorney (included on the signature page of this Form 10-K)31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation31.3* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.122ExhibitNumber Description31.4* 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 Corporation32.2* Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation32.3* 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, 2011,formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements ofOperations, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Capital, (v) Consolidated Statements of CashFlows and (vi) Notes to the Consolidated Financial Statements.(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 of Sections 11or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.(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 on123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 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 28,2006.(23)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.(24)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2006.(25)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.(26)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 5, 2007.124(27)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.(28)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2007.(29)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.(30)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007.(31)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.(32)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2008.(33)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.(34)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2009.(35)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.(36)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2008.(37)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009.(38)Previously filed by Kilroy Realty, L.P. as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commissionon August 18, 2010.(39)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.(40)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S−8 as filed with the Securities and Exchange Commission on June11, 2010.(41)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 on November 4,2010.(42)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.(43)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.(44)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 on January 13,2011.(45)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit the Registration Statement on Form S-3 as filed with the Securities and ExchangeCommission on March 1, 2011.(46)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 6, 2011.(47)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 23, 2011.(48)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 28, 2011. 125SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty Corporation has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized on February 8, 2012. KILROY REALTY CORPORATION By /s/ Heidi R Roth Heidi R. RothSenior Vice President and ControllerPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Kilroy Realty Corporation, hereby severally constituteJohn 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 fullpower to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and allamendments to 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 to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and ExchangeCommission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and allamendments thereto.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated. Name TitleDate /s/ John B. Kilroy Sr. Chairman of the BoardFebruary 8, 2012John B. Kilroy, Sr. /s/ John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer)February 8, 2012John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 8, 2012Tyler H. Rose /s/ Heidi R. Roth Senior Vice President and Controller (PrincipalAccounting Officer)February 8, 2012Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 8, 2012Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 8, 2012William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 8, 2012Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 8, 2012Dale F. Kinsella 126SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty, L.P. has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized on February 8, 2012. KILROY REALTY, L.P. By /s/ Heidi R. Roth Heidi 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 sole general partner andon 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 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 our names and in ourcapacities as officers and directors to enable Kilroy Realty Corporation, as sole general partner and on behalf of Kilroy Realty, L.P., to comply with theprovisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying andconfirming our 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 following persons on behalfof the registrant and in the capacities and on the dates indicated.Name TitleDate /s/ John B. Kilroy, Sr. Chairman of the BoardFebruary 8, 2012John B. Kilroy, Sr. /s/ John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer)February 8, 2012John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 8, 2012Tyler H. Rose /s/ Heidi R. Roth Senior Vice President and Controller (PrincipalAccounting Officer)February 8, 2012Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 8, 2012Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 8, 2012William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 8, 2012Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 8, 2012Dale F. Kinsella 127KILROY REALTY CORPORATION AND KILROY REALTY, L.P.CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011 AND 2010AND FOR THE THREE YEARS ENDED DECEMBER 31, 2011TABLE OF CONTENTS PageFINANCIAL STATEMENTS OF KILROY REALTY CORPORATION: Report of Independent Registered Public Accounting FirmF - 2Consolidated Balance Sheets as of December 31, 2011 and 2010F - 3Consolidated Statements of Operations for the Years ended December 31, 2011, 2010, and 2009F - 4Consolidated Statements of Equity for the Years ended December 31, 2011, 2010, and 2009F - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010, and 2009F - 6FINANCIAL STATEMENTS OF KILROY REALTY, L.P.: Report of Independent Registered Public Accounting FirmF - 8Consolidated Balance Sheets as of December 31, 2011 and 2010F - 9Consolidated Statements of Operations for the Years ended December 31, 2011, 2010, and 2009F - 10Consolidated Statements of Capital for the Years ended December 31, 2011, 2010, and 2009F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010, and 2009F - 12 Notes to Consolidated Financial Statements for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 14Schedule II—Valuation and Qualifying Accounts for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 76Schedule III—Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 77F - 1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofKilroy Realty CorporationLos Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty Corporation (the “Company”) as of December 31, 2011 and 2010, andthe related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits alsoincluded the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility ofthe Company’s management. Our responsibility 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 requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relationto the basic consolidated financial statements taken as a whole, 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), the Company’s internalcontrol over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2012, expressed an unqualified opinion on theCompany’s internal controls over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012F - 2KILROY REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2011 2010ASSETS REAL ESTATE ASSETS (Notes 3,18 and 19): Land and improvements$537,574 $491,333Buildings and improvements2,830,310 2,435,173Undeveloped land and construction in progress430,806 290,365Total real estate held for investment3,798,690 3,216,871Accumulated depreciation and amortization(742,503) (672,429)Total real estate held for investment, net3,056,187 2,544,442 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 19)84,156 —CASH AND CASH EQUIVALENTS4,777 14,840RESTRICTED CASH358 1,461MARKETABLE SECURITIES (Notes 13 and 16)5,691 4,902CURRENT RECEIVABLES, NET (Note 5)8,395 6,258DEFERRED RENT RECEIVABLES, NET (Note 5)101,142 89,052DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLES ASSETS, NET (Notes 3 and 4)155,522 131,066DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,368 16,447PREPAID EXPENSES AND OTHER ASSETS, NET12,199 8,097TOTAL ASSETS$3,446,795 $2,816,565LIABILITIES, NONCONTROLLING INTEREST AND EQUITY LIABILITIES: Secured debt, net (Notes 3, 6 and 7)$351,825 $313,009Exchangeable senior notes, net (Notes 6 and 7)306,892 299,964Unsecured senior notes, net (Notes 6 and 7)980,569 655,803Unsecured line of credit (Notes 6 and 7)182,000 159,000Accounts payable, accrued expenses and other liabilities81,713 68,525Accrued distributions (Note 10)22,692 20,385Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)79,781 79,322Rents received in advance and tenant security deposits26,917 29,189Liabilities and deferred revenue of real estate assets held for sale (Note 19)13,286 —Total liabilities2,045,675 1,625,197COMMITMENTS AND CONTINGENCIES (Note 15) NONCONTROLLING INTEREST (Note 9): 7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership73,638 73,638EQUITY (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 38,4257.50% Series F Cumulative Redeemable Preferred stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding ($86,250 liquidation preference)83,157 83,157Common stock, $.01 par value, 150,000,000 shares authorized, 58,819,717 and 52,349,670 shares issued and outstanding, respectively588 523Additional paid-in capital1,448,997 1,211,498Distributions in excess of earnings(277,450) (247,252)Total stockholders’ equity1,293,717 1,086,351Noncontrolling Interest: Common units of the Operating Partnership33,765 31,379Total equity1,327,482 1,117,730TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY$3,446,795 $2,816,565 See accompanying notes to consolidated financial statementsF - 3KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended December 31, 2011 2010 2009REVENUES: Rental income$332,489 $261,534 $234,391Tenant reimbursements27,976 22,918 26,703Other property income6,666 2,944 3,710Total revenues367,131 287,396 264,804EXPENSES: Property expenses72,869 56,389 47,439Real estate taxes32,521 26,342 23,175Provision for bad debts644 16 423Ground leases (Note 4 and 15)1,779 984 1,597General and administrative expenses (Note 17)28,148 27,963 39,938Acquisition-related expenses4,053 2,248 —Depreciation and amortization (Notes 2 and 4)133,220 99,611 84,290Total expenses273,234 213,553 196,862OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)571 964 1,300Interest expense (Note 7)(89,409) (59,941) (46,119)(Loss) gain on early extinguishment of debt (Note 7)— (4,564) 4,909Total other (expenses) income(88,838) (63,541) (39,910)INCOME FROM CONTINUING OPERATIONS5,059 10,302 28,032DISCONTINUED OPERATIONS (Note 19) Income from discontinued operations10,843 8,635 7,498Net gain on dispositions of discontinued operations51,587 949 2,485Total income from discontinued operations62,430 9,584 9,983NET INCOME67,489 19,886 38,015Net income attributable to noncontrolling common units of the Operating Partnership(1,474) (178) (1,025)NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION66,015 19,708 36,990PREFERRED DISTRIBUTIONS AND DIVIDENDS: 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 distributions and dividends(15,196) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$50,819 $4,512 $21,794(Loss) income from continuing operations available to common stockholders per common share—basic (Note 20)$(0.20) $(0.12) $0.28(Loss) income from continuing operations available to common stockholders per common share—diluted (Note 20)$(0.20) $(0.12) $0.28Net income available to common stockholders per share—basic (Note 20)$0.87 $0.07 $0.53Net income available to common stockholders per share—diluted (Note 20)$0.87 $0.07 $0.53Weighted average common shares outstanding—basic (Note 20)56,717,121 49,497,487 38,705,101Weighted average common shares outstanding—diluted (Note 20)56,717,121 49,497,487 38,732,126Dividends declared per common share$1.40 $1.40 $1.63 See accompanying notes to consolidated financial statements.F - 4KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF EQUITY(in thousands, except share and per share/unit data) PreferredStock Common Stock TotalStock-holders’Equity Noncontrolling Interest – CommonUnits of theOperatingPartnership TotalEquityNumber ofShares CommonStock AdditionalPaid-inCapital Distributionsin Excess ofEarnings BALANCE AT DECEMBER 31, 2008$121,582 33,086,148 $331 $700,122 $(137,052) $684,983 $29,903 $714,886Net income 36,990 36,990 1,025 38,015Issuance of common stock (Note 10) 10,062,500 100 191,572 191,672 191,672Issuance of share-based compensation awards (Note12) 55,998 7,753 7,753 7,753Noncash amortization of share-based compensation 12,338 12,338 12,338Repurchase of common stock and restricted stock units (86,482) (2,725) (2,725) (2,725)Equity component of 4.25% Exchangeable Notes(Note 7) 19,835 19,835 19,835Cost of capped call options on common stock (12,127) (12,127) (12,127)Allocation to the equity component of cash paid uponrepurchase of 3.25% Exchangeable Notes (Note 7) (2,323) (2,323) (2,323)Exchange of common units of the OperatingPartnership (Note 10) 30,598 516 516 (516) —Adjustment for noncontrolling interest (Note 2) (1,304) (1,304) 1,304 —Preferred dividends and distributions (15,196) (15,196) (15,196)Dividends declared per common share and commonunit ($1.63 per share/unit) (65,464) (65,464) (2,826) (68,290)BALANCE AT DECEMBER 31, 2009121,582 43,148,762 431 913,657 (180,722) 854,948 28,890 883,838Net income 19,708 19,708 178 19,886Issuance of common stock (Note 10) 9,200,000 92 299,755 299,847 299,847Issuance of share-based compensation awards (Note12) 3,239 2,151 2,151 2,151Noncash amortization of share-based compensation 6,687 6,687 6,687Exercise of stock options 4,000 83 83 83Repurchase of common stock and restricted stock units (59,782) (2,121) (2,121) (2,121)Settlement of restricted stock units for shares ofcommon stock (Note 12) 53,451 (1,296) (1,296) (1,296)Allocation to the equity component of cash paid uponrepurchase of 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 dividends and distributions (15,196) (15,196) (15,196)Dividends declared per common share and commonunit ($1.40 per share/unit) (71,042) (71,042) (2,413) (73,455)BALANCE AS OF DECEMBER 31, 2010121,582 52,349,670 523 1,211,498 (247,252) 1,086,351 31,379 1,117,730Net income 66,015 66,015 1,474 67,489Issuance of common stock (Note 10) 6,392,805 64 233,248 233,312 233,312Issuance of share-based compensation awards (Note12) 68,727 1 2,738 2,739 2,739Noncash amortization of share-based compensation 5,588 5,588 5,588Exercise of stock options 15,000 395 395 395Repurchase of common stock and restricted stock units(Note 12) (11,485) (1,152) (1,152) (1,152)Exchange of common units of the OperatingPartnership (Note 10) 5,000 91 91 (91) —Adjustment for noncontrolling interest (Note 2) (3,409) (3,409) 3,409 —Preferred dividends and distributions (15,196) (15,196) (15,196)Dividends declared per common share and commonunit ($1.40 per share/unit) (81,017) (81,017) (2,406) (83,423)BALANCE AS OF DECEMBER 31, 2011$121,582 58,819,717 $588 $1,448,997 $(277,450) $1,293,717 $33,765 $1,327,482 See accompanying notes to consolidated financial statements.F - 5KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2011 2010 2009CASH FLOWS FROM OPERATING ACTIVITIES: Net income$67,489 $19,886 $38,015Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): Depreciation and amortization of building and improvements and leasing costs135,467 102,898 86,825Increase (decrease) in provision for bad debts644 (1,063) 569Depreciation of furniture, fixtures and equipment1,130 911 827Noncash amortization of share-based compensation awards (Note 12)4,482 6,031 12,253Noncash amortization of deferred financing costs and debt discounts and premiums13,540 12,490 10,171Noncash amortization of above/(below) market rents (Note 4)1,056 1,377 (359)Net gain on dispositions of discontinued operations (Note 19)(51,587) (949) (2,485)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(9,349) (9,689) (9,757)Straight-line rents(21,331) (13,616) (6,911)Loss (gain) on early extinguishment of debt (Note 7)— 4,564 (4,909)Net change in other operating assets(5,434) (9,065) (1,863)Net change in other operating liabilities2,779 5,509 2,589Other, net(630) 543 —Net cash provided by operating activities138,256119,827 124,965CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties (Note 3)(603,301) (637,620) —Expenditures for operating properties(62,739) (71,099) (35,532)Expenditures for development and redevelopment properties and undeveloped land(28,517) (21,832) (18,633)Net proceeds received from dispositions of operating properties (Note 19)64,171 14,978 4,933Increase in acquisition-related deposits(5,000) — —Decrease (increase) in restricted cash1,103 3,120 (1,387)Receipt of principal payments on note receivable (Note 5)— 10,679 145Net cash used in investing activities(634,283) (701,774) (50,474)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock (Note 10)233,312 299,847 191,672Borrowings on unsecured line of credit550,000 660,000 142,000Repayments on unsecured line of credit(527,000) (598,000) (297,000)Proceeds from the issuance of secured debt (Note 7)135,000 71,000 —Principal payments on secured debt(127,665) (103,247) (21,766)Proceeds from the issuance of unsecured senior notes (Note 7)324,476 572,672 —Repayments of unsecured debt (Note 7)— (61,000) —Repurchase of exchangeable senior notes (Note 7)— (151,097) (150,390)Proceeds from issuance of exchangeable senior notes (Note 7)— — 172,500Cost of capped call options on common stock (Note 7)— — (12,127)Financing costs(9,060) (14,912) (9,325)Decrease (increase) in loan deposit and other2,859 (605) —Repurchase of common stock and restricted stock units(1,152) (3,417) (2,725)Proceeds from exercise of stock options395 83 —Dividends and distributions paid to common stockholders and common unitholders(80,005) (69,224) (71,804)Dividends and distributions paid to preferred stockholders and preferred unitholders(15,196) (15,196) (15,196)Net cash provided by (used in) financing activities485,964 586,904 (74,161)Net (decrease) increase in cash and cash equivalents(10,063) 4,957 330Cash and cash equivalents, beginning of year14,840 9,883 9,553Cash and cash equivalents, end of year$4,777 $14,840 $9,883 F - 6KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)(in thousands) Year Ended December 31, 2011 2010 2009SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $7,615, $7,697, and $7,381 as of December 31, 2011, 2010and 2009, respectively$68,280 $45,986 $36,808NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$14,301 $19,563 $11,222Tenant improvements funded directly by tenants to third-parties$3,288 $4,758 $1,480Assumption of secured debt with property acquisition (Notes 3 and 7)$30,042 $51,079 Assumption of other liabilities with property acquisitions (Note 3)$4,515 $10,840 NONCASH FINANCING TRANSACTIONS: Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 10)$21,188 $18,925 $15,705Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Note 10)$1,909 $1,909 $1,909Issuance of share-based compensation awards (Note 12)$7,797 $5,910 $18,001Exchange of common units of the Operating Partnership into shares of the Company’s common stock (Note 10)$91 $— $516 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 of December 31, 2011 and 2010,and the related consolidated statements of operations, capital, and cash flows for each of the three years in the period ended December 31, 2011. Our auditsalso included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are theresponsibility of the Operating Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statementschedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour 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 Operating Partnership as ofDecember 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, inconformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, whenconsidered in relation to the basic consolidated financial statements taken as a whole, 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), the OperatingPartnership's internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2012, expressed an unqualified opinionon the Operating Partnership's internal controls over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012F - 8KILROY REALTY, L.P.CONSOLIDATED BALANCE SHEETS(in thousands, except unit data) December 31, 2011 2010 ASSETS REAL ESTATE ASSETS (Notes 3, 18 and 19): Land and improvements$537,574 $491,333Buildings and improvements2,830,310 2,435,173Undeveloped land and construction in progress430,806 290,365Total real estate held for investment3,798,690 3,216,871Accumulated depreciation and amortization(742,503) (672,429)Total real estate held for investment, net3,056,187 2,544,442 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 19)84,156 —CASH AND CASH EQUIVALENTS4,777 14,840RESTRICTED CASH358 1,461MARKETABLE SECURITIES (Notes 13 and 16)5,691 4,902CURRENT RECEIVABLES, NET (Note 5)8,395 6,258DEFERRED RENT RECEIVABLES, NET (Note 5)101,142 89,052DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4)155,522 131,066DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,368 16,447PREPAID EXPENSES AND OTHER ASSETS, NET12,199 8,097TOTAL ASSETS$3,446,795 $2,816,565LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL LIABILITIES: Secured debt, net (Notes 3, 6 and 7)$351,825 $313,009Exchangeable senior notes, net (Notes 6 and 7)306,892 299,964Unsecured senior notes, net (Notes 6 and 7)980,569 655,803Unsecured line of credit (Notes 6 and 7)182,000 159,000Accounts payable, accrued expenses and other liabilities81,713 68,525Accrued distributions (Note 10)22,692 20,385Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)79,781 79,322Rents received in advance and tenant security deposits26,917 29,189Liabilities and deferred revenue of real estate assets held for sale (Note 19)13,286 —Total liabilities2,045,675 1,625,197COMMITMENTS AND CONTINGENCIES (Note 15) 7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS (Note 9)73,638 73,638CAPITAL (Notes 9 and 11): Partners' Capital: 7.80% Series E Cumulative Redeemable Preferred units, 1,610,000 units issued and outstanding ($40,250 liquidationpreference)38,425 38,4257.50% Series F Cumulative Redeemable Preferred units, 3,450,000 units issued and outstanding ($86,250 liquidationpreference)83,157 83,157Common units, 58,819,717 and 52,349,670 held by the general partner and 1,718,131 and 1,723,131 held by commonlimited partners issued and outstanding, respectively1,203,259 994,511 Total Partners' Capital1,324,841 1,116,093Noncontrolling interests in consolidated subsidiaries2,641 1,637Total capital1,327,482 1,117,730TOTAL LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL$3,446,795 $2,816,565 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, 2011 2010 2009REVENUES: Rental income$332,489 $261,534 $234,391Tenant reimbursements27,976 22,918 26,703Other property income (Note 17)6,666 2,944 3,710Total revenues367,131 287,396 264,804EXPENSES: Property expenses72,869 56,389 47,439Real estate taxes32,521 26,342 23,175Provision for bad debts644 16 423Ground leases (Notes 4 and 15)1,779 984 1,597General and administrative expenses28,148 27,963 39,938Acquisition-related expenses4,053 2,248 —Depreciation and amortization (Notes 2 and 4)133,220 99,611 84,290Total expenses273,234 213,553 196,862OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)571 964 1,300Interest expense (Note 7)(89,409) (59,941) (46,119)(Loss) gain on early extinguishment of debt (Note 7)— (4,564) 4,909Total other (expenses) income(88,838) (63,541) (39,910)INCOME FROM CONTINUING OPERATIONS5,059 10,302 28,032DISCONTINUED OPERATIONS (Note 19) Income from discontinued operations10,843 8,635 7,498Net gain on dispositions of discontinued operations51,587 949 2,485Total income from discontinued operations62,430 9,584 9,983NET INCOME67,489 19,886 38,015Net income attributable to noncontrolling interests in consolidated subsidiaries(529) (162) (201)NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.66,960 19,724 37,814PREFERRED DISTRIBUTIONS(15,196) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON UNITHOLDERS$51,764 $4,528 $22,618(Loss) income from continuing operations available to common unitholders per unit-basic (Note 21)$(0.20) $(0.12) $0.28(Loss) income from continuing operations available to common unitholders per unit-diluted (Note 21)$(0.20) $(0.12) $0.28Net income available to common unitholders per unit-basic (Note 21)$0.86 $0.07 $0.53Net income available to common unitholders per unit-diluted (Note 21)$0.86 $0.07 $0.53Weighted average common units outstanding-basic (Note 21)58,437,444 51,220,618 40,436,196Weighted average common units outstanding-diluted (Note 21)58,437,444 51,220,618 40,463,221Distributions declared per common unit$1.40 $1.40 $1.63 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) Partners' Capital Total Partners'Capital Noncontrolling Interestsin ConsolidatedSubsidiaries Preferred Units Number of CommonUnits Common Units Total CapitalBALANCE AS OF DECEMBER 31, 2008$121,582 34,839,877 $591,394 $712,976 $1,910 $714,886Net income 37,814 37,814 201 38,015Issuance of common units (Note 10) 10,062,500 191,672 191,672 191,672Issuance of share-based compensation awards (Note 12) 55,998 7,753 7,753 7,753Noncash amortization of share-based compensation 12,338 12,338 12,338Repurchase of common units and restricted stock units (86,482) (2,725) (2,725) (2,725)Equity component of 4.25% Exchangeable Notes (Note 7) 19,835 19,835 19,835Cost of capped call options (12,127) (12,127) (12,127)Allocation to the equity component of cash paid uponrepurchase of 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, 2009121,582 44,871,893 760,756 882,338 1,500 883,838Net income 19,724 19,724 162 19,886Issuance of common units (Note 10) 9,200,000 299,847 299,847 299,847Issuance of share-based compensation awards (Note 12) 3,239 2,151 2,151 2,151Noncash amortization of share-based compensation 6,687 6,687 6,687Exercise of stock options 4,000 83 83 83Repurchase of common units and restricted stock units (59,782) (2,121) (2,121) (2,121)Settlement of restricted stock units (Note 12) 53,451 (1,296) (1,296) (1,296)Allocation to the equity component of cash paid uponrepurchase of 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, 2010121,582 54,072,801 994,511 1,116,093 1,637 1,117,730Net income 66,960 66,960 529 67,489Issuance of common units (Note 10) 6,392,805 233,312 233,312 233,312Issuance of share-based compensation awards (Note 12) 68,727 2,739 2,739 2,739Noncash amortization of share-based compensation 5,588 5,588 5,588Exercise of stock options 15,000 395 395 395Repurchase of common units and restricted stock units (Note12) (11,485) (1,152) (1,152) (1,152)Other (475) (475) 475 —Preferred distributions (15,196) (15,196) (15,196)Distributions declared per common unit ($1.40 per unit) (83,423) (83,423) (83,423)BALANCE AS OF DECEMBER 31, 2011$121,582 60,537,848 $1,203,259 $1,324,841 $2,641 $1,327,482 See accompanying notes to consolidated financial statements.F - 11KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2011 2010 2009CASH FLOWS FROM OPERATING ACTIVITIES: Net income$67,489 $19,886 $38,015Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): Depreciation and amortization of building and improvements and leasing costs135,467 102,898 86,825Increase (decrease) in provision for bad debts644 (1,063) 569Depreciation of furniture, fixtures and equipment1,130 911 827Noncash amortization of share-based compensation awards (Note 12)4,482 6,031 12,253Noncash amortization of deferred financing costs and debt discounts and premiums13,540 12,490 10,171Noncash amortization of above/(below) market rents (Note 4)1,056 1,377 (359)Net gain on dispositions of discontinued operations (Note 19)(51,587) (949) (2,485)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(9,349) (9,689) (9,757)Straight-line rents(21,331) (13,616) (6,911)Loss (gain) on early extinguishment of debt (Note 7)— 4,564 (4,909)Net change in other operating assets(5,434) (9,065) (1,863)Net change in other operating liabilities2,779 5,509 2,589Other, net(630) 543 —Net cash provided by operating activities138,256 119,827 124,965CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties (Note 3)(603,301) (637,620) —Expenditures for operating properties(62,739) (71,099) (35,532)Expenditures for development and redevelopment properties and undeveloped land(28,517) (21,832) (18,633)Net proceeds received from dispositions of operating properties (Note 19)64,171 14,978 4,933Increase in acquisition-related deposits(5,000) — —Decrease (increase) in restricted cash1,103 3,120 (1,387)Receipt of principal payments on note receivable (Note 5)— 10,679 145Net cash used in investing activities(634,283) (701,774) (50,474)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common units (Note 10)233,312 299,847 191,672Borrowings on unsecured line of credit550,000 660,000 142,000Repayments on unsecured line of credit(527,000) (598,000) (297,000)Proceeds from the issuance of secured debt (Note 7)135,000 71,000 —Principal payments on secured debt(127,665) (103,247) (21,766)Proceeds from the issuance of unsecured senior notes (Note 7)324,476 572,672 —Repayments of unsecured debt (Note 7)— (61,000) —Repurchase of exchangeable senior notes (Note 7)— (151,097) (150,390)Proceeds from issuance of exchangeable senior notes (Note 7)— — 172,500Cost of capped call options (Note 7)— — (12,127)Financing costs(9,060) (14,912) (9,325)Decrease (increase) in loan deposits and other2,859 (605) —Repurchase of common stock(1,152) (3,417) (2,725)Proceeds from exercise of stock options395 83 —Distributions paid to common unitholders(80,005) (69,224) (71,804)Distributions paid to preferred unitholders(15,196) (15,196) (15,196)Net cash provided by (used in) financing activities485,964 586,904 (74,161)Net (decrease) increase in cash and cash equivalents(10,063) 4,957 330Cash and cash equivalents, beginning of year14,840 9,883 9,553Cash and cash equivalents, end of year$4,777 $14,840 $9,883 F - 12KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS -(Continued)(in thousands) Year Ended December 31, 2011 2010 2009SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $7,615, $7,697, and $7,381 as of December 31, 2011, 2010 and2009, respectively$68,280 $45,986 $36,808NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$14,301 $19,563 $11,222Tenant improvements funded directly by tenants to third-parties$3,288 $4,758 $1,480Assumption of secured debt with property acquisition (Notes 3 and 7)$30,042 $51,079 Assumption of other liabilities with property acquisitions (Note 3)$4,515 $10,840 NONCASH FINANCING TRANSACTIONS: Accrual of distributions payable to common unitholders (Note 11)$21,188 $18,925 $15,705Accrual of distributions payable to preferred unitholders (Note 11)$1,909 $1,909 $1,909Issuance of share-based compensation awards (Note 12)$7,797 $5,910 $18,001 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, 20111.Organization and OwnershipOrganizationKilroy Realty Corporation (the "Company") is a self-administered real estate investment trust (“REIT”) active in office and industrial submarkets along theWest Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, OrangeCounty, San Diego, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. We qualify as aREIT under the Internal Revenue Code of 1986, as amended (the "Code"). The Company's common stock is publicly traded on the New York StockExchange (“NYSE”) under the ticker symbol “KRC.”We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the "Operating Partnership") and Kilroy Realty Finance Partnership, L.P.(the "Finance Partnership"). We conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicatesotherwise, the terms "Kilroy Realty Corporation" or the "Company," "we," "our," and "us" refer to Kilroy Realty Corporation and its consolidatedsubsidiaries and the term "Operating Partnership" refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees,and properties apply to both the Company and the Operating Partnership.The following table of office buildings (the "Office Properties") and industrial buildings (the "Industrial Properties") summarizes our stabilized portfolio ofoperating properties as of December 31, 2011. As of December 31, 2011, all of our properties are owned and all of our business is currently conducted in thestate of California with the exception of the ownership and operation of six office properties located in the state of Washington. Number of Buildings Rentable Square Feet Number of Tenants Percentage OccupiedOffice Properties (1)104 11,421,112 419 90.1%Industrial Properties39 3,413,354 63 100.0%Total Stabilized Portfolio143 14,834,466 482 92.4% ________________________(1)Includes ten office properties acquired in 2011 for a total amount of $546.3 million (see Note 3 for additional information).Our stabilized portfolio excludes undeveloped land, development and redevelopment properties currently under construction or committed for construction,"lease-up" properties, and properties held-for-sale. As of December 31, 2011, we had four office redevelopment properties under construction encompassingapproximately 918,000 rentable square feet, three of which we commenced redevelopment on in 2011. We define "lease-up" properties as properties we recentlydeveloped or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. We had no"lease-up" properties as of December 31, 2011. As of December 31, 2011, we had two office properties held-for-sale encompassing approximately 253,676rentable square feet.As of December 31, 2011, the Company owned a 97.2% general partnership interest in the Operating Partnership. The remaining 2.8% common limitedpartnership interest in the Operating Partnership as of December 31, 2011 was owned by non-affiliated investors and certain of our directors and officers (seeNote 9). Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. The number of commonunits held by the Company is at all times equivalent to the number of outstanding shares of the Company's common stock, and the rights of all the commonunits to quarterly distributions and payments in liquidation mirror those of the Company's common stockholders. The common limited partners have certainredemption rights as provided in the Operating Partnership's Fifth Amended and Restated Agreement of Limited Partnership (as amended, the “PartnershipAgreement”) (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 partnershipinterest. The Operating Partnership owns the remaining 99.0% limited partnership interest. Kilroy Services, LLC ("KSLLC"), which is a wholly-ownedsubsidiary of the Operating Partnership, is the entity through which we conduct substantially all of our development activities. With the exception of theOperating Partnership, all of our subsidiaries, which include, Kilroy Realty TRS, Inc., Kilroy Realty Management, L.P., Kilroy RB, LLC, Kilroy RB II,LLC, Kilroy Realty Northside Drive, LLC and Kilroy Realty 303, LLC, are wholly-owned.F - 142.Basis of Presentation and Significant Accounting PoliciesF - 15Basis of PresentationThe consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the OperatingPartnership, the Finance Partnership, KSLLC, and all of our wholly-owned subsidiaries. The consolidated financial statements of the Operating Partnershipinclude the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC, and all wholly-ownedsubsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.As of December 31, 2011 the consolidated financial statements of the Company and the Operating Partnership also include one variable interest entity("VIE") in which we are deemed to be the primary beneficiary. In September 2011, we acquired an office building which was transferred to a special purposeVIE to facilitate a potential like-kind exchange pursuant to Section 1031 of the Code to defer any taxable gains on sales for federal and state income taxpurposes ("Section 1031 Exchange"). The Company is obligated to complete the Section 1031 Exchange and take title to the property within 180 days of theinitial acquisition date. The VIE will be terminated upon the completion of the Section 1031 Exchange. The impact of consolidating the VIE increased theCompany's total assets and liabilities by approximately $108.5 million and $7.3 million, respectively, at December 31, 2011. As of December 31, 2010, theconsolidated financial statements of the Company and the Operating Partnership included one bankruptcy-remote VIE, Kilroy Realty Northside Drive, LLC,which was established to hold the $51.1 million of secured debt, net, assumed in connection with the acquisition of three office buildings in San Diego,California (see Notes 3 and 7). The impact of consolidating the VIE increased the Company's total assets and liabilities by approximately $52.7 million and$53.0 million, respectively, at December 31, 2010. In November 2011, we repaid this loan and the entity no longer met the criteria to be a VIE.Change in Statements of Cash Flows PresentationCertain prior period amounts in the consolidated statements of cash flows of the Company and the Operating Partnership have been reclassified to conformto the current period presentation. We reclassified cash flow changes due to Marketable securities, Current receivables, Other deferred leasing costs andPrepaid expenses and other assets into "Net change in other operating assets" for all periods presented. We also reclassified cash flow changes due to Accountspayable, accrued expenses and other liabilities, Deferred revenue and Rents received in advance and tenant security deposits into "Net change in other operatingliabilities" for all periods presented. Each category change had previously been presented separately.Significant Accounting PoliciesAcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions at fair value at the acquisition date. Theacquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land, buildings and improvements; andidentified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-marketand below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Costs directly associated with anoperating property acquisition are expensed as incurred.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value of buildings and improvements,tenant improvements, and leasing costs are based upon current market replacement costs and other relevant market rate information.The fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value (calculated using amarket discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii)management's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remainingnon-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewaloptions, if applicable, for below-market operating leases. Our below-market operating leases generally do not include fixed rate or below-market renewaloptions. The amounts recorded for above-market operating 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. The amounts recorded forbelow-market operating leases are included in deferred revenue and acquisition-related liabilities, net on the balance sheet and are amortized on a straight-linebasis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options, ifapplicable.The fair value of acquired in-place leases is derived based on management's assessment of lost revenue and costs incurred forF - 16the period required to lease the "assumed vacant" property to the occupancy level when purchased. The amount recorded for acquired in-place leases isincluded in deferred leasing costs and acquisition-related intangibles, net on the balance sheet and amortized as an increase to depreciation and amortizationexpense over the remaining term of the applicable leases.Fully amortized intangible assets are written off on January 1st of each fiscal year.We record acquisitions of undeveloped land or the subsequent acquisition of the fee interest in land underlying our properties at the purchase price paid andcapitalize the associated acquisition costs.F - 17Operating PropertiesOperating properties are generally carried at historical cost less accumulated depreciation. Properties held for sale are reported at the lower of the carryingvalue or the fair value less estimated cost to sell. The cost of operating properties includes the purchase price or development costs of the properties. Costsincurred for the renovation and betterment of the operating properties are capitalized to our investment in that property. Maintenance and repairs are charged toexpense as incurred.When evaluating properties to be held and used for potential impairment, we first evaluate whether there are any indicators of impairment for any of ourproperties. If any impairment indicators are present for a specific property, we then perform an undiscounted cash flow analysis and compare the net carryingamount of the property to the property's estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cashflow is less than the net carrying amount of the property, we then perform an impairment loss calculation to determine if the fair value of the property is lessthan the net carrying value of the property. Our impairment loss calculation compares the net carrying amount of the property to the property's estimated fairvalue, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We would recognize an impairmentloss if the asset's net carrying amount exceeds the asset's estimated fair value. If we were to recognize an impairment loss, the estimated fair value of the asset(less costs to sell for assets held for sale) would become its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated(amortized) over the remaining useful life of that asset. We did not record any impairment losses for the periods presented.Cost CapitalizationAll costs clearly associated with the development, redevelopment and construction of a property are capitalized as project costs, including internalcompensation costs. In addition, the following costs are capitalized as project costs during periods in which activities necessary to prepare development andredevelopment properties for its intended use are in progress: pre-construction costs essential to the development of the property, interest, real estate taxes,insurance.•For development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognition commences, which is uponsubstantial completion of tenant improvements.•For development and redevelopment properties that are not pre-leased, we may not immediately build out the tenant improvements. Therefore we ceasecapitalization when revenue recognition commences upon substantial completion of the tenant improvements, but in any event not later than one yearafter the cessation of major construction activities. We also cease capitalization on a development or redevelopment property when activities necessaryto 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 begin depreciation on the portion ofthe 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 costs capitalized to construction inprogress are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as thehistorical 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 over the estimated usefullives set forth in the table below. Depreciation expense for buildings and improvements, including discontinued operations, for the three years endedDecember 31, 2011, 2010, and 2009 was $106.0 million, $86.3 million and $74.0 million, respectively.Asset Description Depreciable LivesBuildings and improvements 25 – 40 yearsTenant improvements 1 – 20 years(1)________________________(1)Tenant improvements are amortized over the shorter of the lease term or the estimated useful life. F - 18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 operating properties that have beenclassified as held for sale, if material, are reported in the consolidated statements of operations as discontinued operations for all periods presented through thedate of the applicable disposition. The net gains (losses) on disposition of operating properties are reported in the consolidated statements of operations asdiscontinued operations in the period theF - 19properties are sold. In determining whether the revenues, expenses, and net gains (losses) on dispositions of operating properties are reported as discontinuedoperations, we evaluate whether we have any significant continuing involvement in the operations, leasing, or management of the sold property. If we were todetermine that we had any significant continuing involvement, the revenues, expenses and net gain (loss) on dispositions of the operating property would notbe recorded in discontinued operations.An operating property is classified as held for sale when certain criteria are met, including but not limited to the availability of the asset for immediate sale,the existence of an active program to locate a buyer, and the probable sale or transfer of the asset within one year. If such criteria are met, we present theapplicable assets and liabilities related to the property held for sale, if material, separately on the balance sheet and we would cease to record depreciation andamortization expense. Properties held for sale are reported at the lower of their carrying value or their estimated fair value less the estimated costs to sell. As ofDecember 31, 2011, we had two buildings classified as held for sale (see Note 19). We did not have any properties classified as held for sale as of December31, 2010.Revenue RecognitionWe recognize revenue from rent, tenant reimbursements, parking, and other revenue 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; and•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. Rental revenue recognitioncommences when the tenant takes possession or controls the physical use of the leased space. In order for the tenant to take possession, the leased space mustbe substantially ready for its intended use. To determine whether the leased space is substantially ready for its intended use, management evaluates whether weare or the tenant is the owner of tenant improvements for accounting purposes. When management concludes that we are the owner of tenant improvements,rental revenue recognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete.In certain instances, when management concludes that we are not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition beginswhen the 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 to construct the tenantimprovements as a capital asset. In addition, management records the cost of certain tenant improvements paid for or reimbursed by tenants as capital assetswhen management concludes that we are the owner of such tenant improvements. For these tenant improvements, management records the amount funded orreimbursed by tenants as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease.When management concludes that the tenant is the owner of tenant improvements for accounting purposes, management records our contribution towardsthose improvements as a lease incentive, which is included in deferred leasing costs and acquisition-related intangibles, net on our consolidated balance sheetsand amortized as a reduction to rental income 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 other recoverable costs, arerecognized as revenue in the period the recoverable costs are incurred. Tenant reimbursements are recognized and recorded on a gross basis, as we are generallythe primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier, and have credit risk.Other Property IncomeOther property income primarily includes amounts recorded in connection with lease terminations and tenant bankruptcy settlement payments. Leasetermination fees are amortized 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 their original condition andfees for late rental payments.F - 20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 of these allowances isbased primarily upon evaluations of individual receivables, current economic conditions, historical loss experience, and other relevant factors. The allowancesare increased or decreased through the provision for bad debts on ourF - 21consolidated statements of operations.Cash and Cash EquivalentsWe consider all highly-liquid investments with original maturities of three months or less to be cash equivalents.Restricted CashRestricted cash consists of cash held as collateral to provide credit enhancement for the Operating Partnership's mortgage debt, including cash reserves forcapital expenditures, tenant improvements, and property taxes and proceeds from dispositions that are temporarily held at qualified intermediaries forpurposes of facilitating potential Section 1031 Exchanges.Marketable Securities / Deferred Compensation PlanMarketable securities reported in our consolidated balance sheets represent the assets held in connection with the Kilroy Realty Corporation 2007 DeferredCompensation Plan (the "Deferred Compensation Plan") (see Note 13). The Deferred Compensation Plan assets are held in a limited rabbi trust and invested invarious mutual and money market funds. As a result, the marketable securities are treated as trading securities for financial reporting purposes and areadjusted to fair value at the end of each accounting period, with the corresponding gains and losses recorded in interest income and other net investment gains.At the time eligible management employees ("Participants") defer compensation or earn mandatory Company contributions, or if we were to make adiscretionary contribution, we record compensation cost and a corresponding deferred compensation plan liability, which is included in accounts payable,accrued expenses, and other liabilities on our consolidated balance sheets. This liability is adjusted to fair value at the end of each accounting period based onthe performance of the benchmark funds selected by each Participant, and the impact of adjusting the liability to fair value is recorded as an increase ordecrease to compensation cost. The impact of adjusting the deferred compensation plan liability to fair value and the changes in the value of the marketablesecurities held in connection with the Deferred Compensation Plan generally offset and therefore does not significantly impact net income.Deferred Leasing CostsCosts incurred in connection with successful property leasing are capitalized as deferred leasing costs and classified as investment activities in thestatement of cash flows. Deferred leasing costs consist primarily of leasing commissions and also include certain internal payroll costs and lease incentives,which are amortized using the straight-line method of accounting over the lives of the leases which generally range from one to 20 years. We reevaluate theremaining useful lives of leasing costs as the creditworthiness of our tenants and economic and market conditions change. If we determine that the estimatedremaining life of a lease has changed, we adjust the amortization period accordingly. Fully amortized deferred leasing costs are written off on January 1st ofeach fiscal year.Deferred Financing CostsCosts incurred in connection with debt financings are recorded as deferred financing costs. Deferred financing costs are generally amortized using thestraight-line method of accounting, which approximates the effective interest method, over the contractual terms of the applicable financings. As ofDecember 31, 2011 and 2010, deferred financing costs were reported net of accumulated amortization of $16.8 million and $12.1 million, respectively.Exchangeable Debt InstrumentsThe initial proceeds from exchangeable debt that may be settled in cash, including partial cash settlements, are bifurcated between a liability componentand an equity component associated with the embedded conversion option. The liability and equity components of exchangeable debt are separately accountedfor in a manner such that the interest expense on the exchangeable debt is not recorded at the stated rate of interest but rather at an effective rate that reflects theissuer’s conventional debt borrowing rate at the date of issuance.We calculate the liability component of exchangeable debt based on the present value of the contractual cash flows discounted at a comparable marketconventional debt borrowing rate at the date of issuance. The difference between the principal amount and the fair value of the liability component is reportedas a discount on the exchangeable debt that is accreted as additional interest expense from the issuance date through the contractual maturity date using theeffective interest method. A portion 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 balance sheets.We calculate the equity component of exchangeable debt based on the difference between the initial proceeds received fromF - 22the issuance of the exchangeable debt and the fair value of the liability component at the issuance date. The equity component is included in additional paid-in-capital, net of issuance costs, on our consolidated balance sheets. We allocate issuance costs for exchangeable debt between the liability and the equitycomponents based on their relative values.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 of portions of our outstanding3.25% Exchangeable Notes (see Note 7). We calculate the gain or loss on early extinguishment of debt as the difference on the repurchase date between theestimated fair value of the liability component and the net carrying amount of the repurchased exchangeable debt. Deferred financing costs are written offagainst the gain on early extinguishment of debt or added to the loss on early extinguishment of debt in proportion to the exchangeable debt repurchased.Debt Discounts and PremiumsF - 23Original issuance debt discounts and discounts/premiums related to recording debt acquired in connection with operating property acquisitions at fairvalue are generally amortized and accreted on a straight-line basis, which approximates the effective interest method. The discounts are recorded as additionalinterest expense from the date of issuance through the contractual maturity date of the related debt. The premiums are recorded as a reduction to interest expensefrom the date of issuance through the contractual maturity date of the related debt. Our secured debt and unsecured senior notes are presented net of netunamortized discounts of $1.6 million and $2.8 million, as of December 31, 2011 and 2010, respectively.Noncontrolling Interests in the Company's Consolidated Financial StatementsNoncontrolling interests in the Company's consolidated financial statements represent the issued and outstanding 1,510,000 7.45% Series A CumulativeRedeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”) and common limited partnership interests in the Operating Partnershipnot held by the Company (“noncontrolling common units”).The Series A Preferred Units are presented in the temporary equity section of the Company's consolidated balance sheets after total liabilities and beforeequity and reported at redemption value, less issuance costs, given that the Series A Preferred Units contain a right of redemption at the option of the holders inthe 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 their proportionate share ofthe net assets of the Operating Partnership. Noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common sharesat the option of the issuer must 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 the accounting guidance and determined that the common units qualify for equity presentation in theCompany's consolidated financial statements (see Note 9).Net income attributable to noncontrolling common units is allocated based on their relative ownership percentage of the Operating Partnership during thereported period. The noncontrolling interest ownership percentage is determined by dividing the number of noncontrolling common units by the total number ofcommon units outstanding. The issuance or redemption of additional shares of common stock or common units results in changes to the noncontrollinginterest percentage as well as the total net assets of the Company. As a result, all equity transactions result in an allocation between equity and thenoncontrolling 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 1,510,000 Series A Preferred Units, 1,610,000 7.80%Series E Cumulative Redeemable Preferred Units ("Series E Preferred Units") and 3,450,000 7.50% Series F Cumulative Redeemable Preferred Units ("SeriesF Preferred Units").The Series A Preferred Units are presented in the temporary equity section of the Operating Partnership's consolidated balance sheets after total liabilitiesand before equity and reported at redemption value, less issuance costs, given that the Series A Preferred Units contain a right of redemption at the option ofthe 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 consolidated balance sheets giventhat the Series E and Series F Preferred Units may be redeemed only at our option (see Notes 9 and 11). The Company is the holder of both the Series E andSeries F Preferred Units and for each Series E and Series F Preferred Unit, the Company has an equivalent number of shares of the Company's 7.80% SeriesE Cumulative Redeemable Preferred Stock and shares of the Company's 7.50% Series F Cumulative Redeemable Preferred Stock publicly issued andoutstanding.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 both presented in the permanentequity section of the Operating Partnership's consolidated balance sheets in partners' capital. TheF - 24redemption rights of the noncontrolling common units permit us to settle the redemption obligation in either cash or shares of the Company's common stock atour option (see Note 9).Noncontrolling Interests on the Operating Partnership's Consolidated Balance SheetsNoncontrolling interests of the Operating Partnership represent the Company's 1.0% general partnership interest in the Finance Partnership. Thisnoncontrolling interest is presented in the permanent equity section of the Operating Partnership's consolidated balance sheets given that these interests are notconvertible or redeemable into any other ownership interest of the Company or the Operating Partnership. Equity OfferingsUnderwriting commissions and offering costs incurred in connection with equity offerings and our at-the-market stock offering program (see Note 10) arereflected as a reduction of additional paid-in capital.F - 25The net proceeds from any equity offering of the Company are contributed to the Operating Partnership in exchange for a number of common unitsequivalent to the number of shares of common stock issued and are reflected in the Operating Partnership's consolidated financial statements as an increase inpartners' capital.Share-based Incentive Compensation AccountingFor share-based awards for which there is no pre-established performance period, we recognize compensation cost over the service vesting period, whichrepresents the requisite service period, on a straight-line basis.For share-based awards in which the performance period precedes the grant date, we recognize compensation cost over the requisite service period, whichincludes both the performance and service vesting periods, using the accelerated attribution expense method. The requisite service period begins on the date theExecutive Compensation Committee authorizes the award and adopts any relevant performance measures.During the performance period for a share-based award program, we estimate the total compensation cost of the potential future awards. We then recordcompensation cost equal to the portion of the requisite service period that has elapsed through the end of the reporting period. For programs with performance-based measures, the total estimated compensation cost is based on our most recent estimate of the probable achievement of the pre-established specific corporateperformance measures. These estimates are based on our latest internal forecasts for each performance measure. For programs with market measures, the totalestimated compensation cost is based on the fair value of the award at the applicable reporting date.In accordance with the provisions of our share-based incentive compensation plans, we accept the return of shares of Company common stock, at thecurrent quoted market price, from certain key employees to satisfy minimum statutory tax-withholding requirements related to shares that vested during theperiod.For share based awards granted by the Company, the Operating Partnership issues a number of common units equal to the number of shares of commonstock 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 for common stockholders, afterthe allocation of income to participating securities, by the weighted-average number of vested common shares outstanding, 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 incometo participating securities, by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutivesecurities. The impact of the outstanding common units is considered in the calculation of diluted net income (loss) available to common stockholders pershare. The common units 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 to the common stock(see Note 20). Accordingly, any exchange would not have any effect on diluted net income (loss) available to common stockholders per share.Nonvested share-based payment awards (including nonvested restricted stock units ("RSUs") and dividend equivalents issued to holders of RSUs)containing nonforfeitable rights to dividends or dividend equivalents are accounted for as participating securities and included in the computation of basic anddiluted net income (loss) available to common stockholders per share pursuant to the two-class method. The dilutive effect of stock options are reflected in theweighted average diluted outstanding shares calculation by application of the treasury stock method. The dilutive effect of Exchangeable Notes are reflected inthe weighted average diluted outstanding shares calculation when the average quoted trading price of the Company's common stock on the NYSE for theperiods presented was above the Exchangeable Notes exchange prices. The dilutive effect of the outstanding nonvested shares of common stock (“nonvestedshares”) and 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 all necessary conditions havebeen satisfied.F - 26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 common unitholders, after theallocation of income to participating securities, by the weighted-average number of vested commonF - 27units outstanding, for 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 common units outstanding for theperiod plus the assumed exercise of all dilutive securities.The dilutive effect of stock options, Exchangeable Notes, outstanding nonvested shares, RSUs, and awards containing nonforfeitable rights to dividendequivalents are reflected in diluted net income (loss) available to common unitholders per unit in the same manner as noted 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 only financial assets andliabilities recorded at fair value on a recurring basis in our consolidated financial statements are the marketable securities and the related deferred compensationplan liability. We elected not to apply the fair value option for any of our eligible financial instruments or other items.We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fairvalue measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independentsources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use of observable market data when available. The followingis 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 in markets that are not active;and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and•Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers areunobservable.We determine the fair value for the marketable securities and deferred compensation plan liability using quoted prices in active markets 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, andExchangeable Notes.We generally determine the fair value of our secured debt and unsecured line of credit by performing discounted cash flow analyses using an appropriatemarket discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturities of our fixed-rate debtand then adding an appropriate credit spread based on information obtained from third-party financial institutions. We calculate the market rate of ourunsecured line of credit by obtaining the period-end London Interbank Offered Rate ("LIBOR") rate and then adding an appropriate credit spread based oninformation obtained from third-party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, thetenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan-to-value ratio of the debt to the collateral. These calculations aresignificantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. We determine the fair value ofthe liability component of our Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate based upon spreadsfor our publicly traded debt. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end ofthe reporting period.Carrying amounts of our cash and cash equivalents, restricted cash, and accounts payable approximate fair value due to their short-term maturities.Segment ReportingOur chief operating decision-makers internally evaluate the operating performance and financial results of our portfolio based on Net Operating Income forthe following two segments of commercial real estate property: Office Properties and Industrial Properties. We define “Net Operating Income” as operatingrevenues (rental income, tenant reimbursements, and other property income) less operating expenses (property expenses, real estate taxes, provision for baddebts, and ground leases).During the year ended December 31, 2011, the amount of revenues and Net Operating Income generated by our Industrial Properties, in relation to our totalconsolidated operating portfolio revenues and Net Operating Income, fell below the required 10% quantitative reporting thresholds; thus our only reportablesegment for the year ended December 31, 2011 is our Office Properties segment. For the years ended December 31, 2010 and 2009, the amount of revenues andNet Operating Income generated by our Industrial Properties, in relation to our total consolidated operating portfolio revenues and Net Operating Income, wasgreater than the required 10% quantitative reporting threshold and the Industrial Properties were considered to be a reportableF - 28segment under GAAP.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 distribute annually at least 90% of ouradjusted taxable income, as defined in the Code, to our stockholders and satisfy certain other organizational and operating requirements. For distributions withrespect to taxable years ended on or before December 31, 2011, IRS gF - 29uidance allows REITs to satisfy up to 90% of this requirement through the distribution of shares of common stock, if certain conditions are met. We generallywill not be subject to federal income taxes if we distribute 100% of our taxable income for each year to our stockholders. If we fail to qualify as a REIT in anytaxable year, we will be subject to federal income taxes (including any applicable alternative minimum tax) on our taxable income at regular corporate rates andwe may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state andlocal taxes on our income and property and to federal income taxes and excise taxes on our undistributed taxable income. We believe that we have met all of theREIT distribution and technical requirements for the years ended December 31, 2011, 2010 and 2009, and we were not subject to any federal income taxes (seeNote 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, 2011, 2010, and 2009, 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 will prevail if challenged bytax authorities.As a result of our REIT status, we are able to claim a dividends-paid deduction on our tax return to deduct the full amount of common and preferreddividends paid to stockholders when computing our annual taxable income. Since this dividends-paid deduction has historically exceeded our taxable income,the Company has historically had significant return of capital to its stockholders. In order for us to be required to record any unrecognized tax benefits oradditional tax liabilities, any adjustment for potential uncertain tax positions would 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 and federal income tax lawand concluded that our return of capital would not be materially affected for any of the years still subject to potential audit. As of December 31, 2011, theyears still subject to audit are 2007 through 2011 under the California state income tax law and 2008 through 2011 under the federal income tax law. Weconcluded that we did not have any unrecognized tax benefits or any additional tax liabilities as of December 31, 2011 and 2010.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesand expenses during the reported periods. Actual results could differ from those estimates.Concentration of Credit RiskAll of our properties and all of our business is currently conducted in the state of California with the exception of the ownership and operation of six officeproperties located in the state 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, 2011, our 15 largest tenants represented approximately 34.9% of total annualized base rental revenues.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, 2011 and 2010, we had cash accounts in excess of FDIC insured limits.Recent Accounting PronouncementsIn December 2010, the Financial Accounting Standards Board issued new guidance clarifying that the disclosure of supplementary proforma informationfor business combinations should be presented such that revenues and earnings of the combined entity are calculated as though the relevant businesscombinations that occurred during the current reporting period had occurred as of the beginning of the comparable prior annual reporting period. The guidancealso improves the usefulness of the supplementary proforma information by requiring a description of the nature and amount of material, non-recurringproforma adjustments that are directly attributable to the business combinations. We adopted these provisions for our consolidated financial statements for theyear ended December 31, 2010 and subsequent periods. Thus the application of these provisions are reflected in the supplementary proforma disclosures forour acquisitions in Notes 26 and 27.F - 303.AcquisitionsDuring the years ended December 31, 2011 and 2010, we acquired the 21 office properties listed below from unrelated third parties. Unless otherwisenoted, we funded these acquisitions principally with public offerings of common stock (see Note 10) and unsecured senior notes (see Note 7), borrowingsunder the unsecured line of credit (see Note 7) and disposition proceeds (see Note 19).PropertyAcquisition Number ofBuildings Rentable Square Feet(unaudited) Occupancy as of December31, 2011 (unaudited) Purchase Price(in millions) (1) 2011 Acquisitions 250 Brannan Street, San Francisco, CAJanuary 28, 2011 1 92,948 100.0% $33.010210, 10220, and 10230 NE Points Drive; 3933 Lake WashingtonBoulevard NE, Kirkland, WA (2)April 21, 2011 4 279,924 88.5% 100.110770 Wateridge Circle, San Diego, CAMay 12, 2011 1 174,310 97.5% 32.7601 108th Avenue N.E., Bellevue, WAJune 3, 2011 1 488,470 88.1% 215.04040 Civic Center Drive, San Rafael, CAJune 9, 2011 1 126,787 93.1% 32.2201 Third Street, San Francisco, CASeptember 15, 2011 1 332,076 88.5% 103.3301 Brannan Street, San Francisco, CANovember 15, 2011 1 74,430 66.1% 30.0370 Third Street, San Francisco, CADecember 15, 2011 1 410,000 8.9% (3) 91.5Total 11 1,978,945 $637.8 2010 Acquisitions 2385 Northside Drive, San Diego, CA (4)March 17, 2010 1 88,795 76.3% $18.0303 Second Street, San Francisco, CAMay 26, 2010 1 734,035 96.9% 233.3999 Town & Country, Orange, CAJune 18, 2010 1 98,551 100.0% 22.32211 Michelson Drive, Irvine, CAJune 24, 2010 1 271,556 92.3% 103.22355, 2365, 2375 Northside Drive, San Diego, CA (5)June 30, 2010 3 190,634 83.1% 52.615050 NE 36th Street, Redmond, WAOctober 28, 2010 1 122,103 100.0% 46.0100 First Street, San Francisco, CANovember 10, 2010 1 466,490 94.3% 191.52305 Historic Decatur Road, San Diego, CANovember 24, 2010 1 103,900 95.3% 30.9Total 10 2,076,064 $697.8 ________________________(1)Excludes acquisition-related costs.(2)In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $30.0 million and an initial premium of $1.0 million as a result of recording this debt at fair value on the acquisition date(see Note 7).(3)Property was added to our redevelopment portfolio upon acquisition.(4)This property is a part of Mission City Corporate Center.(5)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 initial discount of $0.9 million, in connection with this acquisition (see Note7). In November 2011, we repaid this loan.F - 31The related assets, liabilities, and results of operations of all acquired properties are included in the consolidated financial statements as of the date ofacquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for our2011 and 2010 acquisitions: 2011 Acquisitions 601 108th Avenue N.E.,Bellevue, WA(1) 201 Third StreetSan Francisco, CA (1) All Other Acquisitions(2) Total (in thousands)Assets Land (3)$— $19,260 $42,650 $61,910Buildings and improvements (4)214,095 84,018 165,995 464,108Undeveloped land and construction in progress (5)— — 91,905 91,905Deferred leasing costs and acquisition-related intangible assets (6)13,790 8,700 23,070 45,560Total assets acquired227,885 111,978 323,620 663,483Liabilities Deferred revenue and acquisition-related intangible liabilities (7)12,850 8,700 3,120 24,670Secured debt, net (8)— — 30,997 30,997Accounts payable, accrued expenses and other liabilities2,380 76 2,059 4,515Total liabilities assumed15,230 8,776 36,176 60,182Net assets and liabilities acquired (9)$212,655 $103,202 $287,444 $603,301 2010 Acquisitions 303 Second Street, SanFrancisco, CA (1) 100 First Street, San Francisco,CA (1) All Other Acquisitions (2) Total (in thousands)Assets Land$63,550 $49,150 $49,809 $162,509Buildings and improvements (4)154,203 131,239 195,825 481,267Deferred leasing costs and acquisition-related intangible assets (10)19,828 21,150 29,151 70,129Restricted cash (11)2,522 — — 2,522Total assets acquired240,103 201,539 274,785 716,427Liabilities Deferred revenue and acquisition-related intangible liabilities (12)3,210 9,920 3,737 16,867Secured debt, net (13)— — 51,100 51,100Accounts payable, accrued expenses, and other liabilities3,565 4,430 2,845 10,840Total liabilities assumed6,775 14,350 57,682 78,807Net assets and liabilities acquired (9)$233,328 $187,189 $217,103 $637,620________________________(1)The purchase of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, represent the two largest acquisitions and approximately 50% of the total aggregate purchase price of the propertiesacquired during the year ended December 31, 2011. The purchase of 303 Second Street, San Francisco, CA, and 100 First Street, San Francisco, CA, represent the two largest acquisitions and approximately 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 years ended December 31, 2011 and 2010 were individually less than 5% and in aggregate less than 10% of the Company's total assets as of December 31,2010 and 2009, respectively.(3)In connection with the acquisitions of 601 108th Avenue N.E., Bellevue, WA, and 370 Third Street, San Francisco, CA, we assumed the lessee obligations under ground leases that are scheduled to expire in November 2093and December 2022, respectively (see Notes 4 and 15 for additional information pertaining to these ground leases).(4)Represents buildings, building improvements, and tenant improvements.(5)Balance primarily relates to the building and improvements at 370 Third Street, San Francisco, CA, which was added to the Company's redevelopment portfolio at acquisition.(6)Represents in-place leases (approximately $29.4 million with a weighted average amortization period of 4.0 years), above-market leases (approximately $6.8 million with a weighted average amortization period of 4.5 years),unamortized leasing commissions (approximately $9.2 million with a weighted average amortization period of 2.6 years) andF - 32a below-market ground lease obligation (approximately $0.2 million with a weighted average amortization period of 1.0 years).(7)Represents below-market leases (approximately $19.5 million with a weighted average amortization period of 4.0 years) and an above-market ground lease obligation (approximately $5.2 million with a weighted averageamortization period of 82.5 years), under which we are the lessee.(8)Represents the mortgage loan, which includes an unamortized premium of approximately $1.0 million at the date of acquisition, assumed in connection with the properties acquired in April 2011 (see Note 7).(9)Reflects the purchase price net of assumed secured debt and other lease-related obligations.(10)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), andunamortized leasing commissions (approximately $17.1 million with a weighted average amortization period of 4.5 years).(11)Represents unfunded tenant improvements and leasing commission obligations for in-place leases of which approximately $2.5 million was held in an escrow account as restricted cash at the date of acquisition. As ofDecember 31, 2010, $6.4 million of obligations and $0.3 million of restricted cash remained included on our consolidated balance sheet.(12)Represents below-market leases (weighted average amortization period of 10.9 years).(13)Represents the mortgage debt assumed in connection with the acquisition of Mission City Corporate Center.4.Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, netThe following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operatingleases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-marketground lease obligation) as of December 31, 2011 and 2010: December 31, 2011 2010 (in thousands)Deferred Leasing Costs and Acquisition-related Intangible Assets, net: Deferred leasing costs$142,652 $128,980Accumulated amortization(52,974) (45,869)Deferred leasing costs, net89,678 83,111Above-market operating leases28,143 21,321Accumulated amortization(8,101) (2,163)Above-market operating leases, net20,042 19,158In-place leases61,355 36,964Accumulated amortization(15,753) (8,167)In-place leases, net45,602 28,797Below-market ground lease obligation200 —Accumulated amortization— —Below-market ground lease obligation, net200 —Total deferred leasing costs and acquisition-related intangible assets, net$155,522 $131,066Acquisition-related Intangible Liabilities, net(1): Below-market operating leases$37,582 $21,938Accumulated amortization(6,158) (5,094)Below-market operating leases, net31,424 16,844Above-market ground lease obligation5,200 —Accumulated amortization(37) —Above-market ground lease obligation, net5,163 —Total acquisition-related intangible liabilities, net$36,587 $16,844________________________(1)Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.F - 33The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles for the years ended December 31, 2011, 2010and 2009: Year Ended December 31, 2011 2010 2009 (in thousands)Deferred leasing costs (1) $16,905 $13,344 $12,431Net above (below)-market operating leases (2) 1,056 1,377 (359)In-place leases (1) 12,575 3,266 431Net (above) below-market ground lease obligation(3) (37) — —Total $30,499 $17,987 $12,503 _________________________(1)The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.(2)The amortization of net above-market operating leases is recorded as a decrease to rental income for the years ended December 31, 2011 and 2010, and the amortization of net below-market operating leases is recorded as anincrease to rental income for the year ended December 31, 2009 in the consolidated statements of operations.(3)The amortization of the net above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the period presented.The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as ofDecember 31, 2011 for future periods:Year EndingDeferred Leasing Costs Net Above/(Below)-MarketOperating Leases (1) In-Place Leases Net (Above)/Below-MarketGround Lease Obligation (2) (in thousands)2012$18,941 $(1,684) $13,478 $137201317,031 (1,831) 11,408 (63)201415,037 (1,629) 8,500 (63)201511,547 (1,039) 4,798 (63)20169,275 (146) 2,435 (63)Thereafter17,847 (5,053) 4,983 (4,848)Total$89,678 $(11,382) $45,602 $(4,963) _______________________(1)Represents estimated annual net amortization related to above-/(below)-market operating leases. Amounts shown represent net below-market operating leases which will be recorded as an increase to rental income in theconsolidated statements of operations.(2)Represents estimated annual net amortization related to (above)/below-market ground lease obligations. Amounts shown for 2012 represent net below-market ground lease obligations which will be recorded as an increaseto ground lease expense in the consolidated statements of operations. Amounts shown for 2013-2016 and for the periods thereafter represent net above-market ground lease obligations which will be recorded as a decrease toground lease expense in the consolidated statements of operations. F - 345. ReceivablesCurrent Receivables, netCurrent receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of thefollowing as of December 31, 2011 and 2010: December 31, 2011 2010 (in thousands) Current receivables $10,985 $9,077 Allowance for uncollectible tenant receivables (2,590) (2,819) Current receivables, net $8,395 $6,258 Deferred Rent Receivables, netDeferred rent receivables, net consisted of the following as of December 31, 2011 and 2010: December 31, 2011 2010 (in thousands) Deferred rent receivables $104,548 $92,883 Allowance for deferred rent receivables (3,406) (3,831) Total deferred rent receivables, net $101,142 $89,052 Note ReceivableIn July 2010, we received $10.6 million in cash for the full repayment of a previously outstanding note receivable.F - 35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 does not hold anyindebtedness. All of our secured and unsecured debt is held directly by the Operating Partnership.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 4.80% unsecured senior notes due 2018, the 5.00% unsecured senior notes due 2015, the 6.45% unsecuredsenior notes due 2014, and the Exchangeable Notes. As of December 31, 2011 and 2010, the Operating Partnership had $1.5 billion and $1.1 billion,respectively, outstanding in total under these unsecured debt obligations.In addition, although the remaining $0.4 billion and $0.3 billion of the Operating Partnership's debt for December 31, 2011 and 2010, respectively, issecured and non-recourse to the Company, 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 the capped call option transactions discussed further in Note 7.Debt Covenants and RestrictionsOne of the covenants contained within the $500.0 million Credit Facility, as discussed further below in Note 7 prohibits the Company from payingdividends 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 of our secured debt as of December 31, 2011 and 2010: Annual Stated December 31,Type of DebtInterest Rate (1) Maturity Date 2011 2010 (in thousands)Mortgage note payable4.27% February 2018 $135,000 $—Mortgage note payable5.57% August 2012 71,517 73,048Mortgage note payable6.51% February 2017 69,507 70,344Mortgage note payable (2)6.70% December 2011 — 69,980Mortgage note payable (3)5.10% April 2012 — 51,357Mortgage note payable (4)4.94% April 2015 30,191 —Mortgage note payable4.95% August 2012 29,754 30,441Mortgage note payable7.15% May 2017 13,294 15,235Public facility bonds (5)Various Various 2,562 2,604Total $351,825 $313,009 _______________________(1)All our secured debt had fixed rate interest rates for both periods presented.(2)In October 2011, we repaid this loan prior to the stated maturity with borrowings under the Credit Facility.(3)In June 2010, in connection with the acquisition of three office buildings in San Diego, California, we assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $52.0million at the acquisition date and was recorded at fair value at the date of acquisition resulting in an initial discount of approximately $0.9 million. This discount was accreted on a straight-line basis, which approximates theeffective interest method, as additional interest expense from the acquisition date through the maturity date of the mortgage loan. This resulted in interest being recorded at an effective interest rate of 6.13% for financial reportingpurposes. The mortgage loan and the three office buildings that secure the mortgage loan were held in a consolidated bankruptcy remote special purpose entity and were not available to satisfy the debts and other obligationsof the Company or the Operating Partnership. In November 2011, we repaid this loan prior to the stated maturity with borrowings under the Credit Facility.(4)In April 2011, in connection with the acquisition of four office buildings in Kirkland, Washington, we assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $30.0million at the acquisition date and was recorded at fair value at the date of acquisition resulting in an initial premium of approximately $1.0 million. This premium will be accreted on a straight-line basis, which approximatesthe effective interest method, as a reduction to interest expense from the acquisition date through the maturity date of the mortgage loan. This will result in interest being recorded at an effective interest rate of 4.00% for financialreporting purposes.(5)The public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of the Company’s undeveloped land parcels, were issued in February 2008 by the City of Carlsbad.The Bonds have annual maturities from September 1, 2012 through September 1, 2038, with interest rates ranging from 4.60% to 6.20%. Principal and interest payments for the Bonds will be charged through theassessment of special property taxes. The Operating Partnership’s secured debt was collateralized by 18 operating properties as of December 31, 2011 with a combined net book value of$567.8 million and 29 operating properties at December 31, 2010 with a combined net book value of $389.0 million.F - 36As of December 31, 2011, six of the Operating Partnership's seven secured loans contained restrictions that would require the payment of prepaymentpenalties for the acceleration of outstanding debt. The mortgage notes payable are secured by deeds of trust on certain of our properties and the assignment ofcertain rents and leases associated with those properties. The Bonds are secured by property tax payments.Exchangeable Senior NotesThe following table summarizes the balance and significant terms of the Exchangeable Notes outstanding as of December 31, 2011 and 2010: 3.25% Exchangeable Notes 4.25% Exchangeable Notes December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010 (in thousands)Principal amount$148,000 $148,000 $172,500 $172,500Unamortized discount(924) (4,004) (12,684) (16,532)Net carrying amount of liability component$147,076 $143,996 $159,816 $155,968Carrying amount of equity component$33,675 $19,835Issuance dateApril 2007 November 2009Maturity dateApril 2012 November 2014Stated coupon rate (1)(2)3.25% 4.25%Effective interest rate (3)5.45% 7.13%Exchange rate per $1,000 principal value of the ExchangeableNotes, as adjusted (4)11.3636 27.8307Exchange price, as adjusted (4)$88.00 $35.93Number of shares on which the aggregate consideration to bedelivered on conversion is determined (4)1,681,813 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 discounts on the Exchangeable Notes (see Note 2). This rate represents our conventional debt borrowing rate atthe date of issuance.(4)The exchange rate, exchange price, and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends. The Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events asfollows: (i) during any calendar quarter, if the closing sale price per share of the common stock of the Company is more than 130% of the exchange price pershare of the Company’s common stock for at least 20 trading days in a specified period, (ii) during the five consecutive trading-day period following any fiveconsecutive trading days in which the trading price per $1,000 principal amount of the Exchangeable Notes was less than 98% of the product of the closingsale price per share of the Company’s common stock multiplied by the applicable exchange rate, (iii) if the Exchangeable Notes have been called forredemption, (iv) upon the occurrence of specified corporate transactions, (v) if the Company’s common stock ceases to be listed or approved for quotation for30 consecutive trading 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 Notes and (ii) to the extent theexchange value exceeds the principal amount of the Exchangeable Notes, shares of the Company’s common stock. At any time prior to November 15, 2011 orAugust 15, 2014 for the 3.25% Exchangeable Notes and 4.25% Exchangeable Notes, respectively, the Operating Partnership may irrevocably elect, in its solediscretion without the consent of the holders of the Exchangeable Notes, to settle all of the future exchange obligations of the Exchangeable Notes in shares ofcommon stock. Any shares of common stock delivered for settlement will be based on a daily exchange value calculated on a proportionate basis for each dayof 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.For the year ended December 31, 2011, the per share average trading price of the Company's common stock on the NYSE of $37.27 was higher than the$35.93 exchange price for the 4.25% Exchangeable Notes. Even though the 4.25% Exchangeable Notes were not convertible as of December 31, 2011, if theyhad been convertible as of December 31, 2011, the approximate fair value of the shares upon conversion at that date would have been equal to approximately$179.1 million, which would exceed the $172.5 million principal amount of the 4.25% Exchangeable Notes by approximately $6.6 million. The averagetrading price of the Company's common stock on the NYSE for the years ended December 31, 2010 and 2009 was below the exchange price of theExchangeable Notes, thus, the Exchangeable Notes were not considered in the money for the purposes of our diluted earningsF - 37F - 38per share and unit calculations for these periods. See Notes 20 and 21 for a discussion of the impact of the Exchangeable Notes on our diluted earnings pershare and unit calculations for the periods presented.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 forapproximately $151.1 million in cash, including transaction costs, pursuant to a tender offer. As a result of the transaction, we recorded a net loss on earlyextinguishment of debt of approximately $4.6 million and charged approximately $2.7 million, representing the amount of the cash repurchase proceedsallocated 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 forapproximately $150.4 million in cash, including transaction costs. As a result of the transaction, we recorded a net gain on early extinguishment of debt ofapproximately $4.9 million and charged approximately $2.3 million, which represented the amount of the cash repurchase proceeds allocated to the equitycomponent, 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 the maturity date of theapplicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the Exchangeable Notes based on the effective interestrates set forth above, before the effect of capitalized interest, for the years ended December 31, 2011, 2010, and 2009: Year Ended December 31, 2011 2010 2009 (in thousands)Contractual interest payments$12,141—$14,565 $14,848Amortization of discount6,928 7,965 8,485Interest expense attributable to Exchangeable Notes$19,069 $22,530 $23,333 Capped Call TransactionsIn connection with the offerings of the Exchangeable Notes, we entered into capped call option transactions ("capped calls") to mitigate the dilutive impactof the potential conversion of the Exchangeable Notes. The capped calls, as amended, are separate transactions entered into by us with the relevant financialinstitutions, are not part of the terms of the Exchangeable Notes, and do not affect the holders’ rights under the Exchangeable Notes. The strike prices of thecapped calls, which are subject to customary anti-dilution adjustments, correspond to the exchange prices of the applicable Exchangeable Notes. The followingtable summarizes our capped call option positions as of both December 31, 2011 and 2010: 3.25% Exchangeable Notes (1) 4.25% Exchangeable Notes (2)Referenced shares of common stock1,121,201 4,800,796Exchange price including effect of capped calls$102.72 $42.81________________________(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.The capped calls are expected to terminate upon the earlier of the maturity date of the related Exchangeable Notes or upon the date upon which theExchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of capped calls were recorded as a reduction toadditional paid-in capital.F - 39Unsecured Senior NotesThe following table summarizes the balance and significant terms of the publicly registered unsecured senior notes issued by the Operating Partnership in2011 and 2010 as of December 31, 2011 and 2010: 4.800% Unsecured Senior Notes 6.625% Unsecured Senior Notes (1) 5.000% Unsecured Senior Notes December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010 (in thousands)Principal amount$325,000 $— $250,000 $250,000 $325,000 $325,000Unamortized discount(486) — (1,793) (2,006) (152) (191)Net carrying amount$324,514 $— $248,207 $247,994 $324,848 $324,809Issuance dateJuly 2011 May 2010 November 2010Maturity dateJuly 2018 June 2020 November 2015Stated coupon rate (2)(3)(4)4.800% 6.625% 5.000%Effective interest rate (5)4.827% 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 private unsecured notes for fully registered unsecured notes. The terms ofthe registered unsecured senior notes were substantially identical to the outstanding private unsecured senior notes, except for transfer restrictions and registration rights relating to the outstanding private unsecured senior notes.We did not receive any additional proceeds as a result of the exchange offer.(2)Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(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)Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.(5)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.In 2011, we used a portion of the net proceeds from the 4.800% unsecured senior note offering for general corporate purposes, including the repayment ofborrowings under our Credit Facility and to fund operating property acquisitions. In 2010, we used the net proceeds from the 6.625% and 5.000% unsecuredsenior note offerings to fund operating property acquisitions and to repurchase $150.0 million in aggregate principal balance of the 3.25% Exchangeable Notes.In addition to the unsecured senior note issuances listed above, we also had outstanding Series B unsecured senior notes with an aggregate principalbalance of $83.0 million and effective interest rate of 6.45% as of December 31, 2011 and 2010, 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%.Unsecured Line of CreditIn August 2010 we entered into a new $500.0 million Credit Facility and used borrowings under the Credit Facility to repay, and then terminate, the prior$550.0 million unsecured line of credit (the "Prior Credit Facility"). In June 2011 the terms of the Credit Facility were amended to extend the maturity date,and reduce the interest rate and facility fee. The following table summarizes the terms of our Credit Facility as of December 31, 2010 and as amended as ofDecember 31, 2011: December 31, 2011 December 31, 2010 (in thousands)Outstanding borrowings$182,000 $159,000Remaining borrowing capacity318,000 341,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)2.05% 2.99%Facility fee-annual rate (3)0.350% 0.575%Maturity date (4)August 2015 August 2013_______________________(1) We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the Credit Facility.(2)The Credit Facility interest rate was calculated based on an annual rate of LIBOR plus 1.750% and 2.675% as of December 31, 2011 and December 31, 2010, respectively.(3)The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we also incurred debt origination and legal costsof approximately $5.0 million when we entered into the Credit Facility in August 2010 and an additional $3.3 million when we amended the Credit Facility in June 2011. The unamortized balance of these costs will be amortized asadditional interest expense over the extended term of the Credit Facility.F - 40(4)Under the original and amended terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.F - 41The Company intends to borrow amounts under the Credit Facility from time to time for general corporate purposes, to fund potential acquisitions, tofinance development and redevelopment expenditures, and to potentially repay long-term debt.Debt Covenants and RestrictionsThe Credit Facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certainfinancial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, aminimum fixed-charge coverage ratio, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. Noncompliancewith one or more of the covenants 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, 2011 and 2010.Debt MaturitiesThe following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as ofDecember 31, 2011: Year Ending(in thousands) 2012$253,304 20136,373 2014262,443 2015539,382 20166,551 Thereafter768,476 Total$1,836,529(1) _______________________(1) Includes gross principal balance of outstanding debt before impact of all debt discounts and premiums.Capitalized Interest and Loan FeesThe following table sets forth our gross interest expense, including debt discount/premium and loan cost amortization, net of capitalized interest, for theyears ended December 31, 2011, 2010 and 2009. The capitalized amounts are a cost of development and redevelopment, and increase the carrying value ofundeveloped land and construction in progress. Year Ended December 31, 2011 2010 2009 (in thousands)Gross interest expense$98,539 $69,956 $55,802Capitalized interest(9,130) (10,015) (9,683)Interest expense$89,409 $59,941 $46,119 F - 428. Deferred Revenue and Acquisition Related Liabilities, netDeferred revenue and acquisition-related liabilities, net consisted of the following at December 31, 2011 and 2010: December 31, 2011 2010 (in thousands)Deferred revenue related to tenant-funded tenant improvements$41,884 $60,549Other deferred revenue1,310 1,929Acquisition-related intangible liabilities, net (1)36,587 16,844Total$79,781 $79,322 F - 43________________________(1)See Note 4 for additional information.Deferred Revenue Related to Tenant-funded Tenant ImprovementsDuring the years ended December 31, 2011, 2010, and 2009, $9.3 million, $9.7 million, and $9.8 million, respectively, of deferred revenue related totenant-funded tenant improvements (including discontinued operations) was amortized and recognized as rental income. The following is the estimatedamortization of deferred revenue related to tenant-funded tenant improvements as of December 31, 2011 for the next five years and thereafter: Year Ending (in thousands)2012 $7,8552013 7,3942014 6,6342015 5,5952016 5,247Thereafter 9,159Total $41,884 9.Noncontrolling Interests on the Company's Consolidated Financial StatementsSeries A Preferred Units of the Operating PartnershipAs of both December 31, 2011 and 2010, the Operating Partnership had issued and outstanding 1,500,000 Series A Preferred Units representing preferredlimited partnership interests in the Operating Partnership with a redemption value of $50.00 per unit. There were no changes in this noncontrolling interest forall years presented. The Series A Preferred Units have a right of redemption at the option of the holders in the event of certain change of control events, certainrepurchases of the Company’s publicly registered equity securities, an involuntary delisting of the Company’s common stock from the NYSE, or a loss ofour 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 called by the OperatingPartnership at a price equal to the liquidation value, have no stated maturity or mandatory redemption and are not convertible into any other securities of theOperating Partnership. The Series A Preferred Units are exchangeable at the option of the majority of the holders for shares of the Company’s 7.45% Series ACumulative 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 to become a publicly tradedpartnership 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 the Operating Partnershipor the initial holder of the Series A Preferred Units believe, based upon the opinion of counsel, that the character of Operating Partnership’s assets and incomewould not allow it to qualify as a REIT if it were a corporation. In lieu of exchanging Series A Preferred Units for Series A Preferred Stock, we may elect toredeem all or a portion of the Series A Preferred Units for cash in an amount equal to $50.00 per unit plus accrued and unpaid distributions. The Series APreferred Units may only be exchanged in whole, but not in part, and each exchange is subject to the REIT ownership limits contained in the OperatingF - 44Partnership’s charter.The Operating Partnership makes quarterly distributions to the preferred unitholders each February, May, August, and November. As of December 31,2011 and 2010, the accrued distribution payable to holders of Series A Preferred Units, which is included in Series A Preferred Units noncontrolling intereston the balance sheet, was $0.7 million.Common Units of the Operating PartnershipThe Company owned a 97.2% and 96.8% common general partnership interest in the Operating Partnership as of December 31, 2011 and 2010,respectively. The remaining 2.8% and 3.2% common limited partnership interest as of December 31, 2011 and 2010, respectively, was owned by non-affiliateinvestors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,718,131 and 1,723,131 common unitsoutstanding held by these investors, executive officers and directors as of December 31, 2011 and 2010, respectively.The noncontrolling common units may be redeemed by unitholders for cash. We, at our option, may satisfy the cash redemptionF - 45obligation with shares of the Company’s common stock on a one-for-one basis. Whether satisfied in cash or shares of the Company’s common stock, thevalue for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’scommon stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable balance sheet date. Theaggregate value upon redemption of the then-outstanding noncontrolling common units was $64.7 million and $61.4 million as of December 31, 2011 and2010, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unitin the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitledto a liquidating distribution equal to the amount payable with respect to each share of the Company’s common stock. 10.Stockholders' Equity of the CompanyPreferred StockAs of December 31, 2011 and 2010, the Company had 1,610,000 shares of its 7.80% Series E Cumulative Redeemable Preferred Stock (“Series EPreferred Stock”) and 3,450,000 shares of its 7.50% Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) issued and outstanding.The Series E Preferred Stock and the Series F Preferred Stock each have a liquidation preference of $25.00 per share and may be redeemed at our option.Dividends on both the Series E Preferred Stock and Series F Preferred Stock are cumulative and are payable quarterly in arrears on the 15th day of eachFebruary, May, August, and November. Neither the Series E Preferred Stock nor the Series F Preferred Stock has a stated maturity and neither is subject tomandatory redemption or any sinking fund.At-The-Market Stock Offering ProgramIn July 2011, we commenced an at-the-market stock offering program under which we may offer and sell shares of our common stock having an aggregategross sales price of up to $200.0 million from time to time in "at the market" offerings. As of December 31, 2011, the Company sold 355,305 shares ofcommon stock under the program in exchange for aggregate gross proceeds of approximately $13.0 million. After underwriting discounts and commissions ofapproximately $0.2 million, the net proceeds were approximately $12.8 million. The proceeds from the sales were used for general corporate purposes and torepay borrowings under the Credit Facility. As of December 31, 2011, approximately $187.0 million could be sold under this program. Actual sales willdepend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and our capital needs. Wehave no obligation to sell shares under this program.Issuances of Common StockIn April 2011, the Company completed an underwritten public offering of 6,037,500 shares of its common stock. The net offering proceeds, afterdeducting underwriting discounts and commissions and offering expenses, were approximately $221.0 million. We used a portion of the net proceeds from theoffering to fund acquisitions and for general corporate purposes.In April 2010, the Company completed an underwritten public offering of 9,200,000 shares of its common stock. The net offering proceeds, afterdeducting underwriting discounts and commissions and offering expenses, were approximately $299.8 million. We used a portion of the net proceeds from theoffering to fund acquisitions, repay borrowings under the Prior Credit Facility, and for general corporate purposes.In June 2009, the Company completed an underwritten public offering of 10,062,500 shares of its common stock. The net offering proceeds, afterdeducting underwriting discounts, commissions, and offering expenses, were approximately $191.7 million.F - 46The Company used the net proceeds from the offering to repay a portion of the borrowings under the Prior Credit Facility and for other general corporatepurposes.Exchange of Noncontrolling Common Units of the Operating PartnershipDuring the years ended December 31, 2011 and 2009, 5,000 and 30,598 noncontrolling common units, respectively, were redeemed for shares of theCompany’s common stock on a one-for-one basis. No noncontrolling common units were exchanged during the year ended December 31, 2010. Neither theCompany nor the Operating Partnership received any proceeds from the issuance of the common stock to the noncontrolling common unitholders.Dividend Reinvestment and Direct Purchase PlanDuring the year ended December 31, 2011, the Company had a Dividend Reinvestment and Direct Purchase Plan (the “DRIPF - 47Plan”) designed to provide the Company’s stockholders and other investors with a convenient and economical method to purchase shares of the Company’scommon stock. As of December 31, 2011, no shares had been acquired under the DRIP Plan from new issuances. We terminated the DRIP Plan effective as ofJanuary 12, 2012.Share RepurchasesAn aggregate of 988,025 shares currently remain eligible for repurchase under a share-repurchase program approved by the Company’s board of directorsin prior periods. The Company did not repurchase shares of common stock under this program during the years ended December 31, 2011, 2010 or 2009.Accrued Dividends and DistributionsThe following tables summarize accrued dividends and distributions for the noted outstanding shares of common stock, preferred stock, andnoncontrolling units as of December 31, 2011 and 2010: December 31, 2011 2010 (in thousands)Dividends and Distributions payable to: Common stockholders$20,587 $18,322Noncontrolling common unitholders of the Operating Partnership601 603RSU holders (1)295 250Total accrued dividends and distribution to common stockholders and noncontrollingunitholders21,483 19,175Preferred stockholders1,209 1,210Total accrued dividends and distributions$22,692 $20,385______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12). December 31, 2011 2010Outstanding Shares and Units: Common stock (1) 58,819,717 52,349,670Noncontrolling common units1,718,131 1,723,131RSUs (2) 842,675 713,822Series E preferred stock1,610,000 1,610,000Series F preferred stock3,450,000 3,450,000______________________(1)The amount includes nonvested shares.(2)The amount includes nonvested RSUs.F - 48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 right and exchange rights, seeNote 9.Series E Preferred Units and Series F Preferred UnitsAs of December 31, 2011 and 2010, the Operating Partnership had issued and outstanding 1,610,000 Series E Preferred UnitsF - 49and 3,450,000 Series F Preferred Units representing preferred limited partnership interests in the Operating Partnership. The Company is the sole holder ofboth the Series E Preferred Units and Series F Preferred Units and for each Series E and Series F Preferred Unit outstanding, the Company has an equivalentnumber of shares of Series E Preferred Stock and Series F Preferred Stock issued and outstanding. The terms of the Series E and Series F Preferred Units areidentical to the terms of the Series E and Series F Preferred Stock discussed in Note 10. Dividends for the Series E and Series F Preferred Units are paid to theCompany. The Company then uses these funds to pay dividends to the holders of its Series E Preferred Stock and Series F Preferred Stock.Issuance of Common UnitsIn the fourth quarter of 2011, the Company utilized its at-the-market stock offering program to issue an aggregate of 355,305 shares of common stock asdiscussed in Note 10. The net offering proceeds of approximately $12.8 million were contributed by the Company to the Operating Partnership in exchange for355,305 common units .proceeds of approximately $221.0 million were contributed by the Company to the Operating Partnership in exchange for 6,037,500 common units.In April 2010, the Company completed an underwritten public offering of 9,200,000 shares of the its common stock as discussed in Note 10. The netoffering proceeds of approximately $299.8 million were contributed by the Company to the Operating Partnership in exchange for 9,200,000 common units.In June 2009, the Company completed an underwritten public offering of 10,062,500 shares of its common stock as discussed in Note 10. The netoffering proceeds of approximately $191.7 million were contributed by the Company to the Operating Partnership in exchange for 10,062,500 common units.Common Units OutstandingThe Company owned 58,819,717 and 52,349,670 common units representing a 97.2% and 96.8% common general partnership interest in the OperatingPartnership as of December 31, 2011 and 2010, respectively. The remaining 2.8% and 3.2% common limited partnership interest as of December 31, 2011and 2010, respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units.There were 1,718,131 and 1,723,131 common units outstanding held by these investors, executive officers and directors as of December 31, 2011 and 2010,respectively. For a further discussion of the noncontrolling common units, including exchanges during the years ended December 31, 2011 and 2010, refer toNotes 9 and 10.Accrued DistributionsThe following tables summarize accrued distributions for the noted common and preferred units as of December 31, 2011 and 2010: December 31, 2011 2010 (in thousands)Distributions payable to: General partner$20,587 $18,322Common limited partners601 603RSU holders (1)295 250Total accrued distributions to common unitholders21,483 19,175Series E and Series F preferred unitholders1,209 1,210Total accrued distributions$22,692 $20,385 ______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12).F - 50F - 51 December 31, 2011 2010Outstanding Units: Common units held by the general partner58,819,717 52,349,670Common units held by the limited partners1,718,131 1,723,131RSUs842,675 713,822Series E preferred units1,610,000 1,610,000Series F preferred units3,450,000 3,450,000F - 52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 boardmembers. As of December 31, 2011, we had one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the“2006 Plan”), which was adopted by our board of directors and approved by our stockholders.As of December 31, 2011, 3,773,622 shares were available for grant under the 2006 Plan. The number of shares that remains available for grant iscalculated using the weighted share counting provisions set forth in the 2006 Plan, which are based on the type of awards that are granted. The maximumnumber of shares available for grant subject to full value awards (which generally include equity awards other than options and stock appreciation rights) was1,292,336 shares as of December 31, 2011.The Executive Compensation Committee, which is comprised of four independent directors, may grant the following share-based awards as providedunder the 2006 Plan: incentive stock options, nonqualified stock options, restricted stock (nonvested shares), stock appreciation rights, performance shares,performance stock units, dividend equivalents, stock payments, deferred stock, RSUs, profit interest units, performance bonus awards, performance-basedawards, and other incentive awards to eligible individuals. For each award granted under our share-based incentive compensation programs, the OperatingPartnership simultaneously issues to the Company a number of common units equal to the number of shares of common stock ultimately paid by theCompany 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”), whichwas terminated by our board of directors in September 2006. Any awards that were outstanding upon the termination of the 1997 Plan continued in effect inaccordance with the terms of such plan and the applicable award agreement following termination of the 1997 Plan.Stock Award Deferral ProgramWe have a Stock Award Deferral Program (the “RSU Program”) under the 2006 Plan. Under the RSU Program, participants may defer receipt of awards ofnonvested shares that may be granted by electing to receive an equivalent number of RSUs in lieu of nonvested shares. Each RSU represents the right toreceive one share of our common stock in the future and is subject to the same vesting conditions that would have applied if the award had been issued innonvested shares. RSUs carry with them the right to receive dividend equivalents such that participants receive additional, fully-vested RSUs at the timedividends are paid equal to the value of the dividend paid on the shares underlying participant RSUs. Shares issued in settlement of vested RSUs includingRSUs paid on dividend equivalents 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 may be no earlier than two years after the start of the calendar year to which the election applies, or (2) upon other certain eventsspecified under the RSU program.Share-Based Compensation ProgramsThe Executive Compensation Committee has historically awarded nonvested shares and RSUs under the following share-based compensation programs.These share-based awards were valued based on the quoted closing share price of the Company’s common stock on the NYSE on the applicable grant date.Dividends are paid on all outstanding shares and RSUs whether vested or nonvested and are not forfeitable if the underlying shares or RSUs ultimately do notvest.Executive Officer Share-Based Compensation ProgramsThe Executive Compensation Committee has annually approved compensation programs that include the potential issuance of share-based awards to ourChief Executive Officer, Chief Operating Officer, and Chief Financial Officer (“the Executive Officers”) as part of their annual and long-term incentivecompensation. Incentive compensation for our executive officers for 2011 was structured to allow the Executive Compensation Committee to evaluate a varietyof key factors and metrics at the endF - 53of the year and make a determination of share-based incentive compensation for executive officers based on the Company's and management's overallperformance. In years prior to 2011, the number of nonvested shares or nonvested RSUs issued has been contingent upon specific corporate performance andmarket conditions. The share-based awards are generally issued in the first quarter after the end of our prior fiscal year. The share-based awards generallyhave a service vesting period, which has historically ranged from one to three years 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 on an annual basis as partof their long-term incentive compensation. The share-based awards are generally issued in the first quarter, and the individual share awards generally vest inequal annual installments over the applicable service vesting period, which has historically ranged from two to five years.Non-employee Board Members Share-Based Compensation ProgramF - 54The Board of Directors awards nonvested shares or nonvested RSUs to non-employee board members on an annual basis as part of such board members’annual compensation and to newly elected non-employee board members in accordance with our board of directors compensation program. The share-basedawards are generally issued in the second quarter, and the individual share awards vest in 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, 2011 through December 31, 2011 is presented below:Nonvested Shares Shares Weighted-AverageGrant-DateFair ValueOutstanding at January 1, 2011 50,032 $58.40Granted 68,727 37.83Vested (1) (34,793) 62.58Outstanding as of December 31, 2011 83,966 $39.83 _______________(1)The total shares vested include 11,485 of shares that were then tendered to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested in accordance with the terms of the 2006Plan. We accept the return of shares at the current quoted market price of the Company's common stock to satisfy tax obligations.A summary of our nonvested and vested shares activity for the years ended December 31, 2011, 2010, and 2009 is presented below: Shares Granted Shares VestedYear Ended Non-Vested SharesIssued Weighted- AverageGrant-Date FairValue Vested Shares Total Vest-Date FairValue (1) (inthousands)2011 68,727 $37.83 (34,793) $1,3342010 3,239 30.88 (41,680) 1,3982009 (2) 4,958 20.17 (139,651) 4,134 _______________________(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 fully vested upon issuance. The grant date fair value per share of thisaward was $26.94.F - 55Summary of Restricted Stock UnitsA summary of our RSU activity from January 1, 2011 through December 31, 2011 is presented below: Nonvested RSUs Nonvested and Vested Restricted Stock Units Amount Weighted-AverageGrant DateFair Value Vested RSUs Total RSUsOutstanding at January 1, 2011 125,754 $29.88 588,068 713,822Granted 107,673 37.94 — 107,673Vested (85,466) 36.05 85,466 —Issuance of dividend equivalents (1) 29,734 29,734Canceled (2) (8,554) (8,554)Outstanding as of December 31, 2011 147,961 $32.18 694,714 842,675 _______________________(1)RSUs issued as dividend equivalents are vested upon issuance.(2)We accept the return of RSUs, at the current quoted market price of the Company's common stock, to satisfy minimum statutory tax-withholding requirements related to either RSUs that have vested or RSU dividendequivalents in accordance with the terms of the 2006 Plan.A summary of our RSU activity for the years ended December 31, 2011, 2010, and 2009 is presented below: RSUs Granted RSUs VestedYear Ended Non-Vested RSUsIssued Weighted- AverageGrant-Date FairValue Vested RSUs Total Vest-DateFair Value(1) (inthousands)2011 107,673 $37.94 (85,466) $3,2732010 159,606 30.24 (303,146) 10,9362009 589,805 26.71 (327,979) 10,017 ________________________(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 $5.6 million, $7.4 million, and $13.3 million for the years endedDecember 31, 2011, 2010, and 2009, respectively. Included in the total $7.4 million of compensation cost for the year ended December 31, 2010 was thereversal of approximately $1.1 million of cumulative compensation expense previously recorded during the years 2007 through 2010 for the 2007 DevelopmentPerformance Plan, since the performance targets for this program were not ultimately achieved. Of the total share-based compensation cost, $1.1 million, $1.4million, and $1.1 million was capitalized as part of real estate assets for the years ended December 31, 2011, 2010, and 2009, respectively. As ofDecember 31, 2011, there was approximately $4.3 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that is expected to be recognized over a weighted-average period of 1.8 years. The remaining compensation cost related tothese nonvested incentive awards had been recognized in periods prior to December 31, 2011. The $4.3 million of unrecognized compensation cost does notreflect the potential future compensation related to share-based awards that were granted subsequent to December 31, 2011.F - 56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 are eligible to participate in the401(k) Plan on the first day of the month after three months of service. The 401(k) Plan allows eligible employees (“401(k) Participants”) to defer up to 60% oftheir eligible compensation on a pre-tax basis, subject to certain maximum amounts allowed by the Code. The 401(k) Plan provides for a matchingcontribution by the Company in an amount equal to fifty cents of each one dollar of participant contributions up to a maximum of 10% of the 401(k)Participant’s annual salary. 401(k) Participants vest immediately in the amounts contributed by us. For each of the years ended December 31, 2011, 2010,and 2009, we contributed $0.6 million, $0.5 million, and $0.5 million, respectively, 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 of their 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 receivemandatory Company contributions to their Deferred Compensation Plan accounts equal to 10% of their gross monthly salaries, without regard to whether suchemployees elect to defer salary or bonus compensation under the Deferred Compensation Plan. Our board of directors may, but has no obligation to, approveadditional discretionary contributions by the Company to Participant accounts. We hold the Deferred Compensation Plan assets in a limited rabbi trust, whichis subject to the claims of 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 of December 31, 2011and 2010. Our liability under the Deferred Compensation Plan was fully funded as of December 31, 2011 and 2010.14. Future Minimum RentWe have operating leases with tenants that expire at various dates through 2027 and are either subject to scheduled fixed increases or adjustments in rentbased on the Consumer Price Index. Generally, the leases grant tenants renewal options. LeasesF - 57also provide for additional rents based on certain operating expenses. Future contractual minimum rent under operating leases as of December 31, 2011 forfuture periods is summarized as follows: Year Ending (in thousands)2012 $319,7972013 315,1272014 283,0772015 239,1392016 205,278Thereafter 649,183Total (1) $2,011,601 ________________________(1)Excludes balances related to the properties held for sale at December 31, 2011 (see Note 19).F - 5815.Commitments and ContingenciesGeneralAs of December 31, 2011, we had commitments of approximately $125.6 million for contracts and executed leases directly related to our operating andredevelopment properties.In the normal course of business, we are required to post construction bonds to guarantee our performance of government-mandated infrastructureimprovements. As of December 31, 2011, we had outstanding construction bonds of approximately $2.5 million.Ground LeasesWe have noncancellable ground lease obligations at 601 108th Ave NE in Bellevue, Washington, which expires in November 2093, and at Kilroy AirportCenter Phases I, II, and III in Long Beach, California, which expires in July 2084. We also have a ground lease obligation at 370 3rd Street in San Francisco,California, which expires in December 2022. However, we have an option to acquire the land underlying the ground lease during the period from November2012 through October 2013.The minimum commitment under our ground leases as of December 31, 2011 for five years and thereafter was as follows:Year Ending (in thousands)2012 $3,0102013 1,8302014 1,8302015 1,8302016 1,830Thereafter (1)(2) 131,382Total(3) $141,712 ________________________(1)One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rentalobligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, 2011.(2)Another one of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years basedon 50% of the average annual percentage rent for the previous five years. Currently gross income does not exceed the threshold requiring us to pay percentage rent. The contractual obligations for that ground lease includedabove assumes the annual lease rental obligation in effect as of December 31, 2011.(3)The contractual obligation included for the 370 3rd Street ground lease assumes that the Company will exercise the land purchase option during 2012. The amount presented above excludes an estimated purchase pricewhich is not to exceed $27.5 million. LitigationWe and our properties are subject to litigation arising in the ordinary course of business. To our knowledge, neither we nor any of our properties arepresently subject to any litigation or threat of litigation which, if determined unfavorably to us, would have a material adverse effect on our cash flow,financial condition, or results of operations.F - 59In the fourth quarter of 2011, we received a cash distribution of $3.7 million under a bankruptcy claim related to a former tenant that defaulted on theirlease in 2009. We recognized the $3.7 million as other property income in 2011.In the third quarter of 2010, we settled outstanding litigation related to certain premises at one of our properties that had been abandoned by its formeroccupants. In connection with this legal settlement, we received a $3.6 million cash payment in 2010. In addition, in January 2011 we received a $1.0 millioncash payment relating to this matter. As a result, during the year ended December 31, 2010, we reversed approximately $1.0 million of our allowance for baddebts which was previously recorded in prior periods 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 conditionsincluding earthquake and flood, environmental, rental loss, and terrorism insurance covering all of our properties. Management believes the policyspecifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance forgenerally uninsurable losses such as loss from governmental action, nuclear hazard, and war and military action. Some of our policies are subject tolimitations of coverage, qualifications, terms, conditions, and involve large deductibles or co-payments.Environmental MattersWe follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be noF - 60assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties thatwould have a material adverse effect on our financial condition, results of operations, and cash flow. Further, we are not aware of any environmental liabilityor any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a losscontingency.16.Fair Value Measurements and DisclosuresAssets and Liabilities Reported at Fair ValueThe only assets and liabilities we record at fair value on our consolidated financial statements are the marketable securities and related deferredcompensation plan liability, both of which are related to our Deferred Compensation Plan (see Note 13). The following table sets forth the fair value of ourmarketable securities and related deferred compensation plan liability as of December 31, 2011 and 2010 : Fair Value (Level 1) (1) 2011 2010 (in thousands) Marketable securities (2)$5,691 $4,902Deferred compensation plan liability (3)$5,597 $4,809_______________(1) Based on quoted prices in active markets for identical securities.(2) The marketable securities are held in a limited rabbi trust.(3) The deferred compensation liability is reported on our consolidated balance sheets in accounts payable, accrued expenses, and other liabilities.We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gains inthe consolidated statements of operations. We adjust the Deferred Compensation Plan liability to fair value at the end of each accounting period based on theperformance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost for the period.The following table sets forth the related amounts recorded during the years ended December 31, 2011 , 2010 , and 2009:DescriptionDecember 31, 2011 December 31, 2010 December 31, 2009 (in thousands)Net (loss) gain on marketable securities$(153) $435 $465Decrease (increase) to compensation cost153 (451) (432)Financial Instruments Disclosed at Fair ValueThe following table sets forth the carrying value and the fair value of our other financial instruments as of December 31, 2011 and 2010: F - 61 December 31, 2011 2010 CarryingValue FairValue CarryingValue FairValue (in thousands) Liabilities Secured debt (2)$351,825 $367,402 $313,009 $329,456Exchangeable notes (2)306,892 320,919 299,964 312,598Unsecured senior notes (1)980,569 1,011,982 655,803 661,644Credit Facility (2)182,000 182,299 159,000 159,659 _______________(1) Fair value calculated primarily using Level I inputs which are based on quoted prices for identical instruments in active markets. The fair value of the Series B unsecured senior notes are calculated using Level II inputs which arebased on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.(2) Fair value calculated using Level II inputs which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.17.Other Significant Transactions or EventsGeneral and administrative expenses for the year ended December 31, 2009 include a $7.0 million charge related to separation payments due to theresignation, for personal reasons, of our former Chief Financial Officer in December 2009.F - 6218.Segment DisclosureWe have one reportable segment which is our Office Properties segment and we have one non-reportable segment which is our Industrial Properties segment.We also have certain corporate level activities including legal administration, accounting, finance, management information systems, and acquisitions, whichare not considered separate operating segments.We evaluate the performance of our segments based upon Net Operating Income. “Net Operating Income” is defined as operating revenues (rental income,tenant reimbursements, and other property income) less property and related expenses (property expenses, real estate taxes, ground leases, and provisions forbad debts) and excludes other non-property related income and expenses such as interest income and other net investment gains (losses) and interest expense,depreciation and 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, 2011, 2010, and 2009, and theconsolidated assets, consolidated expenditures, and tenant improvements as of December 31, 2011 and 2010: Year Ended December 31, 2011 2010 2009 (in thousands)Reportable Segment - Office Properties Operating revenues(1)$340,230 $260,476 $235,618Property and related expenses99,872 76,633 65,422Net Operating Income240,358 183,843 170,196Non-Reportable Segment - Industrial Properties Operating revenues(1)26,901 26,920 29,186Property and related expenses7,941 7,098 7,212Net Operating Income18,960 19,822 21,974Total Segments: Operating revenues(1)367,131 287,396 264,804Property and related expenses107,813 83,731 72,634Net Operating Income259,318 203,665 192,170 Reconciliation to Consolidated Net Income: Total net operating income, as defined, for reportable segments259,318 203,665 192,170Unallocated (expenses) income: General and administrative expenses(28,148) (27,963) (39,938)Acquisition-related expenses(4,053) (2,248) —Depreciation and amortization(133,220) (99,611) (84,290)Interest income and other net investment gains571 964 1,300Interest expense(89,409) (59,941) (46,119)(Loss) gain on early extinguishment of debt— (4,564) 4,909Income from continuing operations5,059 10,302 28,032Income from discontinued operations(2)62,430 9,584 9,983Net income$67,489 $19,886 $38,015 _______________(1)All operating revenues are comprised of amounts received from third-party tenants.(2)See Note 19 for the breakdown of income from discontinued operations by segment. F - 63 December 31, 2011 2010 (in thousands)Assets: Reportable Segment - Office Properties Land, buildings, and improvements, net$2,480,338 $2,108,019Undeveloped land and construction in progress430,806 290,365Total assets(1)(2)3,248,661 2,611,206Non-Reportable Segment - Industrial Properties Land, buildings, and improvements, net145,043 146,058Total assets(1)156,741 159,612Total Segments Land, buildings, and improvements, net2,625,381 2,254,077Undeveloped land and construction in progress430,806 290,365Total assets(1)3,405,402 2,770,818Reconciliation to Consolidated Assets: Total assets allocated to segments3,405,402 2,770,818Other unallocated assets: Cash and cash equivalents4,777 14,840Restricted cash358 1,461Marketable securities5,691 4,902Deferred financing costs, net18,368 16,447Prepaid expenses and other assets, net12,199 8,097Total consolidated assets$3,446,795 $2,816,565 _______________(1)Includes land, buildings, and improvements, undeveloped land and construction in progress, real estate assets and other assets held for sale, current receivables, deferred rent receivables, deferred leasing costs, and acquisition-related intangible assets, all shown on a net basis.(2)See Note 19 for the breakdown of the balance sheet accounts related to the properties held for sale. December 31, 2011 2010 (in thousands)Acquisitions and Capital Expenditures: (1) Reportable Segment - Office Properties Expenditures for real estate acquisitions$663,483 $713,905Expenditures for development and redevelopment properties and undeveloped land32,198 28,178Expenditures for operating properties(2)66,448 72,061Non-Reportable Segment - Industrial Properties Expenditures for operating properties(2)6,001 6,663Total Segments Expenditures for real estate acquisitions663,483 713,905Expenditures for development and redevelopment properties and undeveloped land32,198 28,178Expenditures for operating properties(2)72,449 78,724_______________(1)Total consolidated acquisitions and capital expenditures are equal to the same amounts disclosed for total segments. Amounts represent balances on an accrual basis.(2)Includes expenditures for building improvements, tenant improvements, and deferred leasing costs for our operating properties.F - 64 19.Discontinued OperationsProperties Held For SaleAs of December 31, 2011, the following properties were classified as held for sale:LocationProperty Type Number of Buildings Rentable Square Feet15004 Innovation Drive, San Diego, CA (1)Office 1 150,80110243 Genetic Center Drive, San Diego, CA (1)Office 1 102,875_______________(1)On January 30, 2012, we sold these two buildings to an unaffiliated third party for a net sales price of $146.1 million.The major classes of assets and liabilities of the properties held for sale as of December 31, 2011 were as follows (in thousands):Real estate assets and other assets held for sale Land and improvements $6,490Buildings and improvements 83,447Total real estate held for sale 89,937Accumulated depreciation (14,905)Total real estate held for sale, net 75,032Deferred rent receivables, net 6,749Deferred leasing costs and acquisition-related intangible assets, net 2,375Real estate assets and other assets held for sale, net $84,156Liabilities and deferred revenue of real estate assets held for sale Accounts payable, accrued expenses and other liabilities $24Deferred revenue and acquisition-related intangible liabilities, net 13,223Rents received in advance and tenant security deposits 39Liabilities and deferred revenue of real estate assets held for sale $13,286 We did not have any properties as held for sale as of December 31, 2010.DispositionsThe following table summarizes properties sold during the years ended December 31, 2011, 2010, and 2009.LocationPropertyType Month ofDisposition Number ofBuildings RentableSquareFeet Sales Price(in millions)2011 Dispositions 10350 Barnes Canyon and 10120 Pacific Heights Drive,San Diego, CAOffice September 2 90,558 $23.92031 E. Mariposa Avenue, Los Angeles, CAIndustrial December 1 192,053 42.2 3 282,611 $66.12010 Dispositions 660 N. Puente Street, Brea, CAIndustrial October 1 51,567 $5.0601 Valencia Avenue, Brea, CAOffice December 1 60,891 5.4603 Valencia Avenue, Brea, CAOffice December 1 45,900 5.4Total 3 158,358 $15.82009 Disposition 12400 Industry Street, Garden Grove, CAIndustrial June 1 64,200 $5.1 F - 65 Discontinued OperationsThe following table summarizes the components that comprise income from discontinued operations for the years ended December 31, 2011, 2010 and2009.F - 66 Year Ended December 31, 2011 2010 2009 (in thousands)Revenues: Rental income $13,856 $13,174 $13,258Tenant reimbursements 1,485 1,408 1,372Other property income 659 2 —Total revenues 16,000 14,584 14,630 Expenses: Property expenses 668 1,678 2,364Real estate taxes 1,112 1,152 1,260Provision for bad debts — (1,079) 146Depreciation and amortization 3,377 4,198 3,362Total expenses 5,157 5,949 7,132 Income from discontinued operations before net gain on dispositions of discontinued operations 10,843 8,635 7,498Net gain on dispositions of discontinued operations 51,587 949 2,485Total income from discontinued operations $62,430 $9,584 $9,983 The following table summarizes the total income from discontinued operations within the consolidated statements of operations by segment for the yearsended December 31, 2011, 2010, and 2009: Year Ended December 31, 2011 2010 2009 (in thousands)Reportable Segment Office Properties$20,606 $4,066 $4,974Non-Reportable Segment Industrial Properties41,824 5,518 5,009Total income from discontinued operations$62,430 $9,584 $9,983 F - 6720.20.Net Income Available to Common Stockholders Per Share of the CompanyThe following table reconciles the numerator and denominator in the Company's basic and diluted per-share calculations for net income available tocommon stockholders for the years ended December 31, 2011, 2010, and 2009: Year Ended December 31, 2011 2010 2009 (in thousands, except share and per shareamounts)Numerator: Income from continuing operations$5,059 $10,302 28,032Loss (income) from continuing operations attributable to noncontrolling commonunits of the Operating Partnership293 110 (872)Preferred dividends and distributions(15,196) (15,196) (15,196)Allocation to participating securities (nonvested shares and RSUs)(1,309) (1,151) (1,293)Numerator for basic and diluted (loss) income from continuing operations availableto common stockholders(11,153) (5,935) 10,671Income from discontinued operations62,430 9,584 9,983Income from discontinued operations attributable to noncontrolling common units ofthe Operating Partnership(1,767) (288) (153)Numerator for basic and diluted net income available to common stockholders$49,510 $3,361 $20,501Denominator: Basic weighted average vested shares outstanding56,717,121 49,497,487 38,705,101Effect of dilutive securities—stock options (1)— — 27,025Diluted weighted average vested shares and common share equivalents outstanding56,717,121 49,497,487 38,732,126Basic earnings per share: (Loss) income from continuing operations available to common stockholders pershare$(0.20) $(0.12) $0.28Income from discontinued operations per common share1.07 0.19 0.25Net income available to common stockholders per share$0.87 $0.07 $0.53Diluted earnings per share: (Loss) income from continuing operations available to common stockholders pershare$(0.20) $(0.12) $0.28Income from discontinued operations per common share1.07 0.19 0.25Net income available to common stockholders per share$0.87 $0.07 $0.53 _______________(1)Dilutive securities were not included in the current period presentation of the 2010 weighted average share calculation due the reported net loss from continuing operations for the year ended December 31, 2010 resulting fromthe reclassification of the revenues and expenses of operating properties that were sold during 2011 or classified as held for sale as of December 31, 2011 to discontinued operations.The impact of the Exchangeable Notes and stock options was not considered in our diluted earnings per share calculation for the year ended December 31,2011 and 2010 since the Company had a loss from continuing operations attributable to common stockholders and the effect was anti-dilutive.The impact of the Exchangeable Notes was not included in our diluted earnings per share calculation for the year ended December 31, 2009 because theaverage trading price of the Company's common stock on the NYSE was below the respective Exchangeable Notes exchange price for these periods. As aresult, these instruments were not considered to be dilutive for the purposes of our diluted earnings per share calculation for these periods.F - 6821. Net Income Available to Common Unitholders Per Unit of the Operating PartnershipThe following table reconciles the numerator and denominator in the Operating Partnership's basic and diluted per-unit calculations for net income availableto common unitholders for the years ended December 31, 2011, 2010, and 2009: Year Ended December 31, 2011 2010 2009 (in thousands, except unit and per unitamounts)Numerator: Income from continuing operations $5,059 $10,302 $28,032Income from continuing operations attributable to noncontrolling interests inconsolidated subsidiaries (529) (162) (201)Preferred distributions (15,196) (15,196) (15,196)Allocation to participating securities (nonvested units and RSUs) (1,309) (1,151) (1,293)Numerator for basic and diluted (loss) income from continuing operations available tocommon unitholders (11,975) (6,207) 11,342Income from discontinued operations 62,430 9,584 9,983Numerator for basic and diluted net income available to common unitholders $50,455 $3,377 $21,325Denominator: Basic weighted average vested units outstanding 58,437,444 51,220,618 40,436,196Effect of dilutive securities-stock options (1) — — 27,025Diluted weighted average vested units and common unit equivalents outstanding 58,437,444 51,220,618 40,463,221Basic earnings per unit: (Loss) income from continuing operations available to common unitholders per unit $(0.20) $(0.12) $0.28Income from discontinued operations per common unit 1.06 0.19 0.25Net income available to common unitholders per unit $0.86 $0.07 $0.53Diluted earnings per unit: (Loss) income from continuing operations available to common unitholders per unit $(0.20) $(0.12) $0.28Income from discontinued operations per common unit 1.06 0.19 0.25Net income available to common unitholders per unit $0.86 $0.07 $0.53 _______________(1)Dilutive securities were not included in the current period presentation of the 2010 weighted average share calculation due the reported net loss from continuing operations for the year ended December 31, 2010 resulting fromthe reclassification of the revenues and expenses of operating properties that were sold during 2011 or classified as held for sale as of December 31, 2011 to discontinued operations.The impact of the Exchangeable Notes and stock options was not considered in our diluted earnings per unit calculation for the year ended December 31,2011 and 2010 since the Operating Partnership had a loss from continuing operations attributable to common unitholders and the effect was anti-dilutive.The impact of the Exchangeable Notes was not included in our diluted earnings per unit calculation for the years ended December 31, 2009 because theaverage trading price of the Company's common stock on the NYSE was below the respective Exchangeable Notes exchange price for these periods. As aresult, these instruments were not considered to be dilutive for the purposes of our diluted earnings per unit calculation for these periods.F - 6922. 22. Tax Treatment of DistributionsThe following table reconciles the dividends declared per common share to the dividends paid per common share during the years ended December 31,2011, 2010, and 2009 as follows: Year Ended December 31,Dividends2011 2010 2009Dividends declared per common share$1.400 $1.400 $1.630Less: Dividends declared in the current year and paid in the following year(0.350) (0.350) (0.350)Add: Dividends declared in the prior year and paid in the current year0.350 0.350 0.580Dividends paid per common share$1.400 $1.400 $1.860 The unaudited income tax treatment for the dividends to common stockholders reportable for the years ended December 31, 2011, 2010, and 2009 asidentified in the table above was as follows: Year Ended December 31,Common Shares2011 2010 2009Ordinary income$0.230 16.43% $— —% $0.421 22.64%Return of capital1.170 83.57 1.400 100.00 1.418 76.25Capital gains (1)— — — — 0.013 0.69Unrecaptured section 1250 gains— — — — 0.008 0.42 $1.400 100.00% $1.400 100.00% $1.860 100.00% _________________(1)Capital gains are comprised entirely of 15% rate gains.The unaudited income tax treatment for the dividends to Series E preferred stockholders reportable for the years ended December 31, 2011, 2010, and 2009was as follows: Year Ended December 31,Preferred Shares2011 2010 2009Ordinary income$1.950 100.00% $1.950 100.00% $1.837 94.22%Capital gains (1)— — — — 0.070 3.58Unrecaptured 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 unaudited income tax treatment for the dividends to Series F preferred stockholders reportable for the years ended December 31, 2011, 2010, and2009 was as follows: Year Ended December 31,Preferred Shares2011 2010 2009Ordinary income$1.875 100.00% $1.875 100.00% $1.767 94.22%Capital gains (1)— — — — 0.067 3.58Unrecaptured 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 - 7023.23.Quarterly Financial Information of the Company (Unaudited)Summarized quarterly financial data for the years ended December 31, 2011 and 2010 was as follows: 2011 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$83,773 $88,391 $93,509 $101,458Net Operating Income from continuing operations (1)(2)58,008 62,363 65,688 73,259Income (loss) from continuing operations (2)1,843 1,181 (1,230) 3,265Income from discontinued operations (2)3,024 2,291 15,517 41,598Net income4,867 3,472 14,290 44,860Net income attributable to Kilroy Realty Corporation4,833 3,482 13,994 43,706Preferred dividends and distributions(3,799) (3,799) (3,799) (3,799)Net income (loss) available to common stockholders1,034 (317) 10,195 39,907Net income (loss) available to common stockholders per share—basic0.01 (0.01) 0.17 0.68Net income (loss) available to common stockholders per share—diluted0.01 (0.01) 0.17 0.68 2010 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$63,095 $68,775 $76,217 $79,309Net Operating Income from continuing operations (1)(2)45,659 48,225 53,397 56,384Income from continuing operations (2)6,647 47 1,723 1,885Loss on early extinguishment of debt— (4,564) — —Income from discontinued operations (2)2,230 1,909 1,946 3,499Net income8,877 1,956 3,669 5,384Net income attributable to Kilroy Realty Corporation8,685 2,016 3,673 5,334Preferred dividends and distributions(3,799) (3,799) (3,799) (3,799)Net income (loss) available to common stockholders4,886 (1,783) (126) 1,535Net income (loss) available to common stockholders per share—basic0.11 (0.04) (0.01) 0.02Net income (loss) available to common stockholders per share—diluted0.11 (0.04) (0.01) 0.02____________________(1)See Note 18 for definition of Net Operating Income.(2)All periods have been adjusted from amounts previously disclosed in our quarterly filings on Form 10-Q to reclassify amounts related to discontinued operations (see Note 19). F - 7124.24.Quarterly Financial Information of the Operating Partnership (Unaudited)Summarized quarterly financial data for the years ended December 31, 2011 and 2010 was as follows: 2011 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$83,773 $88,391 $93,509 $101,458Net Operating Income from continuing operations (1)(2)58,008 62,363 65,688 73,259Income (loss) from continuing operations (2)1,843 1,181 (1,230) 3,265Income from discontinued operations (2)3,024 2,291 15,517 41,598Net income4,867 3,472 14,290 44,860Net income attributable to the Operating Partnership4,833 3,440 14,260 44,427Preferred distributions(3,799) (3,799) (3,799) (3,799)Net income (loss) available to common unitholders1,034 (359) 10,461 40,628Net income (loss) available to common unitholders per unit—basic0.01 (0.01) 0.17 0.68Net income (loss) available to common unitholders per unit—diluted0.01 (0.01) 0.17 0.68 2010 Quarter Ended March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$63,095 $68,775 $76,217 $79,309Net Operating Income from continuing operations (1)(2)45,659 48,225 53,397 56,384Income from continuing operations (2)6,647 47 1,723 1,885Loss on early extinguishment of debt— (4,564) — —Income from discontinued operations (2)2,230 1,909 1,946 3,499Net income8,877 1,956 3,669 5,384Net income attributable to the Operating Partnership8,832 1,905 3,628 5,359Preferred distributions(3,799) (3,799) (3,799) (3,799)Net income (loss) available to common unitholders5,033 (1,894) (171) 1,560Net income (loss) available to common unitholders per unit—basic0.11 (0.04) (0.01) 0.02Net income (loss) available to common unitholders per unit—diluted0.11 (0.04) (0.01) 0.02___________________(1)See Note 18 for definition of Net Operating Income.(2)All periods have been adjusted from amounts previously disclosed in our quarterly filings on Form 10-Q to reclassify amounts related to discontinued operations (see Note 19). F - 7225. Subsequent EventsOn January 17, 2012 aggregate dividends, distributions, and dividend equivalents of $21.5 million were paid to common stockholders and commonunitholders of record on December 31, 2011 and RSU holders of record on January 17, 2012.On January 30, 2012, we completed the sale of two office buildings to an unrelated third party for approximately $146.1 million. Both properties werereported on the consolidated balance sheets as properties held for sale as of December 31, 2011.On January 30, 2012, the Executive Compensation Committee granted 59,938 shares of restricted stock and 92,795 RSUs to the Executive Officers andother key employees under the 2006 Plan.F - 7326. Pro Forma Results of the Company (Unaudited)The first table of pro forma consolidated results of operations of the Company for the years ended December 31, 2011 and 2010 assumes that theacquisitions of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010. The second table ofpro forma consolidated results of operations of the Company for the years ended December 31, 2010 and 2009 assumes that the acquisitions of 601 108thAvenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010 and that the acquisitions of 303 Second Streetand 100 First Street in San Francisco, CA, were completed as of January 1, 2009. Pro forma data may not be indicative of the results that would have beenreported had the acquisitions actually occurred as of January 1, 2010 and 2009, respectively, nor does it intend to be a projection of future results. Year Ended December 31, (1) 2011 2010 (in thousands except per share amounts)Revenues $381,187 $316,343Net income available to common stockholders(3)(5) $49,511 $2,491Net income available to common stockholders per share - basic(3)(5) $0.85 $0.03Net income available to common stockholders per share - diluted(3)(5) $0.85 $0.03 Year Ended December 31, (2) 2010 2009 (in thousands except per share amounts)Revenues $340,623 $309,117Net income available to common stockholders(3)(4)(5) $4,566 $30,380Net income available to common stockholders per share - basic(3)(4)(5) $0.07 $0.75Net income available to common stockholders per share - diluted(3)(4)(5) $0.07 $0.75_________________(1)The purchase of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, represent the largest acquisitions and approximately 50% of the total aggregate purchase price of the properties acquiredduring the year ended December 31, 2011.(2)The purchase of 303 Second Street and 100 First Street in San Francisco, CA represents the two largest acquisitions and 61% of the total purchase price of the Company's total acquisitions for the year ended December 31,2010.(3)The pro forma results for the year ended December 31, 2011 was adjusted to exclude acquisition-related expenses of approximately $0.6 million incurred in 2011 for the acquisitions of 601 108th Avenue N.E., Bellevue, WA,and 201 Third Street, San Francisco, CA. The pro forma results for the year ended December 31, 2010 were adjusted to include these expenses.(4)The pro forma results for the year ended December 31, 2010 was adjusted to exclude acquisition-related expenses of approximately $0.8 million incurred in 2010 for the acquisitions of 303 Second Street and 100 First Streetin San Francisco, CA. The pro forma results for the year ended December 31, 2009 were adjusted to include these expenses.(5)The pro forma results for all periods presented include incremental interest expense assuming the acquisitions were funded by pro forma borrowings under the Credit Facility. The pro forma interest expense estimate iscalculated based on the actual interest rate in effect on the Credit Facility for each respective period. Actual funding of the acquisitions may be from different sources and the pro forma borrowings and related pro formainterest expense estimate assumed herein are not indicative of actual results.The following table summarizes the results of operations for the properties at 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, SanFrancisco, CA, from June 3, 2011 and September 15, 2011, the dates of acquisition, respectively, through December 31, 2011: (in thousands)Revenues$15,150Net income(1)$397________________(1) Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.The following table summarizes the results of operations for the properties at 303 Second Street and 100 First Street in San Francisco, CA, from May 26,2010 and November 10, 2010, the dates of acquisition, respectively, through December 31, 2010: (in thousands)Revenues$17,506Net income(1)$4,012________________(1) Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.F - 7427. Pro Forma Results of the Operating Partnership (Unaudited)The first table of pro forma consolidated results of operations of the Operating Partnership for the years ended December 31, 2011 and 2010 assumes thatthe acquisitions of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010. The secondtable of pro forma consolidated results of operations of the Operating Partnership for the years ended December 31, 2010 and 2009 assumes that theacquisitions of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010 and that theacquisitions of 303 Second Street and 100 First Street in San Francisco, CA, were completed as of January 1, 2009. Pro forma data may not be indicative ofthe results that would have been reported had the acquisitions actually occurred as of January 1, 2010 and 2009, respectively, nor does it intend to be aprojection of future results. Year Ended December 31, (1) 2011 2010 (in thousands except per unit amounts)Revenues $381,187 $316,343Net income available to common unitholders(3)(5) $50,417 $2,437Net income available to common unitholders per unit - basic(3)(5) $0.84 $0.03Net income available to common unitholders per unit - diluted(3)(5) $0.84 $0.03 Year Ended December 31, (2) 2010 2009 (in thousands except per unit amounts)Revenues $340,623 $309,117Net income available to common unitholders(3)(4)(5) $4,558 $31,454Net income available to common unitholders per unit - basic(3)(4)(5) $0.07 $0.75Net income available to common unitholders per unit - diluted(3)(4)(5) $0.07 $0.75_______________(1)The purchase of 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, San Francisco, CA, represent the largest acquisitions and approximately 50% of the total aggregate purchase price of the properties acquiredduring the year ended December 31, 2011.(2)The purchase of 303 Second Street and 100 First Street in San Francisco, CA represents the two largest acquisitions and 61.0% of the total purchase price of the Company's total acquisitions for the year ended December 31,2010.(3)The pro forma results for the year ended December 31, 2011 was adjusted to exclude acquisition-related expenses of approximately $0.6 million incurred in 2011 for the acquisitions of 601 108th Avenue N.E., Bellevue, WA,and 201 Third Street, San Francisco, CA. The pro forma results for the year ended December 31, 2010 were adjusted to include these expenses.(4)The pro forma results for the year ended December 31, 2010 was adjusted to exclude acquisition-related expenses of approximately $0.8 million incurred in 2010 for the acquisitions of 303 Second Street and 100 First Streetin San Francisco, CA. The pro forma results for the year ended December 31, 2009 were adjusted to include these expenses.(5)The pro forma results for all periods presented include incremental interest expense assuming the acquisitions were funded by pro forma borrowings under the Credit Facility. The pro forma interest expense estimate iscalculated based on the actual interest rate in effect on the Credit Facility for each respective period. Actual funding of the acquisitions may be from different sources and the pro forma borrowings and related pro formainterest expense estimate assumed herein are not indicative of actual results.The following table summarizes the results of operations for the properties at 601 108th Avenue N.E., Bellevue, WA, and 201 Third Street, SanFrancisco, CA, from June 3, 2011 and September 15, 2011, the dates of acquisition, respectively, through December 31, 2011: (in thousands)Revenues$15,150Net income(1)$397 _______________(1) Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.The following table summarizes the results of operations for the properties at 303 Second Street and 100 First Street in San Francisco, CA, from May 26,2010 and November 10, 2010, the dates of acquisition, respectively, through December 31, 2010: (in thousands)Revenues$17,506Net income(1)$4,012 _______________(1) Reflects the net operating income less depreciation for these properties and amortization of lease related intangibles.F - 75KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2011, 2010, and 2009(in thousands) Balance atBeginningof Period Charged toCosts andExpenses (1) Deductions Balanceat Endof PeriodAllowance for Uncollectible Tenant Receivables Year ended December 31, 2011—Allowance foruncollectible tenant receivables$2,819 $923 $(1,152) $2,590Year ended December 31, 2010—Allowance foruncollectible tenant receivables$3,063 $16 $(260) $2,819Year ended December 31, 2009—Allowance foruncollectible tenant receivables$3,980 $906 $(1,823) $3,063Allowance for Unbilled Deferred Rent Year ended December 31, 2011—Allowance fordeferred rent$3,831 $(279) $(146) $3,406Year ended December 31, 2010—Allowance fordeferred rent$6,388 $(1,079) $(1,478) $3,831Year ended December 31, 2009—Allowance fordeferred rent$7,339 $(337) $(614) $6,388____________________(1)Includes amounts reported in Discontinued Operations (see Note 19).F - 76KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2011 Initial Cost Gross Amounts at WhichCarried at Close of Period PropertyLocation Encumb-rances Land BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)Office Properties: 23925 Park SorrentoCalabasas, California $13,294(6) $50 $2,346 $282 $50 $2,628 $2,678 $1,234 35 2001(C)11,78923975 Park SorrentoCalabasas, California (6) 765 17,720 5,224 765 22,944 23,709 9,948 35 2002(C)100,59224025 Park SorrentoCalabasas, California (6) 845 15,896 3,132 845 19,028 19,873 9,251 35 2000(C)102,26426541 Agoura Road Calabasas, California 1,979 9,630 9,789 1,979 19,419 21,398 8,796 35 1997(A)90,1565151 Camino Ruiz Camarillo, California 3,151 13,798 3,364 3,185 17,128 20,313 8,076 35 1997(A)187,8615153 Camino Ruiz Camarillo, California 675 2,957 1,528 656 4,504 5,160 2,234 35 1997(A)38,6555155 Camino Ruiz Camarillo, California 675 2,957 1,463 659 4,436 5,095 2,567 35 1997(A)38,8562240 E. Imperial HighwayEl Segundo, California 1,044 11,763 23,633 1,074 35,366 36,440 16,279 35 1983(C)122,8702250 E. Imperial HighwayEl Segundo, California 2,579 29,062 22,714 2,565 51,790 54,355 39,270 35 1983(C)298,7282260 E. Imperial HighwayEl Segundo, California 35 1983(C)(5 ) 909 Sepulveda BoulevardEl Segundo, California 69,507(7) 3,577 34,042 38,735 3,577 72,777 76,354 17,878 35 2005(C)241,607999 Sepulveda BoulevardEl Segundo, California (7) 1,407 34,326 10,087 1,407 44,413 45,820 12,058 35 2003(C)128,5043750 Kilroy Airport WayLong Beach, California 1,941 10,164 12,105 12,105 7,993 35 1989(C)10,4573760 Kilroy Airport WayLong Beach, California 17,467 7,851 25,318 25,318 18,147 35 1989(C)165,2783780 Kilroy Airport WayLong Beach, California 22,319 13,352 35,671 35,671 27,712 35 1989(C)219,7453800 Kilroy Airport WayLong Beach, California 19,408 15,955 35,363 35,363 16,733 35 2000(C)192,4763840 Kilroy Airport WayLong Beach, California 13,586 9,955 23,541 23,541 11,760 35 1999(C)136,0263880 Kilroy Airport WayLong Beach, California 35 1997(A)(12 ) 3900 Kilroy Airport WayLong Beach, California 12,615 7,690 20,305 20,305 10,069 35 1997(A)126,840Kilroy 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 13,066 9,633 49,396 59,029 13,506 35 2003(C)150,16712200 W. Olympic BoulevardLos Angeles, California 4,329 35,488 13,465 3,977 49,305 53,282 24,495 35 2000(C)150,30212312 W. Olympic BoulevardLos Angeles, California 3,325 12,202 582 3,399 12,710 16,109 5,362 35 1997(A)78,0001633 26th StreetSanta Monica, California 2,080 6,672 2,464 2,040 9,176 11,216 4,626 35 1997(A)44,9152100 Colorado AvenueSanta Monica, California 5,474 26,087 11,186 5,476 37,271 42,747 12,296 35 1997(A)102,8643130 Wilshire BoulevardSanta Monica, California 8,921 6,579 10,276 9,188 16,588 25,776 8,700 35 1997(A)88,339501 Santa Monica BoulevardSanta Monica, California 4,547 12,044 6,122 4,551 18,162 22,713 8,638 35 1998(A)73,1152829 Townsgate Road Thousand Oaks, California 5,248 8,001 5,614 5,248 13,615 18,863 6,503 35 1997(A)81,06712225 El Camino RealDel Mar, California 1,700 9,633 2,938 1,683 12,588 14,271 4,119 35 1998(A)60,14812235 El Camino RealDel Mar, California 1,507 8,543 4,550 1,530 13,070 14,600 5,798 35 1998(A)54,67312340 El Camino RealDel Mar, California (7) 4,201 13,896 7,344 4,201 21,240 25,441 6,119 35 2002(C)87,40512390 El Camino RealDel Mar, California (7) 3,453 11,981 1,261 3,453 13,242 16,695 6,482 35 2000(C)72,33212348 High Bluff DriveDel Mar, California 1,629 3,096 3,452 1,629 6,548 8,177 4,185 35 1999(C)38,710F - 77KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2011 Initial Cost Gross Amounts at WhichCarried at Close of Period PropertyLocation Encumb-rances Land BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)12400 High Bluff Drive Del Mar, California 15,167 40,497 11,247 15,167 51,744 66,911 14,309 35 2004(C)208,4643579 Valley Centre Drive Del Mar, California 71,517(8) 2,167 6,897 6,900 2,858 13,106 15,964 5,036 35 1999(C)52,3753611 Valley Centre Drive Del Mar, California (8) 4,184 19,352 10,933 5,259 29,210 34,469 14,241 35 2000(C)130,1783661 Valley Centre Drive Del Mar, California (8) 4,038 21,144 8,828 4,725 29,285 34,010 12,314 35 2001(C)129,7523721 Valley Centre Drive Del Mar, California (8) 4,297 18,967 5,687 4,254 24,697 28,951 6,839 35 2003(C)114,7803811 Valley Centre Drive Del Mar, California 29,754(9) 3,452 16,152 20,072 4,457 35,219 39,676 12,405 35 2000(C)112,0676200 Greenwich Drive Governor Park, California 1,583 5,235 2,753 1,722 7,849 9,571 4,656 35 1999(C)71,0006220 Greenwich Drive Governor Park, California 3,213 10,628 16,150 3,426 26,565 29,991 7,235 35 1997(A)141,21415051 Avenue of ScienceI-15 Corridor, California 2,888 5,780 5,543 2,888 11,323 14,211 4,822 35 2002(C)70,61715073 Avenue of ScienceI -15 Corridor, California 2,070 5,728 1,494 2,070 7,222 9,292 3,388 35 2002(C)46,75915231 Avenue of Science I-15 Corridor, California 2,233 8,830 4,888 2,233 13,718 15,951 3,071 35 2005(C)65,63815253 Avenue of Science I-15 Corridor, California 1,548 6,423 1,664 1,548 8,087 9,635 1,662 35 2005(C)37,43715333 Avenue of Science I-15 Corridor, California 2,371 16,500 2,207 2,371 18,707 21,078 3,194 35 2006(C)78,88015378 Avenue of Science I-15 Corridor, California 3,565 3,796 1,871 3,565 5,667 9,232 2,993 35 1998(A)68,91015435 Innovation Drive I-15 Corridor, California 2,143 6,311 2,711 2,046 9,119 11,165 4,149 35 2000(C)51,50015445 Innovation Drive I-15 Corridor, California 2,143 6,311 5,116 2,046 11,524 13,570 4,794 35 2000(C)51,50013280 Evening Creek Drive South I-15 Corridor, California 3,701 8,398 2,440 3,701 10,838 14,539 1,316 35 2008(C)42,97113290 Evening Creek Drive South I-15 Corridor, California 5,229 11,871 1,459 5,229 13,330 18,559 1,213 35 2008(C)61,17613480 Evening Creek Drive North I-15 Corridor, California 7,997 41,734 7,997 41,734 49,731 5,221 35 2008(C)149,81713500 Evening Creek Drive North I-15 Corridor, California 7,581 35,903 11,228 7,580 47,132 54,712 10,179 35 2004(A)147,53313520 Evening Creek Drive North I-15 Corridor, California 7,581 35,903 12,124 7,580 48,028 55,608 11,017 35 2004(A)141,3687525 Torrey Santa Fe 56 Corridor, California 2,348 28,035 4,041 2,348 32,076 34,424 5,298 35 2007(C)103,9797535 Torrey Santa Fe 56 Corridor, California 2,950 33,808 5,967 2,950 39,775 42,725 6,766 35 2007(C)130,2437545 Torrey Santa Fe 56 Corridor, California 2,950 33,708 8,093 2,950 41,801 44,751 7,570 35 2007(C)130,3547555 Torrey Santa Fe 56 Corridor, California 2,287 24,916 3,683 2,287 28,599 30,886 4,689 35 2007(C)101,2362355 Northside Drive Mission Valley, California 4,066 8,332 1,415 4,066 9,747 13,813 853 35 2,010(A)50,4252365 Northside Drive Mission Valley, California 7,359 15,257 1,171 7,359 16,428 23,787 1,110 35 2010(A)91,2602375 Northside Drive Mission Valley, California 3,947 8,146 505 3,947 8,651 12,598 721 35 2010(A)48,9492385 Northside Drive Mission Valley, California 2,752 14,513 219 2,752 14,732 17,484 992 35 2010(A)88,7952305 Historic Decatur Road Point Loma, California 5,240 22,220 60 5,240 22,280 27,520 843 35 2010(A)103,90010020 Pacific Mesa Boulevard Sorrento Mesa, California 8,007 52,189 15,349 8,007 67,538 75,545 12,191 35 2007(C)318,000F - 78KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2011 Initial Cost Gross Amounts at WhichCarried at Close of Period PropertyLocation Encumb-rances Land BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)4910 Directors Place Sorrento Mesa, California 2,240 13,039 6,455 2,240 19,494 21,734 1,181 35 2009(C)50,9254921 Directors Place Sorrento Mesa, California 3,792 11,091 4,749 3,792 15,840 19,632 1,502 35 2008(C)56,1364939 Directors Place Sorrento Mesa, California 2,225 12,698 4,360 2,198 17,085 19,283 6,371 35 2002(C)60,6624955 Directors Place Sorrento Mesa, California 2,521 14,122 3,697 3,179 17,161 20,340 9,498 35 2000(C)76,2465005 Wateridge Vista Drive Sorrento Mesa, California 3,320 5,049 1,554 3,3206,6039,9233,037 35 1999(C)61,4605010 Wateridge Vista Drive Sorrento Mesa, California 35 1999(C)(13 ) 10770 Wateridge Circle Sorrento Mesa, California 4,560 26,671 4,560 26,671 31,231 1,323 35 2011(A)174,3106055 Lusk Avenue Sorrento Mesa, California 3,935 8,008 5,920 3,942 13,921 17,863 5,440 35 1997(A)93,0006260 Sequence Drive Sorrento Mesa, California 3,206 9,803 1,077 3,212 10,874 14,086 4,781 35 1997(A)130,5366290 Sequence Drive Sorrento Mesa, California 2,403 7,349 4,907 2,407 12,252 14,659 5,352 35 1997(A)90,0006310 Sequence Drive Sorrento Mesa, California 2,940 4,946 60 2,941 5,005 7,946 2,591 35 2000(C)62,4156340 Sequence Drive Sorrento Mesa, California 2,434 7,302 9,964 2,464 17,236 19,700 7,432 35 1998(A)66,4006350 Sequence Drive Sorrento Mesa, California 4,941 14,824 (4,796) 4,922 10,047 14,969 4,987 35 1998(A)132,60010390 Pacific Center Court Sorrento Mesa, California 3,267 5,779 7,501 3,267 13,280 16,547 4,047 35 2002(C)68,40010394 Pacific Center Court Sorrento Mesa, California 2,696 7,134 (901) 1,671 7,258 8,929 2,925 35 1998(A)59,63010398 Pacific Center Court Sorrento Mesa, California 1,947 5,152 1,317 1,222 7,194 8,416 2,475 35 1998(A)43,64510421 Pacific Center Court Sorrento Mesa, California 2,926 7,979 22,937 2,926 30,916 33,842 9,971 35 1998(A)75,89910445 Pacific Center Court Sorrento Mesa, California 2,247 5,945 246 1,809 6,629 8,438 2,656 35 1998(A)48,70910455 Pacific Center Court Sorrento Mesa, California 4,044 10,701 (2,251) 3,780 8,714 12,494 3,403 35 1998(A)90,0005717 Pacific Center Boulevard Sorrento Mesa, California 2,693 6,280 4,220 2,693 10,500 13,193 2,421 35 2001(C)67,9954690 Executive Drive UTC, California (7) 1,623 7,926 2,270 1,623 10,196 11,819 4,667 35 1999(A)47,2129455 Towne Center Drive UTC, California 3,936 3,571 3,118 4,389 7,507 1,947 35 1998(A)45,1959785 Towne Center Drive UTC, California 2,722 9,932 (1,076) 2,329 9,249 11,578 3,369 35 1999(A)75,5349791 Towne Center Drive UTC, California 1,814 6,622 1,122 2,217 7,341 9,558 2,674 35 1999(A)50,4664175 E. La Palma Avenue Anaheim, California 1,518 2,612 2,549 1,518 5,161 6,679 3,171 35 1997(A)43,2638101 Kaiser Boulevard Anaheim, California 2,369 6,180 2,063 2,377 8,235 10,612 3,946 35 1997(A)59,7902211 MichelsonIrvine, California 9,319 82,836 1,053 9,319 83,889 93,208 4,734 35 2010(A)271,556111 Pacifica Irvine, California 5,165 4,653 4,238 5,166 8,890 14,056 4,459 35 1997(A)67,496999 Town & CountryOrange, California 7,867 9,579 182 7,867 9,761 17,628 690 35 2010(A)98,551303 Second StreetSan Francisco, California 135,000(10) 63,550 154,153 13,964 63,550 168,117 231,667 10,465 35 2010(A)734,035100 First StreetSan Francisco, California 49,150 131,238 3,502 49,150 134,740 183,890 6,125 35 2010(A)466,490F - 79KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2011 Initial Cost Gross Amounts at WhichCarried at Close of Period PropertyLocation Encumb-rances Land BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)250 Brannan StreetSan Francisco, California 7,630 22,770 875 7,630 23,645 31,275 867 35 2011(A)92,948201 Third StreetSan Francisco, California 19,260 84,018 328 19,260 84,346 103,606 1,912 35 2011(A)332,076301 Brannen StreetSan Francisco, California 5,910 22,450 5,910 22,450 28,360 142 35 2011(A)74,430370 Third StreetSan Francisco, California 35 2011(A)(14 ) 4040 Civic CenterSan Rafael, California 10,210 18,029 65 10,210 18,094 28,304 469 35 2011(A)126,787601 108th AvenueBellevue, Washington 214,095 121 — 214,216 214,216 5,096 35 2011(A)488,47010220 NE Points DriveKirkland, Washington 29,395(11) 2,554 12,080 271 2,554 12,351 14,905 320 35 2011(A)49,85110230 NE Points DriveKirkland, Washington (11) 5,071 24,694 322 5,070 25,017 30,087 634 35 2011(A)98,98210210 NE Points DriveKirkland, Washington (11) 4,336 24,187 319 4,336 24,506 28,842 637 35 2011(A)84,6413933 Lake WashingtonBoulevard NEKirkland, Washington (11) 2,380 15,114 221 2,380 15,335 17,715 366 35 2011(A)46,45015050 N.E. 36th StreetRedmond, Washington 9,260 34,650 204 9,260 34,854 44,114 1,285 35 2010(A)122,103TOTAL OFFICEPROPERTIES $348,467 $464,615 $2,069,042 $594,058 $478,787 $2,648,928 $3,127,715 $647,377 11,421,112Industrial Properties: 1000 E. Ball Road Anaheim, California 838 1,984 1,266 838 3,250 4,088 3,133 35 1956/1974(C)/(A)100,0001230 S. Lewis Street Anaheim, California 395 1,489 2,488 395 3,977 4,372 3,508 35 1982(C)57,7301250 N. Tustin Avenue Anaheim, California 2,098 4,158 723 2,098 4,881 6,979 2,139 35 1998(A)84,1853125 E. Coronado Street Anaheim, California 3,669 4,341 2,172 3,669 6,513 10,182 2,519 35 1997(A)144,0003130/3150 Miraloma Anaheim, California 3,335 3,727 285 3,335 4,012 7,347 1,760 35 1997(A)144,0003250 E. CarpenterAvenue Anaheim, California 2,592 2,592 2,592 1,192 35 1998(C)41,2253340 E. La PalmaAvenue Anaheim, California 67 1,521 6,584 67 8,105 8,172 6,116 35 1966(C)153,3203355 E. La PalmaAvenue Anaheim, California 1,704 3,235 2,732 1,982 5,689 7,671 3,217 35 1999(C)98,2004123 E. La PalmaAvenue Anaheim,California 1,690 2,604 3,020 1,690 5,624 7,314 3,338 35 1997(A)70,8634155 E. La PalmaAvenue Anaheim, California 1,148 2,681 1,289 1,148 3,970 5,118 2,101 35 1997(A)74,6185115 E. La PalmaAvenue Anaheim, California 2,462 6,675 4,802 2,464 11,475 13,939 5,127 35 1997(A)286,1395325 E. Hunter Avenue Anaheim, California 1,728 3,555 940 1,728 4,495 6,223 2,348 35 1997(A)110,4871145 N. Ocean BoulevardAnaheim, California 1,171 2,224 2,827 1,304 4,918 6,222 1,423 35 1999(C)67,5001201 N. Miller Street Anaheim, California 3,620 6,875 (2,123) 2,145 6,227 8,372 3,451 35 1999(C)119,6121211 N. Miller Street Anaheim, California 2,129 4,044 4,079 3,234 7,018 10,252 2,941 35 1999(C)200,6461231 N. Miller Street Anaheim, California 2,023 3,842 3,972 1,984 7,853 9,837 2,332 35 1999(C)113,700950 W. Central Avenue Brea, California 101 1,114 675 110 1,780 1,890 789 35 1997(A)24,000F - 80KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2011 Initial Cost Gross Amounts at WhichCarried at Close of Period PropertyLocation Encumb-rances Land BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)1050 W. Central Avenue Brea, California 139 1,532 403 117 1,957 2,074 862 35 1997(A)30,0001150 W. Central Avenue Brea, California 139 1,532 206 132 1,745 1,877 821 35 1997(A)30,000895 Beacon Street Brea, California 253 2,785 407 224 3,221 3,445 1,362 35 1997(A)54,795955 Beacon Street Brea, California 177 1,950 196 172 2,151 2,323 896 35 1997(A)37,9161125 Beacon Street Brea, California 227 2,507 421 261 2,894 3,155 1,452 35 1997(A)49,178925 Lambert Road Brea, California 1,829 3,861 1,540 1,831 5,399 7,230 2,588 35 1999(C)80,0001075 Lambert Road Brea, California 1,497 3,159 1,352 1,495 4,513 6,008 2,152 35 1999(C)98,8111675 MacArthur Boulevard Costa Mesa, California 2,076 2,114 584 2,076 2,698 4,774 1,105 35 1997(A)50,84225902 Towne Center Drive Foothill Ranch, California 3,334 8,243 6,303 4,949 12,931 17,880 7,339 35 1998(C)309,68512681/12691 Pala Drive Garden Grove, California 471 2,115 3,139 471 5,254 5,725 4,971 35 1980(A)84,7007421 Orangewood Avenue Garden Grove, California 612 3,967 1,728 612 5,695 6,307 2,670 35 1997(A)82,6027091 Belgrave Avenue Garden Grove, California 486 3,092 358 505 3,431 3,936 1,601 35 1997(A)70,00012271 Industry Street Garden Grove, California 131 833 (219) 125 620 745 295 35 1997(A)20,00012311 Industry Street Garden Grove, California 168 1,070 (330) 135 773 908 376 35 1997(A)25,0007261 Lampson Avenue Garden Grove, California 318 2,022 (174) 429 1,737 2,166 767 35 1997(A)47,09212472 Edison Way Garden Grove, California 374 2,379 676 318 3,111 3,429 1,303 35 1997(A)55,57612442 Knott Street Garden Grove, California 392 2,499 2,507 356 5,042 5,398 2,338 35 1997(A)58,3032055 S.E. Main Street Irvine, California 772 2,343 596 772 2,939 3,711 1,275 35 1997(A)47,5831951 E. Carnegie Avenue Santa Ana, California 1,830 3,630 1,703 1,844 5,319 7,163 2,476 35 1997(A)100,0002525 Pullman Street Santa Ana, California 4,283 3,276 2,589 4,283 5,865 10,148 1,857 35 2002(A)103,38014831 Franklin Avenue Tustin, California 1,112 1,065 340 1,113 1,404 2,517 768 35 1997(A)36,2562911 Dow Avenue Tustin, California 1,124 2,408 797 1,124 3,205 4,329 1,319 35 1998(A)51,41017150 Von Karman Irvine, California 4,848 7,342 2,161 7,252 7,099 14,351 7,099 35 1997(A)(15 ) TOTAL INDUSTRIALPROPERTIES $—$54,770 $119,793 $65,606 $58,787 $181,382 $240,169 $95,126 3,413,354TOTAL OPERATIONSPROPERTIES $348,467$519,385 $2,188,835 $659,664 $537,574 $2,830,310 $3,367,884 $742,503 14,834,466Undeveloped land andconstruction in progress(17) $2,562(16) $212,596 $137,076 $81,134 $212,596 $218,210 $430,806 TOTAL ALL PROPERTIES $351,029(18) $731,981 $2,325,911 $740,798 $750,170 $3,048,520 $3,798,690 $742,503 14,834,466 Properties Held for Sale: 10243 Genetic Ctr Drive Sorrento Mesa, California 4,632 19,549 1,371 4,632 20,920 25,552 7,493 2001(C)102,87515004 Innovation Drive I-15 Corridor, California 1,858 — 62,527 1,858 62,527 64,385 7,412 2008(C)150,801 __________________________(1)The initial costs of buildings are depreciated over 35 years using a straight-line method of accounting; improvements capitalized subsequent to acquisition are depreciated 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 at Kilroy Airport Center, Phase IV in Long Beach, California. We hadpreviously leased this land, which is adjacent to our Office Properties at Kilroy Airport Center, Long Beach, for potential future development opportunities.F - 81(5)(5)Excludes approximately 299,000 rentable square feet as this building was under redevelopment at December 31, 2011. The cost basis is included in "Undeveloped land and construction in progress" below.(6)These properties secure a $13.3 million mortgage note.(7)These properties secure a $69.5 million mortgage note.(8)These properties secure a $71.5 million mortgage note.(9)This property secures a $29.8 million mortgage note.(10)These properties secure a $135.0 million mortgage note.(11)These properties secure a $30.2 million mortgage note.(12)Excludes approximately 98,000 rentable square feet as this building was under redevelopment at December 31, 2011. The cost basis is included in "Undeveloped land and construction in progress" below.(13)Excludes approximately 111,000 rentable square feet as this building was under redevelopment at December 31, 2011. The cost basis is included in "Undeveloped land and construction in progress" below.(14)Excludes approximately 410,000 rentable square feet as this building was under redevelopment at December 31, 2011. The cost basis is included in "Undeveloped land and construction in progress" below.(15)During the fourth quarter of 2011, we completed demolition of the industrial building on this site to prepare for the possible sale of the land, since we successfully obtained entitlements to reposition this site for residential use.Our ultimate decision to sell this site and the timing of any potential future sale will depend upon market conditions and other factors.(16)Represents the principal balance of the public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of our undeveloped land parcels. The Bonds are secured byproperty tax payments.(17)Includes initial cost of redevelopment building transferred to construction in progress during the year ended December 31, 2011.(18)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $0.8 million as of December 31, 2011.The aggregate gross cost of property included above for federal income tax purposes approximated $3.4 billion as of December 31, 2011.The following table reconciles the historical cost of total real estate held for investment from January 1, 2009 to December 31, 2011: Year Ended December 31, 2011 2010 2009 (in thousands)Total real estate held for investment, beginning of year $3,216,871 $2,520,083 $2,475,596Additions during period: Acquisitions 617,923 643,776 —Improvements, etc. 84,736 86,754 47,688Total additions during period 702,659 730,530 47,688Deductions during period: Cost of real estate sold (21,052) (17,456) (3,201)Properties held for sale (89,937) — —Other (1) (9,851) (16,286) —Total deductions during period (120,840) (33,742) (3,201)Total real estate held for investment, end of year $3,798,690 $3,216,871 $2,520,083 __________________________(1)Related to the redevelopment property transferred to construction in progress during the year.The following table reconciles the accumulated depreciation from January 1, 2009 to December 31, 2011: F - 82 Year Ended December 31, 2011 2010 2009 (in thousands)Accumulated depreciation, beginning of year $672,429 $605,976 $532,769Additions during period: Depreciation of real estate 105,982 86,288 73,961Total additions during period 105,982 86,288 73,961Deductions during period: Write-offs due to sale (11,152) (3,549) (754)Properties held for sale (14,905) — —Other (1) (9,851) (16,286) —Total deductions during period (35,908) (19,835) (754)Accumulated depreciation, end of year $742,503 $672,429 $605,976 __________________________(1)Related to the redevelopment property transferred to construction in progress during the year.F - 83EXHIBIT INDEX ExhibitNumber Description3.(i)1 Kilroy Realty Corporation Articles of Restatement (37)3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P. (38)3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (38)3.(ii).1 Second Amended and Restated Bylaws of the Registrant (29)3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws (33)3.(ii).3 Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of March 5, 2004 (2)3.(ii).4 First Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as of December 7, 2004(8)3.(ii).5 Second Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated as of October 2, 2008(32)3.(ii).6 Third Amendment to Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. (34)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 ten percent of thetotal assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees to furnishcopies of these agreements to the Commission upon request4.8 Note and Guarantee Agreement dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and thepurchasers 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 (22)4.12† Amendment to Kilroy Realty 2006 Incentive Award Plan (24)4.13† Second Amendment to Kilroy Realty 2006 Incentive Award Plan (28)4.14† Third Amendment to Kilroy Realty 2006 Incentive Award Plan (33)4.15† Form of Restricted Stock Award Agreement (23)4.16 Indenture, dated as of April 2, 2007, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 3.250% Exchangeable Senior Notes due 2012 (26)4.17 Registration Rights Agreement, dated April 2, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation, and J.P. Morgan SecuritiesInc., Banc of America Securities LLC and Lehman Brothers Inc. (26)4.18 Indenture, dated as of November 20, 2009, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee, including the form of 4.25% Exchangeable Senior Notes due 2014 and the form of relatedguarantee (35)4.19 Registration Rights Agreement, dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. Morgan SecuritiesInc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (35)4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P. (38)4.21 Indenture, dated May 24, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank NationalAssociation, as trustee, including the form of 6.625% Senior Notes due 2020 and the form of the related guarantee. (39)4.22 Registration Rights Agreement, dated May 24, 2010, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. Morgan Securities Inc.,Banc of America Securities LLC and Barclays Capital Inc. (39)F - 84ExhibitNumber Description4.23† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan (40)4.24 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of related guarantee. (41)4.25 Indenture, dated March 1, 2011, by and among Kilory Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee(45)4.26 Supplemental Indenture, dated July 5, 2011, among Kilory Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee(46)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 parties named 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 for Kilroy LongBeach Phase I (9)10.10 First Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and the City of LongBeach 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 for Kilroy Long BeachPhase III (10)10.12 Lease Agreement dated April 21, 1988 by and between Kilroy Long Beach Associates and the Board of Water Commissioners of the Cityof Long Beach, acting for and on behalf of the City of Long Beach, for Long Beach Phase IV(10)10.13 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase II (10)10.14 First Amendment to Lease dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach for KilroyLong Beach Phase III (10)10.15 Second Amendment to Lease Agreement dated December 28, 1990 by and between Kilroy Long Beach Associates and the City of LongBeach 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 the City of LongBeach 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 the City of LongBeach 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 Long Beach (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 Land Company, 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 Partners and KilroyRealty, L.P. (13)10.29 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997 by and between Kilroy Realty L.P. and Pullman CarnegieAssociates (14)F - 85ExhibitNumber Description10.30 Amendment to Purchase and Sale Agreement and Escrow Instructions dated June 27, 1997 by and between Pullman Carnegie Associatesand Kilroy Realty, L.P. (14)10.31 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions dated May 12, 1997 by and between Shidler WestAcquisition 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 andbetween 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 dated June 12, 1997 by andbetween 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 of America, Inc. andKilroy Realty, L.P. (14)10.35 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated June 30, 1997 by and between Mazda Motor ofAmerica, 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 and between SantaMonica 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. and MissionSquare Partners (16)10.38 First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated July 10, 1997 by and between Kilroy 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 and between KilroyRealty, 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 between 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 and between KilroyRealty, 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 between Kilroy 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 between Kilroy 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 and between KilroyRealty, 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 and between KilroyRealty, 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 between 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 and The Allen Groupand the Allens (17)10.48 Purchase and Sale Agreement and Escrow Instructions dated December 11, 1997 by and between Kilroy Realty, L.P. and Swede-CalProperties, 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 Realty Corporationand 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 Insurance Company datedJanuary 10, 2002 (20)10.51 Secured Promissory Notes and Deeds of Trust Aggregating $115 million payable to Teachers Insurance and Annuity Association ofAmerica (21)10.57† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. effective as of January 1,2007 (25)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 (36)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 (36)10.60† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of January 1,2007 (25)F - 86ExhibitNumber Description10.61† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawkeneffective as of December 31, 2009 (36)10.62† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr. effective as of January1, 2007 (25)10.63† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Richard E. Moran Jr.effective as of December 31, 2009 (36)10.64 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank, NationalAssociation, London Branch (26)10.65 Letter confirmation dated March 27, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (26)10.66 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch (27)10.67 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N.A. (27)10.68† Kilroy Realty Corporation 2007 Deferred Compensation Plan (30)10.71† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1, 2007(30)10.72† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effectiveas of December 31, 2009 (36)10.73† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007 (30)10.74† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective asof December 31, 2009 (36)10.75† Kilroy Realty Corporation Stock Award Deferral Program (31)10.76 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (35)10.77 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (35)10.78 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (35)10.79 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A. (35)10.80† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (37)10.81† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P. and Kilroy RealtyCorporation (37)10.82 Deed of Trust and Security Agreement dated January 26, 2010 between Kilroy Realty, L.P. and The Northwestern Mutual Life InsuranceCompany; related Promissory Note dated January 26, 2010 for $71 million payable to The Northwestern Mutual Life InsuranceCompany; and related Guarantee of Recourse Obligations dated January 26, 2010 by Kilroy Realty Corporation (37)10.83 Agreement of Purchase and Sale and Joint Escrow Instructions dated April 12, 2010 by and between Kilroy Realty, L.P, a Delawarelimited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company (42)10.84 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated May 21, 2010 by and between Kilroy Realty,L.P, a Delaware limited partnership, and MEPT 303 Second Street LLC, a Delaware limited liability company (42)10.85 Revolving Credit Agreement dated August 10, 2010 (43)10.86 Guaranty of Payment dated August 10, 2010 (43)10.87 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC(44)10.88 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC (44)10.89 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P. (44)10.90 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC(44)F - 87ExhibitNumber Description10.91 First Amendment to Revolving Credit Agreement, dated June 22, 2011(47)10.92 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Barclays Capital Inc.(48)10.93 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Wells Fargo Securities, LLC(48)10.94 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Merrill Lynch, Pierce, Fenner &Smith Incorporated(48)10.95 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and J.P. Morgan Securities LLC(48)12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined FixedCharges and Preferred Dividends of Kilroy Realty Corporation12.2* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges of Kilroy Realty, L.P.21.1* List of Subsidiaries of Kilroy Realty Corporation21.2* List of Subsidiaries of Kilroy Realty, L.P.23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P.24.1* Power of Attorney (included on the signature page of this Form 10-K)31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation31.3* 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 Corporation32.2* Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation32.3* 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, 2011, formattedin XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii)Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Capital, (v) Consolidated Statements of Cash Flows and(vi) Notes to the Consolidated Financial Statements. (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 orF - 88prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject toliability under these sections.(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.F - 89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 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 28,2006.(23)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.(24)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2006.(25)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.(26)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.(27)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.(28)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2007.(29)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.(30)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007.(31)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.(32)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2008.(33)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.(34)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2009.(35)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.(36)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2008.(37)Previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009.F - 90(38)Previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commissionon August 18, 2010.(39)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.(40)Previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S−8 as filed with the Securities and Exchange Commission on June11, 2010.(41)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 on November4, 2010.(42)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.(43)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.(44)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 on January 13,2011.(45)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit the Registration Statement on Form S-3 as filed with the Securities and ExchangeCommission on March 1, 2011.(46)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 6, 2011.(47)Previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 23, 2011.F - 91(48)Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 28, 2011.F - 92Exhibit 12.1KILROY REALTY CORPORATIONStatement of Computation of Ratio of Earnings to Fixed Charges(in thousands, except ratios) Year Ended December 31, 2011 2010 2009 2008 2007Earnings: Income from continuing operations $5,059 $10,302 $28,032 $40,972 $39,496Plus Fixed Charges: Interest expense (including amortization of loan costs) 89,409 59,941 46,119 45,346 40,762Capitalized interest and loan costs 9,130 10,015 9,683 18,132 19,516Estimate of interest within rental expense 1,481 997 871 871 871Distributions on Cumulative Redeemable Preferred units 5,588 5,588 5,588 5,588 5,588Fixed Charges 105,608 76,541 62,261 69,937 66,737Plus: Amortization of capitalized interest (1) 4,622 4,348 4,067 3,669 3,132Less: Capitalized interest and loan costs (9,130) (10,015) (9,683) (18,132) (19,516)Less: Distributions on Cumulative Redeemable Preferred units (5,588) (5,588) (5,588) (5,588) (5,588)Earnings 100,571 75,588 79,089 90,858 84,261 Combined Fixed Charges and Preferred Dividends: Fixed Charges (from above) 105,608 76,541 62,261 69,937 66,737Preferred Dividends 9,608 9,608 9,608 9,608 9,608Combined Fixed Charges and Preferred Dividends $115,216 $86,149 $71,869 $79,545 $76,345Consolidated ratio of earnings to fixed charges 0.95x 0.99x 1.27x 1.30x 1.26xConsolidated ratio of earnings to combined fixed charges andpreferred dividends 0.87x 0.88x 1.10x 1.14x 1.10xDeficiency $14,645 $10,561 ________________________(1)Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis of total interest costs andloan 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 before the effect ofnoncontrolling interest plus fixed charges and amortization of capital interest, reduced by capitalized interest and loan costs and distributions on cumulative redeemable preferredunits. Fixed charges consist of interest costs, whether expensed or capitalized, amortization of loan costs, an estimate of the interest within rental expense, and distributions oncumulative 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 and preferred dividends.Earnings consist of income from continuing operations before the effect of noncontrolling interest plus fixed charges and amortization of capitalized interest, reduced by capitalizedinterest and loan costs and distributions on Series A cumulative redeemable preferred units. Fixed charges consist of interest costs, whether expensed or capitalized, amortizationof loan costs, an estimate of the interest within rental expense, and distributions on Series A cumulative 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, 2011 2010 2009 2008 2007Earnings: Income from continuing operations $5,059 $10,302 $28,032 $40,972 $39,496Plus Fixed Charges: Interest expense (including amortization of loan costs) 89,409 59,941 46,119 45,346 40,762Capitalized interest and loan costs 9,130 10,015 9,683 18,132 19,516Estimate of interest within rental expense 1,481 997 871 871 871Fixed Charges 100,020 70,953 56,673 64,349 61,149Plus: Amortization of capitalized interest (1) 4,622 4,348 4,067 3,669 3,132Less: Capitalized interest and loan costs (9,130) (10,015) (9,683) (18,132) (19,516)Earnings $100,571 $75,588 $79,089 $90,858 $84,261 Ratio of earnings to fixed charges 1.01x 1.07x 1.40x 1.41x 1.38x________________________(1)Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis of total interest costs andloan 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 before the effect ofnoncontrolling interest plus fixed charges and amortization of capital interest and reduced by capitalized interest and loan costs. Fixed charges consist of interest costs, whetherexpensed or capitalized, amortization of loan costs and an estimate of the interest within rental expense.Exhibit 21.1SUBSIDIARIES OF KILROY REALTY CORPORATIONNAME OF SUBSIDIARYOR ORGANIZATION STATE OF INCORPORATIONOR FORMATIONKilroy Realty, L.P. DelawareKilroy Realty Finance, Inc. DelawareKilroy Realty Finance Partnership, L.P. 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 DelawareKR Liberty 901, LLC DelawareKR Liberty 903, LLC DelawareKR Liberty 905, LLC DelawareExhibit 21.2SUBSIDIARIES OF KILROY REALTY, L.P.NAME OF SUBSIDIARYOR ORGANIZATION STATE OF INCORPORATIONOR FORMATIONKilroy Realty Finance Partnership, L.P. 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 DelawareKR Liberty 901, LLC DelawareKR Liberty 903, LLC DelawareKR Liberty 905, LLC DelawareExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-172560, 333-165117, 333-153583, and 333-144190 on Forms S-3 andRegistration Statement Nos. 333-43227, 333-77739, 333-135385, 333-161954 and 333-167452 on Forms S-8 of our reports dated February 8, 2012, relatingto the financial statements and financial statement schedules of Kilroy Realty Corporation and the effectiveness of Kilroy Realty Corporation's internal controlover financial reporting, appearing in this Annual Report on Form 10-K of Kilroy Realty Corporation for the year ended December 31, 2011./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-172560-01 on Form S-3 of our reports dated February 8, 2012, 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, 2011./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 8, 2012Exhibit 31.1Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, 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 thisreport;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; andd.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; andb.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. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerDate: February 8, 2012Exhibit 31.2Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, 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 thisreport;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; andd.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; andb.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. /s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerDate: February 8, 2012Exhibit 31.3Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of2002I, 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 thisreport;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; andd.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; andb.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. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P.Date: February 8, 2012Exhibit 31.4Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of2002I, 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 thisreport;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; andd.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; andb.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. /s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P.Date: February 8, 2012Exhibit 32.1Certification of Chief Executive OfficerPursuant 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 year ended December 31, 2011 (the “Report”) fully complies withthe 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 theCompany. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive Officer Date: February 8, 2012The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate 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 Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained insuch filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2Certification of Chief Financial OfficerPursuant 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 year ended December 31, 2011 (the “Report”) fully complies withthe 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 theCompany. /s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial Officer Date: February 8, 2012The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate 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 Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained insuch filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.3Certification of Chief Executive OfficerPursuant 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 year ended December 31, 2011 (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 theOperating Partnership. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date: February 8, 2012The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporationlanguage contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership andwill be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.4Certification of Chief Financial OfficerPursuant 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 year ended December 31, 2011 (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 theOperating Partnership. /s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date: February 8, 2012The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporationlanguage contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership andwill be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

Continue reading text version or see original annual report in PDF format above