Kilroy Realty
Annual Report 2012

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, 2012OR£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 Corporation6.875% Series G Cumulative RedeemablePreferred Stock, $.01 par valueNew York Stock ExchangeKilroy Realty Corporation6.375% Series H 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 shares of common stock held by non-affiliates of Kilroy Realty Corporation was approximately $2,382,187,648based on the quoted closing price on the New York Stock Exchange for such shares on June 30, 2012.The aggregate market value of the voting and non-voting common units of limited partnership interest held by non-affiliates of Kilroy Realty, L.P. was approximately$12,415,519 based on the quoted closing price on the New York Stock Exchange for Kilroy Realty Corporation shares on June 30, 2012.As of February 11, 2013, 74,895,990 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 2013 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, 2012 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, 2012, the Companyowned an approximate 97.6% common general partnership interest in the Operating Partnership. The remaining approximate 2.4% 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 that 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 publicly-traded equity. Except for net proceeds from equity issuances by the Company, which the Company is required to contribute to the Operating Partnership inexchange for units of partnership interest, the Operating Partnership generates the capital required by the Company's business through the OperatingPartnership's operations, by the Operating Partnership's incurrence of indebtedness or through the issuance of units of partnership interest. Noncontrolling interests and stockholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of 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, to the extent not held by the Company, as noncontrolling interests in the Company's financialstatements. The Operating Partnership's financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P. a Delaware limitedpartnership (the “Finance Partnership”). This noncontrolling interest represents the Company's 1% indirect general partnership interest in the FinancePartnership, which is directly held by Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company. The differences between stockholders' equity,partners' capital and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership, and in theCompany's noncontrolling interest in the Finance Partnership. 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;1◦Note 10, Stockholders' Equity of the Company;◦Note 11, Preferred and Common Units of the Operating Partnership;◦Note 19, Net Income Available to Common Stockholders Per Share of the Company;◦Note 20, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;◦Note 22, Quarterly Financial Information of the Company (Unaudited);◦Note 23, Quarterly Financial Information of the Operating Partnership (Unaudited);◦Note 25, Pro Forma Results of the Company (Unaudited); and◦Note 26, 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. §1350.2TABLE OF CONTENTS PART I PageItem 1. Business4Item 1A. Risk Factors11Item 1B. Unresolved Staff Comments22Item 2. Properties23Item 3. Legal Proceedings33Item 4. Mine Safety Disclosures33 PART II Item 5. Market for Kilroy Realty Corporation's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities34 Market for Kilroy Realty, L.P.'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities34Item 6. Selected Financial Data - Kilroy Realty Corporation36 Selected Financial Data - Kilroy Realty, L.P.38Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations40Item 7A. Quantitative and Qualitative Disclosures About Market Risk74Item 8. Financial Statements and Supplementary Data75Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure75Item 9A. Controls and Procedures75Item 9B. Other Information79 PART III Item 10. Directors, Executive Officers and Corporate Governance79Item 11. Executive Compensation79Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters79Item 13. Certain Relationships and Related Transactions, and Director Independence79Item 14. Principal Accountant Fees and Services79 PART IV Item 15. Exhibits and Financial Statement Schedules80 SIGNATURES87 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”).4ITEM 1.BUSINESSThe CompanyWe are a self-administered REIT active in office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consistingprimarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle,which we believe have strategic advantages and strong barriers to entry. Class A properties encompass attractive and efficient buildings of high quality that areattractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. Wequalify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code").Our portfolio of operating properties was comprised of the following office buildings at December 31, 2012. Number ofBuildingsRentableSquare FeetNumber ofTenantsPercentage OccupiedOffice Properties114 13,249,780 530 92.8% During the fourth quarter of 2012 we disposed of our entire portfolio of 39 industrial properties and, as a result, no longer owned any industrial propertiesat December 31, 2012.Our stabilized portfolio includes all of our properties with the exception of undeveloped land, development and redevelopment properties currently underconstruction or committed for construction, “lease-up” properties and properties held-for-sale. 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 defineredevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildingspursuant to a formal plan, the intended result of which is a higher economic return on the property. Our stabilized portfolio also excludes our futuredevelopment pipeline, which is comprised of nine potential development sites, including one office property moved from the stabilized portfolio to thedevelopment pipeline in the fourth quarter of 2012, representing 118.5 gross acres of undeveloped land.As of December 31, 2012, the following properties were excluded from our stabilized portfolio: Number of Properties Estimated Rentable Square Feet (1)Development properties under construction4 1,416,000Redevelopment properties under construction1 410,000Lease-up properties1 98,000________________________(1) Estimated rentable square feet upon completion.As of December 31, 2012, all of our properties and development and redevelopment projects are owned and all of our business is currently conducted inthe state of California with the exception of ten office properties located in the state of Washington. We had no properties held-for-sale as of December 31, 2012.We own our interests in all of our office properties through the Operating Partnership and the Finance Partnership. We conduct substantially all of ouroperations through the Operating Partnership of which we owned a 97.6% general partnership interest as of December 31, 2012. The remaining 2.4% commonlimited partnership interest was owned by certain of our directors and executive officers and non-affiliated investors. Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% general partnership interest. The OperatingPartnership owns 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'ssubsidiaries are wholly-owned.5The following diagram illustrates our organizational structure as of December 31, 2012:6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; and•Nominating / Corporate Governance Committee Charter.You may request copies of any of these documents by writing to:Attention: Investor RelationsKilroy Realty Corporation12200 West Olympic Boulevard, Suite 200Los Angeles, California 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, constructionand development management;•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, development or redevelopment;•our strong financial position that has and will continue to allow us to pursue attractive acquisition and development 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 65-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 2012 property dispositions); and•our future development pipeline of undeveloped land sites.“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 to 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;•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, including the first LEED Platinum ground-up commercial development in SanFrancisco at 350 Mission Street;•actively pursuing LEED certification for over 3.2 million square feet of office space within our existing portfolio;•aggressively pursuing high-performance environmental building initiatives that create economic value for our tenants, shareholders and employees;•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 regional 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 and development and redevelopment opportunities as the result of ourextensive experience, strong financial position, and ability to access capital. We continue to actively monitor our target markets and focus on acquiringadditional high quality office properties and development and redevelopment opportunities 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, 2012, our future development pipeline was comprised of nine potential development sites, representing 118.5 gross acres ofundeveloped land on which we believe we have the potential to develop over two million rentable square feet of office space, depending upon economicconditions. Our strategy with respect to development is to:•maintain a disciplined approach by emphasizing pre-leasing, commencing development in stages, or phasing, and 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 modern and collaborative 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;•evaluate redevelopment opportunities in supply-constrained markets because such efforts generally achieve similar returns to new development withreduced entitlement risk and shorter construction periods; and•execute on our development projects under construction and our future development pipeline.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 in8the additional development or redevelopment of office properties when market conditions support a favorable risk−adjusted return on such development orredevelopment. We expect that our significant working relationships with tenants, municipalities, and landowners on the West Coast will give us furtheraccess to development and redevelopment opportunities. We cannot assure you that we will be able to successfully develop or redevelop any of our properties orthat we will have access to additional development or redevelopment opportunities.Financing Strategies. Our financing policies and objectives are determined by our board of directors. Our goal is to limit our dependence on leverageand maintain a conservative ratio of debt-to-total market capitalization. As of December 31, 2012, our total debt as a percentage of total market capitalizationwas 34.7%, and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 38.1%, both of which werecalculated based on the quoted closing price per share of the Company's common stock of $47.37 on December 31, 2012 (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 limit risk exposure at anyparticular 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, 2012, our 15 largest tenants in terms of annualized base rental revenues represented approximately 34.1% of our total annualized baserental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, 2012. Annualized base rental revenue includes theimpact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenuerelated tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expensereimbursement revenue.For further information on our 15 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 and other commercial real estate, many of which own properties similar toours in the same submarkets in which our properties are located. For further discussion of the potential impact of competitive conditions on our business, see“Item 1A: Risk Factors”.Segment and Geographic Financial InformationFor the year ended December 31, 2012, we only had one segment, our office properties segment. During the fourth quarter of 2012, we sold our entireportfolio of industrial properties and, as a result, no longer owned any industrial properties at December 31, 2012. For information about our office propertyrevenues and long-lived assets and other financial information, see Note 18 to our consolidated financial statements included in this report and “Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations -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 ten office properties located in the state of Washington.9EmployeesAs of December 31, 2012, we employed 201 people through the Operating Partnership, KSLLC, and Kilroy Realty TRS, Inc. We believe that relationswith our employees are good.Environmental Regulations and Potential LiabilitiesGovernment Regulation Relating to the Environment. Many laws and governmental regulations relating to the environment are applicable to ourproperties, and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently and may adversely affect us.Existing conditions at some of our properties. Independent environmental consultants have conducted Phase I or 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 required. We are not aware of any such condition, liability, or concern by any other meansthat would give rise to material environmental liability. However, the assessments may have failed to reveal all environmental conditions, liabilities, orcompliance concerns; there may be material environmental conditions, liabilities, or compliance concerns that arose at a property after the review wascompleted; future laws, ordinances, or regulations may impose material additional environmental liability; and environmental conditions at our properties maybe affected in the future by tenants, third parties, or the condition of land or operations near our properties, such as the presence of underground storage tanks.We cannot be certain that costs of future environmental compliance will 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 satisfy our 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 31,2012, other than routine cleaning materials, approximately 5% of our tenants handled hazardous substances and/or wastes on less than 4% of the aggregatesquare footage of our properties as part of their routine operations. These tenants are primarily involved in the life sciences business. The hazardoussubstances and wastes are primarily comprised of diesel fuel for emergency generators and small quantities of lab and light manufacturing chemicalsincluding, but not limited to, alcohol, ammonia, carbon dioxide, cryogenic gases, dichlorophenol, methane, naturalyte acid, nitrogen, nitrous oxide, andoxygen which are routinely used by life science companies. We are not aware of any material noncompliance, liability, or claim relating to hazardous or toxicsubstances or petroleum products in connection with any of our properties, and management does not believe that on-going activities by our tenants will have amaterial 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 or transactional indemnities. We carry what we believeto be commercially reasonable environmental insurance. Our environmental insurance policies are subject to various terms, conditions and exclusions.Similarly, in connection with some transactions we obtain environmental indemnities that may not be honored by the indemnitors or may fail to addressresulting liabilities adequately. Therefore, we cannot provide any assurance that our insurance coverage or transactional indemnities will be sufficient or thatour liability, if any, will not have a material adverse effect on our financial condition, results of operations, cash flows, quoted trading price of our securities,and our ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.10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 United States,market and economic conditions continue to be challenging with stricter regulations 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.All of our properties are located in California and Greater Seattle, Washington and we may therefore be susceptible to adverse economicconditions and regulations, as well as natural disasters, in those areas. Because all of our properties are concentrated in California and Seattle,Washington we may be exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, ourproperties are concentrated in Los Angeles, Orange County, San Diego County, and the San Francisco Bay Area, exposing us to risks associated with thosespecific areas. We are susceptible to adverse developments in the economic and regulatory environments of California and Greater Seattle, Washington (such asbusiness layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmentalregulations or increased regulation and other factors) as well as adverse weather conditions and natural disasters that occur in these areas (such asearthquakes, wind, landslides, fires and other events). In addition, California is also regarded as more litigious and more highly regulated and taxed thanmany other states, which may reduce demand for office space in California.Any adverse developments in the economy or real estate market in California and the surrounding region, or in Seattle, Washington or any decreasein demand for office space resulting from the California or Seattle regulatory or business environment could impact our ability to generate revenues sufficientto meet our operating expenses or other obligations, which would adversely impact our financial condition, results of operations, cash flows, the quotedtrading price of the Company's common stock and of the Operating Partnership's publicly-traded notes and our ability to satisfy our debt service obligationsand 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 or other commercial space, which may result in decreasing rental rates and greaterconcessions 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;11•changing submarket demographics;•the development of harmful mold or other airborne toxins or contaminants that could damage our properties or expose us to third-party liabilities;and•property damage resulting from seismic activity or other natural disasters. We depend upon significant tenants and the loss of a significant tenant could adversely affect our financial condition, revenues and results ofoperations. As of December 31, 2012, our 15 largest tenants represented approximately 34.1% of total annualized base rental revenues. See further discussionon the composition of our tenants by industry and our largest tenants under “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, 2012, we derived approximately 99.2% 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, 2012, as a percentage of our annualized base rental revenue, 36% of our tenantsoperated in the technology and media industry, 19% in the finance, insurance and real estate industry, 15% in the professional, business and other servicesindustry, and 11% in the education and health services industry (of which approximately 5% are in the for profit education sector). As we expand ouracquisition and development activities in markets populated by high growth tenants in the technology and media industry, our tenant mix may become moreconcentrated, further exposing us to risks associated with that industry. For a further discussion of the composition of our tenants by industry, see “Item 2:Properties—Significant Tenants.” An economic downturn in any of these industries, or in any industry in which a significant number of our tenants currentlyor may in the future operate, could negatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or defaulton lease obligations, fail to renew their leases or renew their leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable tosatisfy their obligations to us. As a result, a downturn in an industry in which a significant number of our tenants operate could adversely affect our financialconditions and result of operations.We may be unable to renew leases or re-lease available space. We had office space representing approximately 7.2%, of the total square footage ofour properties that was not occupied as of December 31, 2012. In addition, leases representing approximately 7.1% and 10.4% of the leased rentable squarefootage of our properties are scheduled to expire in 2013 and 2014, respectively. Above market rental rates on some of our properties may force us to renew orre-lease expiring leases at rates below current lease rates. As of December 31, 2012, we believe that the weighted average cash rental rates for our overallportfolio, including recently acquired properties, are approximately at the current average quoted market rental rates, and weighted average cash rental rates forleases scheduled to expire during 2013 are approximately 5% below the current average quoted market rental rates, although individual properties within anyparticular submarket presently may be leased at, above, or below the current market rental rates within that submarket. We cannot provide any assurance thatleases will be renewed or that available space will be re-leased at rental rates equal to or above the current rental rates. If the average rental rates for ourproperties decrease or existing tenants do not renew their leases, 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 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,12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.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, our financial condition, results ofoperations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributionsto 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. Our level of debt and the limitations imposed by our debt agreements may have substantial consequences to us, including thefollowing: •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 security 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, 2012, we had approximately $2.0 billion aggregate principal amount of indebtedness, $90.9 million of whichis contractually due prior to December 31, 2013. Our total debt and preferred equity at December 31, 2012 represented 38.1% 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 of limited partnership interest, or common units). In January 2013, we repaid $83.1 million of the total amountcontractually due prior to December 31, 2013. In addition, on January 14, 2013, the Operating Partnership issued $300.0 million of 3.8% senior unsecurednotes due 2023 and used the proceeds from the offering to repay the remaining outstanding balance on the Operating Partnership's $500 million unsecuredrevolving credit facility. For calculation of our market capitalization and additional information on debt maturities see “Item 7: Management's Discussion andAnalysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company—Capitalization and Liquidity Uses.”The covenants in the Operating Partnership's revolving credit facility and term loan facility may limit our ability to make distributions to theholders of our common stock. The Operating Partnership's revolving credit facility and $150.0 million unsecured term loan facility contain financialcovenants that could limit the amount of distributions payable by us on our common stock and preferred stock. We rely on cash distributions we receive fromthe Operating Partnership to pay distributions on our common stock and preferred stock and to satisfy our other cash needs, and the revolving credit facilityand the term loan facility provide that the Operating Partnership may not, in any year, make partnership distributions to us or other holders of its partnershipinterests in an aggregate amount in excess of the greater of:•95% of the Operating Partnership's consolidated funds from operations (as similarly defined in each of the revolving credit facility andterm loan facility agreements) for such year; and13•an amount which results in distributions to us (excluding any preferred partnership distributions to the extent the same have been deductedfrom consolidated funds from operations for such year) in an amount sufficient to permit us to pay dividends to our stockholders that wereasonably believe are necessary to (a) maintain our qualification as a REIT for federal and state income tax purposes and (b) avoid thepayment of federal or state income or excise tax.In addition, the revolving credit facility and term loan facility provide that, if the Operating Partnership fails to pay any principal of or interest onany borrowings under the revolving credit facility or term loan facility, respectively, when due, then the Operating Partnership may make only thosepartnership distributions to us and other holders of its partnership interests necessary to enable us to make distributions to our stockholders that wereasonably believe are necessary to maintain our status as a REIT for federal and state income tax purposes. Any limitation on our ability to makedistributions to our stockholders, whether as a result of these provisions in the revolving credit facility, the term loan facility or otherwise, could have amaterial adverse effect on the market value of our common stock and preferred stock.A downgrade in our credit ratings could materially adversely affect our business and financial condition. The credit ratings assigned to the debtsecurities of the Operating Partnership and our preferred stock could change based upon, among other things, our results of operations and financialcondition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawnby a rating agency in the future if, in its judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common stock and are notrecommendations to buy, sell or hold any other securities. If any of the credit rating agencies that have rated the debt securities of the Operating Partnership orour preferred stock downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list”for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs andavailability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfyour debt service obligations and to make dividends and distributions on 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 and other commercial real estate, many of which own properties similar to ours in the same submarkets in which ourproperties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates until theiravailable space is leased. As previously mentioned, as of December 31, 2012 we believe that the weighted average cash rental rates for our overall portfolio areapproximately at 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.In order to maintain the quality of our properties and successfully compete against other properties, we must periodically spend money tomaintain, repair, and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants interms of rent, services, condition, or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates. As a result, we mayfrom time to time be required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that anysuch expenditure would result in higher occupancy or higher rental rates, or deter existing tenants from relocating to properties owned by our competitors.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. In addition, 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. We may alsodiscontinue 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. Further, if the damaged properties are subject to recourse indebtedness,we would continue to be liable for the indebtedness, even if the properties were irreparable.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, acquirer and developer of real14properties, we are subject to environmental and health and safety laws and regulations. Certain of these laws and regulations impose joint and several liability,without regard to fault, for investigation and clean-up costs on current and former owners and operators of real property and persons who have disposed of orreleased hazardous substances into the environment. At some of the properties, there are asbestos-containing materials, or tenants routinely handle hazardoussubstances as part of their operations. In addition, historical operations, including the presence of underground storage tanks, have caused soil or groundwatercontamination at or near some of the properties. Although we believe that the prior owners of the affected properties or other persons may have conductedremediation of known contamination at these properties, not all such contamination has been remediated. Unknown or unremediated contamination or thecompliance with existing or new environmental or health and safety laws and regulations could require us to incur costs or liabilities that could be material. See"Item 1: Business — Environmental Regulations and Potential Liabilities." 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 properties and undeveloped land when strategic opportunities exist. Our ability to acquire properties on favorable terms andsuccessfully 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 properties, we may be unable to complete such acquisitionsbecause they remain subject to customary conditions to closing including the completion of due diligence investigations to management'ssatisfaction;•we may be unable to finance acquisitions on favorable terms or at all;•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.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 also15have an adverse impact on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy ourdebt service obligations and to pay dividends and distributions to our security holders. While we historically have acquired, developed, and redeveloped office properties in California markets, over the past three years we have acquired tenproperties in the state of Washington 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, or with certain outside markets, which could adversely affect ourability 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, 2012, we owned eleven office buildings,located on various land parcels and regions, which we lease individually on a long-term basis. As of December 31, 2012, we had approximately 1.8 millionaggregate rentable square feet, or 13.6% of our total stabilized portfolio, of rental space located on these leased parcels. In addition, we had ground leaseobligations for the land at one redevelopment property encompassing approximately 98,000 rentable square feet. In 2012, we exercised our option to purchasethis land for a purchase price of $27.5 million and we currently expect we will close the transaction in the second quarter of 2013. If we default under theterms of any particular lease, we may lose the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiatea new lease on favorable terms, if at all. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on ourfinancial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to paydividends and distributions to our security holders.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 on our financial condition, results of operations, cash flow, 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.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 United States may have an adverse effect on our financial condition and operatingresults. Terrorist attacks in the United States and other acts of terrorism or war, may result in declining economic activity, which could harm the demand forand the value of our properties. In addition, the public perception that certain locations are at greater risk for attack, such as major airports, ports, and railfacilities, may decrease the 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-leaseour properties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties throughdamage, destruction, or loss, 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 our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honortheir existing leases.Terrorist acts and engagement in war by the United States also may adversely affect the markets in which our securities trade and may cause furthererosion of business and consumer confidence and spending and may result in increased volatility in national and international financial markets andeconomies. Any one of these events may cause a decline in the demand for our office leased space, delay the time in which our new or renovated propertiesreach stabilized 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.16The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will subject us to substantialadditional federal regulation. There are significant corporate governance and executive compensation-related requirements that have been, and will in thefuture be, imposed on publicly-traded companies under the Dodd-Frank Act. Several of these provisions require the SEC to adopt additional rules andregulations in these areas. For example, the Dodd-Frank Act requires publicly-traded companies to give stockholders a non-binding vote on executivecompensation and so-called “golden parachute” payments, heightens certain independence standards for compensation advisers and authorizes the SEC topromulgate rules that would allow stockholders to nominate their own candidates for board seats using a registrant's proxy materials. Our efforts to complywith these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management's time from otherbusiness activities. In addition, if stockholders do not vote to approve our executive compensation practices and/or our equity plan amendments, these actionsmay interfere with our ability to attract and retain key personnel who are essential to our future success. Given the uncertainty associated with both the resultsof the existing Dodd-Frank Act requirements and the manner in which additional provisions of the Dodd-Frank Act will be implemented by various regulatoryagencies and through regulations, the full extent of the impact that such requirements will have on our operations is unclear. Accordingly, the changes resultingfrom the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, or otherwise adversely affect ourfinancial condition, results of operations, cash flows, the quoted trading price of the Company's common stock and of the Operating Partnership's publicly-traded notes and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.Our property taxes could increase due to reassessment or property tax rate changes. We are required to pay some state and local taxes on ourproperties. In addition, the real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rateschange. For example, under a current California law commonly referred to as “Proposition 13,” property tax reassessment generally occurs as a result of a“change in ownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may not determine whether therehas been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know theimpact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are requiredto pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time totime voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial and industrial propertyand/or introduce split tax roll legislation. Such initiatives, if successful, would increase the assessed value and/or tax rates applicable to commercial propertyin California, including our office properties. An increase in the assessed value of our properties or our property tax rates could adversely impact our financialcondition, results of operations, cash flows, the quoted trading price of the Company's common stock and of the Operating Partnership's publicly-traded notesand our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control overfinancial reporting. The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent allerrors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internalcontrol over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all controlobjectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future couldresult in misstatements of our results of operations, restatements of our financial statements, or otherwise adversely impact our financial condition, results ofoperations, cash flows, the quoted trading price of the Company's common stock and of the Operating Partnership's publicly-traded notes and our ability tosatisfy our debt service obligations and to pay dividends and distributions to our security holders.We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptionsof our information technology (IT) networks and related systems. We face risks associated with security breaches, whether through cyber attacks or cyberintrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside ourorganization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity andsophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation ofour business and our ability to perform day-to-day operations (including managing our building systems), and, in some cases, may be critical to theoperations of certain of our tenants. There can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and relatedsystems will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significantdisruption involving our IT networks and related systems could adversely impact our financial condition, results of operations, cash flows, the quotedtrading price of the Company's common stock and of the Operating Partnership's publicly-traded notes and our ability to satisfy our debt service obligationsand to pay dividends and distributions to our security holders. 17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, Tyler H. Rose, Executive Vice President and ChiefFinancial Officer, and Justin W. Smart, Executive Vice President, Development and Construction Services, play a key role in the success of the Company.They are integral to the Company's success for many reasons, including that each has a strong national or regional reputation in our industry and investmentcommunity. In addition, they have significant relationships with investors, lenders, tenants and industry personnel, which benefit the Company. Our futureperformance will be substantially dependent on our ability to retain and motivate these individuals. The loss or limited availability of the services of our keypersonnel could materially and adversely affect our business, results of operations and financial condition and could be negatively perceived in the capitalmarkets. 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.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 Partnership'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, 2012, limited partnersowned approximately 2.4% of the Operating Partnership's partnership interests, of which 1.7% 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, 2012, they beneficially owned approximately 2.9% of the total outstanding shares of the Company'scommon stock. The percentage of outstanding shares of common stock beneficially owned includes 281,210 shares of common stock, 412,936 restrictedstock units that were vested and held by John B. Kilroy, Jr. at December 31, 2012, 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 stockholder may own, actually or constructively, more than 7.0% (by value or by number of shares, whicheveris more restrictive) of the outstanding Company common stock without obtaining a waiver from the board of directors. The board of directors has waived theownership limits with respect to John B. Kilroy, Sr., John B. Kilroy, Jr., members of their families, and some of their affiliated entities. These namedindividuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of the Company's outstanding common stock, excludingOperating Partnership units18that are exchangeable into shares of Company common stock. Consequently, Messrs. Kilroy have substantial influence on the Company, and because theCompany is the manager of the Operating Partnership, on the Operating Partnership, and could exercise their influence in a manner that is not in the bestinterest of our stockholders, noteholders or unitholders. Also, they may, in the future, have a substantial influence on the outcome of any matters submitted toour stockholders or unitholders for approval. There are restrictions on the ownership of the Company's capital stock that 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 of the Company, or the removal of existing management. Any of these actions mightprevent our security holders from receiving a premium for their common shares or common units over the then-prevailing market price of the shares of theCompany's common stock.In order for the Company to qualify as a REIT under the Code its stock must be beneficially owned by 100 or more persons during at least 335 days ofa taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year.Also, not more than 50% of the value of the outstanding shares of the Company's stock may be owned, actually or constructively, by five or fewerindividuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIThas been made). The Company's charter contains restrictions on the ownership and transfer of its capital stock that are intended to assist the Company incomplying with these requirements and continuing to qualify as a REIT. No single stockholder may own, either actually or constructively, absent a waiverfrom the board of directors, more than 7.0% (by value or by number of shares, whichever is more restrictive) of the Company's outstanding common stock.Similarly, absent a waiver from the board of directors, no single holder of the Company's 6.875% Series G Cumulative Redeemable Preferred stock (the“Series G Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of theCompany's Series G Preferred Stock; and no single holder of the Company's 6.375% Series H Cumulative Redeemable Preferred stock (the “Series HPreferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of the Company'sSeries H Preferred Stock.The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of relatedindividuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than the applicable ownership limit of aparticular class of the Company's capital stock could, nevertheless, cause that individual or entity, or another individual or entity, to constructively own stockin excess of, and thereby subject such stock to, the applicable ownership limit.The board of directors may waive the ownership limits if it is satisfied that the excess ownership would not jeopardize the Company's REIT statusand if 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., JohnB. Kilroy, Jr., members of their families, and some of their affiliated entities. These named individuals and entities may own either actually or constructively,in the aggregate, up to 19.6% of the Company's outstanding common stock, excluding common units that are exchangeable into shares of common stock. Theboard of directors has also waived the ownership limits with respect to the initial purchasers of the 4.25% Exchangeable Senior Notes due 2014 (the “4.25%Exchangeable Notes”) and certain of their affiliated entities to beneficially own up to 9.8%, in the aggregate, of the Company's common stock in connectionwith 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 excessshares will be automatically transferred to a trust for the benefit of a qualified charitable organization, and the purported transferee or owner will have no rightswith respect to those excess 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, 2012,8,000,000 shares of the Company's preferred stock were issued and outstanding, consisting of 4,000,000 shares of the Company's Series GPreferred Stock and 4,000,000 shares of the Company's Series H Preferred Stock; and19•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.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, 2012, we had approximately $2.0 billion aggregate principalamount of indebtedness outstanding, which represented 34.7% of our total market capitalization. Our total debt and the liquidation value of our preferredequity as a percentage of total market capitalization was approximately 38.1% as of December 31, 2012. In addition, on January 14, 2013, the OperatingPartnership issued $300.0 million of 3.8% senior unsecured notes due 2023. See “Item 7: Management's Discussion and Analysis of Financial Condition andResults of Operations —Liquidity and Capital Resources of the Company— Capitalization” for a calculation of our market capitalization. These ratios maybe increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debt outstanding would result in an increase in ourdebt service, which could adversely affect cash flow and our ability to pay dividends and distributions to our security holders. Higher leverage also increasesthe risk of default on our obligations and limits our ability to obtain additional financing in the future.We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable, which may 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 4.25% Exchangeable Notes. Existing security holders have nopreemptive rights to acquire any of these securities, and any issuance of equity securities under these circumstances may dilute a unitholder's or stockholder'sinvestment.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, 2012, 74,926,981 shares of the Company's common stock and 8,000,000 shares of theCompany's preferred stock, consisting of 4,000,000 shares of Series G Preferred Stock and 4,000,000 shares of Series H Preferred Stock, were issued andoutstanding. As of December 31, 2012, the Company had reserved for future issuance the following shares of common stock: 1,826,503 shares issuable upon theexchange, at the Company's option, of the Operating Partnership's common units; 639,487 shares remained available for grant under our 2006 IncentiveAward Plan (see Note 12 to our consolidated financial statements); 1,048,863 shares issuable upon settlement of RSUs; and 1,540,000 shares issuable uponexercise of outstanding options, as well as 4,800,796 shares potentially issuable under certain circumstances, in exchange for the 4.25% Exchangeable Notes.The Company has a currently effective registration statement registering 1,708,131 shares of our common stock for possible issuance to the holders of theOperating Partnership's common units. That registration statement also registers 306,808 shares of common stock held by certain stockholders for possibleresale. The Company also has a currently effective registration statement registering the 4,800,796 shares of our common stock that may potentially be issuedin exchange for the Operating Partnership's presently outstanding 4.25% Exchangeable Notes. Consequently, if and when the shares are issued, they may befreely traded in the public markets.Risks Related to Taxes and 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 it to qualify as a REIT for federal income tax purposes under the Code. If the Company wereto lose its REIT status, the Company would face adverse tax consequences that would substantially reduce the funds available for distribution to itsstockholders for each of the years involved because: •the Company would not be allowed a deduction for dividends paid to its stockholders in computing the Company's taxable income and wouldbe subject to federal income tax at regular corporate rates;•the Company could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and20•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.In addition, if the Company failed to qualify as a REIT, it would not be required to make distributions to its stockholders. As a result of all thesefactors, the Company's failure to qualify as a REIT also could impair our ability to expand our business and raise capital and could adversely affect the valueand 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 the Company, holds its assets through a partnership. The determination of various factual matters and circumstancesnot entirely within 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 theCompany's gross income in any year must be derived from qualifying sources. Also, the Company must make distributions to its stockholders aggregatingannually at least 90% of the Company's net taxable income (excluding any net capital gains). In addition, legislation, new regulations, administrativeinterpretations, 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 the Company has qualified or will continue to qualify as aREIT for tax purposes. We have not requested and do not plan to request a ruling from the IRS regarding the Company's qualification as a REIT. To maintain the Company's REIT status, we may be forced to borrow funds during unfavorable market conditions. To qualify as a REIT, theCompany generally must distribute to its stockholders at least 90% of the Company's net taxable income each year (excluding any net capital gains), and theCompany will be subject to regular corporate income taxes to the extent that it distributes less than 100% of its net taxable income each year. In addition, theCompany will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions it pays in any calendar year are less than the sum of85% of its ordinary income, 95% of its net capital gains, and 100% of its undistributed income from prior years. To maintain the Company's REIT statusand avoid the payment of federal income and excise taxes, the Operating Partnership may need to borrow funds and distribute or loan the proceeds to theCompany so it can meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. Theseborrowing needs could result from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes, or theeffect of nondeductible capital expenditures, the creation of reserves, or required debt or amortization payments.If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences. From time totime we dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges. If the qualification of a transaction as a Section 1031Exchange is successfully challenged and determined to be currently taxable, we generally would be required to pay taxes on any gain recognized upon thedisposition of the property, including any interest and penalties, for the particular year in question, to the extent such amounts were not otherwise distributed toour stockholders. In such case, we would have less cash available to distribute to our stockholders and may be required to borrow funds in unfavorableconditions in order to pay such amounts. In addition, we may be required to amend our tax returns for the applicable year in question, including anyinformation reports we sent to our stockholders.Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends. “Qualifieddividends” payable to U.S. stockholders that are individuals, trusts and estates generally are subject to tax at preferential rates. Subject to limited exceptions,dividends payable by REITs are not eligible for these reduced rates and are taxable at ordinary income tax rates. The more favorable rates applicable to regularcorporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive thaninvestments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the shares ofour capital stock.The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated assales for federal income tax purposes. A REIT's net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactionsare sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although wedo not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale ordisposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS wouldagree with our characterization of our properties or that we will always be able to make use of the available safe harbors.21Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. Toqualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the natureand diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. If we fail to comply with one or moreof the asset tests at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certainstatutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. In order to meet these tests, we may be required toforego investments we might otherwise make or to liquidate otherwise attractive investments. Thus, compliance with the REIT requirements may hinder ourperformance and reduce amounts available for distribution to our stockholders.Legislative or regulatory action could adversely affect us. In recent years, numerous legislative, judicial and administrative changes have beenmade to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in thefuture, and any such changes may impact our ability to qualify as a REIT, our tax treatment as a REIT or the tax treatment of our stockholders.ITEM 1B.UNRESOLVED STAFF COMMENTSNone. 22ITEM 2.PROPERTIESGeneralAs of December 31, 2012, our stabilized portfolio of properties was comprised of the following office properties. Number ofBuildingsRentableSquare FeetNumber ofTenantsPercentage Occupied at December31, 2012Office Properties114 13,249,780 530 92.8%During the fourth quarter of 2012 we disposed of our entire portfolio of industrial properties and, as a result, no longer owned any industrial properties atDecember 31, 2012 (see Note 17 to our consolidated financial statements included in this report for additional information).Our stabilized portfolio includes all of our properties with the exception of undeveloped land, development and redevelopment properties currently underconstruction or committed for construction, “lease-up” properties and properties held-for-sale. 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 defineredevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildingspursuant to a formal plan, the intended result of which is a higher economic return on the property. Our stabilized portfolio also excludes our futuredevelopment pipeline, which is comprised of nine potential development sites, including one office property moved from the stabilized portfolio to thedevelopment pipeline in the fourth quarter of 2012, representing 118.5 gross acres of undeveloped land.As of December 31, 2012, the following properties were excluded from our stabilized portfolio: Number of Properties Estimated Rentable Square Feet (1)Development properties under construction4 1,416,000Redevelopment properties under construction1 410,000Lease-up properties1 98,000________________________(1) Estimated rentable square feet upon completion.As of December 31, 2012, all of our properties and development and redevelopment projects are owned and all of our business is currently conducted inthe state of California with the exception of ten office properties located in the state of Washington. We own all of our properties through the OperatingPartnership and the Finance Partnership. All our properties are held in fee, except for the 11 office buildings that are held subject to long-term ground leases forthe land (See Note 15 to our consolidatedfinancial statements included in this report for additional information regarding our ground lease obligations). We had no properties held-for-sale as ofDecember 31, 2012.In general, the office properties are leased to tenants on a full service gross, modified gross or triple net basis. Under a full service gross lease, we areobligated to pay the tenant’s proportionate share of real estate taxes, insurance, and operating expenses up to the amount incurred during the tenant’s first yearof occupancy (“Base Year”) or a negotiated amount approximating the tenant’s pro- rata share of real estate taxes, insurance, and operating expenses (“ExpenseStop”). The tenant pays its pro-rata share of increases in expenses above the Base Year or Expense Stop. A modified gross lease is similar to a full servicegross lease, except tenants are obligated to pay their proportionate share of certain operating expenses, usually electricity, directly to the service provider. Inaddition, some office properties, primarily in the greater Seattle region, are leased to tenants on a triple net basis, pursuant to which the tenants pay theirproportionate share of real estate taxes, 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, 2012, we managed all ofour properties through internal property managers.23Office PropertiesThe following table sets forth certain information relating to each of the stabilized office properties owned as of December 31, 2012.Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/12(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)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% 3,162 34.7424025 Park Sorrento,Calabasas, California1 2000 102,264 74.9% 2,821 36.8126541 Agoura RoadCalabasas, California1 1988 90,156 100.0% 1,628 18.062240 E. Imperial Highway,El Segundo, California1 1983/2008 122,870 100.0% 4,458 36.282250 E. Imperial Highway,El Segundo, California1 1983 298,728 100.0% 10,144 34.292260 E. Imperial Highway,El Segundo, California1 1983/2012 298,728 100.0% 10,405 34.83909 Sepulveda Blvd.,El Segundo, California1 1972/2005 241,607 89.8% 5,609 26.27999 Sepulveda Blvd.,El Segundo, California1 1962/2003 128,504 94.4% 2,768 24.403750 Kilroy Airport Way,Long Beach, California(4)1 1989 10,457 86.1% 99 18.173760 Kilroy Airport Way,Long Beach, California1 1989 165,278 92.7% 4,379 28.853780 Kilroy Airport Way,Long Beach, California1 1989 219,745 92.2% 5,589 28.153800 Kilroy Airport Way,Long Beach, California1 2000 192,476 100.0% 5,538 28.773840 Kilroy Airport Way,Long Beach, California1 1999 136,026 100.0% 4,915 36.133900 Kilroy Airport Way,Long Beach, California1 1987 126,840 90.9% 2,588 23.6212100 W. Olympic Blvd.,Los Angeles, California1 2003 150,167 92.3% 5,392 38.9012200 W. Olympic Blvd.,Los Angeles, California1 2000 150,302 99.7% 4,504 39.3912233 W. Olympic Blvd.,Los Angeles, California(21)1 1980/2011 151,029 96.8% 2,580 48.1812312 W. Olympic Blvd,Los Angeles, California(3)1 1950/1997 78,000 100.0% 1,475 18.916255 W. Sunset Blvd,Los Angeles, California1 1971/1999 321,883 85.2% 7,911 30.261633 26th Street,Santa Monica, California1 1972/1997 44,915 100.0% 1,271 28.302100/2110 Colorado Avenue,Santa Monica, California3 1992/2009 102,864 100.0% 3,846 37.393130 Wilshire Blvd.,Santa Monica, California1 1969/1998 88,339 76.5% 2,329 34.48501 Santa Monica Blvd.,Santa Monica, California1 1974 73,115 85.1% 2,201 40.312829 Townsgate Road,Thousand Oaks, California1 1990 81,067 90.6% 1,977 27.46Subtotal/Weighted Average—Los Angeles and Ventura Counties27 3,487,741 94.0% 98,010 31.66San Diego County 12225 El Camino Real,Del Mar, California(5)1 1998 60,148 73.4% 1,472 33.3624Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/12(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)12235 El Camino Real,Del Mar, California(5)1 1998 54,673 81.0% 1,608 36.3112340 El Camino Real,Del Mar, California(5)1 2002 87,405 86.9% 3,276 43.1412390 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 82.0% 1,123 35.3812400 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(20)1 2000 130,178 80.0% 4,373 44.793661 Valley Centre Drive,Del Mar, California(5)1 2001 129,752 99.4% 3,870 32.533721 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% 1,704 24.006220 Greenwich Drive,Governor Park , California(5)1 1996 141,214 100.0% 4,286 30.3515051 Avenue of Science,I-15 Corridor, California(6)1 2002 70,617 —% — —15073 Avenue of Science,I-15 Corridor, California(6)1 2002 46,759 —% — —15231 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(25)1 2006 78,880 46.4% 765 20.8915378 Avenue of Science,I-15 Corridor, California(22)1 1990 68,910 61.8% 660 15.4915435 Innovation Drive,I-15 Corridor, California(5)1 2000 49,863 100.0% 1,243 24.9315445 Innovation Drive,I-15 Corridor, California(5)1 2000 51,500 100.0% 1,318 25.5913280 Evening Creek Drive South,I-15 Corridor, California(5)1 2008 41,665 67.0% 598 21.4113290 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% 6,280 42.5713520 Evening Creek Drive North,I-15 Corridor, California(5)1 2004 141,129 92.4% 4,648 36.487525 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 53,610 84.5% 1,235 27.252365 Northside Drive,Mission Valley, California(5)1 1990 91,260 86.8% 2,281 28.8125Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/12(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)2375 Northside Drive,Mission Valley, California(5)1 1990 51,516 100.0% 1,429 28.842385 Northside Drive,Mission Valley, California(5)1 2008 88,795 76.5% 2,135 31.432305 Historic Decatur Road,Point Loma, California(16)1 2009 103,900 100.0% 3,980 38.3110020 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 49.9% 963 37.904921 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, California(26)1 1999 61,460 —% — —5010 Wateridge Vista Drive,Sorrento Mesa, California(6)1 1999/2012 111,318 100.0% 3,552 31.9110770 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% 1,269 9.726290 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% 1,029 21.1310455 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% 1,134 24.029785 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 5,250,413 90.7% 139,364 29.39Orange County 8101 Kaiser Blvd.Anaheim, California1 1988 59,790 61.0% 848 23.262211 Michelson,Irvine, California(19)1 2007 271,556 94.0% 9,704 38.5126Property LocationNo. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/12(1) AnnualizedBase Rent($000’s)(2) Annualized RentPer Square Foot(2)111 Pacifica,Irvine Spectrum, California1 1991 67,496 100.0% 1,377 21.77999 Town & Country,Orange, California1 1977/2009 98,551 100.0% 2,919 29.62Subtotal/Weighted Average—Orange County4 497,393 92.0% 14,848 32.98San Francisco 4100 Bohannon Drive,Menlo Park, California(6)1 1985 46,614 100.0% 1,719 36.884200 Bohannon Drive,Menlo Park, California(6)1 1987 46,255 100.0% 1,573 39.784300 Bohannon Drive,Menlo Park, California(6)1 1988 62,920 41.7% 876 33.424400 Bohannon Drive,Menlo Park, California(6)1 1988 46,255 84.2% 1,159 32.624500 Bohannon Drive,Menlo Park, California(6)1 1990 62,920 100.0% 2,041 32.444600 Bohannon Drive,Menlo Park, California(6)1 1990 46,255 71.2% 1,297 39.394700 Bohannon Drive,Menlo Park, California(6)1 1989 62,920 100.0% 2,275 36.16303 Second Street,San Francisco, California1 1988 740,047 95.5% 26,232 37.26100 First Street,San Francisco, California1 1988 466,490 98.3% 19,118 42.80250 Brannan Street,San Francisco, California(5)1 1907/2001 92,948 100.0% 3,983 42.85201 Third Street,San Francisco, California1 1983 332,893 99.5% 13,024 40.40301 Brannan Street,San Francisco, California(5)1 1909/1989 74,430 100.0% 3,024 40.634040 Civic Center,San Rafael, California1 1979/1994 130,237 98.1% 2,528 20.30599 Mathilda,Sunnyvale, California1 2000 75,810 100.0% 2,201 29.03Subtotal/Weighted Average—San Francisco14 2,286,994 95.5% 81,050 37.74Greater Seattle 601 108th Avenue NE,Bellevue, Washington(23)1 2000 488,470 90.4% 11,851 27.2410900 NE 4th Street,Bellevue, Washington1 1983 416,755 90.5% 12,691 33.6810220 NE Points Drive,Kirkland, Washington(3)1 1987 49,851 96.3% 1,222 25.7110230 NE Points Drive,Kirkland, Washington(3)1 1988 98,982 100.0% 2,661 27.2810210 NE Points Drive,Kirkland, Washington(3)1 1990 84,641 69.2% 1,428 24.383933 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 25.63837 N. 34th Street,Lake Union, Washington(3)1 2008 111,580 100.0% 2,694 24.14701 N. 34th Street,Lake Union, Washington(24)1 1998 138,995 98.7% 2,541 18.51801 N. 34th Street,Lake Union, Washington(3)1 1998 169,412 100.0% 4,423 26.11Subtotal/Weighted Average—Greater Seattle10 1,727,239 93.3% 43,850 27.37TOTAL/WEIGHTED AVERAGE114 13,249,780 92.8% $377,122 $31.3327_________________(1)Based on all leases at the respective properties in effect as of December 31, 2012. Includes month-to-month leases as of December 31, 2012.(2)Annualized base rental revenue includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-fundedtenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Excludes month-to-month leases and vacant space as ofDecember 31, 2012.(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.(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 approximately 19,000 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. A lease of approximately 18,000 rentable square feet is 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 82,000 rentable square feet are written on a modified gross basis, and a lease of approximately 22,000 rentable square feet is written 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, and leases of 47,000 rentable square feet are written on a modified gross basis.(19)For this property, leases of approximately 217,000 rentable square feet are written on a direct expense stop basis, and leases of 38,000 rentable square feet are written on a full service gross basis.(20)For this property, leases of approximately 104,000 rentable square feet are written on a modified gross basis. The remaining 26,000 rentable square feet is currently being marketed for lease.(21)For this property, leases of approximately 105,000 rentable square feet are written on a full service gross basis, and leases of 41,000 rentable square feet are written on a modified gross basis.(22)For this property, a lease of approximately 69,000 rentable square feet is written on a modified net basis, and a lease of approximately 43,000 rentable square feet is written on a modified gross basis.(23)For this property, a lease of approximately 360,000 rentable square feet are written on a triple net basis, and leases of approximately 73,000 rentable square feet are written on a full service gross basis.(24)For this property, a lease of approximately 118,000 rentable square feet are written on a triple net basis, and leases of approximately 20,000 rentable square feet are written on a modified net basis.(25)For this property, leases of approximately 37,000 rentable square feet are written on a modified gross basis. Leases of approximately 38,000 rentable square feet were executed with two tenants during the fourth quarter of2012. The new leases are expected to commence in the first and third quarters of 2013.(26)For this property, a lease of approximately 61,000 rentable square feet was executed with one tenant during the fourth quarter of 2012. The new lease is expected to commence in the third quarter of 2013.Completed and In-Process Redevelopment ProjectsDuring the year ended December 31, 2012, we completed the following redevelopment projects, which were added to our stabilized portfolio of operatingproperties: Construction Period Completed Redevelopment Projects Start Date Completion Date Rentable SquareFeet % Leased2260 E. Imperial Highway El Segundo, California (1) 3Q 2010 4Q 2012 299,000 100%5010 Wateridge Vista DriveSorrento Mesa, California 3Q 2011 4Q 2012 111,000 100% 410,000 100%_______________________(1) Cash rent for this property commenced in December 2012. Completion of remaining tenant improvements and physical occupancy are expected to continue through April 2013.28As of December 31, 2012, we had the following redevelopment projects in lease up or under construction. Estimated Construction Period In-Process Redevelopment Projects Start Date EstimatedCompl. Date EstimatedStabilization Date(1) EstimatedRentableSquare Feet % Leased Projects In Lease-Up (2) 3880 Kilroy Airport WayLong Beach, California (3) 3Q 2011 4Q 2012 4Q 2013 98,000 50%Under Construction 360 Third StreetSan Francisco, California (4)(5) 4Q 2011 1Q 2013 1Q 2014 410,000 75% 508,000 70%_______________________(1) Based on management's estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.(2) Lease-up properties represent properties recently redeveloped that have not reached 95% occupancy and are within one year following cessation of major construction activities.(3) This property was 50% leased prior to any redevelopment activity, which occurred in two phases. Redevelopment on the first half was completed during the second quarter of2012, and the tenant has taken occupancy of this space. Redevelopment on the second half was completed in the fourth quarter of 2012.(4) Approximately 91% of this project is being redeveloped because approximately 9% of the project was leased and occupied by an existing tenant upon acquisition in December2011. In July 2012, approximately 17% of the building was completed and the tenant has taken occupancy of the space. The remaining 74% of the building remains underredevelopment. Redevelopment costs are capitalized only on the portion of the building that is under redevelopment and not occupied by tenants.(5) During the fourth quarter of 2012, the Company exercised its option to acquire the land underlying the current ground lease for $27.5 million. We currently expect that thetransaction will close in the second quarter of 2013.In-Process and Future Development Pipeline and Other Land HoldingsThe following table sets forth certain information relating to our in-process development pipeline as of December 31, 2012. Estimated Construction Period In-Process Development Pipeline Location Start Date EstimatedCompl. Date EstimatedStabilization Date(1) EstimatedRentableSquare Feet % Leased San Francisco Bay Area 690 E. Middlefield Road Mountain View 2Q 2012 1Q 2015 1Q 2015 341,000 100%331 Fairchild Drive Mountain View 4Q 2012 4Q 2013 4Q 2013 88,000 100%350 Mission Street (2) San Francisco 4Q 2012 1Q 2015 4Q 2015 400,000 100%555 N. Mathilda Avenue Sunnyvale 4Q 2012 3Q 2014 3Q 2014 587,000 100% 1,416,000 100%_______________________________________(1) Based on management's estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.(2) Estimated rentable square feet reflects existing entitlements for 27-story office tower. The Company is currently pursuing entitlements to increase this project to a 30-story officetower, which would increase the estimated rentable square feet and total estimated investment.29The following table sets forth certain information relating to our future development pipeline as of December 31, 2012.Project Location Estimated Rentable SquareFeetFuture Development Pipeline San Francisco Bay Area 333 Brannan Street San Francisco 170,000 Los Angeles Columbia Square (1) Hollywood 600,000 San Diego 9455 Towne Centre Drive (2) San Diego 150,000Carlsbad Oaks—Lots 4, 5, 7 & 8 Carlsbad 288,000Pacific Corporate Center—Lot 8 Sorrento Mesa 170,000Rancho Bernardo Corporate Center I-15 Corridor 320,000 - 1,000,000One Paseo (3) Del Mar 500,000Santa Fe Summit—Phase II and III 56 Corridor 600,000Sorrento Gateway—Lot 2 Sorrento Mesa 80,000Subtotal 2,108,000 - 2,788,000_______________________________________(1)The Company is planning to redevelop an existing building encompassing approximately 100,000 rentable square feet and develop a mixed-use plan encompassing approximately 500,000 rentable square feet, which willinclude office, multi-family and retail components.(2)The Company is planning to demolish the existing two-story 45,195 rentable square foot office building at this site and pursue entitlements to build a new 5-story 150,000 rentable square foot office building.(3)Estimated rentable square feet reflects existing office entitlements. The Company is currently pursuing mixed-use entitlements for this project which would increase the estimated rentable square feet.The following table sets forth certain information about our other land holdings as of December 31, 2012.Other Land Holdings Project Gross Site Acreage17150 Von KarmanIrvine, California 8.5During the fourth quarter of 2011, the Company completed demolition of the industrial building at 17150 Von Karman. Simultaneously, the Companysuccessfully obtained entitlements to reposition this site for residential use in preparation of a possible land sale. The Company's ultimate decision to sell thissite and the timing of any potential future sale is dependent upon market conditions and other factors.30Significant TenantsThe following table sets forth information about our 15 largest tenants based upon annualized base rental revenues, as defined below, as of December 31,2012.Tenant NameAnnualized Base RentalRevenue(1) Percentage of TotalAnnualized Base RentalRevenue(1) Lease Expiration Date (in thousands) DIRECTV, LLC$23,377 6.2% September 2027Intuit, Inc.15,193 4.0 Various(2)Bridgepoint Education, Inc15,105 4.0 Various(3)Delta Dental of California10,275 2.7 May 2015CareFusion Corporation (9)9,256 2.5 August 2017AMN Healthcare, Inc.8,192 2.2 July 2018Adobe Systems, Inc. (9)6,557 1.7 Various(4)Fish & Richardson P.C.6,071 1.6 October 2018Wells Fargo (9)5,346 1.4 Various(5)Scripps Health5,199 1.4 June 2021BP Biofuels5,128 1.4 Various(6)Lucile Salter Packard Children's Hospital at Stanford5,109 1.4 Various(7)Epson America, Inc.4,915 1.3 October 2019Scan Health Plan (9)4,505 1.2 June 2015Avnet, Inc.4,163 1.1 Various(8)Total$128,391 34.1% _______________________________________(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 from which rentalrevenue is being recognized by us as of December 31, 2012. (2)The Intuit Inc. leases, which contribute $1.7 million and $13.5 million expire in December 2012 and August 2017, respectively.(3)The Bridgepoint Education Inc. leases, which contribute $1.0 million, $6.3 million and $7.8 million expire in February 2017, July 2018 and September 2018, respectively.(4)The Adobe Systems Inc. leases, which contribute $1.6 million and $5.0 million expire in May 2013 and July 2020, respectively.(5)The Wells Fargo leases, which contribute $0.05 million, $0.1 million, $1.0 million, $0.3 million, $0.4 million, $1.4 million, $2.0 million, $0.05 million and $0.1 million expire in March 2013, January 2014, November 2014,August 2015, July 2016, September 2016, September 2017, February 2018 and February 2019, respectively.(6)The BP Biofuel leases, which contribute $2.8 million and $2.3 million expire in November 2015 and March 2017, respectively.(7)The Lucile Salter Packard Children's Hospital at Stanford leases, which contribute $0.4 million and $4.7 million expire in November 2015 and September 2020, respectively.(8)The Avnet Inc. leases, which contribute $3.8 million and $0.4 million expire in February 2013 and January 2018, respectively.(9)The Company has entered into leases with various affiliates of the tenant name listed above.31 The following pie chart sets forth the composition of our tenant base by industry and as a percentage of our annualized base rental revenue based on theStandard Industrial Classifications as of December 31, 2012.32Lease ExpirationsThe following table sets forth a summary of our lease expirations for each of the next ten years beginning with 2013, assuming that none of the tenantsexercise renewal options or termination rights. See further discussion of our lease expirations under “Item 1A: Risk Factors”.Lease Expirations (1)Year of LeaseExpiration# of ExpiringLeases Total Square Feet % of Total LeasedSquare Feet Annualized BaseRent (000’s)(1) % of TotalAnnualized BaseRent(1) Annualized Rent perSquare Foot(1)201394 855,902 7.1% $22,524 6.0% $26.322014121 1,250,019 10.4% 36,098 9.6% 28.882015151 2,124,976 17.7% 65,432 17.4% 30.79201674 808,217 6.7% 21,119 5.6% 26.13201799 1,951,623 16.2% 58,162 15.4% 29.80201852 1,281,765 10.6% 49,569 13.1% 38.67201931 902,246 7.5% 31,315 8.3% 34.71202030 1,200,994 10.0% 36,562 9.7% 30.44202118 445,767 3.7% 14,960 4.0% 33.5620228 128,076 1.1% 5,153 1.4% 40.232023 and beyond16 1,088,198 9.0% 36,228 9.5% 33.29Total(2)694 12,037,783 100.0% $377,122 100.0% $31.33_______________________(1)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenantimprovements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expensestructures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.(2)The information presented for all lease expiration activity reflects leasing activity through December 31, 2012 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to a newtenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, vacant space, and lease renewaloptions not executed as of December 31, 2012.Secured DebtAs of December 31, 2012, the Operating Partnership had nine outstanding mortgage notes payable, which were secured by certain of our properties. Oursecured debt represents an aggregate indebtedness of approximately $553.9 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, 2012, 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, 2012, 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. 33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 65 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 2012 and 2011 as reported on the NYSE. 2012High Low Close Per Share CommonStock DividendsDeclaredFirst quarter$46.61 $37.92 $46.61 $0.3500Second quarter48.58 44.84 48.41 0.3500Third quarter49.88 44.78 44.78 0.3500Fourth quarter47.52 42.47 47.37 0.35002011High 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 0.3500The 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 common units. As of the date this report was filed, there were 24 holders ofrecord of common units (including through the Company’s general partnership interest).The following table reports the distributions per common unit declared during the years ended December 31, 2012 and 2011.2012 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.35002011 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.3500During 2012 and 2011, the operating partnership redeemed 10,000 and 5,000 common units, respectively, for the same number of shares of theCompany’s common stock.34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 31,2012. 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 comprises19 office equity REITs, including us. The graph assumes the investment of $100 in us and each of the indices on December 31, 2007 and, as required by theSEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.35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, 2012 and 2011 and the consolidated statement of operations data for the years ended December 31,2012, 2011 and 2010 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, 2010, 2009 and 2008 and the consolidatedstatement of operations data for the years ended December 31, 2009 and 2008 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, 2012 2011 2010 2009 2008Statements of Operations Data: Total revenues from continuing operations$404,912 $337,629 $254,994 $230,571 $244,294Income (loss) from continuing operations5,447 (3,728) (427) 15,569 28,181Income from discontinued operations271,654 71,217 20,313 22,446 18,730Net income available to common stockholders249,826 50,819 4,512 21,794 29,829Per-Share Data: Weighted average common shares outstanding-basic69,639,623 56,717,121 49,497,487 38,705,101 32,466,591Weighted average common shares outstanding-diluted69,639,623 56,717,121 49,497,487 38,732,126 32,540,872(Loss) income from continuing operations available to commonstockholders per common share-basic$(0.24) (0.35) (0.33) (0.02) 0.37(Loss) income from continuing operations available to commonstockholders per common share-diluted$(0.24) (0.35) (0.33) (0.02) 0.37Net income available to common stockholders per share-basic$3.56 0.87 0.07 0.53 0.91Net income available to common stockholders per share-diluted$3.56 0.87 0.07 0.53 0.91Dividends declared per common share$1.40 1.40 1.40 1.63 2.32 36 December 31, 2012 2011 2010 2009 2008Balance Sheet Data: Total real estate held for investment, before accumulateddepreciation and amortization$4,757,394 $3,798,690 $3,216,871 $2,520,083 $2,475,596Total assets4,616,084 3,446,795 2,816,565 2,084,281 2,102,918Total debt2,040,935 1,821,286 1,427,776 972,016 1,142,348Total noncontrolling interest - preferred units(1)— 73,638 73,638 73,638 73,638Total preferred stock192,411 121,582 121,582 121,582 121,582Total equity(2)2,235,933 1,327,482 1,117,730 883,838 714,886Other Data: Funds From Operations(3)$165,455 $136,173 $106,639 $107,159 $113,972Cash flows provided by (used in): Operating activities180,724 138,256 119,827 124,965 144,481Investing activities(706,506) (634,283) (701,774) (50,474) (93,825)Financing activities537,705 485,964 586,904 (74,161) (52,835)Property Data: Office Properties: Rentable square footage13,249,780 11,421,112 10,395,208 8,708,466 8,650,126Occupancy92.8% 90.1% 87.5% 80.6% 86.2%Industrial Properties: Rentable square footage(4) 3,413,354 3,602,896 3,654,463 3,718,663Occupancy(4) 100.0% 93.9% 88.2% 96.3%_______________________(1)Represents the redemption value, less issuance costs of our issued and outstanding 1,500,000 Series A Preferred Units. The Series A Preferred Units were redeemed in 2012. See Note 9 in our consolidated financial statementsincluded in this report for additional information.(2)Includes the noncontrolling interest of the common units of the Operating Partnership.(3)The Company calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP,excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation andamortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Management believes that FFO is a useful supplemental measure of the Company's operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors andanalysts to readily identify the operating results of the assets that form the core of the Company's activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as theindustry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, theCompany's FFO may not be comparable to all other REITs. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or 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, management believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company's performance relative to itscompetitors and a more appropriate basis on which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone would provide. However, FFO should not be viewed as an alternative measure of the Company's operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costsnecessary to maintain the operating performance of the Company's properties, which are significant economic costs and could materially impact the Company's results from 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 the Company's GAAP net income available for common stockholders to FFO for the periods presented.(4)We sold all of our industrial properties during the fourth quarter of 2012.37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, 2012 and 2011 and the consolidated statement of operations data for the years ended December 31,2012, 2011 and 2010 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, 2010, 2009 and 2008 and the consolidated statementof operations data for the years ended December 31, 2009 and 2008 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, 2012 2011 2010 2009 2008Statements of Operations Data: Total revenues from continuing operations$404,912 $337,629 $254,994 $230,571 $244,294Income (loss) from continuing operations5,447 (3,728) (427) 15,569 28,181Income from discontinued operations271,654 71,217 20,313 22,446 18,730Net income available to common unitholders255,375 51,764 4,528 22,618 31,478Per Unit Data: Weighted average common units outstanding-basic71,403,258 58,437,444 51,220,618 40,436,196 34,531,779Weighted average common units outstanding-diluted71,403,258 58,437,444 51,220,618 40,463,221 34,606,060(Loss) income from continuing operations available to commonunitholders per common unit-basic(0.24) (0.36) (0.33) (0.02) 0.39(Loss) income from continuing operations available to commonunitholders per common unit-diluted(0.24) (0.36) (0.33) (0.02) 0.39Net income available to common unitholders per unit-basic3.56 0.86 0.07 0.53 0.90Net income available to common unitholders per unit-diluted3.56 0.86 0.07 0.53 0.90Distributions declared per common unit1.40 1.40 1.40 1.63 2.32 38 December 31, 2012 2011 2010 2009 2008Balance Sheet Data: Total real estate held for investment, beforeaccumulated depreciation and amortization$4,757,394 $3,798,690 $3,216,871 $2,520,083 $2,475,596Total assets4,616,084 3,446,795 2,816,565 2,084,281 2,102,918Total debt2,040,935 1,821,286 1,427,776 972,016 1,142,348Series A redeemable preferred units (1)— 73,638 73,638 73,638 73,638Total preferred capital192,411 121,582 121,582 121,582 121,582Total capital (2)2,235,933 1,327,482 1,117,730 883,838 714,886Other Data: Cash flows provided by (used in): Operating activities180,724 138,256 119,827 124,965 144,481 Investing activities(706,506) (634,283) (701,774) (50,474) (93,825) Financing activities537,705 485,964 586,904 (74,161) (52,835)Property Data: Office Properties: Rentable square footage13,249,780 11,421,112 10,395,208 8,708,466 8,650,126 Occupancy92.8% 90.1% 87.5% 80.6% 86.2%Industrial Properties: Rentable square footage(3) 3,413,354 3,602,896 3,654,463 3,718,663 Occupancy(3) 100.0% 93.9% 88.2% 96.3%_______________________(1)Represents the redemption value, less issuance costs of the Operating Partnership's issued and outstanding 1,500,000 Series A Preferred Units. All Series A Preferred Units were redeemed in 2012. See Note 9 in ourconsolidated financial statements included in this report for additional information.(2)Includes the noncontrolling interests in consolidated subsidiaries.(3)We sold all of our industrial properties during the fourth quarter of 2012.39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 “-FactorsThat May Influence Future Results of Operations”, “-Liquidity and Capital Resource of the Company”, and “-Liquidity and Capital Resources of theOperating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,”“seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressionsthat do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees offuture performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult topredict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated in theforward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or outcomes. Numerousfactors 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 our investment in real estate assets, which are illiquid, and with trends in the real estate industry;•defaults on or non-renewal of leases by tenants;•any significant downturn in tenants' businesses;•our ability to re-lease property at or above current market rates;•costs to comply with government regulations, including environmental remediations;•the availability of cash for distribution and 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 successfully 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 some of our properties are located;•adverse changes to, or implementations of, applicable laws, regulations or legislation;•environmental uncertainties and risks related to natural disasters; and•the Company's 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.40Company OverviewWe are a self-administered REIT active in office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consistingprimarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle,which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our properties through the Operating Partnership and theFinance Partnership, and conduct substantially all of our operations through the Operating Partnership. We owned a 97.6% and 97.2% general partnershipinterest in the Operating Partnership as of December 31, 2012 and 2011, respectively. All our properties are held in fee except for the 11 office buildings whichare held subject to long-term ground leases for the land (See Note 15 to our consolidated financial statements included in this report for additional informationregarding our ground lease obligations).2012 HighlightsWe made significant progress on several fronts during 2012, and are well-positioned for continued long-term growth through our strong leasingperformance, well timed acquisitions, development and redevelopment efforts, ongoing capital recycling program, and successful financing activities.Leasing - During 2012, we executed new and renewal office leases on 2.3 million square feet, our highest annual leasing performance since our formation in1997. This leasing activity included a lease signed with salesforce.com for approximately 445,000 rentable square feet. As a result of our consistent andsuccessful leasing efforts, occupancy in our stabilized office portfolio increased to 92.8% as of December 31, 2012, up from 90.1% as of December 31, 2011.Operating Property Acquisitions - We remain a disciplined buyer of office properties and continue to focus on value add opportunities in West Coastmarkets populated by high growth tenants in a variety of industries, including technology, media, healthcare, entertainment and services. During 2012, wecontinued to expand our portfolio in the San Francisco Bay Area, greater Seattle, and Los Angeles through the acquisitions of eight buildings, four buildingsand two buildings, in each respective region, for a total purchase price of approximately $674.0 million. As a result of the 2012 acquisitions, our stabilizedportfolio has increased by approximately 1.8 million rentable square feet (see Note 3 to our consolidated financial statements included in this report foradditional information).Development Site Acquisitions - During 2012, we increased our focus on value-add and highly accretive development opportunities and expanded our futuredevelopment pipeline through targeted acquisitions of development opportunities on the West Coast.We further expanded our presence in the San Francisco Bay Area and Los Angeles through the purchase of six ground-up development opportunities, five ofwhich are located in the San Francisco Bay Area and one that is located in the Hollywood submarket of Los Angeles. We commenced construction on four ofthe development opportunities located in the San Francisco Bay Area upon acquisition and expect construction to be completed at various dates beginning inlate 2013 through late 2015. The remaining two development opportunities located in San Francisco and Hollywood have been added to our future developmentpipeline and we expect to begin construction during the first and fourth quarter of 2013 (see "—Factors that May Influence Future Operations - In-Process andFuture Development Pipeline" for additional information). The total purchase price of these acquisitions was approximately $340.3 million.Redevelopment - During 2012, we completed two of our redevelopment projects and added these projects to our stabilized portfolio. We completed both projectsat a total estimated investment of approximately $97.8 million, including the $31.3 million net carrying value of the projects at the commencement ofredevelopment. The total estimated investment includes lease commissions and excludes tenant improvement overages. The aggregate rentable square feet ofthese projects is approximately 410,000 square feet. As of December 31, 2012, these properties were 100% leased. In addition, we continued the redevelopmentof one of our properties which will have a total estimated investment of approximately $180.0 million at completion. We also had one redevelopment project inlease-up with a total estimated investment of approximately $19.5 million at completion (see "—Factors that May Influence Future Operations - RedevelopmentProjects" for additional information).Capital Recycling Program - We have continued to utilized our capital recycling program to provide additional capital to fund potential acquisitions, tofinance development and redevelopment expenditures, to potentially repay long-term debt and for other general corporate purposes. Our general strategy is totarget the disposition of mature properties or those that have limited upside for us and redeploy some or all of the capital into acquisitions where we can addadditional value to generate higher returns (see "—Factors that May Influence Future Operations" below for additional information).In connection with our capital recycling strategy, during 2012, we completed the sale of seven office properties and our entire industrial portfolio, which wascomprised of 39 industrial properties, with a combined 3,975,665 rentable square feet for a total gross sales price of approximately $500.3 million at a netgain of $259.2 million. The dispositions were structured to qualify as like-kind exchanges under Section 1031 of the Code ("Section 1031 Exchanges").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).41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 and to provide additional insight into the information used by management whenevaluating significant estimates, assumptions, and judgments. For further discussion of our significant accounting policies, see Note 2 to the consolidatedfinancial 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 each individual lease. No one factor is determinative in reachinga 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, 2012, 2011, and 2010, we capitalized $24.0 million, $4.3 million, and $5.4 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 continue to increase as our development and redevelopment activities increase. For those periods, we also recognized $9.1 million, $9.3 million,and $9.7 million, respectively, of noncash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenantimprovements.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 the42amortization of deferred revenue for tenant-funded tenant improvements, 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 •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, 2012, 2011, and 2010 has been that our final reconciliation and billing process resulted in final amounts that approximated the total annualtenant reimbursement revenues recognized.Allowances for Uncollectible Current Tenant Receivables and Deferred Rent ReceivablesTenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent receivables.Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses,property taxes, and other costs recoverable from tenants. Deferred rent receivables represent the amount by which the cumulative straight-line rental revenuerecorded to date exceeds cash rents billed to date under the lease agreement. As of December 31, 2012 and 2011, current receivables were carried net of anallowance for uncollectible amount of $2.6 million for each period and deferred rent receivables were carried net of an allowance for uncollectible accounts of$2.6 million and $3.4 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, 2012, 2011, and 2010, we recorded a total provision for bad debts for both current tenant receivables and deferred rentreceivables of approximately (0.0)%, 0.2%, and (0.4)%, respectively, of rental revenue. The negative provision for the year ended December 31, 2010 reflectsthe reversal 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, 2012, 2011, and 2010. In the event our estimates were not accurate and we had to change our43allowances by 1% of recurring revenue, the potential impact to our net income available to common stockholders would be approximately $4.0 million, $3.6million, and $3.0 million for the years ended December 31, 2012, 2011, and 2010, respectively.AcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development andredevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. We assess andconsider fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that we deemappropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and marketand economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land,buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, includingtenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenantrelationships, if any.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value 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. 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 any debt assumed in connection with a property acquisition is estimated by discounting the future cash flows usinginterest rates available for the issuance of debt with similar terms and remaining maturities.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, because the value of above and below market leases are amortized as either a reduction or increaseto rental income, respectively, our judgments for these intangibles could have a significant impact on our reported rental revenues and results of operations.Costs directly associated with all operating property acquisitions and those development and redevelopment acquisitions that meet the accounting criteria tobe accounted for as business combinations are expensed as incurred. During the years ended December 31, 2012, 2011, and 2010, we expensed $4.9 million,$4.1 million and $2.2 million of acquisition costs respectively,44based on the level of our acquisition activity during those years. Our acquisition expenses are directly related to our acquisition activity and if our acquisitionactivity was to increase or decrease, so would our acquisition costs. Costs directly associated with development acquisitions accounted for as assetacquisitions are capitalized as part of the cost of the acquisition. During the year ended December 31, 2012, we capitalized $0.7 million of such acquisitioncosts. We did not capitalize any acquisition costs during the years ended December 31, 2011 and 2010.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; •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; and •default by a significant tenant when any of the other indicators above are present.When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are 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, 2012, 2011, and 2010. 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 operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did notrecord any impairment losses for these periods. We determined that for each of the properties held for sale, that the sale price less estimated costs to sellexceeded the carrying value and therefore we did not record any impairment losses for these properties.45Cost Capitalization and DepreciationWe capitalize costs associated with development and redevelopment activities, capital improvements, tenant improvements, and leasing activities. For theyears ended December 31, 2012, 2011, and 2010 we capitalized $3.1 million, $1.7 million, and $1.6 million respectively, of internal costs to our qualifyingredevelopment and development projects.Amounts capitalized are depreciated or amortized over estimated useful lives determined by management. We depreciate buildings and improvements basedon the estimated useful life of the asset, and we amortize tenant improvements and leasing costs over the shorter of the estimated useful life or estimatedremaining life of 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.Share-Based Incentive Compensation AccountingAt December 31, 2012, the Company had one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, which is describedmore fully in Note 12 to the consolidated financial statements. The Executive Compensation Committee determines compensation for our Chief ExecutiveOfficer, Chief Operating Officer, Chief Investment Officer and Chief Financial Officer (“the Executive Officers”). Compensation cost for all share-basedawards, including options, requires measurement at estimated fair value on the grant date and compensation cost is recognized over the service vesting period,which represents the requisite service period. The grant date fair value for compensation plans that contain market measures are performed using complexpricing valuation models that require the input of assumptions, including judgments to estimate expected stock price volatility, expected life, and forfeiturerate. Specifically, the grant date fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricingmodel and the grant date fair value of stock option grants are calculated using the Black-Scholes valuation model.For the year ended December 31, 2012 we recorded approximately $3.9 million of compensation expense related to plans that contained market measuresand were therefore subject to such valuation models. If the valuation of the grant date fair value for such plans changed by 10%, the potential impact to our netincome available to common stockholders would be approximately $0.4 million for the year ended December 31, 2012. There was no compensation expenserelated to market measure-based plans recorded for the years ended December 31, 2011 and 2010 since our market measure-based share-based compensationplans and options were granted in 2012.46Factors That May Influence Future Results of OperationsAcquisitions. During the year ended December 31, 2012, we acquired 14 office buildings in seven transactions with an aggregate purchase price ofapproximately $674.0 million and six development and redevelopment opportunity projects in six transactions with an aggregate purchase price ofapproximately $340.3 million. During the year ended December 31, 2011, we acquired ten office buildings and one redevelopment opportunity project in eighttransactions with an aggregate purchase price of approximately $637.8 million (see Note 3 to our consolidated financial statements included in this report foradditional information). As of the date of this report, we have completed the acquisition of one additional office building with a purchase price ofapproximately $170.0 million. We generally finance our acquisitions through proceeds from the issuance of debt and equity securities, borrowings under ourrevolving revolving credit facility, proceeds from our capital recycling program and the assumption of existing debt.As a key component of our growth strategy, we continually evaluate acquisition opportunities (including office properties, undeveloped land, anddevelopment and redevelopment opportunities) as they arise. As a result, at any point in time we may have one or more potential acquisitions underconsideration that are in varying stages of evaluation, negotiation or due diligence review, which may include potential acquisitions under contract. As of thedate of the filing of this report, we were also in negotiations to acquire an additional future development opportunity. We cannot provide assurance that we willacquire this property. In the future, we may enter into agreements to acquire other properties, either as wholly-owned properties or through joint ventures, andthose agreements typically will be subject to the satisfaction of closing conditions. We cannot provide assurance that we will enter into any agreements toacquire properties, or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. Costs associated withacquisitions accounted for as business combinations are expensed as incurred, and we may be unable to complete an acquisition after making a nonrefundabledeposit or incurring acquisition−related costs. In addition, acquisitions are subject to various other risks and uncertainties.Capital Recycling Program. During the year ended December 31, 2012, we disposed of seven office properties and our entire industrial portfolio, whichwas comprised of 39 Industrial Properties, with a combined 3,975,665 rentable square feet, for a total gross sales price of approximately $500.3 million at anet gain of $259.2 million (see Note 17 to our consolidated financial statements included in this report for more information). In connection with thistransaction, the dispositions were structured to qualify as Section 1031 Exchanges. Approximately $228.8 million of the sales proceeds, which were includedin restricted cash on the consolidated balance sheets at December 31, 2012, were reinvested into qualifying replacement properties as of the filing date of thisreport.As part of our current and ongoing strategy, we continuously evaluate opportunities for the potential disposition of properties and undeveloped land in ourportfolio with the intent of recycling the proceeds generated from the disposition of non-strategic properties into capital to fund new operating and developmentacquisitions, development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of our capital recyclingstrategy, we intend, when practical, to enter into Section 1031 Exchanges to defer some or all of the taxable gains, if any, on the sales for federal and stateincome tax purposes.The timing of any potential future deposition transactions will depend on market conditions and other factors, including but not limited to our capitalneeds and our ability to defer some or all of the taxable gains on the sales. We cannot assure you that we will dispose of any additional properties, or that futureacquisitions and/or dispositions, if any, will qualify as Section 1031 Exchanges.47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 for our stabilized portfolio during the year ended December 31, 2012.Information on Leases Commenced and ExecutedFor Leases Commenced 1st & 2nd Generation(1) 2nd Generation(1) Number ofLeases(2) RentableSquare Feet(2) TI/LC per Sq.Ft.(3) Changes inRents(4)(6) Changes inCash Rents(5) RetentionRates(7) Weighted AverageLease Term(in months) New Renewal New Renewal Year Ended December31, 201286 63 895,345 629,664 $30.02 11.1% 3.5% 51.9% 68For Leases Executed(8) 1st & 2nd Generation(1) 2nd Generation(1) Number of Leases(2) Rentable Square Feet(2) TI/LC per Sq.Ft.(3) Changes inRents(4)(6) Changes inCash Rents(5) Weighted AverageLease Term(in months) New Renewal New Renewal Year EndedDecember 31, 201283 68 998,659 779,959 $36.64 21.3% 9.7% 73_______________(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, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.(3)Amounts exclude tenant-funded tenant improvements.(4)Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property wasacquired.(5)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.(6)Excludes commenced and executed leases of approximately 469,000 and 394,000 rentable square feet, respectively, for the year ended December 31, 2012, for which the space was vacant longer than one year or being leasedfor the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison.(7)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.(8)During the year, 14 leases totaling approximately 204,000 rentable square feet were signed but had not commenced as of December 31, 2012.As of December 31, 2012, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operatingproperties, are approximately at 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, market rental rates increased in the majority of our submarkets during 2012. Our rental rates and occupancy are impacted by general economicconditions, including the pace of regional economic growth and access to capital. Therefore, we cannot give any assurance that leases will be renewed or thatavailable 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.48Scheduled Lease Expirations. The following table sets forth certain information regarding our lease expirations for our stabilized portfolio for futureperiods as of December 31, 2012:Lease Expirations(1)Year of Lease Expiration Number ofExpiringLeases Total Square Feet % of Total Leased Sq. Ft. Annualized Base Rent(1) % of Total AnnualizedBase Rent (1) Annualized Base Rent per Sq.Ft. (1)2013 94 855,902 7.1% $22,524 6.0% $26.322014 121 1,250,019 10.4% 36,098 9.6% 28.882015 151 2,124,976 17.7% 65,432 17.4% 30.792016 74 808,217 6.7% 21,119 5.6% 26.132017 99 1,951,623 16.2% 58,162 15.4% 29.802018 52 1,281,765 10.6% 49,569 13.1% 38.67Total(2) 591 8,272,502 68.7% $252,904 67.1% $30.57 ________________________ (1)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenantimprovements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expensestructures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasingcommission costs incurred by the Company for the current reporting period, please see further discussion under the caption "Information on Leases Commenced and Executed."(2)The information presented for all lease expiration activity reflects leasing activity through December 31, 2012 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to a newtenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, vacant space, and lease renewaloptions not executed as of December 31, 2012.In addition to the 1.0 million rentable square feet, or 7.2%, of currently available space in our stabilized portfolio, leases representing approximately 7.1%and 10.4% of the occupied square footage of our stabilized portfolio are scheduled to expire during the remainder of 2013 and in 2014, respectively. The leasesscheduled to expire in 2013 and 2014 represent approximately 2.1 million rentable square feet of office space, or 15.6% of our total annualized base rentalrevenue. We believe that the weighted average cash rental rates are approximately 5% under the current average quoted market rates for leases scheduled toexpire during 2013 and 2014, although individual properties within any particular submarket presently may be leased either above, below, or at the currentquoted market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate ofour overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions inwhich individual properties are located.Redevelopment ProjectsWe believe that a portion of our potential long-term future growth will continue to come from redevelopment opportunities both through acquired propertiesand within our existing portfolio. Redevelopment opportunities are those projects in which we spend significant development and construction costs on existingor acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. During the fourth quarter endedDecember 31, 2012, we completed construction of the following two redevelopment projects.•2260 E. Imperial Highway, El Segundo, submarket of Los Angeles, on which we commenced redevelopment in the third quarter of 2010. Theredevelopment project, encompassing approximately 299,000 rentable square feet, has a total estimated investment of approximately $60.4 million,including the $9.1 million net carrying value of the project at the commencement of redevelopment. The building was 100% pre-leased to DIRECTV,our largest tenant. DIRECTV began paying cash rent on the entire building in December 2012.•5010 Wateridge Vista Drive, Sorrento Mesa, submarket of San Diego, on which we commenced redevelopment in the third quarter of 2011. Theredevelopment project encompasses approximately 111,000 rentable square feet. As part of the redevelopment, we incorporated one of our undevelopedland parcels. The redevelopment project has a total estimated investment of approximately $37.4 million, including the $22.2 million net carryingvalue of the project at the commencement of redevelopment. The building was 100% pre-leased to TD Ameritrade and rent commenced in October2012.As of December 31, 2012, we had one redevelopment project in lease-up and another redevelopment project under construction.•3880 Airport Way, Long Beach, submarket of Los Angeles, on which we commenced redevelopment in the third quarter of 2011. This lease-upproperty, encompassing approximately 98,000 rentable square feet, was 50% leased prior to the commencement of redevelopment which was done intwo phases. Redevelopment on the first half, which was leased, was completed during the second quarter of 2012, and redevelopment on the secondhalf was completed in the fourth49quarter of 2012. The lease-up project will have a total estimated investment of approximately $19.5 million upon completion, including the $6.3million net carrying value of the project at the commencement of redevelopment.•360 Third Street, South of Market Area, submarket of San Francisco, on which we commenced redevelopment in the fourth quarter of 2011. Theredevelopment project, which encompasses approximately 410,000 rentable square feet, will have a total estimated investment of approximately$180.0 million at completion, including the $88.5 million net carrying value of the project at the commencement of redevelopment plus $27.5million that we expect to pay in the second quarter of 2013 to acquire the land that is currently subject to a ground lease. Construction is currentlyexpected to be completed in the first quarter of 2014. As of December 31, 2012, the building was approximately 75% leased and 26% occupied. In-Process and Future Development PipelineWe believe that a portion of our long-term future growth will also come from the completion of our under construction and in-process projects as well asexecuting on our future development pipeline, subject to market conditions. During 2012, we increased our focus on value-add and highly accretivedevelopment opportunities and expanded our future development pipeline through targeted acquisitions of development opportunities on the West Coast.We have a proactive planning process by which we continually evaluate the size, timing, costs and scope of our development program and, as necessary,scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets. We expect to proceed in our developmentprogram with discipline and will be pursuing opportunities with attractive economic returns, in locations with transportation and retail amenities and inmarkets with strong fundamentals and visible demand. We plan to develop in phases as appropriate and we strongly favor starting projects that are pre-leased.As of the date of this report, our near-term development pipeline consisted of the following four projects under construction and two projects expected tocommence in 2013.•690 E. Middlefield Road, Mountain View, California, which we acquired in May 2012. We acquired the project for $84.0 million, comprised of acash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other net accrued liabilities. The development project,which is 100% pre-leased to Synopsis, Inc., has a total estimated investment of approximately $195.7 million and is expected to encompassapproximately 341,000 rentable square feet upon completion. Construction is currently in process and is expected to be completed in the first quarterof 2015.•331 Fairchild Drive, Mountain View, California, which we acquired in December 2012 and is 100% pre-leased. We acquired the project for $18.9million plus $2.9 million of development costs to be reimbursed to the seller and are planning to develop an approximately 88,000 square footbuilding. The development project has a total estimated investment of approximately $45.2 million. Construction is currently in process and isexpected to be completed in the fourth quarter of 2013.•350 Mission Street, South of Market Financial District, San Francisco, California, which we acquired in October 2012 for approximately $52.0million. Shortly after acquisition, we pre-leased the entire project to salesforce.com and are currently planning to develop an approximately 400,000square foot, 27 story office tower that adapts our open-plan workspace concepts to a high-rise office environment. The property is expected to beLEED platinum certified and the first ground up development property in the city to receive this designation. The development project has a totalestimated investment of approximately $254.7 million. We are currently pursuing entitlements to increase this project to a 30-story office tower,which would increase the estimated rentable square feet and total estimated investment. Construction is currently in process and is expected to becompleted in the first quarter of 2015.•555-599 N. Mathilda Avenue, Sunnyvale, California, which we acquired in December 2012 for approximately $137.6 million. The project, whichis comprised of one operating property and a future development site, is 100% pre-leased. Our plan at this project is to continue operating the existingbuilding and develop an approximately 587,000 square foot office complex for LinkedIn, the tenant in the current existing building. The developmentproject has a total estimated investment of approximately $313.2 million. Construction is currently in progress and is expected to be completed in thethird quarter of 2014.•333 Brannan Street, South of Market Area, San Francisco, California, which we acquired in July 2012 for approximately $18.5 million. Wecurrently expect to develop an approximately 170,000 rentable square foot office building on this site that will include all the features, amenities andsystems that tech and media tenants need to accommodate their increased densities for a total estimated investment of approximately $85.0 million.We currently expect to begin construction in the fourth quarter of 2013.50•Columbia Square, in Hollywood, California, which we acquired in September 2012 for approximately $65.0 million. This project is a historicmedia campus located in the heart of Hollywood, two blocks from the corner of Sunset Boulevard and Vine Street. The site is fully entitled for thedevelopment of an 875,000 rentable square foot office, retail and multi-family mixed use project under a 15-year development agreement that includesthree existing buildings and which we plan to develop in phases. We intend to redevelop the three existing buildings, which encompass approximately100,000 rentable square feet, and to develop more than 500,000 square feet of office, retail and residential space. We currently expect to invest anadditional $246.0 million for a total estimated investment of approximately $315.0 million. Our plan is to create a mixed-use campus that preservesthe historical character while establishing a new center for many entertainment and media companies. We expect to commence redevelopment of thethree historic buildings, and initial construction of the office component in early to mid-2013 with completion of phase one targeted for 2015.As of the date of this report, we were also in negotiations to acquire an additional future development opportunity. We cannot provide assurance that we willacquire this project. In the future, we may also enter into agreements to acquire other development or redevelopment opportunities, either as wholly-ownedproperties or through joint ventures and those agreements typically will be subject to the satisfaction of closing conditions. In addition, as of December 31,2012, we had additional undeveloped land holdings, located primarily in various submarkets in San Diego County with an aggregate cost basis ofapproximately $284.1 million.This increase in our development and redevelopment activities, primarily as a result of acquisitions completed in the fourth quarter of 2012, will cause anincrease in the average development asset balances qualifying for interest and other carry cost capitalization in future periods.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 2012 was structured to allow the Executive Compensation Committee to evaluate a variety of key factors and metrics at the end of theyear and make a determination of incentive compensation for executive officers based on the Company's and management's overall performance. As a result,accrued incentive compensation and compensation expense for future incentive compensation awards could be affected by our operating and developmentperformance, financial results, total shareholder return, market conditions and other performance conditions. Consequently, we cannot predict the amountsthat will be recorded in future periods related to such incentive compensation.Share-Based Compensation. As of December 31, 2012, there was $25.9 million of total unrecognized compensation cost related to outstandingnonvested shares of restricted common stock, RSUs and stock options issued under share-based compensation arrangements. Those costs are expected to berecognized over a weighted-average period of 2.6 years. Additional unrecognized compensation cost of $7.7 million related to 157,744 nonvested RSUs issuedunder share-based compensation arrangements subsequent to December 31, 2012 is expected to be recognized over a period of 5.0 years. Share-basedcompensation expense for potential future awards could be affected by our operating and development performance, financial results, total shareholder returnand market conditions. Consequently, we cannot predict the amounts that will be recorded in future periods for such share-based awards. See Note 12 to ourconsolidated financial statements for additional information regarding our share-based incentive compensation plan.Stabilized Portfolio InformationAs of December 31, 2012, our stabilized portfolio was comprised of 114 office properties encompassing an aggregate of approximately 13.2 millionrentable square feet. Our stabilized portfolio includes all of our properties with the exception of undeveloped land, development and redevelopment propertiescurrently under construction or committed for construction, “lease-up” properties and properties held-for-sale. We define lease-up properties as propertiesrecently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. Wedefine redevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildingspursuant to a formal plan, the intended result of which is a higher economic return on the property. Our stabilized portfolio also excludes our futuredevelopment pipeline, which is comprised of nine potential development sites, representing 118.5 gross acres of undeveloped land.At December 31, 2012, our stabilized portfolio excluded one "lease-up" property, one redevelopment and four development properties currently underconstruction and one property moved from the stabilized portfolio to the development pipeline during the fourth quarter of 2012.51The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from December 31, 2011 toDecember 31, 2012: Office Properties Industrial Properties Total Number ofBuildings RentableSquare Feet Number ofBuildings RentableSquare Feet Number ofBuildings RentableSquare FeetTotal as of December 31, 2011104 11,421,112 39 3,413,354 143 14,834,466Acquisitions(1)14 1,759,603 14 1,759,603Completed redevelopment propertiesplaced in-service2 410,046 2 410,046Property moved to the developmentpipeline(1) (45,195) (1) (45,195)Dispositions(5) (308,635) (39) (3,413,354) (44) (3,721,989)Remeasurement 12,849 12,849Total as of December 31, 2012114 13,249,780 — — 114 13,249,780 _______________________(1)Excludes redevelopment and development property acquisitions.Occupancy InformationThe following table sets forth certain information regarding our stabilized portfolio:Stabilized Portfolio OccupancyRegionNumber ofBuildings Rentable Square Feet Occupancy at(1) 12/31/2012 12/31/2011 12/31/2010 Los Angeles and Ventura Counties27 3,487,741 94.0% 83.5% 89.3%San Diego County59 5,250,413 90.7 92.5 86.4Orange County4 497,393 92.0 93.4 93.1San Francisco Bay Area14 2,286,994 95.5 93.3 84.3Greater Seattle10 1,727,239 93.3 89.9 100.0Total Stabilized Portfolio114 13,249,780 92.8 90.1 87.5 Average Occupancy 2012 2011Stabilized Portfolio(1)91.3% 91.3%Same Store Portfolio(2)91.5% 91.9% ______________(1)Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented.(2)Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2011 and still owned and stabilized as of December 31, 2012. See discussion under "Results of Operations" for additionalinformation.Current Regional Information We have generally seen rental rates stabilize and start to improve in many of our submarkets. We have also seen vacancy rates in many of our submarkets arestarting to decrease.Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized portfolio of 3.5 million rentable square feet was 94.0% occupiedwith approximately 210,100 available rentable square feet as of December 31, 2012 compared to 83.5% occupied with approximately 491,300 availablerentable square feet as of December 31, 2011. During 2012, we completed the sale of four buildings encompassing approximately 265,400 rentable square feetlocated in Ventura County that were included in this portfolio as of December 31, 2011. Excluding these four buildings, the Los Angeles and Ventura Countiesstabilized portfolio would have been 90.2% as of December 31, 2011. The increase in occupancy, excluding the impact of the disposed properties, is primarilyattributable to one redevelopment property encompassing approximately 299,000 rentable square feet that was added to the stabilized portfolio upon completionand was 100% occupied as of December 31, 2012. In addition, occupancy increased52due to the acquisition of two office buildings during the year ended December 31, 2012 encompassing approximately 473,000 rentable square feet that were88.9% occupied as of December 31, 2012.As of December 31, 2012, leases representing an aggregate of approximately 333,700 and 353,500 rentable square feet are scheduled to expire during 2013and in 2014, respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during 2013 and in 2014represents approximately 5.7% of our occupied rentable square feet and 5.4% of our annualized base rental revenues in our total stabilized portfolio.San Diego County. Our San Diego County stabilized portfolio of 5.3 million rentable square feet was 90.7% occupied with approximately 486,800available rentable square feet as of December 31, 2012 compared to 92.5% occupied with approximately 391,100 available rentable square feet as ofDecember 31, 2011. The decrease in occupancy is primarily attributable to four leases that expired during the year ended December 31, 2012 offset by oneoffice building placed in service in the fourth quarter of 2012 encompassing approximately 111,000 rentable square feet that was 100% occupied as ofDecember 31, 2012. As of December 31, 2012, we have leased approximately 131,000 rentable square feet in this region that was vacant at December 31, 2012to five tenants. The new leases are scheduled to commence during various quarters in 2013.As of December 31, 2012, leases representing an aggregate of approximately 301,400 and 480,800 rentable square feet are scheduled to expire during 2013and 2014, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in this region in 2013 and 2014 representsapproximately 6.5% of our occupied rentable square feet and 4.5% of our annualized base rental revenues in our total stabilized portfolio occupied as ofDecember 31, 2012.Orange County. Our Orange County stabilized portfolio of approximately 497,400 rentable square feet was 92.0% occupied with approximately 39,700available rentable square feet as of December 31, 2012, compared to 93.4% occupied with approximately 35,500 available rentable square feet as ofDecember 31, 2011.As of December 31, 2012, leases representing an aggregate of approximately 55,000 and 60,400 rentable square feet are scheduled to expire during 2013and 2014, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in 2013 and 2014 represents approximately 1.0% ofour occupied rentable square feet and 0.8% of our annualized base rental revenues in our total stabilized portfolio as of December 31, 2012.San Francisco Bay Area. As of December 31, 2012, our San Francisco Bay Area stabilized portfolio of 2.3 million rentable square feet was 95.5%occupied with approximately 102,800 available rentable square feet, compared to 1.8 million rentable square feet that was 93.3% occupied with approximately121,900 available rentable square feet as of December 31, 2011. The increase in occupancy is primarily attributable to 2 new leases that commenced duringthe year ended December 31, 2012, offset by the acquisition of eight office buildings during the year ended December 31, 2012 encompassing approximately449,900 rentable square feet that were 87.3% occupied as of December 31, 2012. We have leased 9,500 rentable square feet in this region that was vacant atDecember 31, 2012 to three tenants, with new leases scheduled to commence in the first quarter of 2013.As of December 31, 2012, leases representing an aggregate of approximately 128,400 and 247,200 rentable square feet are scheduled to expire during 2013and 2014, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in this region during 2013 and 2014 representsapproximately 3.2% of our occupied rentable square feet and 3.6% of our annualized base rental revenues in our total stabilized portfolio as of December 31,2012.Greater Seattle. As of December 31, 2012, our Greater Seattle stabilized portfolio of 1.7 million rentable square feet was 93.3% occupied withapproximately 116,100 available rentable square feet, compared to 89.9% occupied with approximately 90,300 available rentable square feet as ofDecember 31, 2011. The increase in occupancy is primarily attributable to the acquisition of four office buildings during the year ended December 31, 2012encompassing approximately 836,700 rentable square feet that were 94.6% occupied as of December 31, 2012. We have leased 37,800 rentable square feet inthis region that was vacant at December 31, 2012 to two tenants, with new leases scheduled to commence in the first half of 2013.As of December 31, 2012, leases representing an aggregate of approximately 37,400 and 108,100 rentable square feet are scheduled to expire during 2013and 2014, respectively. The aggregate rentable square feet under leases scheduled to expire in this region during 2013 and 2014 represents approximately 1.2%of our occupied rentable square feet and 1.2% of our annualized base rental revenues in our total stabilized portfolio as of December 31, 2012.53Results of OperationsYear Ended December 31, 2012 Compared to Year Ended December 31, 2011Net Operating IncomeManagement internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income. We define “NetOperating Income” as operating revenues (rental income, tenant reimbursements, and other property income) less operating expenses (property expenses, realestate taxes, provision for bad debts, and ground leases).Net Operating Income is considered by management to be an important and appropriate supplemental performance measure to net income (loss) because webelieve it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparisonof the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent fromGAAP income (loss) from operations or net income (loss). In addition, Net Operating Income is considered by many in the real estate industry to be a usefulstarting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating NetOperating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Because of the exclusionof the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not asan alternative to GAAP income (loss) from operations or net income (loss).Management further evaluates Net Operating Income by evaluating the performance from the following property groups:•Same Store Properties - which includes the results of all of the office properties that were owned and included in our stabilized portfolio asof January 1, 2011 and still owned and included in the stabilized portfolio as of December 31, 2012;•Acquisition Properties - which includes the results, from the dates of acquisition through the periods presented, for the ten office buildingswe acquired during 2011 and the fourteen office buildings we acquired during 2012;•Stabilized Redevelopment Properties - which includes the results generated by two office buildings that were moved into the stabilizedportfolio upon completion of redevelopment in the fourth quarter of 2012. Both office buildings were moved into redevelopment during2011, thus the prior year results reflect operating results for the properties prior to redevelopment.•Other Properties - which includes the results of properties not included in our stabilized portfolio. These properties consist of one officebuilding in "lease-up", one redevelopment project under construction and one office building that was moved from the stabilized portfolioduring 2012 to development since the property is being repositioned.The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2012:Group # of Buildings Rentable Square FeetSame Store Properties 88 9,506,919Acquisition Properties 24 3,332,815Stabilized Redevelopment Properties 2 410,046Total Stabilized Portfolio 114 13,249,78054The following table reconciles our Net Operating Income, as defined, to our net income for the years ended December 31, 2012 and 2011. Year Ended December 31, DollarChange PercentageChange 2012 2011 ($ in thousands)Reconciliation to Net Income: Net Operating Income, as defined$287,755 $238,615 $49,140 20.6 %Unallocated (expense) income: General and administrative expenses(36,188) (28,148) (8,040) 28.6Acquisition-related expenses(4,937) (4,053) (884) 21.8Depreciation and amortization(162,917) (124,928) (37,989) 30.4Interest income and other net investment gains848 571 277 48.5Interest expense(79,114) (85,785) 6,671 (7.8)Income (loss) from continuing operations5,447 (3,728) 9,175 (246.1)%Income from discontinued operations12,409 19,630 (7,221) (36.8)%Net gain on dispositions of discontinued operations259,245 51,587 207,658 402.5 %Net income$277,101 $67,489 $209,612 310.6 %The following tables summarize the Net Operating Income (Loss), as defined, for our total portfolio for the years ended December 31, 2012 and 2011. 2012 2011 Same Store AcquisitionProperties StabilizedRedevelopment Other Total Same Store AcquisitionProperties StabilizedRedevelopment Other Total (in thousands) (in thousands)Operating revenues: Rental income$285,043 $78,555 $957 $4,961 $369,516 $281,180 $24,403 $— $1,535 $307,118Tenant reimbursements19,193 12,626 173 317 32,309 19,262 4,462 59 194 23,977Other property income2,713 365 — 9 3,087 6,031 471 32 — 6,534Total306,949 91,546 1,130 5,287 404,912 306,473 29,336 91 1,729 337,629Property and related expenses: Property expenses60,501 17,051 542 1,263 79,357 59,454 5,977 534 856 66,821Real estate taxes25,303 7,567 89 1,520 34,479 25,747 2,255 143 1,488 29,633Provision for bad debts153 — — — 153 781 — — — 781Ground leases897 1,512 4 755 3,168 1,137 446 13 183 1,779Total86,854 26,130 635 3,538 117,157 87,119 8,678 690 2,527 99,014Net Operating Income (Loss), asdefined$220,095 $65,416 $495 $1,749 $287,755 $219,354 $20,658 $(599) $(798) $238,61555 Year Ended December 31, 2012 as compared to the Year Ended December 31, 2011 Same Store Acquisition Properties Stabilized Redevelopment Other Total Portfolio Dollar Change % Change Dollar Change % Change Dollar Change % Change Dollar Change % Change Dollar Change % Change ($ in thousands) Operating revenues: Rental income$3,863 1.4 % $54,152 221.9 % $957 100.0 % $3,426 223.2% $62,398 20.3 %Tenant reimbursements(69) (0.4) 8,164 183.0 114 193.2 % 123 63.4% 8,332 34.7Other property income(3,318) (55.0) (106) (22.5) (32) (100.0)% 9 100.0% (3,447) (52.8)Total476 0.2 62,210 212.1 1,039 1,141.8 % 3,558 205.8% 67,283 19.9Property and related expenses: Property expenses1,047 1.8 11,074 185.3 8 1.5 % 407 47.5% 12,536 18.8Real estate taxes(444) (1.7) 5,312 235.6 (54) (37.8)% 32 2.2% 4,846 16.4Provision for bad debts(628) (80.4) — — — — % — —% (628) (80.4)Ground leases(240) (21.1) 1,066 239.0 (9) (69.2)% 572 312.6% 1,389 78.1Total(265) (0.3) 17,452 201.1 (55) (8.0)% 1,011 40.0% 18,143 18.3Net Operating Income, as defined$741 0.3 % $44,758 216.7 % $1,094 182.6 % $2,547 319.2% $49,140 20.6 %Net Operating Income increased $49.1 million, or 20.6%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011primarily resulting from:•An increase of $44.8 million attributable to the Acquisition Properties;•An increase of $0.7 million attributable to the Same Store Properties primarily resulting from:▪An increase in rental income of $3.9 million primarily resulting from an increase in tenant renewals at higher rental rates;•An offsetting decrease in other property income of $3.3 million primarily due to cash distributions received under a bankruptcy claimrelated to a former tenant that defaulted on their lease in 2009. During the year ended December 31, 2011, we received a $4.3 million initialcash distribution and during the year ended December 31, 2012, we received a final $0.9 million cash distribution. Other property incomefor both periods consist primarily of lease termination fees and other miscellaneous income; and•A decrease in property and related expenses of $0.3 million primarily resulting from:•An increase of $1.0 million in property expenses primarily as a result of an increase in certain recurring operating costs such asproperty management expenses and janitorial and other service-related costs;•An offsetting decrease in real estate taxes of $0.4 million as a result of property tax refunds;•An offsetting decrease in provision for bad debts of $0.6 million due to a higher provision recorded in the prior year period fortwo watchlist tenants and•An offsetting decrease in ground lease expense of $0.2 million as a result of the expiration of a ground lease;•An increase of $1.1 million attributable to the two completed redevelopment properties added to the stabilized portfolio during the fourth quarter of2012:•The net operating loss included in the results for the year ended December 31, 2011 related to one of the properties that was moved to theredevelopment portfolio during the third quarter of 2011.•An increase in net operating income of $2.5 million attributable to the Other Properties primarily resulting from income generated in 2012 from:•one redevelopment property in lease-up that was 50% occupied at December 31, 2012. The tenant took occupancy of this space in June2012; and•one in-process redevelopment property that was 17% occupied at December 31, 2012. The tenant took occupancy of this space in July2012.56Other Income and ExpensesGeneral and Administrative ExpensesGeneral and administrative expenses increased $8.0 million, or 28.6%, for the year ended December 31, 2012 compared to the year ended December 31,2011 primarily as a result of an increase in compensation expense related to the February 2012 stock option grants made to our senior management team,higher payroll costs associated with the renegotiation of our Chief Executive Officer's employment agreement and an increase in payroll and administrativecosts associated with the growth of the Company.Depreciation and AmortizationDepreciation and amortization increased by $38.0 million, or 30.4%, for the year ended December 31, 2012 compared to the year ended December 31,2011, primarily related to the Acquisition Properties.Interest ExpenseThe following table sets forth our gross interest expense from continuing operations, including debt discounts/premiums and loan cost amortization, net ofcapitalized interest, including capitalized debt discounts/premiums and loan cost amortization for the years ended December 31, 2012 and 2011: 2012 2011 DollarChange PercentageChange ($ in thousands)Gross interest expense$98,906 $94,915 $3,991 4.2 %Capitalized interest(19,792) (9,130) (10,662) 116.8 %Interest expense$79,114 $85,785 $(6,671) (7.8)%Gross interest expense, before the effect of capitalized interest, increased $4.0 million, or 4.2% for the year ended December 31, 2012 compared to the yearended December 31, 2011 resulting from an increase in our average outstanding debt balances primarily as a result of acquisition activity, partially offset by adecrease in our weighted average GAAP effective interest rate from approximately 5.2% during the year ended December 31, 2011 to approximately 4.7%during the year ended December 31, 2012.Capitalized interest increased $10.7 million, or 116.8%, for the year ended December 31, 2012 compared to the year ended December 31, 2011 primarilyas a result of an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.We anticipate capitalized interest to continue to increase in the upcoming year due to increased development and redevelopment activity that commenced in2012 (see "Factors That May Influence Future Results of Operations" for additional information)Year Ended December 31, 2011 Compared to Year Ended December 31, 2010The prior year discussion of the results from operations is separated into following property groups:•Same Store Properties - which includes the results of all of the office properties that were owned and included in our stabilized portfolio asof January 1, 2010 and still owned and included in the stabilized portfolio as of December 31, 2012;•Acquisition Properties - which includes the results, from the dates of acquisition through the periods presented, for the ten office buildingswe acquired in 2011 and the ten office buildings we acquired during 2010;•Other Properties - which includes the results of properties not included in our stabilized portfolio. These properties consist of two officebuildings that were moved from the stabilized portfolio during 2010, one office property that was moved from the stabilized portfolio during2011, one redevelopment project under construction and one office building that was moved from the stabilized portfolio during 2012 todevelopment since the property is being repositioned.57The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2011:Group # of Buildings Rentable Square FeetSame Store Properties 78 7,422,273Acquisition Properties(1) 20 3,645,009Total Stabilized Portfolio(2) 98 11,067,282 _______________________(1)Includes the ten office buildings we acquired in 2011 and the ten office buildings we acquired during 2010.(2)We had no stabilized redevelopment properties in our stabilized portfolio during the comparison period.The 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) Reconciliation to Net Income: Net Operating Income, as defined$238,615 $179,302 $59,313 33.1 %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(124,928) (90,836) (34,092) 37.5Interest income and other net investment gains571 964 (393) (40.8)Interest expense(85,785) (55,082) (30,703) 55.7Loss on early extinguishment of debt— (4,564) 4,564 100.0Loss from continuing operations(3,728) (427) (3,301) 773.1 %Income from discontinued operations19,630 19,364 266 1.4 %Net gain on dispositions of discontinued operations51,587 949 50,638 5,335.9 %Net income$67,489 $19,886 $47,603 239.4 %58The following tables summarize the Net Operating Income, as defined, for our total portfolio for the years ended December 31, 2011 and 2010. 2011 2010 Same Store AcquisitionProperties Other Total Same Store AcquisitionProperties Other Total ($ in thousands) ($ in thousands)Operating revenues: Rental income$211,063 $94,520 $1,535 $307,118 $201,633 $28,901 $4,770 $235,304Tenant reimbursements16,437 7,287 253 23,977 16,212 471 1,313 17,996Other property income5,935 569 30 6,534 1,288 106 300 1,694Total233,435 102,376 1,818 337,629 219,133 29,478 6,383 254,994Property and related expenses: Property expenses41,907 23,524 1,390 66,821 41,485 7,045 2,639 51,169Real estate taxes17,890 10,112 1,631 29,633 18,529 3,033 1,912 23,474Provision for bad debts781 — — 781 65 — — 65Ground leases1,136 446 197 1,779 972 — 12 984Total61,714 34,082 3,218 99,014 61,051 10,078 4,563 75,692Net Operating Income, as defined$171,721 $68,294 $(1,400) $238,615 $158,082 $19,400 $1,820 $179,302 Year Ended December 31, 2011 as compared to the Year Ended December 31, 2010 Same Store Acquisition Properties Other Total Dollar Change % Change Dollar Change % Change Dollar Change % Change Dollar Change % Change ($ in thousands)Operating revenues: Rental income$9,430 4.7 % $65,619 227.0% $(3,235) (67.8)% $71,814 30.5%Tenant reimbursements225 1.4 6,816 1,447.1 (1,060) (80.7) 5,981 33.2Other property income4,647 360.8 463 436.8 (270) (90.0) 4,840 285.7Total14,302 6.5 72,898 247.3 (4,565) (71.5) 82,635 32.4Property and related expenses: Property expenses422 1.0 16,479 233.9 (1,249) (47.3) 15,652 30.6Real estate taxes(639) (3.4) 7,079 233.4 (281) (14.7) 6,159 26.2Provision for bad debts716 1,101.5 — — — — 716 1,101.5Ground leases164 16.9 446 100.0 185 1,541.7 795 80.8Total663 1.1 24,004 238.2 (1,345) (29.5) 23,322 30.8Net Operating Income, as defined$13,639 8.6 % $48,894 252.0% $(3,220) (176.9)% $59,313 33.1%Net Operating Income increased $59.3 million, or 33.1%, 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 the Acquisition Properties;•An increase of $13.6 million attributable to the Same Store Properties primarily resulting from:•An increase of $9.4 million in rental income primarily resulting from an increase in average occupancy of 5.6%, from 86.4% for the yearended December 31, 2010, to 92.0% for the year ended December 31, 2011;•An increase in other property income primarily due to the receipt of a $4.3 million cash distribution under a bankruptcy claim related to aformer tenant that defaulted on its lease in 2009;•A decrease in real estate taxes of $0.6 million due to successful property tax appeals and lower than expected supplemental tax increases;59•An offsetting increase in our provision for bad debts of $0.7 million primarily as a result of changes in our estimates of collectability fortwo watchlist tenants; and•An offsetting decrease of $3.2 million related to one office building that was moved from the stabilized portfolio to the redevelopment portfolio in 2010and two office buildings that were moved to the redevelopment portfolio from the stabilized portfolio upon commencement of redevelopment in 2011.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, wecommenced redevelopment of these properties. We successfully completed the redevelopment of two of the office buildings in 2012 and moved themback into our stabilized portfolio during the fourth quarter of 2012. The third office building was in "lease-up" as of December 31, 2012.Other Income and ExpensesGeneral and Administrative ExpenseGeneral and administrative expenses increased $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 increase in compensation expense.Depreciation and Amortization ExpenseDepreciation and amortization expense increased $34.1 million, or 37.5%, for the year ended December 31, 2011 compared to the year ended December 31,2010 primarily related to the Acquisition Properties.Interest Income and Other Net Investment GainsTotal interest income and other net investment gains decreased by approximately $0.4 million, or 40.8%, for the year ended December 31, 2011 comparedto the year ended December 31, 2010, primarily as a result of a decrease in the fair value of the marketable securities held in connection with our deferredcompensation plan (see Note 16 to our consolidated financial statements included in this report for additional information).Interest ExpenseThe following table sets forth our gross interest expense from continuing operations, including debt discounts/premiums and loan cost amortization, net ofcapitalized interest, including capitalized debt discounts/premiums and loan cost amortization for the years ended December 31, 2011 and 2010. 2011 2010 DollarChange PercentageChange ($ in thousands)Gross interest expense$94,915 $65,097 $29,818 45.8 %Capitalized interest(9,130) (10,015) 885 (8.8)%Interest expense$85,785 $55,082 $30,703 55.7 %Gross interest expense, before the effect of capitalized interest, increased $29.8 million, or 45.8%, 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 for 2011 as compared to 2010.60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 revolving credit facility, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividendpayments to its preferred and common stockholders for the next 12 months. Cash flows from operating activities generated by the Operating Partnership forthe year ended December 31, 2012 were sufficient to cover the Company's payment of cash dividends to its stockholders. However, there can be no assurancethat the Operating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to makedistributions to the Company. The unavailability of capital could adversely affect the Operating Partnership's ability to make distributions to the Company,which would in turn, adversely affect the Company's ability to pay cash dividends to its stockholders.The Company is a well-known seasoned issuer, and the Company and the Operating Partnership have an effective shelf registration statement thatprovides for the public offering and sale from time to time by the Company of its preferred stock, common stock, debt securities and guarantees of debtsecurities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on anongoing basis and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings atany time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. Whenthe Company receives proceeds from the sales of its preferred or common stock, it is required by the Operating Partnership's partnership agreement tocontribute the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common units of the OperatingPartnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under itsrevolving credit facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes,and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenuesand expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled "Liquidityand Capital Resources of the Operating Partnership" should be read in conjunction with this section to understand the liquidity and capital resources of theCompany 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 and is required to pay income tax at regular corporate rates to the extent it distributes less than100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retained earningsto fund its on−going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may be required to useborrowings under the Operating Partnership's revolving credit facility, if necessary, to meet REIT distribution requirements and maintain its REIT status. TheCompany may also need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, as well as potentialdevelopments of new or existing properties or acquisitions.The Company intends to continue to make, but has not committed to make, regular quarterly cash distributions to common stockholders and commonunitholders from cash flow from operating activities. All such distributions are at the discretion of the board of directors. The Company has historicallydistributed amounts in excess of our taxable income resulting in a return of capital to its stockholders and the Company currently believes it has the ability tomaintain distributions at the 2012 levels to meet its REIT requirements for 2013. The Company considers market factors and its performance in addition toREIT requirements in determining our distribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest−bearingaccounts and short−term interest−bearing securities, which are consistent with the Company's intention to maintain its qualification as a REIT. Suchinvestments may include, for example, obligations of the Government National Mortgage Association, other governmental agency securities, certificates ofdeposit, and interest−bearing bank deposits.61On December 6, 2012, the Board of Directors declared a regular quarterly cash dividend of $0.35 per common share payable on January 15, 2013 tostockholders of record on December 31, 2012 and caused a $0.35 per Operating Partnership common unit cash distribution to be paid in respect of theOperating Partnership's common limited partnership interests, including those owned by the Company. These dividends and distributions are equivalent to anannual rate of $1.40 per share, which in aggregate totals approximately $108.9 million of annualized common dividends and distributions per year based onshares of common stock, RSUs, and common units outstanding at December 31, 2012.On March 27, 2012 and August 6, 2012, the Company issued 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("SeriesG Preferred Stock") and 4,000,000 shares of its 6.375% Series H Cumulative Redeemable Preferred Stock ("Series H Preferred Stock"), respectively, at apublic offering price of $25.00 per share, for a total of approximately $96.2 million of net proceeds for each offering, after deducting underwriting discountsand other offering-related costs. The net proceeds were used to redeem preferred stock and units as discussed below. Dividends on the Series G Preferred Stockand the Series H Preferred Stock are paid quarterly in arrears on the 15th day of each February, May, August and November and began on May 15, 2012and November 15, 2012, respectively. On December 6, 2012, the Board of Directors declared a dividend of $0.4296875 per share on the Series G PreferredStock and $0.3984375 per share on the Series H Preferred Stock for the period commencing on and including November 15, 2012, and ending on andincluding February 14, 2013. The dividend will be paid on February 15, 2013, to Series G Preferred and Series H Preferred stockholders of record on January31, 2013. Dividends and distributions payable to the Series G and Series H Preferred stockholders, total approximately $13.3 million of annualized preferreddividends and distributions.On August 15, 2012 (the "Series A Redemption Date"), the Operating Partnership redeemed all 1,500,000 outstanding 7.45% Series A CumulativeRedeemable Preferred Units representing preferred limited partnership interests in the Operating Partnership ("Series A Preferred Units"). On the Series ARedemption Date, the Series A Preferred Units were redeemed at a redemption price equal to $50.00 per unit, representing $75.0 million in aggregate, plus allaccrued and unpaid distributions to the Series A Redemption Date. We have no further distribution requirements with respect to the Series A Preferred Units.On April 16, 2012 (the "Series E and F Redemption Date"), the Company redeemed all 1,610,000 outstanding shares of its 7.80% Series E CumulativeRedeemable Preferred Stock ("Series E Preferred Stock") and all 3,450,000 outstanding shares of its 7.50% Series F Cumulative Redeemable Preferred Stock("Series F Preferred Stock"). On the Series E and F Redemption Date, the shares of Series E and Series F Preferred Stock (together, the "Redeemed PreferredStock") were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share plus $2.9 million of dividends, which included$0.5 million of additional dividends attributable to the acceleration of the Series E Preferred Stock and Series F Preferred Stock dividend payment from April1, 2012 to April 16, 2012 and redemption-related costs. We have no further distribution requirements with respect to the Series E and Series F PreferredStock. Debt Covenants The covenants contained within the revolving credit facility and the term loan facility prohibit the Company from paying dividends in excess of 95% ofFFO.62Capitalization As of December 31, 2012, our total debt as a percentage of total market capitalization was 34.7% and our total debt and liquidation value of our preferredequity as a percentage of total market capitalization was 38.1%, which was calculated based on the closing price per share of the Company's common stock of$47.37 on December 31, 2012 as shown in the table below. Shares/Units atDecember 31, 2012 Aggregate Principal Amount or $ Value Equivalent % of Total Market CapitalizationDebt: ($ in thousands) Unsecured Revolving Credit Facility $185,000 3.1%Unsecured Term Loan Facility 150,000 2.64.25% Exchangeable Notes due 2014 (2) 172,500 2.9Unsecured Senior Notes due 2014 83,000 1.4Unsecured Senior Notes due 2015 (2) 325,000 5.5Unsecured Senior Notes due 2018 (2) 325,000 5.5Unsecured Senior Notes due 2020 (2) 250,000 4.3Secured debt (1) (2) 553,919 9.4 Total debt $2,044,419 34.7%Equity and Noncontrolling Interests: 6.875% Series G Cumulative Redeemable Preferred stock (3)4,000,000 100,000 1.76.375% Series H Cumulative Redeemable Preferred stock (3)4,000,000 100,000 1.7Common limited partnership units outstanding (4)(5)1,826,503 86,521 1.5Common shares outstanding (5)74,926,981 3,549,291 60.4 Total equity and noncontrolling interests 3,835,812 65.3Total Market Capitalization (1) $5,880,231 100.0% _______________(1)At December 31, 2012, the Company had restricted cash balances on its consolidated balance sheet of approximately $247.5 million primarily due to disposition proceeds that were temporarily being held at a qualifiedintermediary, per our direction, for the purpose of facilitating Section 1031 Exchanges under the Code. Subsequent to December 31, 2012, we completed the Section 1031 Exchanges and the restricted cash balances werereleased and used for general corporate purposes, which included repaying an $83.1 million secured mortgage loan that was scheduled to mature on April 1, 2013, repaying borrowings under the OperatingPartnership's revolving credit facility, as well as acquiring a two building office complex in Seattle, Washington for approximately $170.0 million that included the assumption of an approximate $83.9 million mortgage. Inaddition, on January 14, 2013, the Operating Partnership issued $300.0 million of 3.8% senior unsecured notes due 2023 and used the proceeds from the offering to repay the remaining outstanding balance on theOperating Partnership's revolving credit facility. As a result of the aforementioned transactions, the Company had a cash balance of approximately $150 million, a restricted cash balance of approximately $19 million, andno outstanding borrowings under the Operating Partnership's revolving credit facility as of January 30, 2013.(2)Represents gross aggregate principal amount due at maturity before the effect of the unamortized discounts and premiums as of December 31, 2012.(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 $47.37 as of December 31, 2012. 63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 revolving 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;•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 12-month period, as set forth aboveunder the caption " —Liquidity Uses," will be satisfied using a combination of the liquidity sources listed above. We believe our conservative leverage andstaggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and, therefore, weare well−positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, asnecessary, with future public and private issuances of debt and equity securities.Summary of 2012 Funding TransactionsWe have been active in the capital markets, loan originations and assumptions, and our capital recycling program to finance our acquisition activity andour continued desire to improve our debt maturities and lower our overall weighted average cost of capital. This was primarily as a result of the followingtransactions:Capital Markets•During 2012, we issued 787,118 shares under our at−the−market stock program. The net offering proceeds of approximately $36.3 million, afterdeducting sales agent compensation, were contributed to the Operating Partnership (see "— Liquidity Sources" below for additional information).•In August 2012, the Company issued 4,000,000 shares of its 6.375% Series H Preferred Stock at a public offering price of $25.00 per share. The netproceeds of $96.2 million, after deducting the underwriting discount and other offering-related costs, were contributed to the Operating Partnership(see Notes 10 and 11 to our consolidated financial statements included in this report for additional information).•In August 2012, the Company completed an underwritten public offering of 5,750,000 shares of its common stock. The net offering proceeds ofapproximately $253.8 million, after deducting underwriting discounts and commissions and offering expenses, were contributed to the OperatingPartnership (see Notes 10 and 11 to our consolidated financial statements included in this report for additional information).64•In August 2012, the Operating Partnership redeemed all 1,500,000 outstanding Series A Preferred Units at a redemption price equal to $50.00 perunit, representing $75.0 million in aggregate, plus all accrued and unpaid distributions up to and including the redemption date of August 15, 2012(see Notes 9 and 11 to our consolidated financial statements included in this report for additional information).•In April 2012, the Company redeemed all 1,610,000 outstanding shares of its Series E Preferred Stock and all 3,450,000 outstanding shares of itsSeries F Preferred Stock at a redemption price of $25.00 per share plus all accumulated and unpaid dividends up to and including the redemptiondate of April 16, 2012, for total payment of $129.4 million (see Note 10 to our consolidated financial statements included in this report foradditional information).•In March 2012, the Company issued 4,000,000 shares of its 6.875% Series G Preferred Stock at a public offering price of $25.00 per share. The netproceeds of $96.2 million, after deducting the underwriting discount and other accrued offering-related costs, were contributed to the OperatingPartnership (see Notes 10 and 11 to our consolidated financial statements included in this report for additional information).•In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock. The net offering proceeds ofapproximately $382.1 million, after deducting underwriting discounts and commissions and offering expenses, were contributed to the OperatingPartnership (see Notes 10 and 11 to our consolidated financial statements included in this report for additional information).Debt Activity•In November 2012, the Operating Partnership completed an amendment to its $500 million unsecured revolving credit facility, which reduced theinterest rate and borrowing costs and extended the maturity date to April 3, 2017. The revolving credit facility now bears interest at LIBOR plus1.45% and includes a 30 basis point facility fee.•During the year ended December 31, 2012, the Operating Partnership assumed four secured mortgage loans with a combined principal balance of$212.2 million and a combined premium balance of $8.9 million in connection with four acquisitions. The Operating Partnership also obtained a$97.0 million secured mortgage loan and repaid two secured mortgage loans with a combined outstanding principal balance of $101.0 million thatwere scheduled to mature in August 2012 (see Notes 3 and 7 to our consolidated financial statements included in this report for additionalinformation).•In April 2012, the Operating Partnership repaid its 3.25% Exchangeable Notes with an aggregate principal amount of $148.0 million and entered intoa new $150.0 million unsecured term loan facility in March 2012 (see Note 7 to our consolidated financial statements included in this report foradditional information).Capital Recycling Program•During the year ended December 31, 2012, the Company completed the sale of its entire industrial portfolio, which was comprised of 39 industrialproperties, and seven office buildings with a combined total 3,975,665 rentable square feet for a total gross sales price of $500.3 million (see Note17 to our consolidated financial statements included in this report for additional information). As of December 31, 2012, approximately $228.8million of the sales proceeds were included in restricted cash on our consolidated balance sheet for the purpose of facilitating Section 1031 Exchanges.Capital Events Subsequent to December 31, 2012•As a result of the aforementioned events discussed above, we ended the year with restricted cash of $247.5 million and an outstanding balance of$185.0 million on our revolving credit facility. In January 2013, we completed two Section 1031 Exchanges and the restricted cash balances related toour fourth quarter dispositions were released and used to acquire a two building office complex in Seattle, Washington for approximately $170.0million (the purchase price includes an assumption of debt of approximately $83.9 million) and to repay a $83.1 million secured mortgage loan thatmatured in the first quarter of 2013. In addition, on January 14, 2013 the Operating Partnership issued $300.0 million of its 3.800% unsecured seniornotes due 2023 and used the proceeds from the offering to repay the outstanding balance on the revolving credit facility.65Liquidity SourcesCredit FacilityIn March 2012, we amended the revolving credit facility to reduce the FMV Cap Rate (as defined in the revolving credit facility agreement), which is usedto calculate the fair value of our assets for certain covenants under the revolving credit facility, from 7.50% to 6.75%. In November 2012, we amended andrestated the revolving credit facility to extend the maturity date and reduce the interest rate and facility fee. We previously amended our revolving credit facilityin June 2011, to extend the maturity date and reduce the interest rate and facility fee. The following table summarizes the terms of our revolving credit facilityas of December 31, 2011 and as amended as of December 31, 2012: December 31, 2012 December 31, 2011 (in thousands)Outstanding borrowings$185,000 $182,000Remaining borrowing capacity315,000 318,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)1.66% 2.05%Facility fee - annual rate (3)0.300% 0.350%Maturity date (4)April 2017 August 2015________________________(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 revolving credit facility.(2)The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% and 1.75% as of December 31, 2012 and December 31, 2011, 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 costs of approximately $5.0 million when we enteredinto the revolving credit facility in 2010, an additional $3.3 million when we amended the terms of the revolving credit facility in June 2011 and an additional $1.9 million when we amended the terms of the revolving creditfacility in November 2012. The unamortized balance of these costs will be amortized through the extended maturity date of the revolving 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 intend to borrow under the revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to financedevelopment and redevelopment expenditures, and to potentially repay long-term debt.Capital Recycling ProgramIn connection with our capital recycling program, we continuously evaluate opportunities for the potential disposition of properties and undeveloped land inour portfolio with the intent of recycling the proceeds generated from the dispositions of non-strategic or lower return assets into capital used to fund newoperating and development acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporatepurposes. As part of our strategy, we intend, when practical, to enter into Section 1031 Exchanges to defer some or all of the taxable gains, if any, on the salesfor federal and state income tax purposes.During the fourth quarter ended December 31, 2012, we disposed of five office properties and our entire industrial portfolio, which was comprised of 39industrial properties, with a combined 3,721,989 rentable square feet, for a total of approximately $354.2 million at a net gain of $186.4 million (see Note 17to our consolidated financial statements included in this report for more information). In connection with this transaction, the dispositions were structured toqualify as Section 1031 Exchanges, and approximately $228.8 million of the sales proceeds were included in restricted cash on our consolidated balance sheet.Subsequent to December 31, 2012, we were able to successfully complete Section 1031 Exchanges and the amounts were reinvested into qualifyingreplacement properties (see "—Capital Events Subsequent to December 31, 2012" above for additional information).In addition, in January 2012, we disposed of two office buildings in one transaction for approximately $146.1 million at a gain of approximately $72.8million. We were able to successfully complete Section 1031 Exchanges for these properties and reinvest the funds into qualified replacement acquisitionproperties.The timing of any potential future disposition transactions will depend on market conditions and other factors including but not limited to our capitalneeds and our ability to defer some or all of the taxable gains on the sales. We cannot assure you that we will dispose of any additional properties, or that futureacquisitions and/or dispositions, if any, will qualify as Section 1031 Exchanges.66At-the-Market Stock Offering ProgramUnder our at-the-market stock offering program, which commenced in July 2011, 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. During the year ended December 31, 2012, we sold 787,118 shares ofcommon stock under the program for aggregate gross proceeds of approximately $37.0 million and net proceeds of approximately $36.3 million, after salesagent compensation. The proceeds from the sales were used to fund acquisitions and general corporate purposes including repayment of borrowings under therevolving credit facility. Since commencement of the program, we have sold 1,142,423 shares of common stock and, as of December 31, 2012, approximately$150.0 million remains available to be sold under this program. Actual sales will depend upon a variety of factors including but not limited to marketconditions, the trading price of the Company's common stock and our capital needs. We have no obligation to sell the remaining shares available for sale underthis program.Shelf Registration StatementAs discussed above under “-Liquidity and Capital Resources of the Company,” the Company is a well-known seasoned issuer and the Company and theOperating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of itspreferred stock, common stock, debt securities and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case inunlimited amounts. The Company evaluates the capital markets on an ongoing basis and, as circumstances warrant, the Company and the OperatingPartnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon,among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or commonstock, it is required by the Operating Partnership's partnership agreement to contribute the net proceeds from those sales to the Operating Partnership inexchange for corresponding preferred or common units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from thesale of its debt securities to repay debt, including borrowings under its revolving credit facility, to develop new or existing properties, to make acquisitions ofproperties or portfolios of properties, or for general corporate purposes.Unsecured Term Loan FacilityIn March 2012, we entered into a new term loan facility, which is included in unsecured debt, net on our consolidated balance sheets. The term loanfacility bears interest at an annual rate of LIBOR plus 1.750% and is scheduled to mature on March 29, 2016. Under the terms of the term loan facility, wemay exercise an option to extend the maturity date by one year. We may elect to borrow up to an additional $100.0 million under an accordion option, subject tobank approval. We used the borrowings under the term loan facility to repay the 3.25% Exchangeable Notes in April 2012 upon maturity.Exchangeable Notes, Unsecured Senior Notes, and Secured DebtThe aggregate principal amount of our 4.25% Exchangeable Notes, unsecured debt, and secured debt of the Operating Partnership outstanding as ofDecember 31, 2012 was as follows: Aggregate Principal Amount Outstanding ($ in thousands)Unsecured Term Loan Facility due 2016 $150,0004.25% 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) 553,919Total Exchangeable Notes, Unsecured Senior Notes, and Secured Debt $1,859,419 _______________(1)Represents gross aggregate principal amount before the effect of the unamortized discounts and premiums as of December 31, 2012.67On January 14, 2013, the Operating Partnership issued $300.0 million of 3.8% unsecured senior notes due 2023 and used the proceeds from the offering torepay the remaining outstanding balance on the Operating Partnership's revolving credit facility. 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, 2012 and 2011 was as follows: Percentage of Total Debt Weighted Average Interest Rate 2012 2011 20122011Secured vs. unsecured: Unsecured (1)72.9% 80.9% 4.5% 4.7%Secured27.1 19.1 5.2 5.2Variable-rate vs. fixed-rate: Variable-rate16.4 9.9 1.8 2.0Fixed-rate (1)83.6 90.1 5.3 5.1Total stated rate (1) 4.7 4.8GAAP effective rate (2) 4.7 5.2Total GAAP effective rate including debt issuance costs 5.1% 5.6% _______________(1)Excludes the impact of the amortization of any debt discounts/premiums.(2) Includes the impact of the amortization of any debt discounts/premiums, excluding debt issuance costs.Liquidity UsesContractual ObligationsThe following table provides information with respect to our contractual obligations as of December 31, 2012. The table: (i) indicates the maturities andscheduled principal repayments of our secured debt, 4.25% Exchangeable Notes, unsecured debt, and revolving credit facility; (ii) indicates the scheduledinterest payments of our fixed-rate and variable-rate debt as of December 31, 2012; (iii) provides information about the minimum commitments due inconnection with our ground lease obligations and other lease and contractual commitments; and (iv) provides estimated redevelopment and developmentcommitments as of December 31, 2012. Note that the table does not reflect our available debt maturity extension options and reflects gross aggregate principalamounts before the effect of unamortized discounts/premiums. Payment Due by Period Less than1 Year(2013) 1–3 Years(2014-2015) 3–5 Years(2016-2017) More than5 Years(After 2017) Total (in thousands)Principal payments—secured debt (1)$90,881 $77,124 $167,858 $218,056 $553,919Principal payments—4.25% Exchangeable Notes (2)— 172,500 — — 172,500Principal payments—unsecured debt (3)— 408,000 150,000 575,000 1,133,000Principal payments—Credit Facility— — 185,000 — 185,000Interest payments—fixed-rate debt (4)86,024 150,021 89,550 87,717 413,312Interest payments—variable-rate debt (5)6,581 13,162 5,252 — 24,995Ground lease obligations (6)3,685 6,190 6,190 160,007 176,072Lease and contractual commitments (7)76,976 3,791 — — 80,767Development and redevelopment commitments (8)239,000 282,000 — — 521,000Total$503,147 $1,112,788 $603,850 $1,040,780 $3,260,565________________________(1) Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $7.2 million as of December 31, 2012.(2) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $8.6 million as of December 31, 2012.(3) Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $2.1 million as of December 31, 2012.(4)As of December 31, 2012, 83.6% 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.68(5)As of December 31, 2012, 16.4% of our debt bore interest at variable rates all of which was incurred under the term loan facility and revolving credit facility. The variable interest rate payments are based on LIBOR plus aspread of 1.450% and 1.750% as of December 31, 2012, respectively per facility. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on outstandingprincipal balances as of December 31, 2012, the scheduled interest payment dates, and the contractual maturity dates.(6)Reflects minimum lease payments as discussed in Note 15 to our consolidated financial statements, through the contractual lease expiration date before the impact of extension options.(7)Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures may fluctuate.(8)Amounts represent commitments under signed leases for pre-leased development projects and contractual commitments for redevelopment contracts and projects under construction as of December 31, 2012 and trailingcosts for stabilized redevelopment properties. The timing of these expenditures may fluctuate based on the ultimate progress of construction. This table also reflects the November 2012 exercise of the purchase option toacquire the land under a ground lease at one of our redevelopment properties in the second quarter of 2013 for a purchase price of $27.5 million to be paid upon closing. See Note 15 to our consolidated financial statementsincluded in this report for additional information.Potential Future Capital RequirementsDebt MaturitiesAs of December 31, 2012, we had one secured loan with a principal balance of $83.1 million scheduled to mature in 2013, which we repaid subsequent toyear-end with a portion of the remaining proceeds from the sale of our industrial portfolio.Potential Future AcquisitionsIn 2011, we acquired 11 buildings for approximately $603.3 million in cash. In 2012, we acquired 14 buildings for approximately $454.8 million incash, all of which we funded through various capital raising activities, and in selected instances, the assumption of existing indebtedness. In addition, in2012 we acquired six development property project opportunities for approximately $333.9 million in cash and other assumed liabilities Subsequent toDecember 31, 2012, we acquired a two building office complex in Seattle, Washington for approximately $170.0 million with a portion of the remainingproceeds from the sale of our industrial portfolio. We continually evaluate selected acquisition opportunities as they arise. As a result, at any point in time, wemay have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence review, which mayinclude potential acquisitions under contract. We expect that any material acquisitions will be funded with borrowings under our revolving credit facility, thepublic or private issuance of debt or equity securities, or through the disposition of assets under our capital recycling program.Redevelopment and Development OpportunitiesAs of December 31, 2012, we had one redevelopment and four development projects under construction. These projects have a total estimated investment ofapproximately $988.8 million, of which we have incurred approximately $411.3 million as of December 31, 2012. Of the remaining $577.5 million yet to beincurred, we are currently contractually obligated to pay approximately $239.0 million over the next year, which are included in our contractual obligationstable above. We may also incur up to approximately $8.7 million in additional leasing related costs for these projects over the next year, depending on leasingactivity. In addition, we currently have additional development and redevelopment projects that are scheduled to commence construction in 2013. If theseprojects commence as currently projected, we will invest between $80 million and $100 million in addition to the above commitments. This estimate is basedon market conditions and our anticipation of project approvals. Actual costs could vary depending on changes in circumstances. Ultimate timing of theseexpenditures may fluctuate given the ultimate progress and leasing status of the projects.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 believe we could spend between $45 to $65 million in capital improvements, tenant improvements, and leasing costs in 2013 for properties within ourstabilized portfolio, depending on leasing activity, in addition to approximately $77 million of lease and contractual commitments discussed in our capitalcommitments table above.69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 31,2012 on a per square foot basis. Year Ended December 31, 2012 2011 2010Office Properties: Capital Expenditures: Capital expenditures per square foot$0.78 $0.71 $1.36Tenant Improvement and Leasing Costs (1) Replacement tenant square feet607,118 468,530 637,155Tenant improvements per square foot commenced$31.75 $24.95 $28.03Leasing commissions per square foot commenced$11.22 $11.46 $9.30Total per square foot$42.97 $36.41 $37.33Renewal tenant square feet629,664 709,427 691,531Tenant improvements per square foot commenced$9.63 $27.73 $12.67Leasing commissions per square foot commenced$7.91 $9.27 $8.31Total per square foot$17.53 $37.00 $20.98Total per square foot per year$5.30 $4.01 $5.49Average remaining lease term (in years)5.7 9.2 5.3________________________(1)Includes only tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation tenants. Capital expenditures per square foot increased moderately in 2012. As all of our properties are well-maintained and do not require significant capitalimprovements, we currently anticipate future capital expenditure levels to be consistent with historical levels. The 2012 increase in replacement tenantimprovements per square foot commenced is primarily due to increased activity in San Diego and San Francisco, which command higher lease and tenantimprovement rates. The 2012 decrease in renewal tenant improvements per square foot commenced is primarily due to the commencement of onesignificant lease renewal in 2011. Excluding this one lease, office tenant improvements per square foot leased would be materially consistent with theprevious year.Distribution RequirementsFor a discussion of our dividend and distribution requirements, see "Liquidity and Capital Resources of the Company - Distribution Requirements."Other Potential Future Liquidity UsesAs of the filing date, we are in various stages of negotiation on other potential future acquisition opportunities, including potential joint ventureopportunities. We expect that any material acquisitions or development activities will be funded with borrowings under our revolving credit facility, the publicor private issuance of debt or equity securities, the disposition of assets under our capital recycling program or through the assumption of existing debt.In addition, the amounts we are required to spend on tenant improvements and leasing costs we ultimately incur will depend on actual leasing activity.Tenant improvements and leasing costs generally fluctuate in any given period depending on factors such as the type of property, the term of the lease, the typeof the lease, the involvement of external leasing agents, and overall market conditions. Capital expenditures may fluctuate in any given period subject to thenature, extent, and timing of improvements required to maintain or improve our properties.Factors That May Influence Future Sources of Capital and Liquidity of the Company and Operating PartnershipWe continue to evaluate sources of financing for our business activities, including borrowings under the revolving credit facility, issuance of public andprivate equity securities, unsecured debt and fixed-rate secured mortgage financing, and proceeds from the disposition of nonstrategic assets through ourcapital recycling program. However, the Operating Partnership's ability to obtain new financing or refinance existing borrowings on favorable terms could beimpacted by various factors, including the state of economic conditions, the state of the credit and equity markets, significant tenant defaults, a decline in thedemand for office properties, a decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of future borrowings.These events could result in the following:•Decreases in our cash flows from operations, which could create further dependence on our revolving credit facility;70•An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and•A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership's ability to incur additional debt,refinance existing debt at competitive rates, or comply with its existing debt obligations.In addition to the factors noted above, the Operating Partnership's credit ratings are subject to ongoing evaluation by credit rating agencies and may 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 revolving credit facility, term loan facility, unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictionsrequiring us to meet certain financial ratios and reporting requirements. Key existing financial covenants and their covenant levels include:Credit Facility and Unsecured Term Loan Facility (as defined in theCredit Agreement): Covenant Level Actual Performance atDecember 31, 2012 (1)Total debt to total asset value less than 60% 36%Fixed charge coverage ratio greater than 1.5x 2.5xUnsecured debt ratio greater than 1.67x 2.45xUnencumbered asset pool debt service coverage greater than 2.0x 3.3x Unsecured Senior Notes due 2015, 2018 and 2020 (as defined in theIndentures): Total debt to total asset value less than 60% 40%Interest coverage greater than 1.5x 3.6xSecured debt to total asset value less than 40% 11%Unencumbered asset pool value to unsecured debt greater than 150% 268%________________________(1) In March 2012, we amended the revolving credit facility to reduce the FMV Cap Rate (as defined in the revolving credit facility), which is used to calculate the fair value of our assets for certain covenants under the revolving creditfacility, from 7.50% to 6.75%.The Operating Partnership was in compliance with all its debt covenants as of December 31, 2012. 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 slowdown 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.71Historical Cash Flow SummaryOur historical cash flow activity for the year ended December 31, 2012 as compared to the year ended December 31, 2011 was as follows: Year Ended December 31, 2012 2011 DollarChange PercentageChange ($ in thousands)Net cash provided by operating activities$180,724 $138,256 $42,468 30.7%Net cash used in investing activities(706,506) (634,283) (72,223) 11.4Net cash provided by financing activities537,705 485,964 51,741 10.6Operating 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 $42.5 million, or 30.7%, for the year ended December 31,2012 compared to the year ended December 31, 2011 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 increased $72.2 million, or 11.4%, for the year endedDecember 31, 2012 compared to the year ended December 31, 2011. This net increase was primarily attributable to year over year increases of approximately$185.5 million due to acquisitions, $54.8 million due to the increased activity in our redevelopment and development pipeline, $23.6 million of operatingportfolio expenditures due to increased leasing activity, offset by an increase of $199.4 million of net proceeds received from dispositions.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 increased by $51.7 million, or 10.6%, for the year ended December 31, 2012 comparedto the year ended December 31, 2011. We were active in the capital markets in 2012, with a net increase of approximately $71.7 million provided by ourvarious capital raising activities. This net increase was partially offset by our year over year increase in dividend payments to common stockholders ofapproximately $17.4 million as a result of our increased common share count from common equity offerings. See additional information under the caption"Liquidity and Capital Resources of the Operating Partnership—Summary of 2012 Funding Transactions."Off-Balance Sheet ArrangementsAs of December 31, 2012 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements, or obligations,including contingent obligations.Non-GAAP Supplemental Financial Measure: Funds From OperationsWe calculate FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as netincome or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP,gains and losses from sales of depreciable real estate and impairment write−downs associated with depreciable real estate, plus real estate-related depreciationand amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidatedpartnerships 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 operating72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 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 because 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, 2012, 2011, 2010, 2009, and 2008: Year ended December 31, 2012 2011 2010 2009 2008 (in thousands)Net income available to common stockholders$249,826 $50,819 $4,512 $21,794 $29,829Adjustments: Net income attributable to noncontrolling common units of the OperatingPartnership6,187 1,474 178 1,025 1,886Depreciation and amortization of real estate assets168,687 135,467 102,898 86,825 82,491Net gain on dispositions of discontinued operations(259,245) (51,587) (949) (2,485) (234)Funds From Operations(1)$165,455 $136,173 $106,639 $107,159 $113,972_______________________(1)Reported amounts are attributable to common stockholders and common unitholders. The following table presents our weighted average shares of common stock and common units outstanding for the years ended December 31, 2012, 2011,2010, 2009, and 2008: Year Ended December 31, 2012 2011 2010 2009 2008Weighted average shares of common stockoutstanding69,639,623 56,717,121 49,497,487 38,705,101 32,466,591Weighted average common units outstanding1,763,635 1,720,323 1,723,131 1,731,095 2,065,188Effect of participating securities—nonvestedshares and restricted stock units1,127,534 924,747 812,865 785,582 372,444Total basic weighted average shares / unitsoutstanding72,530,792 59,362,191 52,033,483 41,221,778 34,904,223Effect of dilutive securities—ExchangeableNotes, stock options and contingently issuableshares1,123,482 187,134 15,708 27,025 74,281Total diluted weighted average shares / unitsoutstanding73,654,274 59,549,325 52,049,191 41,248,803 34,978,50473InflationThe majority of the Company's leases require tenants to pay for recoveries and escalation charges based upon the tenant's proportionate share of, and/orincreases in, real estate taxes and certain operating costs, which reduce the Company's exposure to increases in operating costs resulting from inflation.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.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, 2012 and 2011, we did not have any interest-rate sensitive derivative assets orliabilities.Information about our changes in interest rate risk exposures from December 31, 2011 to December 31, 2012 is incorporated herein by reference from"Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the OperatingPartnership.”Market RiskAs of December 31, 2012, approximately 16.4% of our total outstanding debt of $2.0 billion was subject to variable interest rates. The remaining 83.6%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, revolving credit facility, and term loan facility by performing discounted cash flow analysesusing an appropriate market discount rate. We calculate the market rate by obtaining period−end treasury rates for maturities that correspond to the maturitiesof our fixed−rate debt and then adding an appropriate credit spread based on information obtained from third−party financial institutions. We calculate themarket rate of our revolving credit facility and term loan facility by obtaining the period−end LIBOR rate and then adding an appropriate credit spread basedon information obtained from third−party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile,the tenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan−to−value ratio of the debt to the collateral. These calculationsare significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. We determine the fair valueof the liability component of our 4.25% Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate basedupon spreads for our publicly traded debt. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted tradingprice at the end of the reporting period. See Note 16 to our consolidated financial statements included in this report for additional information on the fair valueof our financial assets and liabilities as of December 31, 2012 and 2011.As of December 31, 2012, the total outstanding balance of our variable-rate debt was comprised of borrowings on our revolving credit facility of $185.0million and borrowings on our term loan facility of $150.0 million, which were indexed to LIBOR plus spreads of 1.450% (weighted average interest rate of1.66%) and 1.750% (weighted average interest rate of 1.97%), respectively. As of December 31, 2011, the total outstanding balance of our variable-rate debtwas comprised of borrowings of $182.0 million on our revolving credit facility, which was indexed to LIBOR plus a spread of 1.750% (weighted averageinterest rate of 2.05%). Assuming no changes in the outstanding balance of our existing variable-rate debt as of December 31, 2012, a 100 basis point increasein the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, by approximately $3.4 million. Comparatively, ifinterest rates were 100 basis points higher as of December 31, 2011, our projected annual interest expense, before the effect of capitalization, would have been$1.8 million higher.The total carrying value of our fixed-rate debt, including our Exchangeable Notes, was approximately $1.7 billion and $1.6 billion as of December 31,2012 and 2011, respectively. The total estimated fair value of our fixed-rate debt was approximately $1.9 billion and $1.7 billion as of December 31, 2012and 2011, 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 debtof approximately $71.8 million, or 3.8%, as74of December 31, 2012. Comparatively, 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. 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. 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 the Company's reports under the Exchange Act is processed, recorded, summarized, and reported within thetime periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, includingthe Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as ofDecember 31, 2012, the end of the period covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officerconcluded, as of that time, that disclosure controls and procedures were effective at the reasonable assurance level.Changes in Internal Control Over Financial ReportingThere have been no significant changes that occurred during the fourth quarter of the most recent year covered by this report in the Company's internalcontrol over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingInternal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and 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, 2012.Deloitte & Touche LLP, the Company's independent registered public accounting firm, has audited the Company's financial statements and has issued areport on the effectiveness of the Company's internal control over financial reporting.75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, 2012, 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, 2012, 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, 2012, of the Company and our report dated February 11, 2013,expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 11, 201376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 most recent year covered by this report in the Operating Partnership's internalcontrol over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materiallyaffect, the Operating Partnership's internal control over financial reporting.Management's Report on Internal Control Over Financial ReportingInternal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and 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, 2012.Deloitte & Touche LLP, the Operating Partnership's independent registered public accounting firm, 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.77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, 2012, 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 31,2012, 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, 2012, of the Operating Partnership and our report dated February 11,2013, expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 11, 201378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 2013.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 2013.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 2013.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 2013.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 2013.79PART IVITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a)(1) and (2) Financial Statements and SchedulesThe following consolidated financial information is included as a separate section of this annual report on Form 10-K: Report of Independent Registered Public Accounting Firm - Kilroy Realty CorporationF - 2Report of Independent Registered Public Accounting Firm - Kilroy Realty, L.P.F - 8Consolidated Balance Sheets as of December 31, 2012 and 2011 - Kilroy Realty CorporationF - 3Consolidated Statements of Operations for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty CorporationF - 4Consolidated Statements of Equity for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty CorporationF - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty CorporationF - 6Consolidated Balance Sheets as of December 31, 2012 and 2011 - Kilroy Realty, L.P.F - 9Consolidated Statements of Operations for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty, L.P.F - 10Consolidated Statements of Capital for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty, L.P.F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2012, 2011, and 2010 - Kilroy Realty, L.P.F - 12Notes to Consolidated Financial StatementsF - 14Schedule II—Valuation and Qualifying AccountsF - 62Schedule III—Real Estate and Accumulated DepreciationF - 63All other schedules are omitted because 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for thequarter ended June 30, 2012)3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form forRegistration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to theGeneral Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)3.(i)4 Articles Supplementary designating Kilroy Realty Corporation's 6.375% Series H Cumulative Redeemable Preferred Stock (previouslyfiled by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)3.(ii).1 Second Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy Realty Corporation as an exhibit onForm 8-K as filed with the Securities and Exchange Commission on December 12, 2008)3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2009)3.(ii).3 Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of August 15, 2012 (previously filedby Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on August 17, 2012)80ExhibitNumber Description4.1 Kilroy Realty Corporation Form of Certificate for Common Stock (previously filed by Kilroy Realty Corporation as an exhibit to theRegistration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))4.2 Specimen Certificate for Kilroy Realty Corporation's 6.875% Series G Cumulative Redeemable Preferred Stock (previously filed byKilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on March 22, 2012)4.3 Specimen Certificate for Kilroy Realty Corporation's 6.375% Series H Cumulative Redeemable Preferred Stock (previously filed byKilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)4.4 Kilroy Realty Corporation Form of Stock Option Grant Notice and Stock Option Agreement (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 24, 2012)4.5 Registration Rights Agreement dated January 31, 1997 (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Amendment No. 3 to Form S-11 (No. 333-15553))4.6 Registration Rights Agreement dated as of October 31, 1997 (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)4.7 Registration Rights Agreement dated as of October 6, 2000 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Kfor the year ended December 31, 2000)4.8 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 request4.9 Registration Rights Agreement dated as of July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)4.10 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 (previously filed by KilroyRealty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004)4.11 Form of 6.45% Series B Guaranteed Senior Note due 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K asfiled with the Securities and Exchange Commission on August 11, 2004) 4.12† Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-8 filed with the Securities and Exchange Commission on June 28, 2006)4.13† Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K forthe year ended December 31, 2006)4.14† Second Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form10-Q for the quarter ended March 31, 2007)4.15† Third Amendment to Kilroy Realty 2006 Incentive Award Plan (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)4.16† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit to theRegistration Statement on Form S−8 as filed with the Securities and Exchange Commission on June 11, 2010)4.17 Form of Restricted Stock Award Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on February 8, 2007)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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on November 25, 2009)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 (previously filed by Kilroy Realty Corporation as an exhibit onForm 8-K as filed with the Securities and Exchange Commission on November 25, 2009)4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the GeneralForm for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)81ExhibitNumber Description4.21 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 (previouslyfiled by Kilroy Realty Corporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 25,2010)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. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8−Kas filed with the Securities and Exchange Commission on May 25, 2010)4.23 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 (previouslyfiled by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8−K as filed with the Securities and ExchangeCommission on November 4, 2010)4.24 Indenture, dated March 1, 2011, by and among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee (previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit the RegistrationStatement on Form S-3 as filed with the Securities and Exchange Commission on March 1, 2011)4.25 Supplemental Indenture, dated July 5, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee (previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K asfiled with the Securities and Exchange Commission on July 6, 2011)4.26 Officers' Certificate pursuant to Sections 101, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., asissuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securitiesentitled “4.800% Notes due 2018,” including the form of 4.800% Notes due 2018 and the form of related guarantee (previously filed byKilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July6, 2011)4.27 Registration Rights Agreement dated as of July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)10.1 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries (previously filed byKilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553)) 10.2† 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))10.3 Lease Agreement dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2 to FormS-11 (No. 333-15553))10.4 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onAmendment No. 2 to Form S-11 (No. 333-15553))10.5 Lease Agreement dated July 17, 1985 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase III (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.6 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase II (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.7 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11(No. 333-15553))10.8 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-11 (No. 333-15553))10.9 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-11 (No. 333-15553))82ExhibitNumber Description10.10 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-11 (No. 333-15553))10.11 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previously filed by Kilroy RealtyCorporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.12 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previouslyfiled by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553)) 10.13† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Sr. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553)) 10.14† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Jr. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))10.15 License Agreement by and among the Registrant and the other persons named therein (previously filed by Kilroy Realty Corporation asan exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553))10.16 Contribution Agreement dated October 21, 1997 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and The AllenGroup and the Allens (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities andExchange Commission on November 21, 1997)10.17 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 1998) 10.18† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of January 1,2007 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon March 22, 2007) 10.19† 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year endedDecember 31, 2008)10.20 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed withthe Securities and Exchange Commission on April 11, 2007)10.21 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N.A. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon April 11, 2007) 10.22† Kilroy Realty Corporation 2007 Deferred Compensation Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.23† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1,2007 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.24† 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31,2008) 10.25† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.26† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective asof December 31, 2009 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31,2008) 10.27† Kilroy Realty Corporation Stock Award Deferral Program (previously filed by Kilroy Realty Corporation as an exhibit to Form 8-K asfiled with the Securities and Exchange Commission on January 2, 2008)10.28 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on November 25, 2009)83ExhibitNumber Description10.29 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 25, 2009)10.30 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on November 25, 2009)10.31 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 25, 2009)10.32† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (previously filed by Kilroy RealtyCorporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.33† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P. and KilroyRealty Corporation (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.34 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 (previouslyfiled by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.35 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 (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 27, 2010)10.36 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 (previously filed byKilroy Realty Corporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 27, 2010)10.37 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy Realty Corporation andKilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on January 13, 2011)10.38 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed byKilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJanuary 13, 2011)10.39 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P. (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)10.40 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy RealtyCorporation and Kilroy Realty, L.P. as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on January 13,2011)10.41 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Barclays Capital Inc. (previouslyfiled by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 28, 2011)10.42 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Wells Fargo Securities, LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJuly 28, 2011)10.43 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Merrill Lynch, Pierce, Fenner &Smith Incorporated (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on July 28, 2011)10.44 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and J.P. Morgan Securities LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJuly 28, 2011)10.45† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr.(previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)84ExhibitNumber Description10.46† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filed byKilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)10.47 Term Loan Agreement dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securitiesand Exchange Commission on April 2, 2012)10.48* First Amendment to Term Loan Agreement dated November 28, 201210.49 Guaranty of Payment of Kilroy Realty Corporation dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-Kas filed with the Securities and Exchange Commission on April 2, 2012)10.50 Promissory Note, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities andExchange Commission on July 5, 2012)10.51 Loan Agreement dated June 28, 2012, by and between KR MML 12701, LLC and Massachusetts Mutual Life Insurance Company(previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)10.52 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Irvine) for 2211 Michelson Drive, Irvine,California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and ExchangeCommission on July 5, 2012)10.53 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Santa Monica) for 2100-2110 ColoradoAvenue, Santa Monica, California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with theSecurities and Exchange Commission on July 5, 2012)10.54 Recourse Guaranty Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with theSecurities and Exchange Commission on July 5, 2012)10.55 Environmental Indemnification Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filedwith the Securities and Exchange Commission on July 5, 2012)10.56* Amended and Restated Revolving Credit Agreement dated November 28, 201210.57* Amended and Restated Guaranty of Payment dated November 28, 201212.1* 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, 2012,formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements ofIncome, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Capital, (v) Consolidated Statements ofCash Flows and (vi) Notes to the Consolidated Financial Statements. (1)*Filed herewith†Management contract or compensatory plan or arrangement.85(1)Pursuant to Rule 406T of Regulation S−T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 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. 86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 11, 2013. KILROY REALTY CORPORATION By /s/ Heidi R. Roth Heidi R. RothSenior Vice President, Chief Accounting Officer 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 11, 2013John B. Kilroy, Sr. /s/ John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer)February 11, 2013John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 11, 2013Tyler H. Rose /s/ Heidi R. Roth Senior Vice President, Chief AccountingOfficer and Controller (Principal AccountingOfficer)February 11, 2013Heidi R. Roth /s/ Edward. F. Brennan, Ph.D. DirectorFebruary 11, 2013Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 11, 2013William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 11, 2013Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 11, 2013Dale F. Kinsella 87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 11, 2013. KILROY REALTY, L.P. By /s/ Heidi R. Roth Heidi R. RothSenior Vice President, Chief Accounting Officer 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 11, 2013John B. Kilroy, Sr. /s/ John B. Kilroy, Jr. President, Chief Executive Officer and Director(Principal Executive Officer)February 11, 2013John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 11, 2013Tyler H. Rose /s/ Heidi R. Roth Senior Vice President, Chief AccountingOfficer and Controller (Principal AccountingOfficer)February 11, 2013Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 11, 2013Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 11, 2013William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 11, 2013Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 11, 2013Dale F. Kinsella 88KILROY REALTY CORPORATION AND KILROY REALTY, L.P.CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011AND FOR THE THREE YEARS ENDED DECEMBER 31, 2012TABLE OF CONTENTS PageFINANCIAL STATEMENTS OF KILROY REALTY CORPORATION: Report of Independent Registered Public Accounting FirmF - 2Consolidated Balance Sheets as of December 31, 2012 and 2011F - 3Consolidated Statements of Operations for the Years ended December 31, 2012, 2011, and 2010F - 4Consolidated Statements of Equity for the Years ended December 31, 2012, 2011, and 2010F - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2012, 2011, and 2010F - 6FINANCIAL STATEMENTS OF KILROY REALTY, L.P.: Report of Independent Registered Public Accounting FirmF - 8Consolidated Balance Sheets as of December 31, 2012 and 2011F - 9Consolidated Statements of Operations for the Years ended December 31, 2012, 2011, and 2010F - 10Consolidated Statements of Capital for the Years ended December 31, 2012, 2011, and 2010F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2012, 2011, and 2010F - 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 - 62Schedule III—Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 63F - 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, 2012 and 2011, andthe related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2012. 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 31,2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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 11, 2013, expressed an unqualified opinion on theCompany’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 11, 2013F - 2KILROY REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2012 2011ASSETS REAL ESTATE ASSETS (Notes 3,17 and 18): Land and improvements$612,714 $537,574Buildings and improvements3,335,026 2,830,310Undeveloped land and construction in progress809,654 430,806Total real estate held for investment4,757,394 3,798,690Accumulated depreciation and amortization(756,515) (742,503)Total real estate held for investment, net ($319,770 and $101,352 of VIE, Note 2)4,000,879 3,056,187 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 17)— 84,156CASH AND CASH EQUIVALENTS16,700 4,777RESTRICTED CASH (Note 17)247,544 358MARKETABLE SECURITIES (Notes 13 and 16)7,435 5,691CURRENT RECEIVABLES, NET (Note 5)9,220 8,395DEFERRED RENT RECEIVABLES, NET (Note 5)115,418 101,142DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLES ASSETS, NET (Notes 3 and 4)189,968 155,522DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,971 18,368PREPAID EXPENSES AND OTHER ASSETS, NET9,949 12,199TOTAL ASSETS$4,616,084 $3,446,795LIABILITIES, NONCONTROLLING INTEREST AND EQUITY LIABILITIES: Secured debt (Notes 3, 6, 7 and 16)$561,096 $351,825Exchangeable senior notes, net (Notes 6, 7 and 16)163,944 306,892Unsecured debt, net (Notes 6, 7 and 16)1,130,895 980,569Unsecured line of credit (Notes 6, 7 and 16)185,000 182,000Accounts payable, accrued expenses and other liabilities (Note 15)154,734 81,713Accrued distributions (Note 10)28,924 22,692Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)117,904 79,781Rents received in advance and tenant security deposits37,654 26,917Liabilities and deferred revenue of real estate assets held for sale (Note 17)— 13,286Total liabilities2,380,151 2,045,675COMMITMENTS AND CONTINGENCIES (Note 15) NONCONTROLLING INTEREST (Note 9): 7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership— 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, no authorized shares at 12/31/2012 and 1,500,000 shares authorized, none issued and outstanding at 12/31/2011— —7.80% Series E Cumulative Redeemable Preferred stock, $.01 par value, no authorized shares at 12/31/2012 and 1,610,000 shares authorized, issued and outstanding ($40,250 liquidation preference) at 12/31/2011— 38,4257.50% Series F Cumulative Redeemable Preferred stock, $.01 par value, no authorized shares at 12/31/2012 and 3,450,000 shares authorized, issued and outstanding ($86,250 liquidation preference) at 12/31/2011— 83,1576.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference) at 12/31/2012 and no authorized shares at 12/31/201196,155 —6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) at 12/31/2012 and no authorized shares at 12/31/201196,256 —Common stock, $.01 par value, 150,000,000 shares authorized, 74,926,981 and 58,819,717 shares issued and outstanding, respectively749 588Additional paid-in capital2,126,005 1,448,997Distributions in excess of earnings(129,535) (277,450)Total stockholders’ equity2,189,630 1,293,717Noncontrolling Interest: Common units of the Operating Partnership46,303 33,765Total equity2,235,933 1,327,482TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY$4,616,084 $3,446,795See accompanying notes to consolidated financial statementsF - 3KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended December 31, 2012 2011 2010REVENUES: Rental income$369,516 $307,118 $235,304Tenant reimbursements32,309 23,977 17,996Other property income3,087 6,534 1,694Total revenues404,912 337,629 254,994EXPENSES: Property expenses79,357 66,821 51,169Real estate taxes34,479 29,633 23,474Provision for bad debts153 781 65Ground leases (Note 4 and 15)3,168 1,779 984General and administrative expenses36,188 28,148 27,963Acquisition-related expenses4,937 4,053 2,248Depreciation and amortization (Notes 2 and 4)162,917 124,928 90,836Total expenses321,199 256,143 196,739OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)848 571 964Interest expense (Note 7)(79,114) (85,785) (55,082)Loss on early extinguishment of debt (Note 7)— — (4,564)Total other (expenses) income(78,266) (85,214) (58,682)INCOME (LOSS) FROM CONTINUING OPERATIONS5,447 (3,728) (427)DISCONTINUED OPERATIONS (Note 17) Income from discontinued operations12,409 19,630 19,364Net gain on dispositions of discontinued operations259,245 51,587 949Total income from discontinued operations271,654 71,217 20,313NET INCOME277,101 67,489 19,886Net income attributable to noncontrolling common units of the Operating Partnership(6,187) (1,474) (178)NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION270,914 66,015 19,708PREFERRED DISTRIBUTIONS AND DIVIDENDS: Distributions to noncontrolling cumulative redeemable preferred units of the Operating Partnership (Note 9)(3,541) (5,588) (5,588)Preferred dividends (Note 10)(10,567) (9,608) (9,608)Original issuance costs of redeemed preferred stock and preferred units (Notes 9 and 11)(6,980) — —Total preferred distributions and dividends(21,088) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$249,826 $50,819 $4,512Loss from continuing operations available to common stockholders per common share—basic (Note 19)$(0.24) $(0.35) $(0.33)Loss from continuing operations available to common stockholders per common share—diluted (Note 19)$(0.24) $(0.35) $(0.33)Net income available to common stockholders per share—basic (Note 19)$3.56 $0.87 $0.07Net income available to common stockholders per share—diluted (Note 19)$3.56 $0.87 $0.07Weighted average shares of common stock outstanding—basic (Note 19)69,639,623 56,717,121 49,497,487Weighted average shares of common stock outstanding—diluted (Note 19)69,639,623 56,717,121 49,497,487Dividends declared per common share$1.40 $1.40 $1.40See 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, 2009$121,582 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 (Note 12) 3.239 2,151 2,151 2,151Noncash amortization of share-based compensation 6,687 6,687 6,687Repurchase of common stock and restricted stock units (59.782) (2,121) (2,121) (2,121)Settlement of restricted stock units for shares of common stock (Note 12) 53,451 (1,296) (1,296) (1,296)Exercise of stock options 4,000 83 83 83Allocation to the equity component of cash paid upon repurchaseof 3.25% Exchangeable Notes (Note 7) (2,694) (2,694) (2,694)Adjustment for noncontrolling interest (Note 2) (4,724) (4,724) 4,724 —Preferred dividends and distributions (15,196) (15,196) (15,196)Dividends declared per common share and common unit ($1.40per share/unit) (71,042) (71,042) (2,413) (73,455)BALANCE AT 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 (Note 12) 68,727 1 2,738 2,739 2,739Noncash amortization of share-based compensation 5,588 5,588 5,588Repurchase of common stock and restricted stock units (11,485) (1,152) (1,152) (1,152)Exercise of stock options 15,000 395 395 395Exchange of common units of the Operating Partnership (Note10) 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 common unit($1.40 per share/unit) (81,017) (81,017) (2,406) (83,423)BALANCE AS OF DECEMBER 31, 2011121,582 58,819.717 588 1,448,997 (277,450) 1,293,717 33,765 1,327,482Net income 270,914 270,914 6,187 277,101Issuance of Series G Preferred stock and Series H Preferred Stock(Note 10)192,411 192,411 192,411Redemption of Series E and Series F Preferred stock (Note 10)(121,582) (4,918) (126,500) (126,500)Redemption of Series A Preferred units (Note 9) (2,062) (2,062) (2,062)Issuance of common stock (Note 10) 16,024,618 161 671,941 672,102 672,102Issuance of share-based compensation awards (Note 12) 62,137 — 1,291 1,291 1,291Noncash amortization of share-based compensation (Note 12) 8,537 8,537 8,537Repurchase of common stock and restricted stock units (Note 12) (22,312) (877) (877) (877)Settlement of restricted stock units for shares of common stock (Note 12) 27,821 (784) (784) (784)Exercise of stock options 5,000 129 129 129Issuance of common units in connection with an operatingproperty acquisition (Note 11) 5,604 5,604Exchange of common units of the Operating Partnership (Note10) 10,000 231 231 (231) —Adjustment for noncontrolling interest (Note 2) (3,460) (3,460) 3,460 —Preferred dividends and distributions (14,108) (14,108) (14,108)Dividends declared per common share and common unit($1.40 per share/unit) (101,911) (101,911) (2,482) (104,393)BALANCE AS OF DECEMBER 31, 2012$192,411 74,926,981 $749 $2,126,005 $(129,535) $2,189,630 $46,303 $2,235,933See accompanying notes to consolidated financial statements.F - 5ating KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2012 2011 2010CASH FLOWS FROM OPERATING ACTIVITIES: Net income$277,101 $67,489 $19,886Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): Depreciation and amortization of building and improvements and leasing costs168,687 135,467 102,898(Decrease) increase in provision for bad debts(42) 644 (1,063)Depreciation of furniture, fixtures and equipment1,213 1,130 911Noncash amortization of share-based compensation awards (Note 12)7,670 4,482 6,031Noncash amortization of deferred financing costs and net debt discounts8,433 13,540 12,490Noncash amortization of net (below)/above market rents (Note 4)(6,699) 1,056 1,377Net gain on dispositions of discontinued operations (Note 17)(259,245) (51,587) (949)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(9,136) (9,349) (9,689)Straight-line rents(21,530) (21,331) (13,616)Loss on early extinguishment of debt (Note 7)— — 4,564Net change in other operating assets(1,297) (5,434) (9,065)Net change in other operating liabilities17,320 2,779 5,509Insurance proceeds received for property damage and other, net(1,751) (630) 543Net cash provided by operating activities180,724138,256 119,827CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(454,841) (603,301) (637,620)Expenditures for acquisitions of development and redevelopment properties (Note 3)(333,942) — —Expenditures for operating properties(86,377) (62,739) (71,099)Expenditures for development and redevelopment properties and undeveloped land(83,310) (28,517) (21,832)Net proceeds received from dispositions of operating properties (Note 17)263,572 64,171 14,978Insurance proceeds received for property damage1,751 — —Decrease (increase) in acquisition-related deposits5,000 (5,000) —(Increase) decrease in restricted cash (Note 3)(18,359) 1,103 3,120Receipt of principal payments on note receivable— — 10,679Net cash used in investing activities(706,506) (634,283) (701,774)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Series G and Series H preferred stock (Note 10)192,411 — —Redemption of Series E and Series F preferred stock (Note 10)(126,500) — —Redemption of Series A preferred units (Note 9)(75,000) — —Net proceeds from issuance of common stock (Note 10)672,102 233,312 299,847Borrowings on unsecured line of credit704,000 550,000 660,000Repayments on unsecured line of credit(701,000) (527,000) (598,000)Proceeds from the issuance of secured debt (Note 7)97,000 135,000 71,000Principal payments on secured debt(106,262) (127,665) (103,247)Proceeds from the issuance of unsecured debt (Note 7)150,000 324,476 572,672Repayments of unsecured debt— — (61,000)Repurchase of exchangeable senior notes (Note 7)— — (151,097)Repayments of exchangeable senior notes (Note 7)(148,000) — —Financing costs(7,963) (9,060) (14,912)Decrease (increase) in loan deposits and other— 2,859 (605)Repurchase of common stock and restricted stock units(1,661) (1,152) (3,417)Proceeds from exercise of stock options129 395 83Dividends and distributions paid to common stockholders and common unitholders(97,386) (80,005) (69,224)Dividends and distributions paid to preferred stockholders and preferred unitholders(14,165) (15,196) (15,196)Net cash provided by financing activities537,705 485,964 586,904Net increase (decrease) in cash and cash equivalents11,923 (10,063) 4,957Cash and cash equivalents, beginning of year4,777 14,840 9,883Cash and cash equivalents, end of year$16,700 $4,777 $14,840F - 6KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)(in thousands) Year Ended December 31, 2012 2011 2010SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $17,657, $7,615, and $7,697 as of December 31, 2012, 2011and 2010, respectively$71,633 $68,280 $45,986NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$54,198 $14,301 $19,563Tenant improvements funded directly by tenants$17,719 $3,288 $4,758Assumption of secured debt in connection with property acquisitions (Notes 3 and 7)$221,032 $30,042 $51,079Assumption of other assets and liabilities in connection with operating and development property acquisitions, net(Note 3)$37,535 $4,515 $10,840NONCASH FINANCING TRANSACTIONS: Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 10)$26,863 $21,188 $18,925Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Note 10)$1,694 $1,909 $1,909Issuance of share-based compensation awards, net (Note 12)$31,396 $7,797 $5,910Issuance of common units in the Operating Partnership in connection with an operating property acquisition (Note 3)$5,604 $— $—Exchange of common units of the Operating Partnership into shares of the Company’s common stock (Note 10)$231 $91 $—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, 2012 and 2011,and the related consolidated statements of operations, capital, and cash flows for each of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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 11, 2013, expressed an unqualifiedopinion on the Operating Partnership's internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 11, 2013F - 8KILROY REALTY, L.P.CONSOLIDATED BALANCE SHEETS(in thousands, except unit data) December 31, 2012 2011 ASSETS REAL ESTATE ASSETS (Notes 3, 17 and 18): Land and improvements$612,714 $537,574Buildings and improvements3,335,026 2,830,310Undeveloped land and construction in progress809,654 430,806Total real estate held for investment4,757,394 3,798,690Accumulated depreciation and amortization(756,515) (742,503)Total real estate held for investment, net ($319,770 and $101,352 of VIE, Note 2)4,000,879 3,056,187 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 17)— 84,156CASH AND CASH EQUIVALENTS16,700 4,777RESTRICTED CASH (Note 17)247,544 358MARKETABLE SECURITIES (Notes 13 and 16)7,435 5,691CURRENT RECEIVABLES, NET (Note 5)9,220 8,395DEFERRED RENT RECEIVABLES, NET (Note 5)115,418 101,142DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4)189,968 155,522DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,971 18,368PREPAID EXPENSES AND OTHER ASSETS, NET9,949 12,199TOTAL ASSETS$4,616,084 $3,446,795LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL LIABILITIES: Secured debt (Notes 3, 6, 7 and 16)$561,096 $351,825Exchangeable senior notes, net (Notes 6, 7 and 16)163,944 306,892Unsecured debt, net (Notes 6, 7 and 16)1,130,895 980,569Unsecured line of credit (Notes 6, 7 and 16)185,000 182,000Accounts payable, accrued expenses and other liabilities (Note 15)154,734 81,713Accrued distributions (Note 10)28,924 22,692Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)117,904 79,781Rents received in advance and tenant security deposits37,654 26,917Liabilities and deferred revenue of real estate assets held for sale (Note 17)— 13,286Total liabilities2,380,151 2,045,675COMMITMENTS AND CONTINGENCIES (Note 15) 7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS (Note 9)— 73,638CAPITAL (Notes 9 and 11): Partners' Capital: 7.80% Series E Cumulative Redeemable Preferred units, no units issued at 12/31/2012, 1,610,000 units issued andoutstanding ($40,250 liquidation preference) at 12/31/2011— 38,4257.50% Series F Cumulative Redeemable Preferred units, no units issued at 12/31/2012, 3,450,000 units issued andoutstanding ($86,250 liquidation preference) at 12/31/2011— 83,1576.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidationpreference) at 12/31/2012 and no units issued at 12/31/201196,155 —6.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidationpreference) at 12/31/2012 and no units issued at 12/31/201196,256 —Common units, 74,926,981 and 58,819,717 held by the general partner and 1,826,503 and 1,718,131 held by commonlimited partners issued and outstanding, respectively2,040,243 1,203,259 Total Partners' Capital2,232,654 1,324,841Noncontrolling interests in consolidated subsidiaries3,279 2,641Total capital2,235,933 1,327,482TOTAL LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL$4,616,084 $3,446,795See 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, 2012 2011 2010REVENUES: Rental income$369,516 $307,118 $235,304Tenant reimbursements32,309 23,977 17,996Other property income3,087 6,534 1,694Total revenues404,912 337,629 254,994EXPENSES: Property expenses79,357 66,821 51,169Real estate taxes34,479 29,633 23,474Provision for bad debts153 781 65Ground leases (Notes 4 and 15)3,168 1,779 984General and administrative expenses36,188 28,148 27,963Acquisition-related expenses4,937 4,053 2,248Depreciation and amortization (Notes 2 and 4)162,917 124,928 90,836Total expenses321,199 256,143 196,739OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)848 571 964Interest expense (Note 7)(79,114) (85,785) (55,082)Loss on early extinguishment of debt (Note 7)— — (4,564)Total other (expenses) income(78,266) (85,214) (58,682)INCOME (LOSS) FROM CONTINUING OPERATIONS5,447 (3,728) (427)DISCONTINUED OPERATIONS (Note 17) Income from discontinued operations12,409 19,630 19,364Net gain on dispositions of discontinued operations259,245 51,587 949Total income from discontinued operations271,654 71,217 20,313NET INCOME277,101 67,489 19,886Net income attributable to noncontrolling interests in consolidated subsidiaries(638) (529) (162)NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.276,463 66,960 19,724Preferred distributions (Note 11)(14,108) (15,196) (15,196)Original issuance costs of redeemed preferred units (Notes 9 and 11)(6,980) — —Total preferred distributions(21,088) (15,196) (15,196)NET INCOME AVAILABLE TO COMMON UNITHOLDERS$255,375 $51,764 $4,528Loss from continuing operations available to common unitholders per unit-basic (Note 20)$(0.24) $(0.36) $(0.33)Loss from continuing operations available to common unitholders per unit-diluted (Note 20)$(0.24) $(0.36) $(0.33)Net income available to common unitholders per unit-basic (Note 20)$3.56 $0.86 $0.07Net income available to common unitholders per unit-diluted (Note 20)$3.56 $0.86 $0.07Weighted average common units outstanding-basic (Note 20)71,403,258 58,437,444 51,220,618Weighted average common units outstanding-diluted (Note 20)71,403,258 58,437,444 51,220,618Distributions declared per common unit$1.40 $1.40 $1.40See 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, 2009$121,582 44,871.893 $760,756 $882,338 $1,500 $883,838Net income 19,724 19,724 162 19,886Issuance of common units (Note 11) 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 6,687Repurchase of common units and restricted stock units (59,782) (2,121) (2,121) (2,121)Settlement of restricted stock units for shares of common stock (Note12) 53,451 (1,296) (1,296) (1,296)Exercise of stock options 4,000 83 83 83Allocation to the equity component of cash paid upon repurchase of3.25% 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 11) 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 5,588Repurchase of common units and restricted stock units (11,485) (1,152) (1,152) (1,152)Exercise of stock options 15,000 395 395 395Other (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, 2011121,582 60,537.848 1,203,259 1,324,841 2,641 1,327,482Net income 276,463 276,463 638 277,101Issuance of Series G Preferred units and Series H Preferred units (Note11)192,411 192,411 192,411Redemption of Series E and Series F Preferred units (Note 11)(121,582) (4,918) (126,500) (126,500)Redemption of Series A Preferred units (Note 9) (2,062) (2,062) (2,062)Issuance of common units (Note 11) 16,024,618 672,102 672,102 672,102Issuance of share-based compensation awards (Note 12) 62,137 1,291 1,291 1,291Noncash amortization of share-based compensation(Note 12) 8,537 8,537 8,537Repurchase of common units and restricted stock units (Note 12) (22,312) (877) (877) (877)Settlement of restricted stock units (Note 12) 27,821 (784) (784) (784)Exercise of stock options 5,000 129 129 129Issuance of common units in connection with an operating propertyacquisition (Notes 2 and 11) 118,372 5,604 5,604 5,604Preferred distributions (14,108) (14,108) (14,108)Distributions declared per common unit ($1.40 per unit) (104,393) (104,393) (104,393)BALANCE AS OF DECEMBER 31, 2012$192,411 76,753,484 $2,040,243 $2,232,654 $3,279 $2,235,933See accompanying notes to consolidated financial statements.F - 11KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2012 2011 2010CASH FLOWS FROM OPERATING ACTIVITIES: Net income$277,101 $67,489 $19,886Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): Depreciation and amortization of building and improvements and leasing costs168,687 135,467 102,898(Decrease) increase in provision for bad debts(42) 644 (1,063)Depreciation of furniture, fixtures and equipment1,213 1,130 911Noncash amortization of share-based compensation awards (Note 12)7,670 4,482 6,031Noncash amortization of deferred financing costs and net debt discounts8,433 13,540 12,490Noncash amortization of net (below)/above market rents (Note 4)(6,699) 1,056 1,377Net gain on dispositions of discontinued operations (Note 17)(259,245) (51,587) (949)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(9,136) (9,349) (9,689)Straight-line rents(21,530) (21,331) (13,616)Loss on early extinguishment of debt (Note 7)— — 4,564Net change in other operating assets(1,297) (5,434) (9,065)Net change in other operating liabilities17,320 2,779 5,509Insurance proceeds received for property damage and other, net(1,751) (630) 543Net cash provided by operating activities180,724 138,256 119,827CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(454,841) (603,301) (637,620)Expenditures for acquisitions of development and redevelopment properties (Note 3)(333,942) — —Expenditures for operating properties(86,377) (62,739) (71,099)Expenditures for development and redevelopment properties and undeveloped land(83,310) (28,517) (21,832)Net proceeds received from dispositions of operating properties (Note 17)263,572 64,171 14,978Insurance proceeds received for property damage1,751 — —Decrease (increase) in acquisition-related deposits5,000 (5,000) —(Increase) decrease in restricted cash (Note 3)(18,359) 1,103 3,120Receipt of principal payments on note receivable— — 10,679Net cash used in investing activities(706,506) (634,283) (701,774)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Series G and Series H preferred units (Note 11)192,411 — —Redemption of Series E and Series F preferred units (Note 11)(126,500) — —Redemption of Series A preferred units (Note 9)(75,000) — —Net proceeds from issuance of common units (Note 11)672,102 233,312 299,847Borrowings on unsecured line of credit704,000 550,000 660,000Repayments on unsecured line of credit(701,000) (527,000) (598,000)Proceeds from the issuance of secured debt (Note 7)97,000 135,000 71,000Principal payments on secured debt(106,262) (127,665) (103,247)Proceeds from the issuance of unsecured debt (Note 7)150,000 324,476 572,672Repayments of unsecured debt— — (61,000)Repurchase of exchangeable senior notes (Note 7)— — (151,097)Repayments of exchangeable senior notes (Note 7)(148,000) — —Financing costs(7,963) (9,060) (14,912)Decrease (increase) in loan deposits and other— 2,859 (605)Repurchase/redemption of common units and restricted stock units(1,661) (1,152) (3,417)Proceeds from exercise of stock options129 395 83Distributions paid to common unitholders(97,386) (80,005) (69,224)Distributions paid to preferred unitholders(14,165) (15,196) (15,196)Net cash provided by financing activities537,705 485,964 586,904Net increase (decrease) in cash and cash equivalents11,923 (10,063) 4,957Cash and cash equivalents, beginning of year4,777 14,840 9,883Cash and cash equivalents, end of year$16,700 $4,777 $14,840F - 12KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS -(Continued)(in thousands) Year Ended December 31, 2012 2011 2010SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $17,657, $7,615, and $7,697 as of December 31, 2012, 2011 and2010, respectively$71,633 $68,280 $45,986NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$54,198 $14,301 $19,563Tenant improvements funded directly by tenants$17,719 $3,288 $4,758Assumption of secured debt in connection with property acquisition (Notes 3 and 7)$221,032 $30,042 $51,079Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note3)$37,535 $4,515 $10,840NONCASH FINANCING TRANSACTIONS: Accrual of distributions payable to common unitholders (Note 11)$26,863 $21,188 $18,925Accrual of distributions payable to preferred unitholders (Note 11)$1,694 $1,909 $1,909Issuance of share-based compensation awards, net (Note 12)$31,396 $7,797 $5,910Issuance of common units in connection with an operating property acquisition (Note 3)$5,604 $— $—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, 20121.Organization and OwnershipOrganizationKilroy Realty Corporation (the "Company") is a self-administered real estate investment trust ("REIT") active in office submarkets along the West Coast.We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, SanDiego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estateencompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material,workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code").The Company's common stock is publicly traded on the New York Stock Exchange ("NYSE") under the ticker symbol "KRC."We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the "Operating Partnership") and Kilroy Realty Finance Partnership, L.P.(the "Finance Partnership"). We 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.Our portfolio of operating properties was comprised of the following office properties at December 31, 2012. During the fourth quarter of 2012 we disposedof our industrial portfolio and, as a result, no longer owned any industrial properties at December 31, 2012 (see Note 17 and 18 for further discussion). Number of Buildings Rentable Square Feet(unaudited) Number of Tenants Percent OccupiedOffice Properties114 13,249,780 530 92.8%Our stabilized portfolio includes all of our properties with the exception of undeveloped land, development and redevelopment properties currently underconstruction or committed for construction including 9455 Towne Center in San Diego, CA, which was moved from the stabilized portfolio to thedevelopment pipeline in the fourth quarter of 2012, "lease-up" properties and properties held-for-sale. We define redevelopment properties as those projects forwhich we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result ofwhich is a higher economic return on the property. We define "lease-up" properties as properties we recently developed or redeveloped that have not yet reached95% occupancy and are within one year following cessation of major construction activities. As of December 31, 2012, the following properties were excludedfrom our stabilized portfolio: Number of Properties Estimated Rentable Square Feet (unaudited)(1)Development properties under construction4 1,416,000Redevelopment properties under construction1 410,000Lease-up properties1 98,000________________________(1) Estimated rentable square feet upon completion.As of December 31, 2012, all of our properties and development and redevelopment projects are owned and all of our business is currently conducted inthe state of California with the exception of ten office properties located in the state of Washington.As of December 31, 2012, the Company owned a 97.6% general partnership interest in the Operating Partnership. The remaining 2.4% common limitedpartnership interest in the Operating Partnership as of December 31, 2012 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 Seventh Amended and Restated Agreement of Limited Partnership (as amended, the “PartnershipAgreement”) (see Note 9).Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% generalpartnership interest. The Operating Partnership owns the remaining 99.0% limited partnership interest. Kilroy Services, LLC ("KSLLC"), which is a wholly-owned subsidiary of the Operating Partnership, is the entity through whichF - 14we conduct substantially all of our development activities. With the exception of the Operating Partnership, all of our subsidiaries are wholly-owned.2.Basis of Presentation and Significant Accounting PoliciesBasis of PresentationThe consolidated financial statements of the Company include the consolidated financial position and results of operations of 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-owned andcontrolled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.Consolidated Variable Interest EntitiesAs of December 31, 2012 the consolidated financial statements of the Company and the Operating Partnership also included two variable interest entities("VIEs") in which we are deemed to be the primary beneficiary. During the year ended December 31, 2012, one operating property and one development projectwere acquired in two separate transactions and transferred to two special purpose VIEs to facilitate potential Section 1031 Exchanges. To realize the tax deferralavailable under the Section 1031 Exchange, the Company must complete the Section 1031 Exchanges, if any, and take title to the to-be-exchanged propertieswithin 180 days of the acquisition dates (see Note 3). The VIEs were terminated subsequent to year-end. The impact of consolidating the VIEs increased theCompany's total assets and liabilities by approximately $337.0 million (of which $319.8 million is related to real estate held for investment on ourconsolidated balance sheets) and $111.1 million, respectively, at December 31, 2012. As of December 31, 2011, the consolidated financial statements of theCompany and the Operating Partnership included one VIE in which we were deemed to be the primary beneficiary, which was established in September 2011to facilitate a Section 1031 Exchange. The impact of consolidating this VIE increased the Company's total assets and liabilities by approximately $108.5million (of which $101.4 million was related to real estate held for investment on our consolidated balance sheets) and $7.3 million, respectively, atDecember 31, 2011. This Section 1031 Exchange was completed in January 2012 and this entity was no longer a VIE at December 31, 2012.Change in Segment ReportingAt December 31, 2012 we only had one segment, which was our office properties segment, because all of our industrial properties were sold during the yearended December 31, 2012. During the year ended December 31, 2011 we had one reportable segment, which was our office properties segment, and we had onenon-reportable segment, which was our industrial properties segment.For 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 threshold and the industrial propertieswere no longer considered to be a reportable segment under GAAP. For the year ended December 31, 2010, the amount of revenues and Net Operating Incomegenerated by our industrial properties, in relation to our total consolidated operating portfolio revenues and Net Operating Income, was greater than the required10% quantitative reporting threshold and the industrial properties were considered to be a reportable segment under GAAP.Significant Accounting PoliciesAcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of acquisitions of operating properties and development and redevelopmentopportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The acquired assets andassumed liabilities for an acquisition generally include but are not limited to: land, buildings and improvements, undeveloped land and construction inprogress; and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value ofabove-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Any debt assumed andequity (including common units of the Operating Partnership) issued in connection with a property acquisition is recorded at fair value on the date ofacquisition.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.F - 15KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 for the period required to leasethe "assumed vacant" property to the occupancy level when purchased. The amount recorded for acquired in-place leases is included in deferred leasing costsand acquisition-related intangibles, net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remaining term ofthe applicable leases.We record the acquisition of undeveloped land that does not meet the accounting criteria to be accounted for as business combinations and the subsequentacquisition of the fee interest in land underlying our properties at the purchase price paid and capitalize the associated acquisition costs. During the year endedDecember 31, 2012, we capitalized $0.7 million in acquisition costs associated with the acquisition of undeveloped land.Fully amortized intangible assets are written off on January 1st of each fiscal year.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.F - 16KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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, 2012, 2011, and 2010 was $125.9 million, $106.0 million and $86.3 million, respectively.Asset DescriptionDepreciable LivesBuildings and improvements25 – 40 yearsTenant improvements1 – 20 years(1)________________________(1)Tenant improvements are amortized over the shorter of the lease term or the estimated useful life. Discontinued Operations and Properties Held for SaleThe revenues and expenses of operating properties that have been sold, if material, and the revenues and expenses of 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 the properties are sold. In determining whether the revenues, expenses, and net gains (losses) on dispositions of operatingproperties are reported as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing, ormanagement of the sold property. If we were to determine that we had any significant continuing involvement, the revenues, expenses and net gain (loss) ondispositions of the operating property would not be 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, 2012, we did not have any buildings classified as held for sale, and as of December 31, 2011, we had two buildings classified as held for sale,which were sold in January 2012 (see Note 17).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.F - 17KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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.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 our 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 proceeds from dispositions that are temporarily held at qualified intermediaries for purposes of facilitating potentialSection 1031 Exchanges and cash held in escrow related to acquisition holdbacks. Restricted cash also includes cash held as collateral to provide creditenhancement for the Operating Partnership's mortgage debt, including cash reserves for capital expenditures, tenant improvements, and property taxes.Marketable Securities / Deferred Compensation PlanMarketable securities reported in our consolidated balance sheets represent the assets held in connection with the Kilroy 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.F - 18KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Deferred Financing CostsFinancing costs related to the origination or assumption of long-term debt are deferred and generally amortized using the straight-line method of accounting,which approximates the effective interest method, over the contractual terms of the applicable financings. As of December 31, 2012 and 2011, deferredfinancing costs were reported net of accumulated amortization of $16.6 million and $16.8 million, respectively.Debt Discounts and PremiumsOriginal 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. Discounts are recorded as additionalinterest expense from date of issuance or acquisition through the contractual maturity date of the related debt. Premiums are recorded as a reduction to interestexpense from the date of issuance or acquisition through the contractual maturity date of the related debt. Our secured debt is presented including unamortizedpremiums of $7.2 million and $0.8 million as of December 31, 2012 and 2011, respectively. Our unsecured senior notes are presented net of unamortizeddiscounts of $2.1 million and $2.4 million, as of December 31, 2012 and 2011, 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 from the issuance of the exchangeabledebt 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, onour consolidated balance sheets. We allocate issuance costs for exchangeable debt between the liability and the equity components 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 3.25%Exchangeable Notes, which were outstanding during the year ended December 31, 2011 and repaid during the year ended December 31, 2012 (see Note 7). Wecalculate the gain or loss on early extinguishment of debt as the difference on the repurchase date between the estimated fair value of the liability component andthe net carrying amount of the repurchased exchangeable debt. Deferred financing costs are written off against the gain on early extinguishment of debt or addedto the loss on early extinguishment of debt in proportion to the exchangeable debt repurchased.Noncontrolling Interests in the Company's Consolidated Financial StatementsNoncontrolling interests in the Company's consolidated financial statements represent the issued 1,510,000 7.45% Series A Cumulative RedeemablePreferred Units of the Operating Partnership (“Series A Preferred Units”) which were outstanding at December 31, 2011 and common limited partnershipinterests in the Operating Partnership not held by the Company (“noncontrolling common units”).The Series A Preferred Units were 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 contained a right of redemption at the option of the holdersin the event of certain corporate events. On August 15, 2012, the Operating Partnership redeemed all Series A Preferred Units (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 shares ofcommon stock at the option of the issuer must be further evaluated to determine whether equity or temporary equity classification on the balance sheet isappropriate. Since the common units contain such a provision, we evaluated the accounting guidance and determined that the common units qualify for equitypresentation in the Company's consolidated financial statements (see Note 9).F - 19KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 4,000,000 6.875% Series G Cumulative RedeemablePreferred Units ("Series G Preferred Units") and the 4,000,000 6.375% Series H Cumulative Redeemable Preferred Units ("Series H Preferred Units"), whichwere outstanding as of December 31, 2012. The Series A Preferred Units, 1,610,000 7.80% Series E Cumulative Redeemable Preferred Units ("Series EPreferred Units") and 3,450,000 7.50% Series F Cumulative Redeemable Preferred Units ("Series F Preferred Units") were outstanding as of December 31,2011 and redeemed during the year ended December 31, 2012.The Series A Preferred Units were 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 G and Series H Preferred Units are presented in the permanent equity section of the Operating Partnership's consolidated balance sheets giventhat the Series G and Series H Preferred Units may be redeemed only at our option (see Note 11). The Company is the holder of both the Series G and Series HPreferred Units and for each Series G and Series H Preferred Unit, the Company has an equivalent number of shares of the Company's 6.875% Series GCumulative Redeemable Preferred Stock and shares of the Company's 6.375% Series H Cumulative Redeemable Preferred Stock publicly issued andoutstanding. The Series E Preferred Units and Series F Preferred Units were presented in the permanent equity section of the Operating Partnership'sconsolidated balance sheets at December 31, 2011, similar to the Series G and Series H Preferred Units.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. The redemption rights of the noncontrolling common units permitus to settle the redemption obligation in either cash or shares of the Company's common stock at our option (see Note 9).Noncontrolling Interests on the Operating Partnership's Consolidated Balance SheetsNoncontrolling interests of the Operating Partnership represent the Company's 1.0% 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 common equity offerings and our at-the-market stock offering program (see Note10) are reflected as a reduction of additional paid-in capital. Issuance costs incurred in connection with preferred equity offerings are reflected as a reduction ofthe carrying value of the preferred equity.The Company records preferred stock issuance costs as a non-cash preferred equity distribution at the time we notify the holders of preferred stock orunits of our intent to redeem such shares or units.The net proceeds from any equity offering of the Company are contributed to the Operating Partnership in exchange for a number of common or preferredunits equivalent to the number of shares of common or preferred stock issued and are reflected in the Operating Partnership's consolidated financial statementsas an increase in partners' capital.Share-based Incentive Compensation AccountingCompensation cost for all share-based awards, including options, requires measurement at estimated fair value on the grant date and recognition of thecompensation cost is recognized over the service vesting period, which represents the requisite service period, on a straight-line basis. The grant date fair valueof market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The grant date fair value of stockoption grants is calculated using the Black-Scholes valuation model.F - 20KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 when the performance period precedes the grant date, we estimate the total compensationcost of the potential future awards. We then record compensation cost equal to the portion of the requisite service period that has elapsed through the end of thereporting period. For programs with performance-based measures, the total estimated compensation cost is based on our most recent estimate of the probableachievement of the pre-established specific corporate performance measures. These estimates are based on our latest internal forecasts for each performancemeasure. For programs with market measures, the total estimated compensation cost is based on the fair value of the award at the 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 to common stockholders, after theallocation of income to participating securities, by the weighted-average number of vested shares of common stock outstanding, for the period. Diluted netincome (loss) available to common stockholders per share is computed by dividing net income (loss) available for common stockholders, after the allocation ofincome to participating securities, by the sum of the weighted-average number of shares of common stock outstanding for the period plus the assumed exerciseof all dilutive securities. The impact of the outstanding common units is considered in the calculation of diluted net income (loss) available to commonstockholders per share. The common units are not reflected in the diluted net income (loss) available to common stockholders per share calculation because theexchange of common 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 thecommon stock (see Note 19). 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.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 to common unitholders, after theallocation of income to participating securities, by the weighted-average number of vested common units outstanding, for the period. Diluted net income (loss)available to common unitholders per unit is computed by dividing net income (loss) available to common unitholders, after the allocation of income toparticipating securities, by the sum of the weighted-average number of common units outstanding for the period plus the assumed exercise of all dilutivesecurities.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 to 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 recorded atfair value on a recurring basis in our consolidated financial statements are our marketable securities. We elected not to apply the fair value option for any ofour 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. ObservableF - 21KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use ofobservable market data when available. The following is the fair value hierarchy:•Level 1—quoted prices for identical instruments in active markets;•Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments 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 using quoted prices in active markets for identical assets. Our other financial instruments, whichare only disclosed at fair value, are comprised of secured debt, unsecured senior notes, unsecured line of credit, unsecured term loan facility and ExchangeableNotes.We generally determine the fair value of our secured debt, unsecured line of credit, and unsecured term loan facility by performing discounted cash flowanalyses using an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to thematurities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. Wecalculate the market rate of our unsecured line of credit and unsecured term loan facility by obtaining the period-end London Interbank Offered Rate("LIBOR") rate and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreads takeinto account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured, andthe loan-to-value ratio of the debt to the collateral. These calculations are significantly affected by the assumptions used, including the discount rate, creditspreads, and estimates of future cash flow. We determine the fair value of the liability component of our Exchangeable Notes by performing discounted cashflow analyses using an appropriate market interest rate based upon spreads for our publicly traded debt. We determine the fair value of each of our publiclytraded unsecured senior notes based on their quoted trading price at the end of the reporting period, if such prices are available.Carrying amounts of our cash and cash equivalents, restricted cash, and accounts payable approximate fair value due to their short-term maturities.Income TaxesWe have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must 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 guidance allows REITs to satisfy up to 90% of this requirement through the distribution ofshares of common stock, if certain conditions are met. We generally will not be subject to federal income taxes if we distribute 100% of our taxable income foreach year to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes (including any applicablealternative minimum tax) on our taxable income at regular corporate rates and we may not be able to qualify as a REIT for four subsequent taxable years. Evenif we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to federal income taxes and excise taxeson our undistributed taxable income. We believe that we have met all of the REIT distribution and technical requirements for the years ended December 31,2012, 2011 and 2010, and we were not subject to any federal income taxes (see Note 21). We intend to continue to adhere to these requirements and maintainthe 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 the year ended December 31, 2012 the taxable REIT subsidiary had less than $60,000 of taxable income and for the years ended December 31, 2011 and2010 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 stillF - 22KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)subject to potential audit. As of December 31, 2012, the years still subject to audit are 2008 through 2011 under the California state income tax law and 2009through 2011 under the federal income tax law. We concluded that we did not have any unrecognized tax benefits or any additional tax liabilities as ofDecember 31, 2012 and 2011.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 ten 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, 2012, our 15 largest tenants represented approximately 34.1% 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, 2012 and 2011, we had cash accounts in excess of FDIC insured limits.Recent Accounting PronouncementsIn October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements ("ASU 2012-04"), which makescertain technical corrections and “conforming fair value amendments” to the FASB Accounting Standards Codification. The amendments affect variousCodification topics and apply to all reporting entities within the scope of those topics. These provisions of the amendment are effective upon issuance, exceptfor amendments that are subject to transition guidance, which will be effective for fiscal periods beginning after December 15, 2012. The provisions of ASU2012-04 are not expected to have a material impact on our consolidated financial statements.Effective January 1, 2012, we adopted the provisions of ASU No. 2011-04, Amendment to Achieve Common Fair Value Measurement and DisclosureRequirements in U.S. GAAP and IFRSs ("ASU 2011-04"), which amended ASC Topic 820, Fair Value Measurement. The objective of this guidance is todevelop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP andInternational Financial Reporting Standards. The guidance also requires expanded fair value disclosures related to Level 3 financial instruments and Level 3financial instrument transfers. The guidance does not require any new fair value measurements. The adoption of this guidance did not have a material impacton our consolidated financial statements or notes to our consolidated financial statements.F - 23KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)3.Acquisitions Operating PropertiesDuring the years ended December 31, 2012 and 2011, we acquired the 24 operating office properties listed below from unrelated third parties. Unlessotherwise noted, we funded these acquisitions with proceeds from the Company's public offerings of common stock (see Note 10), borrowings under theunsecured line of credit (see Note 7), disposition proceeds (see Note 17), the assumption of existing debt and the issuance of common units of the OperatingPartnership.PropertyAcquisition Number ofBuildings Rentable Square Feet(unaudited) Occupancy as of December31, 2012 (unaudited) Purchase Price(in millions) (1) 2012 Acquisitions 4100-4700 Bohannon Drive, Menlo Park, CAFebruary 29, 2012 7 374,139 84.7% $162.5701 and 801 N. 34th Street, Seattle, WA (3)June 1, 2012 2 308,407 99.4% 105.4837 N. 34th Street, Seattle, WAJune 1, 2012 1 111,580 100.0% 39.210900 NE 4th Street, Bellevue, WA (2)(4)July 24, 2012 1 416,755 90.5% 186.16255 W. Sunset Boulevard, Los Angeles, CA (5)July 31, 2012 1 321,883 85.2% 78.812233 Olympic Blvd, Los Angeles, CA (6)October 5, 2012 1 151,029 96.8% 72.9599 N. Mathilda Avenue, Sunnyvale, CA (2)(7)December 17, 2012 1 75,810 100.0% 29.1Total 14 1,759,603 $674.0 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 (8)April 21, 2011 4 279,924 90.0% 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 90.4% 215.04040 Civic Center Drive, San Rafael, CAJune 9, 2011 1 126,787 98.1% 32.2201 Third Street, San Francisco, CASeptember 15, 2011 1 332,076 99.5% 103.3301 Brannan Street, San Francisco, CANovember 15, 2011 1 74,430 100.0% 30.0Total 10 1,568,945 $546.3________________________(1)Excludes acquisition-related costs and non-lease related accrued liabilities assumed. Includes assumed unpaid leasing commissions and tenant improvements.(2)As of December 31, 2012, these properties were temporarily being held in separate VIEs to facilitate potential Section 1031 Exchanges (see Note 2). The VIE was terminated subsequent to year-end.(3)We acquired these properties through the acquisition of the ownership interest of the bankruptcy remote LLC that owned the properties. In connection with this acquisition we also acquired cash of approximately $4.0 millionand other assets of approximately $0.2 million and we assumed current liabilities of approximately $0.6 million and secured debt with an outstanding principal balance of $34.0 million and a premium of $1.7 million as aresult of recording the debt at fair value at the acquisition date (see Note 7).(4)In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.6 million and a premium of $1.4 million as a result of recordingthis debt at fair value on the acquisition date. In January 2013, we repaid this loan prior to the stated maturity (see Note 7).(5) As part of the consideration for this transaction, we issued 118,372 common units of the Operating Partnership valued at $47.34 per unit, which was the Company's closingstock price on the NYSE on the acquisition date. In connection with this acquisition we also assumed secured debt with an outstanding principal balance of $53.9 million and apremium of $3.1 million as a result of recording this debt at fair value on the acquisition date (see Note 7). We also assumed $4.7 million of accrued liabilities in connectionwith this acquisition that are not included in the purchase price above.(6)In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $40.7 million and a premium of $2.7 million as a result of recording this debt at fair value on the acquisition date (see Note7).(7)This operating property was acquired in connection with the purchase of the 555 N. Mathilda Ave. development property discussed in further detail in the "Development and Redevelopment Project Site" section of thisfootnote, for a total purchase price of $137.6 million. The acquisition of both the operating property and the development site in a single transaction constituted our third largest acquisition of 2012.(8)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).The related assets, liabilities, and results of operations of the 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 our2012 and 2011 acquisitions:F - 24KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2012 Acquisitions 4100-4700 Bohannon Drive,Menlo Park, CA 10900 NE 4th Street,Bellevue, WA 599 N. Mathilda,Sunnyvale, CA All OtherAcquisitions (1) Total (in thousands)Assets Land and improvements (2)$38,810 $25,080 $13,538 $40,211 $117,639Buildings and improvements (3)124,617 150,877 12,558 257,458 545,510Cash and cash equivalents— — — 3,973 3,973Restricted cash— — — 5,329 5,329Deferred leasing costs and acquisition-related intangible assets (4)9,470 16,469 3,004 30,570 59,513Prepaid expenses and other assets— — — 184 184Total assets acquired172,897 192,426 29,100 337,725 732,148Liabilities Deferred revenue and acquisition-related intangible liabilities (5)10,380 4,940 — 19,700 35,020Secured debt, net (6)— 84,984 — 136,048 221,032Accounts payable, accrued expenses and other liabilities137 627 — 5,584 6,348Total liabilities assumed10,517 90,551 — 161,332 262,400Net assets and liabilities acquired (7)$162,380 $101,875 $29,100 $176,393 $469,7482011 Acquisitions 601 108th Avenue N.E.,Bellevue, WA 201 Third StreetSan Francisco, CA All OtherAcquisitions (1) Total (in thousands)Assets Land and improvements (2)$— $19,260 $42,650 $61,910Buildings and improvements (3)214,095 84,018 165,995 464,108Undeveloped land and construction in progress— — 2,560 2,560Deferred leasing costs and acquisition-related intangible assets (8)13,790 8,700 20,140 42,630Total assets acquired227,885 111,978 231,345 571,208Liabilities Deferred revenue and acquisition-related intangible liabilities (9)12,850 8,700 2,390 23,940Secured debt, net (10)— — 30,997 30,997Accounts payable, accrued expenses, and other liabilities2,380 76 2,059 4,515Total liabilities assumed15,230 8,776 35,446 59,452Net assets and liabilities acquired (11)$212,655 $103,202 $195,899 $511,756________________________(1)The purchase price of all other acquisitions during the years ended December 31, 2012 and 2011 were individually less than 5% and in aggregate less than 10% of the Company's total assets as of December 31, 2012 and2011, respectively.(2)In connection with the acquisitions of 701, 801, and 837 N. 34th Street, Seattle, WA, we assumed the lessee obligations under a ground lease with an initial expiration in December 2041. The ground lease obligation containsthree 10-year extension options and one 45-year extension option. In connection with the acquisitions of 601 108th Avenue N.E., Bellevue, WA, we assumed the lessee obligation under a ground lease that is scheduled to expirein November 2093 (see Note 15 for additional information pertaining to these ground leases).(3)Represents buildings, building improvements, and tenant improvements.(4)Represents in-place leases (approximately $43.4 million with a weighted average amortization period of 4.7 years), above-market leases (approximately $1.4 million with a weighted average amortization period of 3.8 years),leasing commissions (approximately $14.2 million with a weighted average amortization period of 3.4 years), and a below-market ground lease obligation (approximately $0.5 million with a weighted average amortizationperiod of 59.6 years).(5)Represents below-market leases (approximately $33.9 million with a weighted average amortization period of 6.5 years) and an above-market ground lease obligation (approximately $1.1 million with a weighted averageamortization period of 29.6 years).(6)Represents the fair value of the mortgage loans assumed, which includes an aggregate unamortized premium balance of approximately $8.9 million at the dates of acquisition (see Note 7).(7)Reflects the purchase price plus cash and restricted cash received, net of assumed secured debt, lease-related obligations and other accrued liabilities.(8)Represents in-place leases (approximately $27.4 million with a weighted average amortization period of 3.8 years), above-market leases (approximately $6.8 million with a weighted average amortization period of 4.5 yearsyears) and unamortized leasing commissions (approximately $8.5 million with a weighted average amortization period of 2.5 years).(9)Represents below-market leases (approximately $18.7 million with a weighted average amortization period of 3.9 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.(10)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).(11)Reflects the purchase price net of assumed secured debt and other lease-related obligations.F - 25KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Development and Redevelopment Project SitesDuring the years ended December 31, 2012 and 2011, we acquired seven development and redevelopment project sites from unrelated third parties. Unlessotherwise noted, we funded these acquisitions with proceeds from the Company's public offering of common stock (see Note 10), disposition proceeds (seeNote 17) and borrowings under the unsecured line of credit (see Note 7).ProjectDate of Acquisition Type PurchasePrice(in millions) (1)2012 Acquisitions 690 E. Middlefield Road, Mountain View, CA (2)(3)May 9, 2012 Development $74.5333 Brannan Street, San Francisco, CAJuly 20, 2012 Development 18.5Columbia Square, Los Angeles, CA (4)September 28, 2012 Development andRedevelopment 65.0350 Mission Street, San Francisco, CAOctober 23, 2012 Development 52.0331 Fairchild Drive, Mountain View, CA (2)(5)December 4, 2012 Development 21.8555 N. Mathilda Avenue, Sunnyvale, CA (2)(6)(7)December 17, 2012 Development 108.5Total $340.3 2011 Acquisitions 360 Third Street, San Francisco, CADecember 15, 2011 Redevelopment $91.5Total $91.5________________________(1)Excludes leasing costs and/or other accrued liabilities assumed in connection with the acquisitions.(2)Acquisition of these development sites are accounted for as business combinations because the projects were 100% pre-leased upon acquisition.(3)The total purchase price for this acquisition was comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other accrued liabilities.(4)In connection with this acquisition we also assumed $1.1 million of other accrued liabilities which are not included in the purchase price above.(5)The total purchase price for this acquisition was comprised of a cash purchase price of $18.9 million plus $2.9 million of development costs reimbursed to the seller. In addition, we assumed $2.1 million of leasingcommissions and other accrued liabilities which are not included in the purchase price above.(6)As of December 31, 2012, this property was temporarily being held in a separate VIE to facilitate a potential Section 1031 Exchange (see Note 2). The VIE was terminated subsequent to year-end.(7)This development site was acquired with the purchase of the 555 Mathilda operating property for a total cash purchase price of $137.6 million plus $2.4 million of development costs reimbursed to the seller. In addition, weassumed $11.8 million of other accrued liabilities which are not included in the purchase price above.The related assets and liabilities of the acquired projects are included in the consolidated financial statements as of the date of acquisition. The followingtable summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for our 2012 and 2011 developmentand redevelopment acquisitions:2012 Acquisitions 555 N. Mathilda, Sunnyvale,CA All Other Acquisitions Total (in thousands)Assets Undeveloped land and construction in progress$120,243 $244,584 $364,827Restricted cash (1)11,250 — 11,250Prepaid expenses and other assets— 1,300 1,300Total assets acquired131,493 245,884 377,377 Liabilities Accounts payable, accrued expenses and other liabilities (1)23,071 9,752 32,823Total liabilities assumed23,071 9,752 32,823Net assets and liabilities acquired (2)$108,422 $236,132 $344,554F - 26KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2011 Acquisition 360 Third Street, San Francisco, CA (in thousands)Assets Undeveloped land and construction in progress (3)$89,345Deferred leasing costs and acquisition-related intangible assets2,930Total assets acquired92,275Liabilities Deferred revenue and acquisition-related intangible liabilities730Total liabilities assumed730Net assets and liabilities acquired$91,545________________________(1)In connection with this acquisition, restricted cash is being held in escrow to pay for potential environmental costs and contingent development costs. Any unused amounts will be released to the seller.(2)Reflects the purchase price including assumed leasing commissions, net of assumed accrued liabilities.(3)In connection with this acquisition we assumed the lessee obligation under a ground lease that is scheduled to expire in December 2022. We exercised the $27.5 million land purchase option, which was not included in thepurchase price, during 2012 and anticipate we will close on the purchase of the land during the second quarter of 2013 (see Note 15 for additional information pertaining to this ground lease).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, 2012 and 2011: December 31, 2012 2011 (in thousands)Deferred Leasing Costs and Acquisition-related Intangible Assets, net: Deferred leasing costs$168,087 $142,652Accumulated amortization(61,443) (52,974)Deferred leasing costs, net106,644 89,678Above-market operating leases27,977 28,143Accumulated amortization(12,180) (8,101)Above-market operating leases, net15,797 20,042In-place leases101,061 61,355Accumulated amortization(34,019) (15,753)In-place leases, net67,042 45,602Below-market ground lease obligation690 200Accumulated amortization(205) —Below-market ground lease obligation, net485 200Total deferred leasing costs and acquisition-related intangible assets, net$189,968 $155,522Acquisition-related Intangible Liabilities, net(1): Below-market operating leases$70,486 $37,582Accumulated amortization(17,555) (6,158)Below-market operating leases, net52,931 31,424Above-market ground lease obligation6,320 5,200Accumulated amortization(122) (37)Above-market ground lease obligation, net6,198 5,163Total acquisition-related intangible liabilities, net$59,129 $36,587________________________F - 27KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(1)Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles for the years ended December 31, 2012, 2011and 2010: Year Ended December 31, 2012 2011 2010 (in thousands)Deferred leasing costs (1)$20,804 $16,905 $13,344Above-market operating leases (2)5,695 5,946 2,163In-place leases (1)21,976 12,575 3,266Below-market ground lease obligation (3)205 — —Below-market operating leases (4)(12,393) (4,890) (786)Above-market ground lease obligation (5)(85) (37) —Total$36,202 $30,499 $17,987_________________________(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 periodspresented.(2) The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.(3)The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.(4)The amortization of below−market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.(5)The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as ofDecember 31, 2012 for future periods:Year EndingDeferred Leasing Costs Above-MarketOperating Leases (1) In-Place Leases Below-Market GroundLease Obligation (2) Below-MarketOperating Leases (3) Above-MarketGround LeaseObligation (4) (in thousands)2013$22,676 $5,316 $23,298 $8 $(13,140) $(101)201420,235 4,336 15,567 8 (11,360) (101)201516,377 2,533 9,913 8 (8,828) (101)201613,757 1,506 6,798 8 (6,645) (101)201711,421 1,185 5,417 8 (5,577) (101)Thereafter22,178 921 6,049 445 (7,381) (5,693)Total$106,644 $15,797 $67,042 $485 $(52,931) $(6,198)_______________________(1)Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.(2)Represents estimated annual amortization related to below−market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.(3)Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.(4)Represents estimated annual amortization related to above−market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations. 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, 2012 and 2011:F - 28KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2012 2011 (in thousands) Current receivables $11,801 $10,985 Allowance for uncollectible tenant receivables (2,581) (2,590) Current receivables, net $9,220 $8,395 Deferred Rent Receivables, netDeferred rent receivables, net consisted of the following as of December 31, 2012 and 2011: December 31, 2012 2011 (in thousands) Deferred rent receivables $118,025 $104,548 Allowance for deferred rent receivables (2,607) (3,406) Total deferred rent receivables, net $115,418 $101,142 F - 29KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 revolving credit facility, the $150.0million unsecured term loan facility, 6.625% unsecured senior notes due 2020, the 4.80% unsecured senior notes due 2018, the 5.00% unsecured senior notesdue 2015, the 6.45% unsecured senior notes due 2014, and the 4.25% Exchangeable Notes. As of both December 31, 2012 and 2011, the OperatingPartnership had $1.5 billion outstanding in total under these unsecured debt obligations.In addition, although the remaining $0.6 billion and $0.4 billion of the Operating Partnership's debt for December 31, 2012 and 2011, 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 capped call option transactions discussed further in Note 7.Debt Covenants and RestrictionsOne of the covenants contained within the credit facility and the term loan facility, as discussed further below in Note 7 prohibits the Company frompaying dividends in excess of 95% of funds from operations ("FFO").7. Secured and Unsecured Debt of the Operating PartnershipSecured DebtThe following table sets forth the composition of our secured debt as of December 31, 2012 and 2011: Annual Stated GAAP December 31,Type of DebtInterest Rate (1) Effective Rate (1)(2) Maturity Date 2012 (11) 2011 (11) (in thousands)Mortgage note payable4.27% 4.27% February 2018 $135,000 $135,000Mortgage note payable (3)(9)4.48% 4.48% July 2027 97,000 —Mortgage note payable (4)(9)6.37% 3.55% April 2013 83,116 —Mortgage note payable (5)5.57% 5.57% August 2012 — 71,517Mortgage note payable6.51% 6.51% February 2017 68,615 69,507Mortgage note payable (6)(9)5.23% 3.50% January 2016 56,302 —Mortgage note payable (7)(9)5.57% 3.25% February 2016 43,016 —Mortgage note payable (8)(9)5.09% 3.50% August 2015 35,379 —Mortgage note payable (9)4.94% 4.00% April 2015 28,941 30,191Mortgage note payable (5)4.95% 4.95% August 2012 — 29,754Mortgage note payable7.15% 7.15% May 2017 11,210 13,294Public facility bonds (10)Various Various Various 2,517 2,562Total $561,096 $351,825_______________________(1)All interest rates presented are fixed-rate interest rates.(2)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.(3)In June 2012, we obtained a mortgage loan that is secured by one office property located in Irvine, California and two office properties located in Los Angeles, California and requires monthly principal and interest paymentsbased on a 30 year amortization period with an initial 3 years of interest only payments.(4)In July 2012, in connection with the acquisition of one office building in Bellevue, Washington, we assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $83.6 millionat the acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $1.4 million. The loan requires monthly principal and interest payments based on a 30 yearamortization period. In January 2013, we repaid this loan prior to the stated maturity.(5)In May 2012, we repaid these loans prior to the stated maturity.(6)In July 2012, in connection with the acquisition of one office building in Los Angeles, California, we assumed a mortgage loan that is secured by the project. The assumed mortgage had a principal balance of $53.9 million atthe acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $3.1 million. The loan requires monthly principal and interest payments based on a 30 yearamortization period.(7)In October 2012, in connection with the acquisition of one office building in Los Angeles, California, we assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $40.7million at the acquisition date and was recorded at fair value at the date of acquisition resulting in an initial premium ofapproximately $2.7 million.(8)In June 2012, in connection with the acquisition of two office buildings in Seattle, Washington, we assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $34.0 millionat the acquisition date and was recorded at fair value at the date of acquisition resulting in an initial premium ofF - 30KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)approximately $1.7 million.(9)The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.(10)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 ofCarlsbad. The Bonds have annual maturities from September 1, 2013 through September 1, 2038, with interest rates ranging from 4.74% to 6.20%. Principal and interest payments for the Bonds will be charged throughthe assessment of special property taxes.(11)Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.The Operating Partnership’s secured debt was collateralized by 20 operating properties as of December 31, 2012 with a combined net book value of $1.0billion and 18 operating properties at December 31, 2011 with a combined net book value of $567.8 million.Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Companyprovides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments,and environmental liabilities.As of December 31, 2012, nine of the Operating Partnership's ten secured loans contained restrictions that would require the payment of prepaymentpenalties for the acceleration of outstanding debt. The mortgage notes payable are secured by deeds of trust on certain of our properties and the assignment ofcertain rents and leases associated with those properties. The Bonds are secured by property tax payments.Exchangeable Senior NotesThe following table summarizes the balance and significant terms of the Company's 3.25% Exchangeable Notes due April 2012 (the "3.25% ExchangeableNotes") and 4.25% Exchangeable Notes due November 2014 (the "4.25% Exchangeable Notes" and together with the 3.25% Exchangeable Notes, the"Exchangeable Notes") outstanding as of December 31, 2012 and 2011. The Company repaid the 3.25% Exchangeable Notes in April 2012 upon maturity. 3.25% Exchangeable Notes 4.25% Exchangeable Notes December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 (in thousands)Principal amount$— $148,000 $172,500 $172,500Unamortized discount— (924) (8,556) (12,684)Net carrying amount of liability component$— $147,076 $163,944 $159,816Carrying amount of equity component $33,675 $19,835Issuance date April 2007 November 2009Maturity date April 2012 November 2014Stated coupon rate (1) 3.25% 4.25%Effective interest rate (2) 5.45% 7.13%Exchange rate per $1,000 principal value of the Exchangeable Notes, asadjusted (3) 27.8307Exchange price, as adjusted (3) $35.93Number of shares on which the aggregate consideration to be deliveredon conversion is determined (3) 4,800,796_______________(1)Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year.(2)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.(3)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 4.25% Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain eventsas follows: (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 priceper share 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 anyfive consecutive trading days in which the trading price per $1,000 principal amount of the Exchangeable Notes was less than 98% of the product of theclosing sale 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 August 15, 2014.Upon exchange, the holders of the 4.25% Exchangeable Notes will receive (i) cash up to the principal amount of the Exchangeable Notes and (ii) to theextent the exchange value exceeds the principal amount of the 4.25% Exchangeable Notes,F - 31KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)shares of the Company’s common stock. At any time prior to August 15, 2014, the Operating Partnership may irrevocably elect, in its sole discretion withoutthe consent of the holders of the 4.25% Exchangeable Notes, to settle all of the future exchange obligations of the 4.25% 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 30 trading-day observation period.During the third quarter of 2012, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per shareof the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three months ended December 31, 2012, the 4.25%Exchangeable Notes were exchangeable at the exchange rate stated above, however no holders exchanged any of the 4.25% Exchangeable Notes during thisperiod. The 4.25% Exchangeable notes may again be exchangeable if one or more of the events were again to occur during future measurement periods.For the years ended December 31, 2012 and December 31, 2011, the per share average trading price of the Company's common stock on the NYSE washigher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below: Year Ended December 31, 2012 2011Per share average trading price of the Company's common stock$45.72 $37.27The average trading price of the Company's common stock on the NYSE was below the exchange price for the 4.25% Exchangeable Notes during yearended December 31, 2010 and below the exchange price for the 3.25% Exchangeable Notes, which were repaid in April 2012, during the years ended December31, 2011 and 2010. See Notes 19 and 20 for a discussion of the impact of the Exchangeable Notes on our diluted earnings per share and unit calculations forthe periods presented.Using the per share average trading price presented in the table above, the approximate fair value of the shares upon conversion of the 4.25% ExchangeableNotes as of December 31, 2012 and December 31, 2011 would have been as follows: December 31, 2012 (1) December 31, 2011 (2) (in thousands)Approximate fair value of shares upon conversion$221,200 $179,100Principal amount of 4.25% Exchangeable Notes172,500 172,500Approximate fair value in excess amount of principal amount$48,700 $6,600_______________(1)Although the 4.25% Exchangeable Notes were exchangeable during the three months ended December 31, 2012, no 4.25% Exchangeable Notes were exchanged during the period. The 4.25% Exchangeable Notes were notexchangeable during the remainder of the year.(2)The 4.25% Exchangeable Notes were not exchangeable during the year ended December 31, 2011.Exchangeable Note Tender Offer and Note RepurchasesIn June 2010, we repurchased 3.25% Exchangeable Notes with an aggregate stated principal amount of $150.0 million for approximately $151.1 million incash, including transaction costs, pursuant to a tender offer. As a result of the transaction, we recorded a net loss on early extinguishment of debt ofapproximately $4.6 million and charged approximately $2.7 million, representing 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, 2012, 2011, and 2010: Year Ended December 31, 2012 2011 2010 (in thousands)Contractual interest payments$8,721 $12,141 $14,565Amortization of discount5,052 6,928 7,965Interest expense attributable to Exchangeable Notes$13,773 $19,069 $22,530F - 32KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 capped calls for the 3.25% Exchangeable Notes, which referenced a total of 1,121,201 shares of common stock with an exchange price of $102.72 atDecember 31, 2011, were terminated when the 3.25% Exchangeable Notes were repaid in April 2012. The table below summarizes our capped call optionpositions for the 4.25% Exchangeable Notes as of both December 31, 2012 and 2011: 4.25% Exchangeable Notes (1)Referenced shares of common stock4,800,796Exchange price including effect of capped calls$42.81________________________(1)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 4.25% Exchangeable Notes or upon the date upon which the 4.25%Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of capped calls were recorded as a reduction toadditional paid-in capital.Unsecured Senior NotesThe following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as ofDecember 31, 2012 and 2011: 4.800% Unsecured Senior Notes 6.625% Unsecured Senior Notes 5.000% Unsecured Senior Notes December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 (in thousands)Principal amount$325,000 $325,000 $250,000 $250,000 $325,000 $325,000Unamortized discount(413) (486) (1,580) (1,793) (112) (152)Net carrying amount$324,587 $324,514 $248,420 $248,207 $324,888 $324,848Issuance dateJuly 2011 May 2010 November 2010Maturity dateJuly 2018 June 2020 November 2015Stated coupon rate (1)(2)(3)4.800% 6.625% 5.000%Effective interest rate (4)4.827% 6.743% 5.014%________________________(1)Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(2)Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.(3)Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.(4)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 revolving credit facility and to fund operating property acquisitions. In 2010, we used the net proceeds from the 6.625% and 5.000%unsecured senior 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 registered unsecured senior note issuances listed above, we also had outstanding Series B unsecured senior notes with an aggregateprincipal balance of $83.0 million and effective interest rate of 6.45% as of December 31, 2012 and 2011, that mature in August 2014. The Series B notesrequire semi-annual interest payment each February and August based on a fixed annual interest rate of 6.45%.F - 33KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Term Loan FacilityIn March 2012, the Operating Partnership entered into a $150.0 million term loan facility, which is included in unsecured debt, net on our consolidatedbalance sheets. The term loan facility bears interest at an annual rate of LIBOR plus 1.750%, which can vary depending on the Operating Partnership's creditrating, and is scheduled to mature on March 29, 2016. Under the terms of the term loan facility, we may exercise an option to extend the maturity date by oneyear. We may elect to borrow up to an additional $100.0 million under an accordion option, subject to bank approval. We used the borrowings under the termloan facility to repay the 3.25% Exchangeable Notes in April 2012 upon maturity.Unsecured Revolving Credit FacilityIn August 2010 we entered into our current $500.0 million revolving credit facility and used the borrowings under the revolving credit facility to repay andthen terminate our prior $550.0 million unsecured revolving credit facility. In March 2012, we amended the revolving credit facility to reduce the FMV CapRate (as defined in the revolving credit facility agreement), which is used to calculate the fair value of our assets for certain covenants under the revolvingcredit facility, from 7.50% to 6.75%. There were no other changes to the terms of the revolving credit facility in connection with this amendment. In November2012 and June 2011, we amended and restated our revolving credit facility to extend the maturity date and reduce the interest rate and facility fee. Thefollowing table summarizes the terms of our revolving credit facility as of December 31, 2012 and December 31, 2011: December 31, 2012 December 31, 2011 (in thousands)Outstanding borrowings$185,000 $182,000Remaining borrowing capacity315,000 318,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)1.66% 2.05%Facility fee-annual rate (3)0.300% 0.350%Maturity date (4)April 2017 August 2015_______________________(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 revolving credit facility.(2)The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% and 1.750% as of December 31, 2012 and December 31, 2011, 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 costs of approximately $5.0 million when we enteredinto the revolving credit facility in 2010, an additional $3.3 million when we amended the terms of the revolving credit facility in June 2011 and an additional $1.9 million when we amended the terms of the revolving creditfacility in November 2012. The unamortized balance of these costs are amortized through the extended maturity date of the revolving credit facility.(4)Under the original and all amended terms of the revolving credit facility, we may exercise an option to extend the maturity date by one year.The Company intends to borrow amounts under the revolving credit facility from time to time for general corporate purposes, to fund potentialacquisitions, to finance development and redevelopment expenditures, and to potentially repay long-term debt.Debt Covenants and RestrictionsThe revolving credit facility, the unsecured senior notes, the term loan facility, and certain other secured debt arrangements contain covenants andrestrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratioof total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debtservice coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the associateddebt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of December 31, 2012 and 2011.F - 34KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Debt MaturitiesThe following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as ofDecember 31, 2012: Year Ending(in thousands) 2013$90,881 2014263,913 2015393,711 2016247,822 2017255,036 Thereafter793,056 Total$2,044,419(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 reported in continuing operations, including debt discount/premium and loan cost amortization, netof capitalized interest, for the years ended December 31, 2012, 2011 and 2010. The interest expense capitalized was recorded as a cost of development andredevelopment, and increased the carrying value of undeveloped land and construction in progress. (See Note 17 for interest expense reported in discontinuedoperations). Year Ended December 31, 2012 2011 2010 (1) (in thousands)Gross interest expense$98,906 $94,915 $69,661Capitalized interest(19,792) (9,130) (10,015)Interest expense$79,114 $85,785 $59,646_______________________(1) Interest expense for the year ended December 31, 2010 includes loss on extinguishment of debt.F - 35KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)8. Deferred Revenue and Acquisition Related Liabilities, netDeferred revenue and acquisition-related liabilities, net consisted of the following at December 31, 2012 and 2011: December 31, 2012 2011 (in thousands)Deferred revenue related to tenant-funded tenant improvements$56,461 $41,884Other deferred revenue2,314 1,310Acquisition-related intangible liabilities, net (1)59,129 36,587Total$117,904 $79,781________________________(1)See Note 4 for additional information.Deferred Revenue Related to Tenant-funded Tenant ImprovementsDuring the years ended December 31, 2012, 2011, and 2010, $9.1 million, $9.3 million, and $9.7 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, 2012 for the next five years and thereafter: Year Ending(in thousands)2013$10,05420149,33920158,25520167,82520176,409Thereafter14,579Total$56,4619.Noncontrolling Interests on the Company's Consolidated Financial Statements7.45% Series A Cumulative Redeemable Preferred Units of the Operating PartnershipOn August 15, 2012 (the "Series A Redemption Date"), the Operating Partnership redeemed all 1,500,000 outstanding 7.45% Series A CumulativeRedeemable Preferred Units representing preferred limited partnership interests in the Operating Partnership ("Series A Preferred Units"). On the Series ARedemption Date, the Series A Preferred Units were redeemed at a redemption price equal to $50.00 per unit, representing $75.0 million in aggregate, plus allaccrued and unpaid distributions to the Series A Redemption Date.During the year ended December 31, 2012, we recognized a non-recurring non-cash charge of $2.1 million as a reduction to net income available tocommon stockholders for the original issuance costs related to the Series A Preferred Units.As of December 31, 2011, all 1,500,000 Series A Preferred units were outstanding and the accrued distribution payable to holders of Series A PreferredUnits, which was included in the Series A Preferred Units noncontrolling interest on the balance sheet, was $0.7 million.Common Units of the Operating PartnershipThe Company owned a 97.6% and 97.2% common general partnership interest in the Operating Partnership as of December 31, 2012 and 2011,respectively. The remaining 2.4% and 2.8% common limited partnership interest as of December 31, 2012 and 2011, respectively, was owned by non-affiliateinvestors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,826,503 and 1,718,131 common unitsoutstanding held by these investors, executive officers and directors as of December 31, 2012 and 2011, respectively. The increase in the common units fromDecember 31, 2011 to December 31, 2012 was primarily attributable to 118,372 units issued in connection with an operating property acquisition (see Note3).The noncontrolling common units may be redeemed by unitholders for cash. We, at our option, may satisfy the cash redemption obligation with shares ofthe Company’s common stock on a one-for-one basis. Whether satisfied in cash or shares of the Company’sF - 36KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)common stock, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of theCompany’s common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable balance sheetdate. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $85.4 million and $64.7 million as of December 31,2012 and 2011, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrollingcommon unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unitwould be entitled to 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 Stock Issuances6.375% Series H and 6.875% Series G Cumulative Redeemable Preferred StockIn August 2012, the Company issued 4,000,000 shares of its 6.375% Series H Cumulative Redeemable Preferred Stock ("Series H Preferred Stock") at apublic offering price of $25.00 per share, for a total of approximately $96.2 million of net proceeds, after deducting the underwriting discount and otheroffering-related costs. We used a portion of the net proceeds to redeem the Series A Preferred Units as discussed in Note 9 and the remaining portion for generalcorporate purposes. Dividends on the Series H Preferred Stock are cumulative and are payable quarterly in arrears on the 15th day of each February, May,August and November, commencing November 15, 2012. The Series H Preferred Stock is presented in stockholders' equity on the consolidated balance sheetnet of issuance costs.In March 2012, the Company issued 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("Series G Preferred Stock") at apublic offering price of $25.00 per share, for a total of approximately $96.2 million of net proceeds, after deducting the underwriting discount and otheroffering-related costs. We used the net proceeds to redeem the Series E Preferred and Series F Preferred Stock as discussed below. Dividends on the Series GPreferred Stock are cumulative and are payable quarterly in arrears on the 15th day of each February, May, August and November, commencing May 15,2012. The Series G Preferred Stock is presented in stockholders' equity on the consolidated balance sheet net of issuance costs.The outstanding shares of the Series G Preferred Stock and the Series H Preferred Stock do not have a stated maturity date and are not subject to anysinking fund or mandatory redemption. Upon liquidation, dissolution or winding up, the Series G Preferred Stock and the Series H Preferred Stock will ranksenior to the Company's common stock with respect to the payment of distributions and other amounts. Holders of the Series G Preferred Stock and the SeriesH Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly dividendperiods (whether or not consecutive). The Company may not redeem the Series G Preferred Stock prior to March 27, 2017 nor the Series H Preferred Stockprior to August 15, 2017, except in limited circumstances relating to the Company’s continuing qualification as a REIT and upon certain specified change incontrol transactions in which the Company’s shares of common stock and the acquiring or surviving entity common securities would not be listed on theNYSE, NYSE Amex or NASDAQ, or any successor exchanges. On or after March 27, 2017 or August 15, 2017, the Company may, at its option, redeemthe Series G Preferred Stock or the Series H Preferred Stock, respectively, in whole or in part at any time or from time to time, by payment of $25.00 per sharein cash, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a specified change of controltransaction, the Company may, at its option, redeem the Series G Preferred Stock or the Series H Preferred Stock in whole or in part within 120 days after thechange of control occurred, by paying $25.00 per share in cash, plus any accrued and unpaid distributions through the date of redemption. If the Companydoes not exercise its right to redeem the Series G Preferred Stock or the Series H Preferred Stock upon the occurrence of a specified change of controltransaction, the holders of Series G Preferred Stock and the Series H Preferred Stock have the right to convert some or all of their shares into a number of theCompany’s shares of common stock based on a pre-determined formula subject to a maximum share cap of 4,390,000 shares of common stock for the SeriesG Preferred Stock and 4,187,600 shares of common stock for the Series H Preferred Stock.Preferred Stock Redemption7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred StockOn April 16, 2012 (the "Series E and F Redemption Date"), the Company redeemed all 1,610,000 outstanding shares of its 7.80% Series E CumulativeRedeemable Preferred Stock ("Series E Preferred Stock") and all 3,450,000 outstanding shares of its 7.50% Series F Cumulative Redeemable Preferred Stock("Series F Preferred Stock"). On the Series E and F Redemption Date, the shares of Series E and Series F Preferred Stock (together, the “Redeemed PreferredStock”) were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $126.5 million in aggregate, plus allaccrued and unpaid dividends to the Series E and F Redemption Date. As of December 31, 2011, all 1,610,000 Series E Preferred Stock and all 3,450,000Series F Preferred Stock were outstanding.F - 37KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThree Years Ended December 31, 2012During the year ended December 31, 2012, we recognized a non-recurring non-cash charge of $4.9 million as a reduction to net income available tocommon stockholders for the original issuance costs related to the Redeemed Preferred Stock.Common StockIssuance of Common StockIn August 2012, the Company completed an underwritten public offering of 5,750,000 shares of its common stock. The net offering proceeds, afterdeducting sales agent compensation and offering expenses, were approximately $253.8 million. We used a portion of the net proceeds from the offering to fundacquisitions, repay borrowings under the revolving credit facility, and for general corporate purposes.In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock. The net offering proceeds, afterdeducting sales agent compensation and offering expenses, were approximately $382.1 million. We used a portion of the net proceeds from the offering to fundacquisitions, repay borrowings under the revolving credit facility, and for general corporate purposes.In April 2011, the Company completed an underwritten public offering of 6,037,500 shares of its common stock. The net offering proceeds, afterdeducting sales agent compensation and offering expenses, were approximately $221.0 million. We used a portion of the net proceeds from the offering to fundacquisitions 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 sales agent compensation and offering expenses, were approximately $299.8 million. We used a portion of the net proceeds from the offering to fundacquisitions, repay borrowings under the prior revolving credit facility, and for general corporate purposes.At-The-Market Stock Offering ProgramUnder our at-the-market stock offering program, which commenced in July 2011, 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. During the year ended December 31, 2012, we sold 787,118 shares ofcommon stock under this program for aggregate gross proceeds of approximately $37.0 million and net proceeds of approximately $36.3 million, after salesagent compensation. During the year ended December 31, 2011, we sold 355,305 shares of common stock under this program for aggregate gross proceeds ofapproximately $13.0 million and net proceeds of approximately $12.8 million, after sales agent compensation. The proceeds from the sales were used to fundacquisitions and general corporate purposes including repayment of borrowings under the revolving credit facility. Since commencement of the program, wehave sold 1,142,423 shares of common stock and, as of December 31, 2012, approximately $150.0 million remains available to be sold under this program.Actual future sales will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stockand our capital needs. We have no obligation to sell the remaining shares available for sale under this program.Dividend Reinvestment and Direct Purchase PlanDuring the year ended December 31, 2011, the Company had a Dividend Reinvestment and Direct Purchase Plan (the “DRIP Plan”) designed to provide theCompany’s stockholders and other investors with a convenient and economical method to purchase shares of the Company’s common stock. As ofDecember 31, 2011, no shares had been acquired under the DRIP Plan from new issuances. We terminated the DRIP Plan effective as of January 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, 2012, 2011 or 2010.F - 38KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThree Years Ended December 31, 2012Accrued 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, 2012 and 2011: December 31, 2012 2011 (in thousands)Dividends and Distributions payable to: Common stockholders$26,224 $20,587Noncontrolling common unitholders of the Operating Partnership639 601RSU holders (1)367 295Total accrued dividends and distribution to common stockholders and noncontrolling unitholders27,230 21,483Preferred stockholders1,694 1,209Total accrued dividends and distributions$28,924 $22,692______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12). December 31, 2012 2011Outstanding Shares and Units: Common stock (1)74,926,981 58,819,717Noncontrolling common units1,826,503 1,718,131RSUs (2)1,048,863 842,675Series E Preferred stock 1,610,000Series F Preferred stock 3,450,000Series G Preferred stock4,000,000 Series H Preferred stock4,000,000 ______________________(1)The amount includes nonvested shares.(2)The amount includes nonvested RSUs.11. Preferred and Common Units of the Operating PartnershipPreferred Unit IssuancesThe Company issued 4,000,000 shares of its Series H Preferred Stock in August 2012 and issued 4,000,000 shares of its Series G Preferred Stock inMarch 2012 as discussed in Note 10. The net proceeds of approximately $96.2 million and $96.2 million were contributed by the Company to the OperatingPartnership in exchange for 4,000,000 Series H Preferred Units and 4,000,000 Series G Preferred Units, respectively. The Company is the sole holder of theSeries H Preferred Units and Series G Preferred Units. The terms of the Series H Preferred Units and Series G Preferred Units are substantially similar to theterms of the Series H Preferred Stock and Series G Preferred Stock, respectively, as discussed in Note 10. Distributions on the Series H Preferred Units andSeries G Preferred Units are paid to the Company.Preferred Unit Redemption7.45% Series A Cumulative Redeemable Preferred UnitsOn August 15, 2012 (the "Series A Redemption Date"), the Operating Partnership redeemed all 1,500,000 outstanding units of its 7.45% Series ACumulative Redeemable Preferred Units representing preferred limited partnership interests in the Operating Partnership ("Series A Preferred Units") asdiscussed in Note 9. As of December 31, 2011, all 1,500,000 Series A Preferred Units were outstanding.F - 39KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred Units On April 16, 2012 (the "Series E and F Redemption Date"), the Company redeemed all 1,610,000 outstanding units of its 7.80% Series E CumulativeRedeemable Preferred Units ("Series E Preferred Units") and all 3,450,000 outstanding units of its 7.50% Series F Cumulative Redeemable Preferred Units("Series F Preferred Units"). For each share of Series E and Series F Preferred Stock that was outstanding, the Company had an equivalent number of SeriesE Preferred Units and Series F Preferred Units outstanding with substantially similar terms as the Series E and Series F Preferred Stock. As of December 31,2011, all 1,610,000 Series E Preferred Units and all 3,450,000 Series F Preferred Units were outstanding.Common UnitsIssuance of Common UnitsIn August 2012, the Company completed an underwritten public offering of 5,750,000 shares of its common stock as discussed in Note 10. The netoffering proceeds of approximately $253.8 million were contributed by the Company to the Operating Partnership in exchange for 5,750,000 common units.In July 2012, the Company issued 118,372 common units in connection with an operating property acquisition as discussed in Note 3. Each unit wasvalued at $47.34, which was the Company's closing stock price on the NYSE on the acquisition date.In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock as discussed in Note 10. The netoffering proceeds of approximately $382.1 million were contributed by the Company to the Operating Partnership in exchange for 9,487,500 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 its common stock as discussed in Note 10. The net offeringproceeds of approximately $299.8 million were contributed by the Company to the Operating Partnership in exchange for 9,200,000 common units.At-The-Market Stock Offering ProgramDuring the year ended December 31, 2012, the Company utilized its at-the-market stock offering program to issue an aggregate of 787,118 shares ofcommon stock as discussed in Note 10. The net offering proceeds of approximately $36.3 million were contributed by the Company to the OperatingPartnership in exchange for 787,118 common units.During the year ended December 31, 2011, the Company utilized its at-the-market stock offering program to issue an aggregate of 355,305 shares ofcommon stock as discussed in Note 10. The net offering proceeds of approximately $12.8 million were contributed by the Company to the OperatingPartnership in exchange for 355,305 common units.Common Units OutstandingThe Company owned 74,926,981 and 58,819,717 common units representing a 97.6% and 97.2% common general partnership interest in theOperating Partnership as of December 31, 2012 and 2011, respectively. The remaining 2.4% and 2.8% common limited partnership interest as ofDecember 31, 2012 and 2011, respectively, was owned by certain of our executive officers and directors and non-affiliate investors in the form ofnoncontrolling common units. There were 1,826,503 and 1,718,131 common units outstanding held by these investors, officers and directors as ofDecember 31, 2012 and 2011, respectively. For a further discussion of the noncontrolling common units during the years ended December 31, 2012 and2011, refer to Note 9.F - 40KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Accrued DistributionsThe following tables summarize accrued distributions for the noted common and preferred units as of December 31, 2012 and 2011: December 31, 2012 2011 (in thousands)Distributions payable to: General partner$26,224 $20,587Common limited partners639 601RSU holders (1)367 295Total accrued distributions to common unitholders27,230 21,483Preferred unitholders1,694 1,209Total accrued distributions$28,924 $22,692______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12). December 31, 2012 2011Outstanding Units: Common units held by the general partner74,926,981 58,819,717Common units held by the limited partners1,826,503 1,718,131RSUs1,048,863 842,675Series E Preferred units 1,610,000Series F Preferred units 3,450,000Series G Preferred units4,000,000 Series H Preferred units4,000,000 12. Share-Based CompensationStockholder Approved Equity Compensation PlansWe establish share-based incentive compensation plans for the purpose of attracting and retaining officers, key employees, and non-employee boardmembers. As of December 31, 2012, 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, 2012, 639,487 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) was219,002 shares as of December 31, 2012.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.F - 41KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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, Chief Investment Officer and Chief Financial Officer (“the Executive Officers”) as part of their annual andlong-term incentive compensation. Incentive compensation for our executive officers for 2011 and 2012 was structured to allow the Executive CompensationCommittee to evaluate a variety of key factors and metrics at the end of the year and make a determination of share-based incentive compensation for executiveofficers based on the Company's and management's overall performance. In years prior to 2011, the number of nonvested shares or nonvested RSUs issuedhas been contingent upon specific corporate performance and market conditions. The share-based awards are generally issued in the first quarter after the endof our prior fiscal year. The share-based awards generally have a service vesting period, which has historically ranged from one to five years, depending on thetype 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 ProgramThe 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 2012 CEO RSU AwardsOn March 30, 2012, the Executive Compensation Committee of the Company's Board of Directors granted 206,477 restricted stock units ("RSUs") to theCompany's Chief Executive Officer. Fifty-percent of the RSUs granted will vest in seven equal annual installments beginning on December 31, 2012 throughDecember 31, 2018, subject to continued employment through the applicable vesting date. The grant date fair value of these time-based RSUs was $4.8million, which was based on the $46.61 closing share price of the Company's common stock on the New York Stock Exchange on the grant date.Compensation expense will be recognized on a straight-line basis over the service vesting period for these time-based RSUs. The remaining 50% of the RSUsgranted will vest in seven equal annual installments for each calendar year during 2012 through 2018 based on the achievement of certain absolute or relativetotal shareholder return goals measured annually or, if neither of the shareholder return hurdles are achieved for an applicable year during the performanceperiod, those RSUs will remain eligible to vest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal,as well as (in each case) continued employment through the applicable vesting date. The grant date fair value of these market measure-based RSUs was $4.3million and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The grant date fair value is allocatedamong each of the seven annual vesting tranches for these market measure-based RSUs and compensation expense will be recognized over the service vestingperiod using the accelerated expense attribution method.F - 42KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) March 2012 Market Measure-based RSUGrant Grant date fair value per share$41.20 Expected share price volatility31.00% Risk-free interest rate1.60% Dividend yield3.80% Expected life7 years The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over 14 years as that is expected to bemost consistent with future volatility and equates to a time period twice as long as the seven-year term of the RSUs and implied volatility data based on theobserved pricing of six-month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-couponU.S. Treasury STRIP securities in effect at the grant date. The expected dividend yield is estimated by examining the average of the historical dividend yieldlevels over the seven-year term of the RSUs and our current annualized dividend yield as of the grant date. The expected life of the RSUs is equal to the seven-year vesting period.As of December 31, 2012, the first tranche of 14,748 market-measure based RSUs was earned and distributed to the Chief Executive Officer, with 6,883shares tendered for taxes.Summary of Time-Based RSUsA summary of our time-based RSU activity from January 1, 2012 through December 31, 2012 is presented below: Nonvested RSUs Nonvested and Vested Restricted Stock UnitsAmount Weighted-AverageGrant DateFair Value Vested RSUs Total RSUsOutstanding at January 1, 2012147,961 $32.18 694,714 842,675Granted (1)204,829 44.34 — 204,829Vested(73,688) 38.91 73,688 —Settled (2) (19,955) (19,955)Issuance of dividend equivalents (3) 28,368 28,368Canceled (2) (4) (7,054) (7,054)Outstanding as of December 31, 2012279,102 $41.30 769,761 1,048,863 _______________________(1)Includes 103,239 RSUs issued to the Company's Chief Executive Officer, as described above.(2)In August 2012 and December 2012, certain vested RSUs were settled in shares of the Company's common stock.(3)RSUs issued as dividend equivalents are vested upon issuance.(4)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 time-based RSU activity for the years ended December 31, 2012, 2011, and 2010 is presented below: RSUs Granted RSUs VestedYear EndedNon-Vested RSUsIssued Weighted- AverageGrant-Date FairValue Vested RSUs Total Vest-DateFair Value(1) (inthousands)2012204,829 $44.34 (73,688) $3,1182011107,673 37.94 (85,466) 3,2732010159,606 30.24 (303,146) 10,936________________________(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. F - 43KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Summary of Nonvested SharesA summary of our nonvested shares activity from January 1, 2012 through December 31, 2012 is presented below:Nonvested SharesShares Weighted-AverageGrant-DateFair ValueOutstanding at January 1, 201283,966 $39.83Granted62,137 41.84Vested (1)(50,862) 41.29Outstanding as of December 31, 201295,241 $40.42_______________(1)The total shares vested include 18,766 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, 2012, 2011, and 2010 is presented below: Shares Granted Shares VestedYear EndedNon-Vested SharesIssued Weighted- AverageGrant-Date FairValue Vested Shares Total Vest-Date FairValue (1) (inthousands)201262,137 $41.84 (50,862) $2,110201168,727 37.83 (34,793) 1,33420103,239 30.88 (41,680) 1,398_______________________(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.Summary of Stock OptionsOn February 22, 2012, the Executive Compensation Committee of the Company granted non-qualified stock options to certain key members of our seniormanagement team, including our executive officers, to purchase an aggregate 1,550,000 shares of the Company's common stock at an exercise price per shareequal to $42.61, the closing price of the Company's common stock on the grant date. The options will vest ratably in annual installments over a five-yearperiod, subject to continued employment through the applicable vesting date. The term of each option is ten years from the date of the grant. Dividends will notbe paid on vested or unvested options. The options were granted pursuant to the 2006 Plan.The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model based on the followingassumptions for the February 2012 grant. February 2012 Option Grant Fair value of options granted per share$9.20 Expected stock price volatility33.00% Risk-free interest rate1.35% Dividend yield3.80% Expected life of option6.5 years The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over a time period longer than theexpected life of the option and implied volatility data based on the observed pricing of six-month publicly traded options on our shares of common stock. Therisk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at the grant date. The expected dividend yield isestimated by examining the average of the historical dividend yield levels over the expected life of the option and the current dividend yield as of the grant date.The expected life of the options is calculated as the average of the vesting term and the contractual term.F - 44KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A summary of our stock option activity from January 1, 2012 through December 31, 2012 is presented below: Number of Options Exercise Price Remaining Contractual Term(years)Outstanding at January 1, 2012 (1)5,000 $25.77 Granted1,550,000 42.61 Exercised (1)(5,000) 25.77 Forfeited(10,000) 42.61 Outstanding at December 31, 2012 (2)(3)1,540,000 $42.61 9.2________________________(1)Stock options outstanding as of December 31, 2011 were granted in 2002 and exercised in 2012 prior to expiration. No stock options were granted during 2003 through 2011.(2)As of December 31, 2012, none of the outstanding stock options were exercisable.(3)The total intrinsic value of options outstanding at December 31, 2012 was $7.3 million.Share-based Compensation Cost Recorded During the PeriodThe total compensation cost for all share-based compensation programs was $8.5 million, $5.6 million, and $7.4 million for the years endedDecember 31, 2012, 2011, and 2010, 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, because the performance targets for this program were not ultimately achieved. Of the total share-based compensation cost, $0.9 million,$1.1 million, and $1.4 million was capitalized as part of real estate assets for the years ended December 31, 2012, 2011, and 2010, respectively. As ofDecember 31, 2012, there was approximately $25.9 million of total unrecognized compensation cost related to nonvested incentive awards granted undershare-based compensation arrangements that is expected to be recognized over a weighted-average period of 2.6 years. The remaining compensation cost relatedto these nonvested incentive awards had been recognized in periods prior to December 31, 2012. The $25.9 million of unrecognized compensation cost doesnot reflect the potential future compensation related to share-based awards that were granted subsequent to December 31, 2012.13. 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 50 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, 2012, 2011,and 2010, we contributed $0.7 million, $0.6 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 as of December 31, 2012 and 2011. Our liability of $7.3 million and $5.6million under the Deferred Compensation Plan was fully funded as of December 31, 2012 and 2011, respectively.F - 45KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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. Leases also provide for additional rents based on certain operatingexpenses. Future contractual minimum rent under operating leases as of December 31, 2012 for future periods is summarized as follows: Year Ending(in thousands)2013$360,5922014346,8402015306,2622016273,2412017230,299Thereafter641,268Total$2,158,50215.Commitments and ContingenciesGeneralAs of December 31, 2012, we had commitments of approximately $601.8 million for contracts and executed leases directly related to our operating andredevelopment properties. This amount includes the $27.5 million that we expect to pay in the second quarter of 2013 upon the closing of the purchase of theland underlying the ground lease at 360 Third Street in San Francisco, CA. We exercised an option to acquire the land during the fourth quarter of 2012.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, 2012, we had outstanding construction bonds of approximately $4.4 million.Ground LeasesThe following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations and the respective contractualexpiration dates:PropertyContractual Expiration Date (1) 601 108th Ave NE, Bellevue, WashingtonNovember 2093701, 801 and 837 N. 34th Street, Seattle, Washington (2)December 2041Kilroy Airport Center Phases I, II, and III, Long Beach, CaliforniaJuly 2084360 Third Street, San Francisco, CaliforniaDecember 2022____________________(1)Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.(2)The Company has three 10-year and one 45-year extension option for this ground lease which if exercised would extend the expiration date to December 2116.The minimum commitment under our ground leases as of December 31, 2012 for five years and thereafter was as follows:Year Ending(in thousands)2013$3,68520143,09520153,09520163,09520173,095Thereafter160,007Total (1)(2)(3)(4)(5)$176,072________________________(1)Reflects the minimum ground lease obligations before the impact of ground lease extension options.(2)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, 2012.F - 46KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(3)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 based on 50% ofthe 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 included aboveassumes the annual lease rental obligation in effect as of December 31, 2012.(4)One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. Thecontractual obligations included above assumes the annual lease rental obligation in effect as of December 31, 2012.(5)As previously discussed, the Company exercised the land purchase option included in the 360 3rd Street ground lease and will acquire the land in the second quarter of 2013. The amount presented above includes paymentsthrough the second quarter of 2013 and excludes the purchase price of $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.During the fourth quarter of 2011, we received cash distributions totaling $3.7 million under a bankruptcy claim related to a former tenant that defaultedon their lease in 2009. Due to these and other distributions received earlier in the year, we recognized $4.3 million from this claim as other property income in2011. In the fourth quarter of 2012, we received the final cash distribution under the bankruptcy claim of $0.9 million, which we recognized as other propertyincome in 2012.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 reasonable 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. Policies are subject to various terms,conditions, and exclusions and some policies may 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 no assurance that a materialenvironmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material adverseeffect on our financial condition, results of operations, and cash flow. Further, we are not aware of any environmental liability or any unasserted claim orassessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.16.Fair Value Measurements and DisclosuresAssets and Liabilities Reported at Fair ValueThe only assets we record at fair value on our consolidated financial statements are the marketable securities related to our Deferred Compensation Plan (seeNote 13). The following table sets forth the fair value of our marketable securities as of December 31, 2012 and 2011 : Fair Value (Level 1) (1) 2012 2011Description(in thousands)Marketable securities (2)$7,435 $5,691_______________(1) Based on quoted prices in active markets for identical securities.(2) The marketable securities are held in a limited rabbi trust.We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gains inthe consolidated statements of operations. We also adjust the related Deferred Compensation Plan liability to fair value at the end of each accounting periodbased on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost forthe period.The following table sets forth the net gain (loss) on marketable securities recorded during the years ended December 31, 2012, 2011, and 2010:F - 47KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)DescriptionDecember 31, 2012 December 31, 2011 December 31, 2010 (in thousands)Net gain (loss) on marketable securities$723 $(153) $435Financial 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, 2012 and 2011: December 31, 2012 2011 CarryingValue FairValue CarryingValue FairValue (in thousands) Liabilities Secured debt (1)$561,096 $591,993 $351,825 $367,402Exchangeable senior notes, net (1)163,944 181,223 306,892 320,919Unsecured debt, net (2)1,130,895 1,254,047 980,569 1,011,982Unsecured line of credit (1)185,000 185,049 182,000 182,299 _______________(1) Fair value calculated using Level II inputs which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.(2) Fair value calculated primarily using Level I inputs which are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $653.0 million and $573.0million, respectively, as of December 31, 2012. The carrying value and fair value of the Level I instruments at December 31, 2011, was $897.6 million and $923.1 million, respectively. The carrying value and fair value of theLevel II instruments was $601.0 million and $558.0 million, respectively, as of December 31, 2012. The carrying value and fair value of the Level II instruments at December 31, 2011, was $83.0 million and $88.9 million,respectively.17.Discontinued OperationsProperties Held For SaleWe did not have any properties held for sale as of December 31, 2012. We had two properties classified as held for sale at December 31, 2011, which weresold in January 2012. The major classes of assets and liabilities of these properties held for sale as of December 31, 2011 were as follows:Real estate assets and other assets held for sale(in thousands)Land and improvements$6,490Buildings and improvements83,447Total real estate held for sale89,937Accumulated depreciation(14,905)Total real estate held for sale, net75,032Deferred rent receivables, net6,749Deferred leasing costs and acquisition-related intangible assets, net2,375Real 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, net13,223Rents received in advance and tenant security deposits39Liabilities and deferred revenue of real estate assets held for sale$13,286F - 48KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)DispositionsThe following table summarizes properties sold during the years ended December 31, 2012, 2011, and 2010.LocationPropertyType Month ofDisposition Number ofBuildings RentableSquareFeet Sales Price(in millions) (1)2012 Dispositions 15004 Innovation Drive and 10243 Genetic Center Drive, SanDiego, CA (2)Office January 2 253,676 $146.1 Industrial Portfolio (3)Industrial November/December 39 3,413,354 5151, 5153 & 5155 Camino Ruiz, Camarillo, CAOffice December 4 265,372 4175 E. La Palma Avenue, Anaheim, CAOffice December 1 43,263 Subtotal 44 3,721,989 354.2 Total 46 3,975,665 $500.3 2011 Dispositions 10350 Barnes Canyon and 10120 Pacific Heights Drive, SanDiego, CAOffice September 2 90,558 $23.92031 E. Mariposa Avenue, Los Angeles, CAIndustrial December 1 192,053 42.2Total 3 282,611 $66.1 2010 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 $15.8__________________ (1) Represents gross sales price before the impact of broker commissions and selling costs.(2) These properties were classified as held-for-sale on the consolidated balance sheets as of December 31, 2011.(3) The industrial portfolio was sold in two tranches in November and December 2012 to two separate third party buyers.At December 31, 2012, approximately $228.8 million of net proceeds related to the sale of the buildings during the quarter ended December 31, 2012 weretemporarily being held at a qualified intermediary, at our direction, for the purpose of facilitating Section 1031 Exchanges. The $228.8 million cash proceedsare included in restricted cash on the consolidated balance sheets at December 31, 2012. In January 2013, we successfully completed two Section 1031Exchanges and all cash proceeds were released from the qualified intermediary.F - 49KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Discontinued OperationsThe following table summarizes the income and expense components that comprise discontinued operations for the years ended December 31, 2012, 2011and 2010: Year Ended December 31, 2012 2011 2010 (in thousands)Revenues: Rental income$22,337 $39,226 $39,404Tenant reimbursements3,902 5,502 6,330Other property income323 790 1,252Total revenues26,562 45,518 46,986Expenses: Property expenses4,586 6,733 6,898Real estate taxes2,779 4,000 4,020Provision for bad debts(195) (137) (1,128)Depreciation and amortization6,983 11,668 12,973Interest expense (1)— 3,624 4,859Total expenses14,153 25,888 27,622Income from discontinued operations before net gain on dispositions of discontinued operations12,409 19,630 19,364Net gain on dispositions of discontinued operations259,245 51,587 949Total income from discontinued operations$271,654 $71,217 $20,313__________________ (1) Interest expense relates to a $70.0 million mortgage loan that was secured by 13 of our industrial properties. The mortgage loan was repaid in October 2011 prior to maturity.The following table summarizes the total income from discontinued operations within the consolidated statements of operations by segment for the yearsended December 31, 2012, 2011, and 2010: Year Ended December 31, 2012 2011 2010 (in thousands)Office Properties$77,157 $20,535 $7,673Industrial Properties (1)194,497 50,682 12,640Total income from discontinued operations$271,654 $71,217 $20,313__________________ (1) The industrial properties were no longer a segment at December 31, 2012 because we disposed of all of our industrial properties during the fourth quarter of 2012.F - 50KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)18.Segment DisclosureAt December 31, 2012 we only had one segment, which was our office properties segment, since all of our industrial properties were sold during the yearended December 31, 2012 and the results of operations for these properties were included in discontinued operations for the years ended December 31, 2012,2011 and 2010. During the year ended December 31, 2011 we had one reportable segment, which was our office properties segment, and we had one non-reportable segment, which was our industrial properties segment. The following table, which reconciles total segment assets to total consolidated assets, ispresented solely for the purposes of showing the comparative information for our asset composition at December 31, 2012 and December 31, 2011. December 31, 2012 2011 (in thousands)Assets: Reportable Segment - Office Properties Land, buildings, and improvements, net$3,191,225 $2,480,338Undeveloped land and construction in progress809,654 430,806Total assets(1)4,315,485 3,248,661Non-Reportable Segment - Industrial Properties Land, buildings, and improvements, net— 145,043Total assets(1)— 156,741Total Segments Land, buildings, and improvements, net3,191,225 2,625,381Undeveloped land and construction in progress809,654 430,806Total assets(1)4,315,485 3,405,402Reconciliation to Consolidated Assets: Total assets allocated to segments4,315,485 3,405,402Other unallocated assets: Cash and cash equivalents16,700 4,777Restricted cash247,544 358Marketable securities7,435 5,691Deferred financing costs, net18,971 18,368Prepaid expenses and other assets, net9,949 12,199Total consolidated assets$4,616,084 $3,446,795_______________(1) Includes land, buildings, and improvements, undeveloped land and construction in progress, real estate assets held for sale, current receivables, deferred rent receivables, deferredleasing costs, and acquisition-related intangible assets, all shown on a net basis. F - 51KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2012 2011 (in thousands)Acquisitions and Capital Expenditures:(1) Reportable Segment - Office Properties Expenditures for real estate acquisitions$1,087,489 $663,483Expenditures for development and redevelopment properties and undeveloped land144,477 32,198Expenditures for operating properties(2)86,089 66,448Non-Reportable Segment - Industrial Properties Expenditures for operating properties(2)1,131 6,001Total Segments Expenditures for real estate acquisitions1,087,489 663,483Expenditures for development and redevelopment properties and undeveloped land144,477 32,198Expenditures for operating properties(2)87,220 72,449_______________(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, deferred leasing costs and acquisition-related intangible assets for our operating properties. Excludes acquisition-related intangible liabilities. F - 52KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)19.Net Income Available to Common Stockholders Per Share of the CompanyThe following table reconciles the numerator and denominator in computing the Company's basic and diluted per-share computations for net incomeavailable to common stockholders for the years ended December 31, 2012, 2011, and 2010: Year Ended December 31, 2012 2011 2010 (in thousands, except share and per share amounts)Numerator: Income (loss) from continuing operations$5,447 $(3,728) (427)Loss from continuing operations attributable to noncontrolling common units of the OperatingPartnership383 545 468Preferred distributions and dividends(21,088) (15,196) (15,196)Allocation to participating securities (nonvested shares and time-based RSUs)(1,602) (1,309) (1,151)Numerator for basic and diluted loss from continuing operations available to common stockholders(16,860) (19,688) (16,306)Income from discontinued operations271,654 71,217 20,313Income from discontinued operations attributable to noncontrolling common units of the OperatingPartnership(6,570) (2,019) (646)Numerator for basic and diluted net income available to common stockholders$248,224 $49,510 $3,361Denominator: Basic weighted average vested shares outstanding69,639,623 56,717,121 49,497,487Effect of dilutive securities—contingently issuable shares and stock options— — —Diluted weighted average vested shares and common share equivalents outstanding69,639,623 56,717,121 49,497,487Basic earnings per share: Loss from continuing operations available to common stockholders per share$(0.24) $(0.35) $(0.33)Income from discontinued operations per common share3.80 1.22 0.40Net income available to common stockholders per share$3.56 $0.87 $0.07Diluted earnings per share: Loss from continuing operations available to common stockholders per share$(0.24) $(0.35) $(0.33)Income from discontinued operations per common share3.80 1.22 0.40Net income available to common stockholders per share$3.56 $0.87 $0.07The impact of the contingently issuable shares, which consist of the 88,490 market measure-based RSUs and the Exchangeable Notes, and the 1,540,000stock options, were not considered in our diluted earnings per share calculation for the year ended December 31, 2012 because we reported a loss fromcontinuing operations attributable to common stockholders and the effect was anti-dilutive. The impact of stock options and the Exchangeable Notes duringthe years ended December 31, 2011 and 2010, were not considered in our diluted earnings per share calculation for the years ended December 31, 2011 and2010 because we reported a loss from continuing operations attributable to common stockholders and the effect was anti-dilutive. See Note 7 for additionalinformation regarding the Exchangeable Notes and Note 12 for additional information regarding the outstanding stock options and market measure-basedRSUs.F - 53KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)20. Net Income Available to Common Unitholders Per Unit of the Operating PartnershipThe following table reconciles the numerator and denominator in computing the Operating Partnership's basic and diluted per-unit computations for netincome available to common unitholders for the years ended December 31, 2012, 2011, and 2010: Year Ended December 31, 2012 2011 2010 (in thousands, except unit and per unit amounts)Numerator: Income (loss) from continuing operations$5,447 $(3,728) $(427)Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries(174) (529) (162)Preferred distributions(21,088) (15,196) (15,196)Allocation to participating securities (nonvested units and time-based RSUs)(1,602) (1,309) (1,151)Numerator for basic and diluted loss from continuing operations available to common unitholders(17,417) (20,762) (16,936)Income from discontinued operations271,654 71,217 20,313Income from discontinued operations attributable to noncontrolling interests in consolidated subsidiaries(464) — —Numerator for basic and diluted net income available to common unitholders$253,773 $50,455 $3,377Denominator: Basic weighted average vested units outstanding71,403,258 58,437,444 51,220,618Effect of dilutive securities-contingently issuable shares and stock options— — —Diluted weighted average vested units and common unit equivalents outstanding71,403,258 58,437,444 51,220,618Basic earnings per unit: Loss from continuing operations available to common unitholders per unit$(0.24) $(0.36) $(0.33)Income from discontinued operations per common unit3.80 1.22 0.40Net income available to common unitholders per unit$3.56 $0.86 $0.07Diluted earnings per unit: Loss from continuing operations available to common unitholders per unit$(0.24) $(0.36) $(0.33)Income from discontinued operations per common unit3.80 1.22 0.40Net income available to common unitholders per unit$3.56 $0.86 $0.07The impact of the contingently issuable units, which consist of the 88,490 market measure-based RSUs, the Exchangeable Notes, and the 1,540,000stock options, were not considered in our diluted earnings per unit calculation for the year ended December 31, 2012 because the Operating Partnershipreported a loss from continuing operations attributable to common unitholders and the effect was anti-dilutive. The impact of stock options and theExchangeable Notes during the years ended December 31, 2011 and 2010, were not considered in our diluted earnings per unit calculation for the years endedDecember 31, 2011 and 2010 because we reported a loss from continuing operations attributable to common unitholders and the effect was anti-dilutive. SeeNote 7 for additional information regarding the Exchangeable Notes and Note 12 for additional information regarding the outstanding stock options andmarket measure-based RSUs.F - 54KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)21. 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 31,2012, 2011, and 2010 as follows: Year Ended December 31,Dividends2012 2011 2010Dividends declared per common share1.400 1.400 1.400Less: 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 0.350Dividends paid per common share1.400 1.400 1.400The unaudited income tax treatment for the dividends to common stockholders reportable for the years ended December 31, 2012, 2011, and 2010 asidentified in the table above was as follows: Year Ended December 31,Common Shares2012 2011 2010Ordinary income$0.577 41.21% $0.230 16.43% $— —%Return of capital0.823 58.79 1.170 83.57 1.400 100.00Capital gains (1)— — — — — —Unrecaptured section 1250 gains— — — — — — $1.400 100.00% $1.400 100.00% $1.400 100.00%_________________(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, 2012, 2011, and 2010is seen in the table below. Series E preferred stock was redeemed on April 16, 2012. Year Ended December 31,Preferred Shares2012 2011 2010Ordinary income$0.818 100.00% $1.950 100.00% $1.950 100.00%Capital gains (1)— — — — — —Unrecaptured section 1250 gains— — — — — — $0.818 100.00% $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, 2012, 2011, and2010 is seen in the table below. Series F preferred stock was redeemed on April 16, 2012. Year Ended December 31,Preferred Shares2012 2011 2010Ordinary income$0.786 100.00% $1.875 100.00% $1.875 100.00%Capital gains (1)— — — — — —Unrecaptured section 1250 gains— — — — — — $0.786 100.00% $1.875 100.00% $1.875 100.00%_________________(1)Capital gains are comprised entirely of 15% rate gains.F - 55KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The 6.875% Series G Cumulative Redeemable Preferred Stock was issued in March 2012. The unaudited income tax treatment for the dividends to SeriesG preferred stockholders reportable for the year ended December 31, 2012 was as follows: Year Ended December 31,Preferred Shares2012Ordinary income$1.089 100.00%Capital gains (1)— —Unrecaptured section 1250 gains— — $1.089 100.00%__________________(1)Capital gains are comprised entirely of 15% rate gains.The 6.375% Series H Cumulative Redeemable Preferred Stock was issued in August 2012. The unaudited income tax treatment for the dividends to SeriesH preferred stockholders reportable for the year ended December 31, 2012 was as follows: Year Ended December 31,Preferred Shares2012Ordinary income$0.398 100.00%Capital gains (1)— —Unrecaptured section 1250 gains— — $0.398 100.00%__________________(1)Capital gains are comprised entirely of 15% rate gains.F - 56KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)22.Quarterly Financial Information of the Company (Unaudited)Summarized quarterly financial data for the years ended December 31, 2012 and 2011 was as follows: 2012 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (3)$92,397 $97,111 $104,293 $111,111Net Operating Income from continuing operations (2)(3)67,791 68,437 72,251 79,276Income (loss) from continuing operations (3)2,165 36 (665) 3,911Income from discontinued operations (3)76,506 2,241 3,187 189,720Net income78,671 2,277 2,522 193,631Net income attributable to Kilroy Realty Corporation76,876 2,297 2,589 189,152Preferred dividends and distributions(9,336) (3,097) (5,342) (3,313)Net income (loss) available to common stockholders67,540 (800) (2,753) 185,839Net income (loss) available to common stockholders per share—basic1.06 (0.02) (0.04) 2.49Net income (loss) available to common stockholders per share—diluted1.06 (0.02) (0.04) 2.45 2011 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (3)$76,003 $81,002 $86,398 $94,226Net Operating Income from continuing operations (2)(3)53,660 56,910 60,268 67,777Income from continuing operations (3)750 (1,071) (3,391) (16)Income from discontinued operations (3)4,117 4,543 17,681 44,876Net 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____________________(1)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding. The summation of the quarterly net income (loss) available tocommon stockholders per share does not equal the annual number reported on the consolidated statements of operations due to the impact of equity offerings that occurred during the years ended December 31, 2012 and2011.(2)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 provisionsfor bad 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 andcorporate general and administrative expenses.(3)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 17). F - 57KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)23.Quarterly Financial Information of the Operating Partnership (Unaudited)Summarized quarterly financial data for the years ended December 31, 2012 and 2011 was as follows: 2012 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (3)$92,397 $97,111 $104,293 $111,111Net Operating Income from continuing operations (2)(3)67,791 68,437 72,251 79,276Income (loss) from continuing operations (3)2,165 36 (665) 3,911Income from discontinued operations (3)76,506 2,241 3,187 189,720Net income78,671 2,277 2,522 193,631Net income attributable to the Operating Partnership78,618 2,234 2,474 193,137Preferred distributions(9,336) (3,097) (5,342) (3,313)Net income (loss) available to common unitholders69,282 (863) (2,868) 189,824Net income (loss) available to common unitholders per unit—basic1.05 (0.02) (0.04) 2.48Net income (loss) available to common unitholders per unit—diluted1.05 (0.02) (0.04) 2.44 2011 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (3)$76,003 $81,002 $86,398 $94,226Net Operating Income from continuing operations (2)(3)53,660 56,910 60,268 67,777Income from continuing operations (3)750 (1,071) (3,391) (16)Income from discontinued operations (3)4,117 4,543 17,681 44,876Net 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___________________(1)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding. The summation of the quarterly net income (loss) available tocommon unitholders per unit does not equal the annual number reported on the consolidated statements of operations due to the impact of equity offerings that occurred during the years ended December 31, 2012 and2011.(2)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 provisionsfor bad 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 andcorporate general and administrative expenses.(3)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 17). F - 58KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)24. Subsequent EventsSubsequent to December 31, 2012, we repaid a $83.1 million secured mortgage loan prior to its maturity date of April 2013.On January 14, 2013, the Operating Partnership issued unsecured senior notes in a public offering with an aggregate principal balance of $300.0 millionthat are scheduled to mature on January 15, 2023. The unsecured senior notes require semi-annual interest payments each January and July based on a statedannual interest rate of 3.800%. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings underthe revolving credit facility.On January 15, 2013 aggregate dividends, distributions, and dividend equivalents of $26.2 million were paid to common stockholders and commonunitholders of record on December 31, 2012 and RSU holders of record on January 15, 2013.On January 16, 2013, we completed the acquisition of a 320,000 rentable square foot office project in the South Lake Union submarket of greater Seattlefor a purchase price of approximately $170.0 million. The purchase price includes the assumption of approximately $83.9 million of debt secured by theproject. We are currently in the process of completing the purchase price allocation for this acquisition.On January 10, 2013, the Executive Compensation Committee granted 157,744 RSUs to the Executive Officers and other key employees under the 2006Plan. The grant date fair value of these time-based RSUs was $7.7 million, which was based on the $48.88 closing share price of the Company's commonstock on the New York Stock Exchange on the grant date, is expected to be recognized over a period of 5 years.F - 59KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)25. 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, 2012 and 2011 assumes that theacquisitions of 4100-4700 Bohannon Drive, Menlo Park, CA, 10900 Northeast 4th Street, Bellevue, WA, and 555-599 N. Mathilda Avenue, Sunnyvale,CA, were completed as of January 1, 2011. The second table of pro forma consolidated results of operations of the Company for the years endedDecember 31, 2011 and 2010 assumes that the acquisitions of 4100-4700 Bohannon Drive, Menlo Park, CA, 10900 Northeast 4th Street, Bellevue, WA, and555-599 N. Mathilda Avenue, Sunnyvale, CA, were completed as of January 1, 2011 and that the acquisitions of 601 108th Avenue N.E., Bellevue, WA,and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010. Pro forma data may not be indicative of the results that would have beenreported had the acquisitions actually occurred as of January 1, 2011 and 2010, respectively, nor does it intend to be a projection of future results. Year Ended December 31, 2012 2011 (in thousands except per share amounts)Revenues from continuing operations $414,813 $363,815Net income available to common stockholders(1)(3) $238,947 $42,601Net income available to common stockholders per share - basic(1)(3) $3.41 $0.73Net income available to common stockholders per share - diluted(1)(3) $3.41 $0.73 Year Ended December 31, 2011 2010 (in thousands except per share amounts)Revenues from continuing operations $377,871 $283,941Net income available to common stockholders(1)(2)(3) $41,293 $2,491Net income available to common stockholders per share - basic(1)(2)(3) $0.71 $0.03Net income available to common stockholders per share - diluted(1)(2)(3) $0.71 $0.03_________________(1)The pro forma results for the year ended December 31, 2012 were adjusted to exclude acquisition-related expenses of approximately $1.0 million incurred in 2012 for the acquisition of 4100-4700 Bohannon Drive, MenloPark, CA , 10900 Northeast 4th Street, Bellevue, WA and 555-599 N. Mathilda Avenue, Sunnyvale, CA. The pro forma results for the year ended December 31, 2011 were adjusted to include these expenses.(2)The pro forma results for the year ended December 31, 2011 were 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.(3)The pro forma results for all periods presented include incremental interest expense assuming the acquisitions were funded by pro forma borrowings under the revolving credit facility. The pro forma interest expense estimate iscalculated based on the actual interest rate in effect on the revolving credit facility for each respective period. A portion of the 599 N. Mathilda Avenue, Sunnyvale, CA total purchase price related to development assetsacquired. This portion of the purchase price has no pro forma impact as the interest expense related to development would be capitalized and would not impact net income available to common stockholders. Actual fundingof the acquisitions may be from different sources and the pro forma borrowings and related pro forma interest expense estimate assumed herein are not indicative of actual results.The following table summarizes the results of operations for the properties at 4100-4700 Bohannon Drive, Menlo Park, CA, 10900 Northeast 4th Street,Bellevue, WA, and 555-599 N. Mathilda Avenue, Sunnyvale, CA, from February 29, 2012, July 24, 2012 and December 17, 2012, the dates ofacquisition, respectively, through December 31, 2012: (in thousands)Revenues$18,943Net income(1)$3,412________________(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 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.F - 60KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)26. 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, 2012 and 2011 assumes thatthe acquisitions of 4100-4700 Bohannon Drive, Menlo Park, CA, 10900 Northeast 4th Street, Bellevue, WA, and 555-599 N. Mathilda Avenue, Sunnyvale,CA, were completed as of January 1, 2011. The second table of pro forma consolidated results of operations of the Operating Partnership for the years endedDecember 31, 2011 and 2010 assumes that the acquisitions of 4100-4700 Bohannon Drive, Menlo Park, CA, 10900 Northeast 4th Street, Bellevue, WA, and555-599 N. Mathilda Avenue, Sunnyvale, CA, were completed as of January 1, 2011 and that the acquisitions of 601 108th Avenue N.E., Bellevue, WA,and 201 Third Street, San Francisco, CA, were completed as of January 1, 2010. Pro forma data may not be indicative of the results that would have beenreported had the acquisitions actually occurred as of January 1, 2011 and 2010, respectively, nor does it intend to be a projection of future results. Year Ended December 31, 2012 2011 (in thousands except per unit amounts)Revenues from continuing operations $414,813 $363,815Net income available to common unitholders(1)(3) $244,337 $43,386Net income available to common unitholders per unit - basic(1)(3) $3.40 $0.72Net income available to common unitholders per unit - diluted(1)(3) $3.40 $0.72 Year Ended December 31, 2011 2010 (in thousands except per unit amounts)Revenues from continuing operations $377,871 $283,941Net income available to common unitholders(1)(2)(3) $42,039 $2,437Net income available to common unitholders per unit - basic(1)(2)(3) $0.70 $0.03Net income available to common unitholders per unit - diluted(1)(2)(3) $0.70 $0.03_______________(1)The pro forma results for the year ended December 31, 2012 were adjusted to exclude acquisition-related expenses of approximately $1.0 million incurred in 2012 for the acquisitions of 4100-4700 Bohannon Drive, MenloPark, CA and 10900 Northeast 4th Street, Bellevue, WA and 555-599 N. Mathilda Avenue, Sunnyvale, CA. The pro forma results for the year ended December 31, 2011 were adjusted to include these expenses.(2)The pro forma results for the year ended December 31, 2011 were 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.(3)The pro forma results for all periods presented include incremental interest expense assuming the acquisitions were funded by pro forma borrowings under the revolving credit facility. The pro forma interest expense estimate iscalculated based on the actual interest rate in effect on the revolving credit facility for each respective period. A portion of the 599 N. Mathilda Avenue, Sunnyvale, CA total purchase price related to development assetsacquired. This portion of the purchase price has no pro forma impact as the interest expense related to development would be capitalized and would not impact net income available to stockholders. Actual funding of theacquisitions may be from different sources and the pro forma borrowings and related pro forma interest expense estimate assumed herein are not indicative of actual results.The following table summarizes the results of operations for the properties at 4100-4700 Bohannon Drive, Menlo Park, CA, and 10900 Northeast 4thStreet, Bellevue, WA, and 555-599 N. Mathilda Avenue, Sunnyvale, CA, from February 29, 2012, July 24, 2012, and December 17, 2012, the dates ofacquisition, respectively, through December 31, 2012: (in thousands)Revenues$18,943Net income(1)$3,412_______________(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 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.F - 61KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2012, 2011, and 2010(in thousands) Balance atBeginningof Period Charged toCosts andExpenses (1) Recoveries(Deductions) Balanceat Endof PeriodAllowance for Uncollectible Tenant Receivables Year ended December 31, 2012—Allowance foruncollectible tenant receivables$2,590 $(42) $33 $2,581Year 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) $2,819Allowance for Unbilled Deferred Rent Year ended December 31, 2012—Allowance for deferredrent$3,406 $— $(799) $2,607Year ended December 31, 2011—Allowance for deferredrent$3,831 $(279) $(146) $3,406Year ended December 31, 2010—Allowance for deferredrent$6,388 $(1,079) $(1,478) $3,831____________________(1)Includes amounts reported in Discontinued Operations (see Note 17).F - 62KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2012 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 $11,210(5) $50 $2,346 $304 $50 $2,650 $2,700 $1,293 35 2001(C)11,78923975 Park SorrentoCalabasas, California (5) 765 17,720 5,370 765 23,090 23,855 10,909 35 2002(C)100,59224025 Park SorrentoCalabasas, California (5) 845 15,896 3,716 845 19,612 20,457 9,913 35 2000(C)102,26426541 Agoura Road Calabasas, California 1,979 9,630 9,798 1,979 19,428 21,407 9,765 35 1997(A)90,1562240 E. Imperial HighwayEl Segundo, California 1,044 11,763 23,715 1,048 35,474 36,522 17,379 35 1983(C)122,8702250 E. Imperial HighwayEl Segundo, California 2,579 29,062 23,009 2,547 52,103 54,650 40,489 35 1983(C)298,7282260 E. Imperial HighwayEl Segundo, California 2,51828,37019,134 2,547 47,475 50,022 895 35 1983(C)298,728909 Sepulveda BoulevardEl Segundo, California 68,615(6) 3,577 34,042 39,782 3,577 73,824 77,401 20,802 35 2005(C)241,607999 Sepulveda BoulevardEl Segundo, California (6) 1,407 34,326 10,995 1,407 45,321 46,728 13,604 35 2003(C)128,5043750 Kilroy Airport WayLong Beach, California 1,941 10,248 12,189 12,189 8,305 35 1989(C)10,4573760 Kilroy Airport WayLong Beach, California 17,467 8,196 25,663 25,663 19,147 35 1989(C)165,2783780 Kilroy Airport WayLong Beach, California 22,319 14,561 36,880 36,880 29,000 35 1989(C)219,7453800 Kilroy Airport WayLong Beach, California 19,408 16,641 36,049 36,049 18,072 35 2000(C)192,4763840 Kilroy Airport WayLong Beach, California 13,586 10,353 23,939 23,939 12,394 35 1999(C)136,0263880 Kilroy Airport WayLong Beach, California 9,704 5,676 15,380 15,380 225 35 1997(A)(14 ) 3900 Kilroy Airport WayLong Beach, California 12,615 8,264 20,879 20,879 10,966 35 1997(A)126,840Kilroy Airport Center,Phase IVLong Beach, California(4) 2,087 2,087 2,087 2,087 35 12100 W. OlympicBoulevardLos Angeles, California 352 45,611 15,401 9,633 51,731 61,364 15,325 35 2003(C)150,16712200 W. OlympicBoulevardLos Angeles, California 4,329 35,488 15,145 3,977 50,985 54,962 26,198 35 2000(C)150,30212233 W. OlympicBoulevardLos Angeles, California 40,523(7) 22,100 53,170 428 22,100 53,598 75,698 415 35 2012(A)151,02912312 W. OlympicBoulevardLos Angeles, California 3,325 12,202 714 3,399 12,842 16,241 5,703 35 1997(A)78,0006255 W. Sunset BoulevardLos Angeles, California 53,554(8) 18,111 60,320 3,948 18,111 64,268 82,379 1,380 35 2012(A)321,8831633 26th StreetSanta Monica, California 2,080 6,672 3,147 2,040 9,859 11,899 4,889 35 1997(A)44,9152100/2110 ColoradoAvenueSanta Monica, California 97,000(9) 5,474 26,087 13,114 5,476 39,199 44,675 13,927 35 1997(A)102,8643130 Wilshire BoulevardSanta Monica, California 8,921 6,579 10,413 9,188 16,725 25,913 9,513 35 1997(A)88,339501 Santa MonicaBoulevardSanta Monica, California 4,547 12,044 6,427 4,551 18,467 23,018 9,456 35 1998(A)73,1152829 Townsgate Road Thousand Oaks, California 5,248 8,001 5,585 5,248 13,586 18,834 7,221 35 1997(A)81,06712225 El Camino RealDel Mar, California 1,700 9,633 2,992 1,683 12,642 14,325 4,943 35 1998(A)60,14812235 El Camino RealDel Mar, California 1,507 8,543 4,495 1,530 13,015 14,545 6,375 35 1998(A)54,67312340 El Camino RealDel Mar, California (6) 4,201 13,896 7,369 4,201 21,265 25,466 6,809 35 2002(C)87,40512390 El Camino RealDel Mar, California (6) 3,453 11,981 1,263 3,453 13,244 16,697 6,840 35 2000(C)72,33212348 High Bluff DriveDel Mar, California 1,629 3,096 3,451 1,629 6,547 8,176 4,413 35 1999(C)38,71012400 High Bluff Drive Del Mar, California 15,167 40,497 11,609 15,167 52,106 67,273 16,183 35 2004(C)208,464F - 63KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2012 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)3579 Valley Centre Drive Del Mar, California 2,167 6,897 6,777 2,858 12,983 15,841 5,668 35 1999(C)52,3753611 Valley Centre Drive Del Mar, California 4,184 19,352 15,868 5,259 34,145 39,404 15,193 35 2000(C)130,1783661 Valley Centre Drive Del Mar, California 4,038 21,144 8,803 4,725 29,260 33,985 13,437 35 2001(C)129,7523721 Valley Centre Drive Del Mar, California 4,297 18,967 5,692 4,254 24,702 28,956 7,612 35 2003(C)114,7803811 Valley Centre Drive Del Mar, California 3,452 16,152 20,076 4,457 35,223 39,680 13,717 35 2000(C)112,0676200 Greenwich Drive Governor Park, California 1,583 5,235 2,752 1,722 7,848 9,570 4,802 35 1999(C)71,0006220 Greenwich Drive Governor Park, California 3,213 10,628 16,371 3,426 26,786 30,212 8,122 35 1997(A)141,21415051 Avenue of ScienceI-15 Corridor, California 2,888 5,780 5,769 2,888 11,549 14,437 5,119 35 2002(C)70,61715073 Avenue of ScienceI -15 Corridor, California 2,070 5,728 1,648 2,070 7,376 9,446 3,543 35 2002(C)46,75915231 Avenue of Science I-15 Corridor, California 2,233 8,830 4,888 2,233 13,718 15,951 3,993 35 2005(C)65,63815253 Avenue of Science I-15 Corridor, California 1,548 6,423 1,571 1,548 7,994 9,542 1,998 35 2005(C)37,43715333 Avenue of Science I-15 Corridor, California 2,371 16,500 3,424 2,371 19,924 22,295 3,881 35 2006(C)78,88015378 Avenue of Science I-15 Corridor, California 3,565 3,796 3,156 3,565 6,952 10,517 3,141 35 1998(A)68,91015435 Innovation Drive I-15 Corridor, California 2,143 6,311 2,612 2,046 9,020 11,066 4,494 35 2000(C)49,86315445 Innovation Drive I-15 Corridor, California 2,143 6,311 5,146 2,046 11,554 13,600 5,521 35 2000(C)51,50013280 Evening Creek Drive South I-15 Corridor, California 3,701 8,398 2,937 3,701 11,335 15,036 1,733 35 2008(C)41,66513290 Evening Creek Drive South I-15 Corridor, California 5,229 11,871 1,458 5,229 13,329 18,558 1,593 35 2008(C)61,17613480 Evening Creek Drive North I-15 Corridor, California 7,997 41,733 7,997 41,733 49,730 6,852 35 2008(C)149,81713500 Evening Creek Drive North I-15 Corridor, California 7,581 35,903 11,338 7,580 47,242 54,822 11,744 35 2004(A)147,53313520 Evening Creek Drive North I-15 Corridor, California 7,581 35,903 12,376 7,580 48,280 55,860 12,818 35 2004(A)141,1297525 Torrey Santa Fe 56 Corridor, California 2,348 28,035 4,060 2,348 32,095 34,443 6,488 35 2007(C)103,9797535 Torrey Santa Fe 56 Corridor, California 2,950 33,808 5,991 2,950 39,799 42,749 8,306 35 2007(C)130,2437545 Torrey Santa Fe 56 Corridor, California 2,950 33,708 8,117 2,950 41,825 44,775 9,330 35 2007(C)130,3547555 Torrey Santa Fe 56 Corridor, California 2,287 24,916 3,712 2,287 28,628 30,915 5,757 35 2007(C)101,2362355 Northside Drive Mission Valley, California 4,066 8,332 706 3,270 9,834 13,104 1,279 35 2010(A)53,6102365 Northside Drive Mission Valley, California 7,359 15,257 (83) 5,919 16,614 22,533 1,874 35 2010(A)91,2602375 Northside Drive Mission Valley, California 3,947 8,146 188 3,175 9,106 12,281 1,172 35 2010(A)51,5162385 Northside Drive Mission Valley, California 2,752 14,513 3,738 5,759 15,244 21,003 1,757 35 2010(A)88,7952305 Historic Decatur Road Point Loma, California 5,240 22,220 435 5,240 22,655 27,895 1,621 35 2010(A)103,90010020 Pacific Mesa Boulevard Sorrento Mesa, California 8,007 52,189 15,348 8,007 67,537 75,544 14,967 35 2007(C)318,0004910 Directors Place Sorrento Mesa, California 2,240 13,039 6,548 2,240 19,587 21,827 1,906 35 2009(C)50,9254921 Directors Place Sorrento Mesa, California 3,792 11,091 4,748 3,792 15,839 19,631 2,121 35 2008(C)56,1364939 Directors Place Sorrento Mesa, California 2,225 12,698 4,359 2,198 17,084 19,282 7,021 35 2002(C)60,6624955 Directors Place Sorrento Mesa, California 2,521 14,122 3,696 3,179 17,160 20,339 10,400 35 2000(C)76,246F - 64KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2012 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)5005 Wateridge Vista Drive Sorrento Mesa, California 3,320 5,049 2,026 3,320 7,075 10,395 3,193 35 1999(C)61,4605010 Wateridge Vista Drive Sorrento Mesa, California 3,786 10,767 27,132 15,620 26,065 41,685 172 35 1999(C)111,31810770 Wateridge Circle Sorrento Mesa, California 4,560 26,671 184 4,560 26,855 31,415 3,307 35 2011(A)174,3106055 Lusk Avenue Sorrento Mesa, California 3,935 8,008 5,919 3,942 13,920 17,862 6,209 35 1997(A)93,0006260 Sequence Drive Sorrento Mesa, California 3,206 9,803 1,291 3,212 11,088 14,300 5,205 35 1997(A)130,5366290 Sequence Drive Sorrento Mesa, California 2,403 7,349 4,906 2,407 12,251 14,658 6,204 35 1997(A)90,0006310 Sequence Drive Sorrento Mesa, California 2,940 4,946 190 2,941 5,135 8,076 2,689 35 2000(C)62,4156340 Sequence Drive Sorrento Mesa, California 2,434 7,302 9,963 2,464 17,235 19,699 8,245 35 1998(A)66,4006350 Sequence Drive Sorrento Mesa, California 4,941 14,824 (4,387) 4,922 10,456 15,378 5,633 35 1998(A)132,60010390 Pacific Center Court Sorrento Mesa, California 3,267 5,779 7,500 3,267 13,279 16,546 4,481 35 2002(C)68,40010394 Pacific Center Court Sorrento Mesa, California 2,696 7,134 (782) 1,671 7,377 9,048 3,217 35 1998(A)59,63010398 Pacific Center Court Sorrento Mesa, California 1,947 5,152 1,316 1,222 7,193 8,415 2,824 35 1998(A)43,64510421 Pacific Center Court Sorrento Mesa, California 2,926 7,979 21,999 2,926 29,978 32,904 11,682 35 1998(A)75,89910445 Pacific Center Court Sorrento Mesa, California 2,247 5,945 567 1,809 6,950 8,759 2,911 35 1998(A)48,70910455 Pacific Center Court Sorrento Mesa, California 4,044 10,701 (2,251) 3,780 8,714 12,494 3,684 35 1998(A)90,0005717 Pacific Center Boulevard Sorrento Mesa, California 2,693 6,280 4,219 2,693 10,499 13,192 2,721 35 2001(C)67,9954690 Executive Drive UTC, California (6) 1,623 7,926 2,394 1,623 10,320 11,943 5,009 35 1999(A)47,2129785 Towne Center Drive UTC, California 2,722 9,932 (1,077) 2,329 9,248 11,577 3,633 35 1999(A)75,5349791 Towne Center Drive UTC, California 1,814 6,622 1,121 2,217 7,340 9,557 2,883 35 1999(A)50,4668101 Kaiser Boulevard Anaheim, California 2,369 6,180 2,091 2,377 8,263 10,640 4,342 35 1997(A)59,7902211 MichelsonIrvine, California (9) 9,319 82,836 1,507 9,319 84,343 93,662 7,926 35 2010(A)271,556111 Pacifica Irvine, California 5,165 4,653 4,254 5,166 8,906 14,072 4,975 35 1997(A)67,496999 Town & CountryOrange, California 7,867 9,579 219 7,867 9,798 17,665 1,110 35 2010(A)98,5514100 Bohannon Drive, Menlo Park,California 4,835 15,526 (18) 4,835 15,508 20,343 457 35 2012(A)46,6144200 Bohannon Drive, Menlo Park,California 4,798 15,406 (413) 4,798 14,993 19,791 446 35 2012(A)46,2554300 Bohannon Drive, Menlo Park,California 6,527 20,958 268 6,527 21,226 27,753 589 35 2012(A)62,9204400 Bohannon Drive, Menlo Park,California 4,798 15,406 551 4,798 15,957 20,755 451 35 2012(A)46,2554500 Bohannon Drive, Menlo Park,California 6,527 20,957 1,041 6,527 21,998 28,525 655 35 2012(A)62,9204600 Bohannon Drive, Menlo Park,California 4,798 15,406 67 4,798 15,473 20,271 363 35 2012(A)46,2554700 Bohannon Drive, Menlo Park,California 6,527 20,958 821 6,527 21,779 28,306 636 35 2012(A)62,920303 Second StreetSan Francisco, California 135,000(10) 63,550 154,153 18,442 63,550 172,595 236,145 17,837 35 2010(A)740,047100 First StreetSan Francisco, California 49,150 131,238 11,188 49,150 142,426 191,576 11,851 35 2010(A)466,490F - 65KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION—(Continued)December 31, 2012 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 1,252 7,630 24,022 31,652 2,215 35 2011(A)92,948201 Third StreetSan Francisco,California 19,260 84,018 13,803 19,260 97,821 117,081 7,397 35 2011(A)332,893301 Brannan StreetSan Francisco,California 5,910 22,450 1,008 5,910 23,458 29,368 1,065 35 2011(A)74,430360 Third StreetSan Francisco,California 13,749 — 13,749 13,749 923 35 2011(A)(15 ) 4040 Civic CenterSan Rafael, California 10,210 18,029 396 10,210 18,425 28,635 1,262 35 2011(A)130,237599 MathildaSunnyvale, California 13,538 12,559 — 13,538 12,559 26,097 — 35 2012(A)75,810601 108th AvenueBellevue, Washington — 214,095 1,222 — 215,317 215,317 13,857 35 2011(A)488,47010900 NE 4th StreetBellevue, Washington 83,116(11) 25,080 150,877 1,665 25,080 152,542 177,622 2,526 35 2012(A)416,75510220 NE Points DriveKirkland, Washington 28,384(12) 2,554 12,080 402 2,554 12,482 15,036 830 35 2011(A)49,85110230 NE Points DriveKirkland, Washington (12) 5,071 24,694 2,669 5,071 27,363 32,434 1,728 35 2011(A)98,98210210 NE Points DriveKirkland, Washington (12) 4,336 24,187 892 4,336 25,079 29,415 1,583 35 2011(A)84,6413933 Lake WashingtonBoulevard NEKirkland, Washington (12) 2,380 15,114 990 2,380 16,104 18,484 958 35 2011(A)46,45015050 N.E. 36th StreetRedmond, Washington 9,260 34,650 197 9,260 34,847 44,107 2,404 35 2010(A)122,103837 N. 34th StreetLake Union, Washington — 37,404 352 — 37,756 37,756 888 35 2012(A)111,580701 N. 34th StreetLake Union, Washington 34,000(13) — 48,027 (140) — 47,887 47,887 1,172 35 2012(A)138,995801 N. 34th StreetLake Union, Washington (13) — 58,537 (360) — 58,177 58,177 1,239 35 2012(A)169,41217150 Von Karman Irvine, California 4,848 7,342 2,224 7,301 7,113 14,414 7,113 35 1997(A)(16 ) TOTAL OPERATINGPROPERTIES $551,402 $587,387 $2,644,476 $715,877 $612,714 $3,335,026 $3,947,740 $756,515 13,249,780Undeveloped land andconstruction inprogress(18) 2,517(17) 521,633 90,512 197,509 521,633 288,021 809,654 — TOTAL ALLPROPERTIES $553,919(19) $1,109,020 $2,734,988 $913,386 $1,134,347 $3,623,047 $4,757,394 $756,515 13,249,780__________________________(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.(5)These properties secure a $11.2 million mortgage note.(6)These properties secure a $68.6 million mortgage note.(7)This property secures a $40.5 million mortgage note.(8)This property secures a $53.6 million mortgage note.(9)These properties secure a $97.0 million mortgage note.(10)This property secures a $135.0 million mortgage note.(11)This property secures a $83.1 million mortgage note.(12)These properties secure a $28.4 million mortgage note.(13)These properties secure a $34.0 million mortgage note.(14)Excludes approximately 98,000 rentable square feet as this building was under redevelopment at December 31, 2012. A portion of the cost basis is included in "Undeveloped land and construction in progress" below.(15)Excludes approximately 410,000 rentable square feet as this building was under redevelopment at December 31, 2012. The cost basis is included in "Undeveloped land and construction in progress" below.(16)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.F - 66(17)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.(18)Includes initial cost of 9455 Towne Center Drive, which was transferred to the future development portfolio and is included in construction in progress during the year ended December 31, 2012.(19)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $7.2 million as of December 31, 2012.The aggregate gross cost of property included above for federal income tax purposes approximated $4.1 billion as of December 31, 2012.The following table reconciles the historical cost of total real estate held for investment from January 1, 2010 to December 31, 2012: Year Ended December 31, 2012 2011 2010 (in thousands)Total real estate held for investment, beginning of year $3,798,690 $3,216,871 $2,520,083Additions during period: Acquisitions 1,023,384 617,923 643,776Improvements, etc. 207,345 84,736 86,754Total additions during period 1,230,729 702,659 730,530Deductions during period: Cost of real estate sold (264,533) (21,052) (17,456)Properties held for sale — (89,937) —Other (1) (7,492) (9,851) (16,286)Total deductions during period (272,025) (120,840) (33,742)Total real estate held for investment, end of year $4,757,394 $3,798,690 $3,216,871 __________________________(1)Related to the redevelopment property transferred to construction in progress during the year.The following table reconciles the accumulated depreciation from January 1, 2010 to December 31, 2012: Year Ended December 31, 2012 2011 2010 (in thousands)Accumulated depreciation, beginning of year $742,503 $672,429 $605,976Additions during period: Depreciation of real estate 125,906 105,982 86,288Total additions during period 125,906 105,982 86,288Deductions during period: Write-offs due to sale (109,797) (11,152) (3,549)Properties held for sale — (14,905) —Other (1) (2,097) (9,851) (16,286)Total deductions during period (111,894) (35,908) (19,835)Accumulated depreciation, end of year $756,515 $742,503 $672,429 __________________________(1)Related to the redevelopment property transferred to construction in progress during the year.F - 67EXHIBIT INDEX ExhibitNumber Description3.(i)1 Kilroy Realty Corporation Articles of Restatement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for thequarter ended June 30, 2012)3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form forRegistration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to theGeneral Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)3.(i)4 Articles Supplementary designating Kilroy Realty Corporation's 6.375% Series H Cumulative Redeemable Preferred Stock (previouslyfiled by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)3.(ii).1 Second Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy Realty Corporation as an exhibit onForm 8-K as filed with the Securities and Exchange Commission on December 12, 2008)3.(ii).2 Amendment No. 1 to Second Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy Realty Corporationas an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2009)3.(ii).3 Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of August 15, 2012 (previously filed byKilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on August 17, 2012)4.1 Kilroy Realty Corporation Form of Certificate for Common Stock (previously filed by Kilroy Realty Corporation as an exhibit to theRegistration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))4.2 Specimen Certificate for Kilroy Realty Corporation's 6.875% Series G Cumulative Redeemable Preferred Stock (previously filed byKilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on March 22, 2012)4.3 Specimen Certificate for Kilroy Realty Corporation's 6.375% Series H Cumulative Redeemable Preferred Stock (previously filed byKilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)4.4 Kilroy Realty Corporation Form of Stock Option Grant Notice and Stock Option Agreement (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 24, 2012)4.5 Registration Rights Agreement dated January 31, 1997 (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Amendment No. 3 to Form S-11 (No. 333-15553))4.6 Registration Rights Agreement dated as of October 31, 1997 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K/Aas filed with the Securities and Exchange Commission on December 19, 1997)4.7 Registration Rights Agreement dated as of October 6, 2000 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K forthe year ended December 31, 2000)4.8 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 request4.9 Registration Rights Agreement dated as of July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)4.10 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 (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004)4.11 Form of 6.45% Series B Guaranteed Senior Note due 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K asfiled with the Securities and Exchange Commission on August 11, 2004) 4.12† Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-8 filed with the Securities and Exchange Commission on June 28, 2006)4.13† Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K forthe year ended December 31, 2006)F - 68ExhibitNumber Description4.14† Second Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2007)4.15† Third Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-Kas filed with the Securities and Exchange Commission on May 27, 2009)4.16† Fourth Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit to theRegistration Statement on Form S−8 as filed with the Securities and Exchange Commission on June 11, 2010)4.17 Form of Restricted Stock Award Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on February 8, 2007)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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on November 25, 2009)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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-Kas filed with the Securities and Exchange Commission on November 25, 2009)4.20 Form of Certificate for Partnership Units of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Formfor Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)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 (previously filed byKilroy Realty Corporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 25, 2010)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. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8−K asfiled with the Securities and Exchange Commission on May 25, 2010)4.23 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 (previously filedby Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8−K as filed with the Securities and Exchange Commissionon November 4, 2010)4.24 Indenture, dated March 1, 2011, by and among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee (previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit the Registration Statementon Form S-3 as filed with the Securities and Exchange Commission on March 1, 2011)4.25 Supplemental Indenture, dated July 5, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S.Bank National Association, as trustee (previously filed by Kilroy Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filedwith the Securities and Exchange Commission on July 6, 2011)4.26 Officers' Certificate pursuant to Sections 101, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., asissuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securitiesentitled “4.800% Notes due 2018,” including the form of 4.800% Notes due 2018 and the form of related guarantee (previously filed byKilroy 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)4.27 Registration Rights Agreement dated as of July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)10.1 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries (previously filed byKilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553)) 10.2† 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))10.3 Lease Agreement dated January 24, 1989 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2 to Form S-11 (No. 333-15553))F - 69ExhibitNumber Description10.4 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onAmendment No. 2 to Form S-11 (No. 333-15553))10.5 Lease Agreement dated July 17, 1985 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long BeachPhase III (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.6 Lease Agreement dated December 30, 1988 by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy LongBeach Phase II (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.7 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.8 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on FormS-11 (No. 333-15553))10.9 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on FormS-11 (No. 333-15553))10.10 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 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on FormS-11 (No. 333-15553))10.11 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previously filed by Kilroy RealtyCorporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.12 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previouslyfiled by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553)) 10.13† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Sr. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553)) 10.14† Noncompetition Agreement by and between the Registrant and John B. Kilroy, Jr. (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))10.15 License Agreement by and among the Registrant and the other persons named therein (previously filed by Kilroy Realty Corporation as anexhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553))10.16 Contribution Agreement dated October 21, 1997 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and The Allen Groupand the Allens (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on November 21, 1997)10.17 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Qfor the quarter ended September 30, 1998) 10.18† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of January 1,2007 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onMarch 22, 2007) 10.19† 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year endedDecember 31, 2008)10.20 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan ChaseBank, National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on April 11, 2007)10.21 Amendment to letter confirmation dated April 4, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America,N.A. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onApril 11, 2007) 10.22† Kilroy Realty Corporation 2007 Deferred Compensation Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Qfor the quarter ended June 30, 2007)F - 70ExhibitNumber Description 10.23† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1, 2007(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.24† 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 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31,2008) 10.25† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.26† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective asof December 31, 2009 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2008) 10.27† Kilroy Realty Corporation Stock Award Deferral Program (previously filed by Kilroy Realty Corporation as an exhibit to Form 8-K asfiled with the Securities and Exchange Commission on January 2, 2008)10.28 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on November 25, 2009)10.29 Letter confirmation dated November 16, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 25, 2009)10.30 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and JPMorgan Chase Bank,National Association, London Branch (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on November 25, 2009)10.31 Letter confirmation dated November 20, 2009, among Kilroy Realty, L.P., Kilroy Realty Corporation and Bank of America, N.A.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onNovember 25, 2009)10.32† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (previously filed by Kilroy RealtyCorporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.33† Separation Agreement and Release dated December 16, 2009 by and between Richard E. Moran Jr., Kilroy Realty, L.P. and Kilroy RealtyCorporation (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.34 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 (previously filed byKilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.35 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 (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 27, 2010)10.36 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 (previously filed byKilroy Realty Corporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on May 27, 2010)10.37 Promissory Note dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy Realty Corporation andKilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on January 13, 2011)10.38 Deed of Trust, Security Agreement and Fixture Filing dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed byKilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJanuary 13, 2011)10.39 Guaranty dated January 12, 2011, executed by Kilroy Realty, L.P. (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)10.40 Unsecured Indemnity Agreement dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy RealtyCorporation and Kilroy Realty, L.P. as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on January 13,2011)F - 71ExhibitNumber Description10.41 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Barclays Capital Inc. (previously filedby Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 28, 2011)10.42 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Wells Fargo Securities, LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July28, 2011)10.43 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and Merrill Lynch, Pierce, Fenner &Smith Incorporated (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on July 28, 2011)10.44 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, LP. and J.P. Morgan Securities LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July28, 2011)10.45† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr.(previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)10.46† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filed byKilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)10.47 Term Loan Agreement dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securitiesand Exchange Commission on April 2, 2012)10.48* First Amendment to Term Loan Agreement dated November 28, 201210.49 Guaranty of Payment of Kilroy Realty Corporation dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-Kas filed with the Securities and Exchange Commission on April 2, 2012)10.50 Promissory Note, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities andExchange Commission on July 5, 2012)10.51 Loan Agreement dated June 28, 2012, by and between KR MML 12701, LLC and Massachusetts Mutual Life Insurance Company(previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)10.52 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Irvine) for 2211 Michelson Drive, Irvine,California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and ExchangeCommission on July 5, 2012)10.53 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Santa Monica) for 2100-2110 Colorado Avenue,Santa Monica, California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securitiesand Exchange Commission on July 5, 2012)10.54 Recourse Guaranty Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with theSecurities and Exchange Commission on July 5, 2012)10.55 Environmental Indemnification Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filedwith the Securities and Exchange Commission on July 5, 2012)10.56* Amended and Restated Revolving Credit Agreement dated November 28, 201210.57* Amended and Restated Guaranty of Payment dated November 28, 201212.1* 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 CorporationF - 72ExhibitNumber Description32.2* 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, 2012, 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. (1)____________________*Filed herewith†Management contract or compensatory plan or arrangement.(1)Pursuant to Rule 406T of Regulation S−T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 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.F - 73Exhibit 10.48AMENDMENT NO. 1 TO CREDIT AGREEMENTDated as of NOVEMBER 28, 2012by and amongKILROY REALTY, L.P.,as Borrower,JPMORGAN CHASE BANK, N.A.,as Administrative AgentANDTHE FINANCIAL INSTITUTIONS PARTY HERETOas BanksAMENDMENT NO. 1 TO CREDIT AGREEMENTThis AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of November 28, 2012 (this “Amendment No. 1”),is by and among KILROY REALTY, L.P., a Delaware limited partnership (“Borrower”), each of the financial institutions party tothe Credit Agreement defined below (collectively, the “Banks” and individually a “Bank”) and JPMORGAN CHASE BANK,N.A., as Administrative Agent (the “Administrative Agent”). Reference is made to that certain Credit Agreement, dated as of March29, 2012 (the “Credit Agreement”), by and among the Borrower, the Banks referenced therein and the Administrative Agent.Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement, as amended hereby.RECITALSWHEREAS, the Borrower has requested that the Banks make certain amendments to the Credit Agreement, and the Banksare willing to make such changes as set forth herein;NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, theparties hereto agree as follows:SECTION 1.AMENDMENTS TO Credit Agreement. As of the Amendment Effective Date (as defined in Section 3hereof), the Credit Agreement is hereby amended as follows:(a) Section 1.1 is amended by adding the following new definitions of “Affiliate”, “Change in Law”, “Control”, “MaterialSubsidiary”, “Other Connection Taxes”, “Participant Register”, and “Regulatory Change” in the proper alphabetical order:“'Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or moreintermediaries, Controls or is Controlled by or is under common Control with the Person specified. In no event shall (x) theAdministrative Agent or any Bank or (y) any other Person that is engaged in the business of making commercial loans (includingterm loans) in the ordinary course of business and for which the General Partner or the Borrower does not, directly orindirectly, possess the power to cause the direction of the investment policies of such Person be deemed to be an Affiliate of theBorrower.“Change in Law” has the meaning set forth in Section 8.3.“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the managementor policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and“Controlled” have meanings correlative thereto.“Material Subsidiary” means any Subsidiary of the Borrower and/or the General Partner to which 10% or more of TotalAsset Value is attributable.“Other Connection Taxes” means, with respect to the Administrative Agent and any Bank, Taxes imposed as a result ofa present or former connection between such Administrative Agent or Bank and the jurisdiction imposing such Tax (other thanconnections arising from such Administrative Agent or Bank having executed, delivered, become a party to, performed itsobligations under, received payments under, received or perfected a security interest under, engaged in any other transactionpursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).“Participant Register” has the meaning set forth in clause (g) of Section 9.6.“Regulatory Change” has the meaning set forth in Section 8.3(a).”(b) The definition of “Base Rate” in Section 1.1 is amended and restated in its entirety to read as follows:“Base Rate” means, for any day, a rate per annum equal to the highest of (i) the Prime Rate, (ii) the Federal Funds Rate+.50% and (iii) one-month London Interbank Offered Rate (determined as though the interest period commenced as of the dateof determination) + 1%. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate or the LondonInterbank Offered Rate shall be effective from and including the effective date of such change in the Prime Rate, the FederalFunds Rate or the London Interbank Offered Rate, respectively.(c) The definition of “FATCA” in Section 1.1 is amended and restated in its entirety to read as follows:“'FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or anyamended or successor version that is substantively comparable and not materially more onerous to comply with), any current orfuture regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of theCode.”(d) The definition of “Total Asset Value” in Section 1.1 is amended by inserting the following proviso at the end of suchdefinition immediately before the period:“; provided that for purposes of determining Total Asset Value, the aggregate contributions to Total Asset Value frominvestments in land and Development Properties and from the Borrower's and the General Partner's interests in anyjoint venture, whether consolidated or unconsolidated, shall not exceed 30% of Total Asset Value.”(e) The definition of “Unencumbered Asset Pool Properties” in Section 1.1 is amended and restated in its entirety to read asfollows:“'Unencumbered Asset Pool Properties” means, as of any date, the Real Property Assets listed in Exhibit B and ExhibitC attached hereto and made a part hereof, together with all Real Property Assets which have become part of theUnencumbered Asset Pool Properties as of such date, each of which is:(i) located in the United States;(ii)100% owned in fee (or leasehold pursuant to a Financeable Ground Lease in the case of assets listed onExhibit C as leaseholds) by (x) the Borrower or (y) a wholly-owned direct or indirect Subsidiary of theBorrower and/or the General Partner that is not liable for any Debt and is not the subject of aBankruptcy Event;(iii)either a completed industrial property or primarily a completed office property which may havesecondary uses or a Development Property which will be either an industrial or office property or amortgage note;(iv)not subject to any Lien (other than Permitted Liens);(v)in the case of a Real Property Asset owned or leased by a wholly-owned Subsidiary, not subject to anyagreement or arrangement by which the direct or indirect equity interests in such Subsidiary are subjectto any Lien (other than Permitted Liens); and(vi)not subject to any agreement or arrangement that prohibits or restricts the creation or assumption of anyLien on the assets of, or equity interests in, the Borrower or Subsidiary that owns or leases such RealProperty Asset.(f) The definition of “Unencumbered Asset Pool Properties Value” in Section 1.1 is amended by inserting the following wordson the fifteenth line of such definition, immediately before the words “divided by (y) the FMV Cap Rate”:“but less reserves for Capital Expenditures of (A) $0.30 per square foot per annum for each Unencumbered Asset PoolProperty that is an office property, and (B) $0.15 per square foot per annum for each Unencumbered Asset PoolProperty that is an industrial property,”(g) The definition of “London Interbank Offered Rate” set forth in the Section 2.7(b) of the Credit Agreement is amended byinserting the following words in the second line of such definition after the words “British Bankers Association LIBOR Rate”:“, or the successor thereto if the British Bankers Association is no longer making the LIBOR Rate available”(h) Section 2.9(a) of the Credit Agreement is amended and restated in its entirety to read as follows:“(a) The Borrower shall have one (1) option to extend the Original Maturity Date to the Extended Maturity Date,which shall become effective upon the date (the “Extension Effective Date”) that the following conditions are satisfied:(i) the Borrower shall have delivered to the Administrative Agent a written request for such extension, whichrequest must be delivered at least thirty (30) days, and cannot be delivered more than one hundred twenty (120) days,prior to the Original Maturity Date (and the Administrative Agent shall forward to each Bank a copy of such requestpromptly upon receipt thereof);(ii) no Default or Event of Default shall exist on the Extension Effective Date; and(iii) the Borrower shall have paid the Extension Fee payable under Section 2.8(a).”(i) Section 4.4 of the Credit Agreement is amended and restated in its entirety to read as follows:Section 4.4 Financial Information.(a) The audited consolidated balance sheets and statements of income of the Borrower and the General Partneras of December 31, 2011 and the unaudited balance sheets and statements of income of the Borrower and the GeneralPartner as of September 30, 2012 fairly present, in conformity with GAAP, the consolidated financial position of theBorrower and the General Partner as of such date and their consolidated results of operations for such fiscal periods.(b) Since December 31, 2011, except as disclosed in public filings with the Securities and ExchangeCommission (i) there has been no material adverse change in the business, financial position or results of operations ofthe Borrower or the General Partnerand (ii) except as previously disclosed to the Administrative Agent and to the Banks, neither the Borrower nor theGeneral Partner has incurred any material indebtedness or guaranty.(j) Section 5.9(a) of the Credit Agreement is amended and restated in its entirety to read as follows:“(a) The Borrower shall not enter into any merger or consolidation, unless the Borrower is the surviving entity, orliquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell,transfer or otherwise dispose of, in on transaction or series of transactions, any substantial part of the business orproperty of the Borrower and its Subsidiaries, taken as a whole, whether now or hereafter acquired, hold an interest inany subsidiary which is not controlled by the Borrower or the General Partner or enter into other business lines,without the prior written consent of the Administrative Agent, which consent shall not be given unless the RequiredBanks so consent.(k) Section 5.16 and Section 5.17 of the Credit Agreement are deleted in their entirety.(l) Sections 6.1(e), (f), (g) and (m) of the Credit Agreement are each amended and restated in their entirety to read as follows:“(e) the Borrower, the General Partner or any Material Subsidiary shall default in the payment when due (whether byscheduled maturity, required prepayment, acceleration, demand or otherwise) of any amount owing in respect of anyRecourse Debt or Debt guaranteed by the Borrower, the General Partner or such Material Subsidiary (other than theObligations) in an aggregate principal amount of more than $50,000,000 and such default shall continue beyond thegiving of any required notice and the expiration of any applicable grace period (as the same may be extended by theapplicable lender) and such default shall not be waived by the applicable lender (which waiver shall serve to reinstatethe applicable loan), or the Borrower, the General Partner or any Material Subsidiary shall default in the performance orobservance of any obligation or condition with respect to any such Debt or any other event shall occur or condition existbeyond the giving of any required notice and the expiration of any applicable grace period (as the same may be extendedby the applicable lender), if in any such case as a result of such default, event or condition, the lender thereof (includingthe holder or holders thereof, or any trustee or agent for such holders) of any such Debt shall accelerate the maturity ofany such Debt or shall be permitted (without any further requirement of notice or lapse of time), to accelerate thematurity of any such Debt and such default shall not be waived by the applicable lender (which waiver shall serve toreinstate the applicable loan), or any such Debt shall become or be declared to be due and payable prior to its statedmaturity other than as a result of a regularly scheduled payment;(f) the Borrower, the General Partner or any Material Subsidiary shall commence a voluntary case or otherproceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy,insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator,custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to theappointment of or taking possession by any such official in an involuntary case or other proceeding commenced againstit, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they becomedue, or shall take any corporate action to authorize any of the foregoing;(g) an involuntary case or other proceeding shall be commenced against the Borrower, the General Partner or anyMaterial Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy,insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator,custodian or other similar official of it or any substantial part of its property, and such involuntary case or otherproceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered againstthe Borrower, the General Partner or any Material Subsidiary under the federal bankruptcy laws as now or hereafter ineffect;(m) (i) during any consecutive twenty-four month period commencing on or after the date hereof, individuals who atthe beginning of such period constituted the Board of Directors of the General Partner of the Borrower (together withany new directors whose election by the Board of Directors or whose nomination for election by the General Partnerstockholders was approved by a vote of at least a majority of the members of the Board of Directors then in the officewho either were members of the Board of Directors at the beginning of such period or whose election or nomination forelection was previously so approved) cease for any reason to constitute a majority of the members of the Board ofDirectors then in office, except for any such change resulting from (x) death or disability of any such member, (y)satisfaction of any requirement for the majority of the members of the Board of Directors of the General Partner toqualify under applicable law as independent directors, or (z) the replacement of any member of the Board of Directorswho is an officer or employee of the General Partner with any other officer or employee of the General Partner or itsAffiliate; or (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group(within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commissionthereunder as in effect on the date hereof) of equity interests representing more than thirty-five percent (35%) of theaggregate ordinary voting power represented by the issued and outstanding equity interests of the General Partner;”(m) Sections 7.5 and 7.6 of the Credit Agreement are amended and restated in their entirety to read as follows:“Section 7.5 Liability of Administrative Agent. Neither the Administrative Agent nor any of its Affiliates norany of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it inconnection herewith (i) with the consent or at the request of the Required Banks or, where required by the terms of thisAgreement, all of the Banks, or (ii) in the absence of its own gross negligence or willful misconduct. Except asexpressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for thefailure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to orobtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agentshall be deemed not to have knowledge of any Default (other than a Default under Section 6.1(a) with respect to thepayment of principal or interest) unless and until written notice thereof is given to the Administrative Agent by theBorrower or a Bank. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall beresponsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made inconnection with this Agreement or any borrowing hereunder or the contents of any report or certificate deliveredhereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) thesatisfaction of any condition specified in Article III, except receipt of items required to be delivered to the AdministrativeAgent; or (iv) the validity,effectiveness or genuineness of this Agreement, the other Loan Documents or any other instrument or writingfurnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon anynotice, consent, certificate, statement, or other writing (which may be sent by electronic means) believed by it in goodfaith to be genuine or to be signed by the proper party or parties. The Administrative Agent also may rely upon anystatement made to it orally or by telephone and believed by it in good faith to be made by the proper Person, and shall notincur any liability for relying thereon.Section 7.6 Indemnification. Each Bank shall, ratably in accordance with its aggregate Loans and unfundedCommitments, indemnify the Administrative Agent, its Affiliates and their respective directors, officers, agents andemployees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees anddisbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligenceor willful misconduct as finally determined by a court of competent jurisdiction) that such indemnitees may suffer orincur as a result of, or in connection with, the Administrative Agent's capacity as Administrative Agent in connectionwith this Agreement, the other Loan Documents or any action taken or omitted by such indemnitees in accordance withthis Agreement, including any amounts that the Borrower fails to pay under Section 9.3(a).”(n) Section 8.3(a) of the Credit Agreement is amended by inserting the words (“Change in Law”) on the fifth line thereofimmediately after the words “or administration thereof”.(o) Section 8.3(b) of the Credit Agreement is amended by replacing the words “capital adequacy” on the second, fifth andeleventh lines thereof with the words “capital or liquidity requirements”.(p) Section 8.4 of the Credit Agreement is amended and restated in its entirety to read as follows:“Section 8.4 Taxes.(a) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agenthereunder or under any other Loan Document shall be made free and clear of and without deduction for any and allpresent or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities, including,without limitation, penalties, interest and expenses, with respect thereto, excluding, (i) in the case of each Bank and theAdministrative Agent, taxes imposed on its net income (however denominated), franchise taxes and branch profitstaxes, in each case (a) imposed on it, by the jurisdiction under the laws of which such Bank or the Administrative Agent(as the case may be) is organized, or in which it has its principal office or any political subdivision thereof, or (b) that areOther Connection Taxes, (ii) in the case of each Bank, taxes imposed on its net income (however denominated), andfranchise or similar taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any politicalsubdivision thereof (and, if different from the jurisdiction of such Bank's Applicable Lending Office, the jurisdiction ofthe domicile of its Loans either established by the Bank pursuant to Section 9.14 or determined by the applicable taxingauthorities), and (iii) any U.S. federal withholding taxes imposed under FATCA (all such non-excluded taxes, duties,levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If theBorrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under anyNote or participation therein to any Bank or the Administrative Agent, (i) the sum payable shall be increased asnecessary so that after making all required deductions (includingdeductions applicable to additional sums payable under this Section 8.4) such Bank or the Administrative Agent (as thecase may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) theBorrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxationauthority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the AdministrativeAgent, at its address referred to in Section 9.1, the original or a certified copy of a receipt evidencing payment thereof.(b) In addition, the Borrower agrees to pay any present or future stamp, court or documentary, intangible,recording, filing or similar taxes, or charges or similar levies which arise from any payment made hereunder or underany Note or participation therein or from the execution, delivery, performance, enforcement or registration of, orotherwise with respect to, this Agreement or any Note or participation therein (hereinafter referred to as “OtherTaxes”).(c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxesor Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under thisSection 8.4) payable or paid by such Bank or the Administrative Agent (as the case may be) or required to be deductedfrom a payment to such Bank or Administrative Agent and any liability (including penalties, interest and expenses)arising therefrom or with respect thereto (whether or not such Taxes or Other Taxes were correctly or legally imposedor asserted by the relevant Governmental Authority). A certificate as to the amount of such payment or liabilitydelivered to the Borrower by a Bank (with a copy to the Administrative Agent), or by the Administrative Agent on itsown behalf or on behalf of a Bank, shall be conclusive absent manifest error. Any payment required under thisindemnification shall be made within 15 days from the date such Bank or the Administrative Agent (as the case may be)makes written demand therefor. The Administrative Agent shall reasonably cooperate, at no cost to the AdministrativeAgent or the Banks, with efforts by Borrower to recover any Taxes or Other Taxes which Borrower reasonablybelieves were incorrectly or illegally imposed.(d) (i) Any Bank that is entitled to an exemption from or reduction of withholding Tax with respect topayments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time ortimes reasonably requested by the Borrower or the Administrative Agent, such properly completed and executeddocumentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to bemade without withholding or at a reduced rate of withholding. In addition, any Bank, if reasonably requested by theBorrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law orreasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the AdministrativeAgent to determine whether or not such Bank is subject to backup withholding or information reporting requirements.Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission ofsuch documentation (other than such documentation set forth in Section 8.4(d)(ii)(1), (ii)(2) and (ii)(3) below) shall notbe required if in the Bank's reasonable judgment such completion, execution or submission would subject such Bank toany material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Bank.(ii) Without limiting the generality of the foregoing,(1) Each Bank organized under the laws of the United States shall deliver to the Borrowerand the Administrative Agent on or prior to the date on which such Bank becomes a Bank under thisAgreement (and from time to time thereafter upon the reasonable request of the Borrower or theAdministrative Agent), executed originals of IRS Form W-9 certifying that such Bank is exempt fromU.S. federal backup withholding tax.(2) Each Bank organized under the laws of a jurisdiction outside the United States, on or priorto the date of its execution and delivery of this Agreement in the case of each Bank listed on thesignature pages hereof and on or prior to the date on which it becomes a Bank in the case of each otherBank, and from time to time thereafter if requested in writing by the Borrower (but only so long assuch Bank remains lawfully able to do so), shall provide the Borrower and the Administrative Agentwith whichever of the following is applicable:(A) If such Bank is claiming the benefits of an income tax treaty to which the UnitedStates is a party (x) with respect to payments of interest under any Loan Document, executedoriginals of IRS Form W-8BEN establishing an exemption from, or reduction of, United Statesfederal withholding Tax pursuant to the “interest” article of such tax treaty and (y) withrespect to any other applicable payments under any Loan Document, IRS Form W-8BENestablishing an exemption from, or reduction of, United States federal withholding Taxpursuant to the “business profits” or “other income” article of such tax treaty;(B) Executed originals of IRS Form W-8ECI;(C) if such Bank is claiming the benefits of the exemption for portfolio interest underSection 881(c) of the Internal Revenue Code, (x) a certificate reasonably acceptable to Bankand the Borrower that such Bank is not a “bank” within the meaning of Section 881(c)(3)(A)of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaningof Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation”described in Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax ComplianceCertificate”) and (y) executed originals of IRS Form W-8BEN; or(D) to the extent such Bank is not the beneficial owner, executed originals of IRSForm W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. TaxCompliance Certificate, IRS Form W-9, and/or other certification documents from eachbeneficial owner, as applicable; provided that if such Bank is a partnership and one or moredirect or indirect partners of such Bank are claiming the portfolio interest exemption, suchBank may provide a U.S. Tax Compliance Certificate on behalf of each such direct and indirectpartner;(3) if a payment made to a Bank under any Loan Document wouldbe subject to United States federal withholding Tax imposed by FATCA if such Bank were to fail tocomply with the applicable reporting requirements of FATCA (including those contained in Section1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Bank shall deliver to theBorrower and the Administrative Agent at the time or times prescribed by law and at such time or timesreasonably requested by the Borrower or the Administrative Agent such documentation prescribed byapplicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) andsuch additional documentation reasonably requested by the Borrower or the Administrative Agent asmay be necessary for the Borrower and the Administrative Agent to comply with their obligationsunder FATCA and to determine that such Bank has complied with such Bank's obligations underFATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes ofthis clause (3), “FATCA” shall include any amendments made to FATCA after the date of thisAgreement.U.S. federal withholding taxes imposed on amounts payable to or for the account of a Bank with respectto an applicable interest in a Loan pursuant to a law in effect on the date on which (1) such Bank acquires suchinterest in the Loan (other than pursuant to an assignment request by the Borrower under Section 8.7) or (2)such Bank changes its lending office, except in each case to the extent that, pursuant to Section 8.4(a), amountswith respect to such taxes were payable either to such Bank's assignor immediately before such Bank became aparty hereto or to such Bank immediately before it changed its lending office shall be considered excluded from“Taxes” as defined in Section 8.4(a).(iii) For purposes of this Section 8.4(d) and (e), the term “Bank” includes the Administrative Agent.(e) For any period with respect to which a Bank has failed to comply with Section 8.4(d) (unless such failureis due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was requiredto be provided), such Bank shall not be entitled to indemnification under Section 8.4(a) with respect to Taxes imposed bythe United States and attributable to such failure to comply; provided, however, that should a Bank, which is otherwiseexempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver aform required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bankto recover such Taxes.(f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to thisSection 8.4, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduceany such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is nototherwise disadvantageous to such Bank.(g) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of anyTaxes or Other Taxes as to which it has been indemnified pursuant to this Section 8.4 (including by the payment ofadditional amounts pursuant to this Section 8.4), it shall pay to the Borrower an amount equal to such refund (but onlyto the extent of indemnity payments made under this Section with respect to the Taxes or Other Taxes giving rise tosuch refund), net of all out-of-pocket expenses (including Taxes or Other Taxes) ofsuch indemnified party and without interest (other than any interest paid by the relevant Governmental Authority withrespect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to suchindemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other chargesimposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay suchrefund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event willthe indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the paymentof which would place the indemnified party in a less favorable net after-Tax position than the indemnified party wouldhave been in if the indemnification payments or additional amounts giving rise to such refund had never been paid or ifthe refund results from tax attributes unrelated to the event giving rise to the indemnity payment. This paragraph shallnot be construed to require any indemnified party to make available its Tax returns (or any other information relating toits Taxes that it deems confidential) to the indemnifying party or any other Person.(h) For purposes of this Section 8.4, the term “applicable law” includes FATCA.”(q) Article VIII of the Credit Agreement is amended by inserting the following new Section 8.7 immediately after Section8.6:“Section 8.7 Mitigation Obligations; Replacement of Lenders. (a) If any Bank requests compensation underSection 8.3, or if the Borrower is required to pay any additional amount to any Bank or any Governmental Authority forthe account of any Bank pursuant to Section 8.4, then such Bank shall use reasonable efforts to designate a differentlending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another ofits offices, branches or Affiliates, if, in the judgment of such Bank, such designation or assignment (i) would eliminateor reduce amounts payable pursuant to Section 8.3 or 8.4, as the case may be, in the future and (ii) would not subjectsuch Bank to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Bank. TheBorrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any suchdesignation or assignment.(b) If (w) any Bank is unable to make, maintain or fund its Eurodollar Loans pursuant to Section 8.2 for aperiod of ten (10) consecutive days, or (x) any Bank requests compensation under Section 8.3, or if the Borrower isrequired to pay any additional amount to any Bank or any Governmental Authority for the account of any Bank pursuantto Section 8.4, or (y) if any Bank becomes a Defaulting Lender, or (z) any Bank has refused to consent to any proposedamendment, modification, waiver, termination or consent with respect to any provision of this Agreement or any otherLoan Document that, pursuant to Section 9.5, requires the consent of all Banks or of all Banks affected thereby andwith respect to which Banks constituting the Required Banks have consented to such proposed amendment,modification, waiver, termination or consent, then the Borrower may, at its sole expense and effort, upon notice to suchBank and the Administrative Agent, require such Bank to assign and delegate, without recourse (in accordance with andsubject to the restrictions contained in Section 9.6), all its interests, rights and obligations under this Agreement to anassignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment);provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consentshall not unreasonably be withheld or delayed (provided that no such consent shall be required for an assignment to anyBank so long as, after giving effect to such assignment, such Bank's share of outstanding Loans does not exceed 25%),(ii)such Bank shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interestthereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of suchoutstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) in the case ofany such assignment resulting from a claim for compensation under Section 8.3 or payments required to be madepursuant to Section 8.4, such assignment will result in a reduction in such compensation or payments and (iv) in thecase of any such assignment resulting from a Bank's refusal to consent to a proposed amendment, modification, waiver,termination or consent, the assignee shall approve the proposed amendment, modification, waiver, termination orconsent. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of awaiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegationcease to apply.”(r) Section 9.1 of the Credit Agreement is amended by inserting the following new paragraph at the end of such section:“Notices and other communications to the Banks hereunder may be delivered or furnished by electroniccommunications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall notapply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Bank. TheAdministrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to ithereunder by electronic communications pursuant to procedures approved by it; provided that approval of suchprocedures may be limited to particular notices or communications.”(s) Section 9.6(a) of the Credit Agreement is amended by inserting the words “(and any attempted assignment or transfer bythe Borrower without such consent shall be void)” at the end of such subsection after the words “all Banks”.(t) Section 9.6(b) of the Credit Agreement is amended and restated in its entirety to read as follows:“(b) Any Bank may at any time grant to one or more banks or other entities, other than the Borrower and itsAffiliates (each a “Participant”) participating interests in its Commitment or any or all of its Loans. In the event of anysuch grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and theAdministrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and theBorrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection withsuch Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such aparticipating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligationsof the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiverof any provision of this Agreement; provided that such participation agreement may provide that such Bank will notagree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.5without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in itsparticipation agreement, be entitled to the benefits of Article VIII with respect to its participating interest (subject to therequirements and limitations therein, including the requirements under Section 8.4(d)(iii) (it being understood that thedocumentation required under Section 8.4(d)(iii) shall be delivered to the participatingLender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) ofthis Section; provided that such Participant (i) agrees to be subject to the provisions of Sections 8.7 as if it were anassignee under paragraph (c) of this Section; and (ii) shall not be entitled to receive any greater payment under Sections8.3 or 8.4, with respect to any participation, than its participating Lender would have been entitled to receive, except tothe extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participantacquired the applicable participation. An assignment or other transfer which is not permitted by subsection (c) or (d)below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted inaccordance with this subsection (b). Each Lender that sells a participation shall, acting solely for this purpose as an agentof the Borrower, maintain a register on which it enters the name and address of each Participant and the principalamounts (and stated interest) of each Participant's interest in the Loans or other obligations under the Loan Documents(the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of theParticipant Register (including the identity of any Participant or any information relating to a Participant's interest in anycommitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to theextent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is inregistered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the ParticipantRegister shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded inthe Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any noticeto the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall haveno responsibility for maintaining a Participant Register.”(u) Section 9.6(c) of the Credit Agreement is amended and restated in its entirety to read as follows:“(c) Any Bank may at any time assign to one or more Eligible Assignees (each an “Assignee”) all, or aproportionate part of all, of its rights and obligations under this Agreement, the Notes and the other Loan Documents,and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement insubstantially the form of Exhibit D attached hereto executed by such Assignee and such transferor Bank, with (andsubject to) the prior written consent of (x) the Administrative Agent, which consent shall not be unreasonably withheldor delayed, and, (y) provided no Event of Default shall have occurred and be continuing, the Borrower, which consentshall not be unreasonably withheld or delayed, provided further, however, that no such consent by the Borrower shallbe required in the case of an assignment to another Bank. Notwithstanding anything to the contrary contained herein, noBank may assign or participate its interest to the Borrower and its Affiliates. Each partial assignment shall be made as anassignment of a proportionate part of all the assigning Bank's rights and obligations under this Agreement. The assignee,if it shall not be a Bank, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon execution anddelivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchaseprice agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreementand shall have all the rights and obligations of a Bank with a Loan as set forth in such instrument of assumption, and thetransferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent oraction by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), thetransferor Bank, the Administrative Agentand the Borrower shall make appropriate arrangements so that, if required, a new Note or Notes are issued to theAssignee. In connection with any such assignment (except for an assignment by a Bank to its Affiliate), the transferorBank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of$3,500. The Assignee shall deliver to the Borrower and the Administrative Agent certification as to exemption fromdeduction or withholding of any United States federal income taxes in accordance with Section 8.4.”(v) Section 9.6(e) of the Credit Agreement is amended and restated in its entirety to read as follows:“(e) Any Bank may at any time assign or pledge all or any portion of its rights under this Agreement and itsNote to secure obligations of such Bank, including any pledge to a Federal Reserve Bank. No such assignment shallrelease the transferor Bank from its obligations hereunder or substitute any such assignee or pledgee for such Bank as aparty hereto.”SECTION 2.REPRESENTATIONS AND WARRANTIESIn order to induce the Banks and the Administrative Agent to enter into this Amendment No. 1, the Borrowerrepresents and warrants to each Bank and the Administrative Agent that the following statements are true, correct and complete:(i)the Borrower is duly organized, validly existing and in good standing as a limited partnership under thelaws of the State of Delaware and has all powers and all material governmental licenses, authorizations, consents and approvalsrequired to own its property and assets and carry on its business as now conducted or as it presently proposes to conduct and hasbeen duly qualified and is in good standing in every jurisdiction in which the failure to be so qualified and/or in good standing islikely to have a Material Adverse Effect;(ii) the Borrower has the organizational power and authority to execute, deliver and carry out the terms and provisionsof each of this Amendment No. 1 and the Credit Agreement as amended by this Amendment No. 1 and has taken all necessary action toauthorize the execution and delivery on behalf of the Borrower and the performance by the Borrower of this Amendment No. 1 and theCredit Agreement as amended by this Amendment No. 1. The Borrower has duly executed and delivered this Amendment No. 1, andeach of this Amendment No. 1 and the Credit Agreement as amended by this Amendment No. 1 constitutes the legal, valid and bindingobligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable insolvency,bankruptcy or other laws affecting creditors rights generally, or general principles of equity, whether such enforceability is consideredin a proceeding in equity or at law;(iii) neither the execution, delivery or performance by or on behalf of the Borrower of this Amendment No. 1 and theCredit Agreement as amended by this Amendment No. 1, nor compliance by the Borrower with the terms and provisions hereof andthereof nor the consummation of the transactions contemplated by this Amendment No. 1 and the Credit Agreement as amended by thisAmendment No. 1, (a) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree ofany court or governmental instrumentality applicable to Borrower except to the extent such contravention is not likely to have aMaterial Adverse Effect, or (b) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, orconstitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of theproperty or assets of the Borrower pursuant to the terms of any material indenture, mortgage, deed of trust, or other agreement or otherinstrument to which the Borrower (or of any partnership of which the Borrower is a partner) is aparty or by which it or any of its property or assets is bound or to which it is subject except to the extent such conflict or breach is notlikely to have a Material Adverse Effect, or (c) will conflict with or result in a breach of any organizational document of any Subsidiary,the certificate of limited partnership, partnership agreement or other organizational document of Borrower, or the General Partner'sarticles of incorporation or by-laws; and(iv) the representations and warranties of the Borrower contained in Article IV of the Credit Agreement are and willbe true and correct in all material respects on and as of the date hereof and the Amendment Effective Date to the same extent as thoughmade on and as of such dates, except to the extent such representations and warranties specifically relate to an earlier date, in which casethey were true and correct in all material respects on and as of such earlier date; and(v) no event has occurred and is continuing or will result from the consummation of the transactions contemplated bythis Amendment No. 1 that would constitute a Default or Event of Default.SECTION 3.CONDITIONS TO EFFECTIVENESSThis Amendment No. 1 shall become effective only upon the satisfaction of the following conditions precedent (the date ofsatisfaction of such conditions being referred to as the “Amendment Effective Date”):A.The Borrower, the Administrative Agent, and the Required Banks shall have indicated their consent heretoby the execution and delivery to the Administrative Agent of this Amendment No. 1, and the General Partner shall haveexecuted and delivered to the Administrative Agent the Reaffirmation of Guaranty of Payment attached to this Amendment No.1.B.The Administrative Agent shall have received a secretary's certificate from the Borrower (i) either confirming thatthere have been no changes to its organizational documents since March 29, 2012, or if there have been changes to the Borrower'sorganizational documents since such date, certifying as to such changes, and (ii) certifying as to resolutions and incumbency of officerswith respect to this Amendment No. 1 and the transactions contemplated hereby.C.The Administrative Agent shall have received payment of all reasonable out-of-pocket costs and expenses for whichinvoices have been presented (including the reasonable fees and expenses of legal counsel for which the Borrower agrees it isresponsible pursuant to Section 9.3 of the Credit Agreement), incurred in connection with this Amendment No. 1.SECTION 4. MISCELLANEOUSA.Reference to and Effect on the Credit Agreement and the Other Loan Documents.(i) On and after the effective date of this Amendment No. 1, each reference in the Credit Agreement to “thisAgreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement and each reference in theother Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreementshall mean and be a reference to the Credit Agreement as amended hereby.(ii) Except as specifically amended by this Amendment No. 1, the Credit Agreement and the other Loan Documentsshall remain in full force and effect and are hereby ratified and confirmed.(iii) The execution, delivery and performance of this Amendment No. 1 shall not, except as expressly providedherein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Administrative Agent or anyBank under the Credit Agreement or any of the other Loan Documents.B.Headings. Section and subsection headings in this Amendment No. 1 are included herein for convenience ofreference only and shall not constitute a part of this Amendment No. 1 for any other purpose or be given any substantive effect.C.Applicable Law. THIS AMENDMENT NO. 1 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIESHEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATEOF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAWTHAT WOULD CAUSE THE APPLICATION OF ANY LAW OTHER THAN THE STATE OF NEW YORK).D.Counterparts; Effectiveness. This Amendment No. 1 may be signed in any number of counterparts, each of whichshall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment No. 1and the Credit Agreement constitute the entire agreement and understanding among the parties hereto and supersedes any and all prioragreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signaturepage to this Amendment No. 1 by facsimile or other electronic methods (including .pdf) shall be effective as delivery of a manuallyexecuted counterpart of this Amendment No. 1.[Signature Pages Follow]||IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered bytheir respective officers thereunto duly authorized as of the date first written above.BORROWER:KILROY REALTY, L.P.,a Delaware limited partnershipBy:Kilroy Realty Corporation, a Maryland corporation, its general partnerBy: /s/ Tyler H. RoseName: Tyler H. RoseTitle: Executive Vice President and Chief Financial OfficerBy: /s/ Michelle NgoName: Michelle NgoTitle: Vice President and TreasurerJPMORGAN CHASE BANK, N.A., as Administrative Agent and as a BankBy: /s/ Marc CostantinoName: Marc CostantinoTitle: Executive DirectorBANK OF AMERICA, N.A.By: /s/ James P. JohnsonName: James P. JohnsonTitle: Senior Vice PresidentWELLS FARGO BANK, NATIONAL ASSOCIATIONBy: /s/ Carl SkanderupName: Carl SkanderupTitle: Vice PresidentPNC BANK, NATIONAL ASSOCIATIONBy: /s/ Darin MortimerName: Darin MortimerTitle: Vice PresidentUNION BANK, N.A.By: /s/ Juliana MatsonName: Juliana MatsonTitle: Vice PresidentBANK OF THE WEST,a California banking corporationBy: /s/ Irina GalievaName: Irina GalievaTitle: Vice President / Documentation ManagerBy: /s/ Ben ArroyoName: Ben ArroyoTitle: Syndications Officer, SeniorU.S. BANK NATIONAL ASSOCIATIONBy: /s/ Patrick J. BrownName: Patrick J. BrownTitle: Vice Presidentcompass bank,an Alabama banking corporationBy: /s/ Brian TuerffName: Brian TuerffTitle: Senior Vice President comerica bankBy: /s/ Charles WeddellName: Charles WeddellTitle: Vice President KEYBANK, NATIONAL ASSOCIATIONBy: /s/ Michael P. SzubaName: Michael P. SzubaTitle: Vice President SUMITOMO MITSUI BANKING CORPORATIONBy: /s/ William G. KarlName: William G. KarlTitle: General Manager THE BANK OF NOVA SCOTIABy: /s/ Christopher UsasName: Christopher UsasTitle: Director CHANG HWA COMMERCIAL BANK, LTD., LOSANGELES BRANCHBy: /s/ Chu-I HungName: Chu-I HungTitle: VP & General ManagerReaffirmation of Guaranty of PaymentThe undersigned Kilroy Realty Corporation (the “Guarantor”) hereby (a) acknowledges the foregoing Amendment No. 1, (b)reaffirms its guaranty of the Guaranteed Obligations (as defined in the Guaranty of Payment dated as of March 29, 2012 executed anddelivered by the Guarantor) under or in connection with the Credit Agreement, as modified by this Amendment No. 1, in accordancewith the Guaranty of Payment executed and delivered by the Guarantor, and (c) confirms that its Guaranty of Payment shall remain infull force and effect after giving effect to this Amendment No. 1.[Signature Page Follows]GUARANTOR: KILROY REALTY CORPORATIONBy: /s/ Tyler H. RoseName: Tyler H. RoseTitle: Executive Vice President and Chief Financial Officer By: /s/ Michelle NgoName: Michelle NgoTitle: Vice President and Treasurer Exhibit 10.56AMENDED AND RESTATED REVOLVING CREDIT AGREEMENTdated as of November 28, 2012amongKILROY REALTY, L.P.JPMORGAN CHASE BANK, N.A.,as Bank and as Administrative Agent for the Banks,J.P. MORGAN SECURITIES LLC,as Joint Lead Arranger and Joint Bookrunner,MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATEDas Joint Lead Arranger and Joint Bookrunner,BANK OF AMERICA, N.A.,as Syndication Agent,BARCLAYS BANK PLC,COMPASS BANK,PNC BANK, NATIONAL ASSOCIATIONROYAL BANK OF CANADA,UNION BANK, N.A.,U.S. BANK NATIONAL ASSOCIATIONandWELLS FARGO BANK, N.A.,as Documentation Agents,andTHE BANKS LISTED HEREINTable of ContentsArticle IDEFINITIONS 1Section 1.1Amendment and Restatement 1Section 1.2Definitions 2Section 1.3Accounting Terms and Determinations 24Section 1.4Types of Borrowings 24Article IITHE CREDITS 25Section 2.1Commitments to Lend 25Section 2.2Notice of Committed Borrowing 25Section 2.3Money Market Borrowings 26Section 2.4Notice to Banks; Funding of Loans 30Section 2.5Notes 31Section 2.6Maturity of Loans 32Section 2.7Interest Rates 32Section 2.8Fees 34Section 2.9Extended Maturity Date; Mandatory Termination 35Section 2.10Mandatory Prepayment 36Section 2.11Optional Prepayments 37Section 2.12General Provisions as to Payments 38Section 2.13Funding Losses 39Section 2.14Computation of Interest and Fees 40Section 2.15Method of Electing Interest Rates 40Section 2.16Letters of Credit 41Section 2.17Letter of Credit Usage Absolute 43Section 2.18Swingline Loan Subfacility 44Article IIICONDITIONS 46Section 3.1Closing 46Section 3.2Borrowings 48Article IVREPRESENTATIONS AND WARRANTIES 49Section 4.1Existence and Power 49Section 4.2Power and Authority 50Section 4.3No Violation 50Section 4.4Financial Information 50Section 4.5Litigation 50Section 4.6Compliance with ERISA 51Section 4.7Environmental Compliance 51Section 4.8Taxes 53Section 4.9Full Disclosure 53Section 4.10Solvency 53Section 4.11Use of Proceeds; Margin Regulations 53Section 4.12Governmental Approvals 53Section 4.13Investment Company Act; Public Utility Holding Company Act 53Section 4.14Closing Date Transactions 54Section 4.15Representations and Warranties in Loan Documents 54Section 4.16Patents, Trademarks, etc 54Section 4.17No Default 54Section 4.18Licenses, etc 54Section 4.19Compliance With Law 54Section 4.20No Burdensome Restrictions 54Section 4.21Brokers' Fees 55Section 4.22Labor Matters 55Section 4.23Organizational Documents 55Section 4.24Principal Offices 55Section 4.25REIT Status 55Section 4.26Ownership of Property 55Section 4.27Insurance 55Article VAFFIRMATIVE AND NEGATIVE COVENANTS 56Section 5.1Information 56Section 5.2Payment of Obligations 58Section 5.3Maintenance of Property; Insurance 58Section 5.4Conduct of Business 59Section 5.5Compliance with Laws 59Section 5.6Inspection of Property, Books and Records 59Section 5.7Existence 60Section 5.8Financial Covenants 60Section 5.9Restriction on Fundamental Changes; Operation and Control 61Section 5.10Changes in Business 61Section 5.11Sale of Unencumbered Asset Pool Properties 61Section 5.12Fiscal Year; Fiscal Quarter 62Section 5.13Margin Stock 62Section 5.14Use of Proceeds 62Section 5.15General Partner Status 62Article VIDEFAULTS 62Section 6.1Events of Default 62Section 6.2Rights and Remedies 65Section 6.3Notice of Default 66Section 6.4Actions in Respect of Letters of Credit 66Article VIITHE ADMINISTRATIVE AGENT 68Section 7.1Appointment and Authorization 68Section 7.2Administrative Agent and Affiliates 68Section 7.3Action by Administrative Agent 69Section 7.4Consultation with Experts 69Section 7.5Liability of Administrative Agent 69Section 7.6Indemnification 70Section 7.7Credit Decision 70Section 7.8Successor Administrative Agent 70Section 7.9Administrative Agent's Fee 71Section 7.10Copies of Notices 71Article VIIICHANGE IN CIRCUMSTANCES 71Section 8.1Basis for Determining Interest Rate Inadequate or Unfair 71Section 8.2Illegality 72Section 8.3Increased Cost and Reduced Return 73Section 8.4Taxes 74Section 8.5Base Rate Loans Substituted for Affected Euro-Dollar Loans 78Section 8.6SPC Loans 78Section 8.7Mitigation Obligations; Replacement of Lenders 80Article IXMISCELLANEOUS 81Section 9.1Notices 81Section 9.2No Waivers 82Section 9.3Expenses; Indemnification 82Section 9.4Sharing of Set-Offs 83Section 9.5Amendments and Waivers 84Section 9.6Successors and Assigns 84Section 9.7USA Patriot Act 87Section 9.8Defaulting Lenders 87Section 9.9Governing Law; Submission to Jurisdiction 89Section 9.10Marshaling; Recapture 90Section 9.11Counterparts; Integration; Effectiveness 90Section 9.12WAIVER OF JURY TRIAL 91Section 9.13Survival 91Section 9.14Domicile of Loans 91Section 9.15Limitation of Liability 91Section 9.16No Bankruptcy Proceedings 91Section 9.17Optional Increase in Commitments 91Section 9.18Severability 92Section 9.19Interest Rate Limitation 92Exhibit A - Form of NoteExhibit A-1 - Form of NoteExhibit B - Unencumbered Asset Pool Properties (Fee Interests)Exhibit C - Unencumbered Asset Pool Properties (Leasehold Interests)Exhibit D - Form of Assignment and Assumption AgreementExhibit E - Form of Money Market Quote RequestExhibit F - Form of Invitation for Money Market QuotesExhibit G - Form of Money Market QuoteExhibit H - Form of Designation AgreementSchedule 1 - CommitmentsSchedule 4.22 - Labor MattersAMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of November 28, 2012, among KILROY REALTY, L.P.(the “Borrower”), JPMORGAN CHASE BANK, N.A., as Bank and as Administrative Agent for the Banks (“Administrative Agent”), J.P. MORGANSECURITIES LLC, as Joint Lead Arranger and Joint Bookrunner, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Joint LeadArranger and Joint Bookrunner, BANK OF AMERICA, N.A., as Syndication Agent, Barclays Bank PLC, Compass Bank, PNC Bank, NationalAssociation, Royal Bank of Canada, Union Bank, N.A., U.S. Bank National Association and Wells Fargo Bank, N.A., as Documentation Agents, and theBANKS listed on the signature pages hereof (the “Banks”).RECITALSWHEREAS, the Borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain other lenders are party to the Revolving CreditAgreement dated as of August 10, 2010, as amended by the First Amendment to Revolving Credit Agreement dated as of June 22, 2011 and the SecondAmendment to Revolving Credit Agreement dated as of March 29, 2012 (the “Existing Credit Agreement”), pursuant to which such lenders agreed to extendcredit to the Borrower on the terms set forth therein; andWHEREAS, the Borrower, the Administrative Agent and the Banks party hereto have agreed to enter into this Agreement to amend and restate theExisting Credit Agreement in its entirety as set forth herein;NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiencyof which are hereby acknowledged, the parties hereto agree to amend and restate the Existing Credit Agreement in its entirety as follows:DEFINITIONSSection 1.Amendment and Restatement. This Agreement shall supersede the Existing Credit Agreement in its entirety,except as provided in this Section 1.1. On the Closing Date, the rights and obligations of the parties under each of the Existing Credit Agreement and the“Notes” defined therein shall be subsumed within and be governed by this Agreement and the Notes issued hereunder; provided however, that (x) all interestand all commitment, facility and other fees and expenses owing or accruing under or in respect of the Existing Credit Agreement shall be calculated as of theClosing Date (prorated in the case of any fractional periods), and shall be paid on the Closing Date in accordance with the method specified in the ExistingCredit Agreement as if the Existing Credit Agreement were still in effect and (y) any of the other “Obligations” (as defined in the Existing Credit Agreement)outstanding under the Existing Credit Agreement shall, for purposes of this Agreement, be Obligations hereunder. The Banks' interests in such Obligationsshall be reallocated on the Closing Date in accordance with each Bank's applicable Commitment Percentage.Section 2.Definitions. The following terms, as used herein, have the following meanings:“Absolute Rate Auction” means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3.“Adjusted Annual EBITDA” means, for any period, Annual EBITDA for such period, minus the sum of (a) interest income other thaninterest income from mortgage notes not in excess of $5,000,000 per annum, and (b) a management fee reserve in an amount equal to 3% of consolidated totalrevenue (after deduction of interest income of Borrower and its subsidiaries for such period), plus the sum of (a) general and administrative expenses for suchperiod to the extent included in Annual EBITDA and (b) actual management fees relating to Real Property for such period.“Adjusted London Interbank Offered Rate” has the meaning set forth in Section 2.7(b).“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Banks hereunder, and itssuccessors in such capacity.“Administrative Questionnaire” means, with respect to each Bank, an administrative questionnaire in the form prepared by theAdministrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controlsor is Controlled by or is under common Control with the Person specified. In no event shall (x) the Administrative Agent or any Bank or (y) any other Personthat is engaged in the business of making commercial loans (including revolving loans) in the ordinary course of business and for which the General Partneror the Borrower does not,directly or indirectly, possess the power to cause the direction of the investment policies of such Person be deemed to be an Affiliate of the Borrower.“Agreement” means this Amended and Restated Revolving Credit Agreement, as the same may from time to time hereafter be modified,supplemented or amended.“Annual EBITDA” means, measured as of the last day of each calendar quarter (and without duplication), an amount derived from (i) totalrevenues relating to all Real Property Assets of the Borrower, the General Partner and their Consolidated Subsidiaries or to the Borrower's or the GeneralPartner's interest in Minority Holdings for the previous four consecutive calendar quarters including the quarter then ended, on an accrual basis without givingeffect to the straight-lining of rents, plus (ii) interest and other income of the Borrower, the General Partner and their Consolidated Subsidiaries, including,without limitation, real estate service revenues, for such period, plus (iii) nonrecurring extraordinary losses (including losses from the sale of Real PropertyAssets and/or early extinguishment of Debt or the forgiveness of Debt) for such period, plus (iv) non-cash compensation expense for such period not in excessof $15,000,000 per annum, plus (v) costs and expenses incurred during such period with respect to acquisitions consummated during such period, less (vi)total operating expenses and other expenses relating to such Real Property Assets and to the Borrower's and the General Partner's interest in Minority Holdingsfor such period (other than interest, taxes, depreciation, amortization, and other non-cash items), less (vii) total corporate operating expenses (including generaloverhead expenses) and other expenses of the Borrower, the General Partner, their Consolidated Subsidiaries and the Borrower's and the General Partner'sinterest in Minority Holdings (other than interest, taxes, depreciation, amortization and other non-cash items), less (viii) gains from discontinued operationsand extraordinary gains or losses, for such period, and less (ix) nonrecurring extraordinary gains (including gains from the sale of Real Property Assets and/orthe early extinguishment of Debt or the forgiveness of Debt) for such period. For purposes of this Agreement, Annual EBITDA shall be deemed to include onlythe Borrower's pro rata share (such share being based upon the Borrower's percentage ownership interest as shown on the Borrower's annual audited financialstatements) of the Annual EBITDA of any Person in which the Borrower, directly or indirectly, owns an interest.“Applicable Interest Rate” means the lesser of (x) the rate at which the interest rate applicable to any floating rate Debt could be fixed, at thetime of calculation, by the Borrower entering into an unsecured interest rate swap agreement (or, if such rate is incapable of being fixed by entering into anunsecured interest rate swap agreement at the time of calculation, a reasonably determined fixed rate equivalent), and (y) the rate at which the interest rateapplicable to such floating rate Debt is actually capped, at the time of calculation, if the Borrower has entered into an interest rate cap agreement with respectthereto or if the documentation for such Debt contains a cap.“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans and Swingline Loans, its DomesticLending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office, and (iii) in the case of its Money Market Loans, its Money MarketLending Office.“Applicable Margin” means, with respect to each Loan, the respective percentages per annum determined, at any time, based on the rangeinto which Borrower's Credit Rating then falls, in accordance with the following table.Range of Borrower's Credit Rating*Applicable Margin for Euro-DollarLoans(% per annum)Applicable Margin for Base Rate Loans(% per annum)

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