Kilroy Realty
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(MARK ONE)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 of incorporation or organization)(I.R.S. Employer Identification No.) Kilroy Realty, L.P.Delaware95-4612685 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (310) 481-8400 Securities 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 Partnership InterestsIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Kilroy Realty Corporation Yes 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 x Kilroy 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 thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Kilroy Realty Corporation Yes 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 submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required 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 becontained, 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 thisForm 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xLarge accelerated fileroAccelerated fileroNon-accelerated filer(Do not check if a smaller reporting company)oSmaller reporting company Kilroy Realty, L.P.oLarge accelerated fileroAccelerated filerxNon-accelerated filer(Do not check if a smaller reporting company)oSmaller 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 x Kilroy 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 $3,991,944,820based on the quoted closing price on the New York Stock Exchange for such shares on June 30, 2013.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$55,100,926 based on the quoted closing price on the New York Stock Exchange for Kilroy Realty Corporation shares on June 30, 2013.As of February 5, 2014, 82,130,022 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 2014 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 NOTEThis report combines the annual reports on Form 10-K for the year ended December 31, 2013 of Kilroy Realty Corporation and Kilroy Realty, L.P.Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean KilroyRealty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “OperatingPartnership” 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, 2013, the Companyowned an approximate 97.8% common general partnership interest in the Operating Partnership. The remaining approximate 2.2% 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 ofthe Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s 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 in the OperatingPartnership’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 awhole and in the same manner as management;•Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and•Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.1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;◦Note 10, Stockholders’ Equity of the Company;◦Note 11, Preferred and Common Units of the Operating Partnership;◦Note 18, Net Income Available to Common Stockholders Per Share of the Company;◦Note 19, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;◦Note 21, Quarterly Financial Information of the Company (Unaudited); and◦Note 22, Quarterly Financial Information of the Operating Partnership (Unaudited);•Item 6. Selected Financial Data – Kilroy Realty Corporation;•Item 6. Selected Financial Data – Kilroy Realty, L.P.;•Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations:◦—Liquidity and Capital Resources of the Company; and◦—Liquidity and Capital Resources of the Operating Partnership.This report also includes separate sections under 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 Page PART I Item 1. Business5Item 1A. Risk Factors12Item 1B. Unresolved Staff Comments26Item 2. Properties27Item 3. Legal Proceedings36Item 4. Mine Safety Disclosures36 PART II Item 5. Market for Kilroy Realty Corporation’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities37 Market for Kilroy Realty, L.P.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities37Item 6. Selected Financial Data – Kilroy Realty Corporation39 Selected Financial Data – Kilroy Realty, L.P.41Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations42Item 7A. Quantitative and Qualitative Disclosures About Market Risk79Item 8. Financial Statements and Supplementary Data80Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure80Item 9A. Controls and Procedures81Item 9B. Other Information85 PART III Item 10. Directors, Executive Officers and Corporate Governance85Item 11. Executive Compensation85Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters85Item 13. Certain Relationships and Related Transactions, and Director Independence85Item 14. Principal Accountant Fees and Services85 PART IV Item 15. Exhibits and Financial Statement Schedules86 SIGNATURES93PART IThis document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended, including, without limitation, information concerning projected future occupancy and rental rates, leaseexpirations, debt maturity, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs,dispositions, future executive incentive compensation and other forward-looking financial data, as well as the discussion in “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations.” Forward-lookingstatements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements areinherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control.Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely onthe forward-looking statements as predictions of future performance, results or events. All forward-looking statements are based on currently availableinformation and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statement that becomes untruebecause of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements underU.S. federal securities laws.4ITEM 1.BUSINESSThe CompanyWe are a self-administered REIT active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets,consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greaterSeattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of highquality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained andmanaged. We own our interests in all of our properties through the Operating Partnership and the Finance Partnership and conduct substantially all of ouroperations through the Operating Partnership. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).Our stabilized portfolio of operating properties was comprised of the following office properties at December 31, 2013: Number ofBuildings RentableSquare Feet Number ofTenants Percentage OccupiedStabilized Office Properties (1)105 12,736,099 514 93.4%______________(1)Excludes 12 properties located in San Diego, California that were held for sale at December 31, 2013 (see Note 17 “Discontinued Operations” to the consolidated financial statements included in this report). The sale of theseproperties closed on January 9, 2014 (see Note 23 “Subsequent Events” to the consolidated financial statements included in this report for further details).Our stabilized portfolio includes all of our properties with the exception of properties held for sale, undeveloped land, development and redevelopmentproperties currently under construction or committed for construction, and “lease-up” properties. We define redevelopment properties as those properties forwhich we expect to spend significant development and construction costs on the 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. During the fourth quarter of 2013, we completed one developmentproperty in San Francisco, California and stabilized a redevelopment property in Long Beach, California. As a result, these properties are included in ourstabilized portfolio as of December 31, 2013.As of December 31, 2013, the following properties were excluded from our stabilized portfolio: Number of Properties Estimated RentableSquare FeetProperties Held for Sale (1)12 1,049,035Development properties under construction (2)6 2,538,000Lease-up properties1 410,000_______________(1)Includes 12 properties located in San Diego, California. The sale of these properties closed on January 9, 2014 (see Note 23 “Subsequent Events” to our consolidated financial statements included in this report for furtherdetails).(2) Estimated rentable square feet upon completion.As of December 31, 2013, all of our properties and development and redevelopment projects and all of our business is currently conducted in the state ofCalifornia with the exception of twelve office properties located in the state of Washington. All of our properties and development and redevelopment projectsare 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary created on June 27, 2013 (see additionalinformation below) and certain properties held at Qualified Intermediaries for potential future Section 1031 Exchanges, which have been consolidated forfinancial reporting purposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in thisreport).5On June 27, 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood CityPartners, LLC. In connection with this transaction, the Company acquired a 0.35 acre land site, completing the first phase of the land assemblage for its plansto develop an approximate 300,000 square foot office project (the “Crossing/900” project) in Redwood City, California. In October 2013, the Company acquireda 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the Crossing/900 project. The related assets,liabilities, and noncontrolling interest acquired in connection with this transaction are included in our consolidated financial statements as of the dates ofacquisition.We own our interests in all of our real estate assets through the Operating Partnership and the Finance Partnership. We conduct substantially all of ouroperations through the Operating Partnership of which we owned a 97.8% common general partnership interest as of December 31, 2013. The remaining 2.2%common limited partnership interest in the Operating Partnership as of December 31, 2013 was owned by non-affiliated investors and certain of our executiveofficers and directors. Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company, is the sole general partner of the Finance Partnership andowns a 1.0% common general partnership interest. The Operating Partnership owns the remaining 99.0% common limited partnership interest. We conductsubstantially 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, certain properties held in Section 1031 Exchanges and Redwood City Partners LLC, all of the Company’ssubsidiaries are wholly owned.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 www.kilroyrealty.com. The information found on, or otherwise accessible through, ourwebsite 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 or furnish to theSEC. 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, the public mayread and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. All reports that wewill file with the SEC will also be available free of charge on our website at www.kilroyrealty.com as soon as reasonably practicable after we file thosematerials 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 900646Business 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 sustainablegrowth in Net Operating Income (defined below) and FFO (defined below) as well as maximization of long-term stockholder value. These factors and strategiesinclude:•the quality, geographic location, physical characteristics, and operating sustainability 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 —Liquidityand Capital Resources of the Operating Partnership” for additional information pertaining to the Company’s capital recycling program and related2013 and 2014 property dispositions); and•our active development and redevelopment program and our extensive future development pipeline of undeveloped land sites (see “Item 7:Management’s Discussion and Analysis of Financial Condition and Results of Operations —Information on Leases Commenced and Executed” foradditional information pertaining to the Company’s in-process and future development pipeline).“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.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;7•building our current development projects to Leadership in Energy and Environmental Design (“LEED”) specifications. All of our developmentprojects are now designed to achieve LEED certification, generally LEED Platinum or Gold. Our 333 Brannan Street and 350 Mission Streetbuildings are the first two ground-up LEED Platinum office development projects in San Francisco;•actively pursuing LEED certification for over 2.5 million square feet of office space under construction. During 2013, we significantly enhanced thesustainability profile of our portfolio, ending the year with 40% of our properties LEED certified and 53% ENERGY STAR certified. According tothe most widely used global benchmark for sustainability performance, we now rank among the top three American office REITs in sustainablepractices and properties;•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 to pursue the acquisition ofvalue add office properties and development and redevelopment opportunities that add immediate Net Operating Income to our portfolio or play a strategic rolein our future growth and 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 properties primarily located in California since 1947. Asof December 31, 2013, our future development pipeline was comprised of nine potential development sites, representing 120.9 gross acres of undeveloped landon which we believe we have the potential to develop between 2.7 million and 3.4 million square feet of office space, depending upon economic conditions. Ourstrategy 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 selective assets into new state-of-the-market development and acquisition assets with higher cash flow and ratesof 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.8Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing buildings pursuant to aformal plan, the intended result of which is a higher economic return on the property. We may engage in the additional development or redevelopment of officeproperties when market conditions support a favorable risk-adjusted return on such development or redevelopment. We expect that our significant workingrelationships with tenants, municipalities, and landowners on the West Coast will give us further access to development and redevelopment opportunities. Wecannot assure you that we will be able to successfully develop or redevelop any of our properties or that we will have access to additional development orredevelopment opportunities.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, 2013, our total debt as a percentage of total market capitalizationwas 33.2%, and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 36.3%, both of which werecalculated based on the quoted closing price per share of the Company’s common stock of $50.18 on December 31, 2013 (see “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” foradditional information). 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 selective assets. There can be no assurance that we will be able to obtaincapital 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, 2013, our 15 largest tenants in terms of annualized base rental revenues represented approximately 33.0% of our total annualized baserental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, 2013. 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, undeveloped land and other commercial real estate, many of which ownproperties similar to ours in the same submarkets in which our properties are located. For further discussion of the potential impact of competitive conditionson our business, see “Item 1A. Risk Factors.”Segment and Geographic Financial InformationAs of December 31, 2013 and 2012, we had one reportable segment, our office properties segment. For information about our office property revenues andlong-lived assets and other financial information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”9As of December 31, 2013, all of our properties and development and redevelopment projects and all of our business is currently conducted in the state ofCalifornia with the exception of twelve office properties located in the state of Washington. All of our properties and development and redevelopment projectsare 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary created on June 27, 2013 (see Note 3“Acquisitions” to our consolidated financial statements for additional information) and certain properties held in Section 1031 Exchanges, which have beenconsolidated for financial reporting purposes as variable interest entities (see Note 2 “Basis of Presentation and Significant Accounting Policies” to ourconsolidated financial statements included in this report).EmployeesAs of December 31, 2013, we employed 219 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 ofDecember 31, 2013, other than routine cleaning materials, approximately 5% of our tenants handled hazardous substances and/or wastes on less than 4% ofthe aggregate square footage of our properties as part of their routine operations. These tenants are primarily involved in the life sciences business. Thehazardous substances and wastes are primarily comprised of diesel fuel for emergency generators and small quantities of lab and light manufacturingchemicals including, but not limited to, alcohol, ammonia, carbon dioxide, cryogenic gases, dichlorophenol, methane, naturalyte acid, nitrogen, nitrous oxide,and oxygen which are routinely used by life science companies. We are not aware of any material noncompliance, liability, or claim relating to hazardous ortoxic substances or petroleum products in connection with any of our properties, and management does not believe that on-going activities by our tenants willhave a material adverse effect on our operations.10Costs related to government regulation and private litigation over environmental matters. Under applicable environmental laws and regulations,we may 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, transactional indemnities or holdbacks. We carrywhat we believe to be commercially reasonable environmental insurance. Our environmental insurance policies are subject to various terms, conditions andexclusions. Similarly, in connection with some transactions we obtain environmental indemnities and holdbacks that may not be honored by the indemnitorsor may fail to address resulting liabilities adequately. Therefore, we cannot provide any assurance that our insurance coverage or transactional indemnities willbe sufficient or that our liability, if any, will not have a material adverse effect on our financial condition, results of operations, cash flows, quoted tradingprice of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.11ITEM 1A. RISK 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 greater Seattle wemay be exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, our properties areconcentrated in Los Angeles, Orange County, San Diego County, and the San Francisco Bay Area, exposing us to risks associated with those specific areas.We are susceptible to adverse developments in the economic and regulatory environments of California and greater Seattle (such as business layoffs ordownsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations orincreased regulation and other factors) as well as adverse weather conditions and natural disasters that occur in those areas (such as earthquakes, wind,landslides, droughts, fires and other events). In addition, California is also regarded as more litigious and more highly regulated and taxed than many otherstates, 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 greater Seattle or any decrease in demandfor office space resulting from the California or greater Seattle regulatory or business environment could impact our ability to generate revenues sufficient tomeet our operating expenses or other obligations, which would adversely impact our financial condition, results of operations, cash flows, the quoted tradingprice of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trendsin the real estate industry. Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities,are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this naturewould adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debtservice obligations and to pay dividends and distributions to our security holders.Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and thevalue of our real estate assets may include:•local oversupply or reduction in demand for office or other commercial space, which may result in decreasing rental rates and greater concessions totenants;•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;12•increased operating costs, including insurance premiums, utilities, and real estate taxes;•costs of complying with changes in governmental regulations;•the relative illiquidity of real estate investments;•changing submarket demographics;•changes in space utilization by our tenants due to technology, economic conditions and business culture;•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, results of operations, abilityto borrow funds and cash flows. As of December 31, 2013, our 15 largest tenants represented approximately 33.0% of total annualized base rental revenues.See further discussion on 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 revenues and cash flows. For the year ended December 31, 2013, we derived approximately 98.4%of our revenues from continuing operations from rental income and tenant reimbursements. A tenant may experience a downturn in its business, which mayweaken its 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 may experience 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, results of operations and cash flows. As of December 31, 2013, as a percentage of our annualized base rental revenue, 36% of ourtenants operated in the technology and media industry, 19% in the finance, insurance and real estate industries, 15% in the professional, business and otherservices industries, 12% in the education and health services industries and 18% in other industries. As we expand our acquisition and development activitiesin markets populated by knowledge and creative based tenants in the technology and media industry, our tenant mix may become more concentrated, furtherexposing us to risks associated with that industry. For a further discussion of the composition of our tenants by industry, see “Item 2. Properties —SignificantTenants.” An economic downturn in any of these industries, or in any industry in which a significant number of our tenants currently or may in the futureoperate, could negatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or default on lease obligations,fail to renew their leases or renew their leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy theirobligations to us. As a result, a downturn in an industry in which a significant number of our tenants operate could adversely affect our financial conditions,result of operations and cash flows.13We may be unable to renew leases or re-lease available space. We had office space representing approximately 6.6%, of the total square footage of ourproperties that was not occupied as of December 31, 2013. In addition, leases representing approximately 9.9% and 13.3% of the leased rentable square footageof our properties are scheduled to expire in 2014 and 2015, respectively. Above market rental rates on some of our properties may force us to renew or re-leaseexpiring leases at rates below current lease rates. We cannot provide any assurance that leases will be renewed or that available space will be re-leased at rentalrates equal to or above the current rental rates. If the average rental rates for our properties decrease or existing tenants do not renew their leases, our financialcondition, results of operations, cash flows, 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 could be adversely affected.We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties.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. Changes in the existingland use rules and regulations and approval process that restrict or delay our ability to develop, redevelop, or use our properties (such as potential restrictionson the use and/or density of new developments, water use and other uses and activities) could have an adverse effect on our financial position, 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.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 our borrowings may leave us with insufficient cash resources to operate our properties or to pay in cash the distributions necessary to maintainthe Company’s REIT qualification. Our level of debt and the limitations imposed by our debt agreements may have substantial consequences to us, includingthe following:•we may be unable to refinance our indebtedness at maturity, or the refinancing terms may be less favorable than the terms of our originalindebtedness;•cash flows may be insufficient to meet required principal and interest payments;•we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;•we may default on our obligations, and the lenders or mortgagees may foreclose on our properties that secure the loans and receive an assignment ofrents and leases; and•our default under one mortgage loan could result in a default on other indebtedness with cross default provisions.14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 tomeet the REIT distribution requirements discussed below, even if such actions are not on favorable terms. As of December 31, 2013, we had approximately$2.2 billion aggregate principal amount of indebtedness, of which $265.3 million is contractually due prior to December 31, 2014. Our total debt andpreferred equity at December 31, 2013 represented 36.3% of our total market capitalization (which we define as the aggregate of our long-term debt, liquidationvalue of our preferred equity, and the market value of the Company’s common stock and the Operating Partnership’s common units of limited partnershipinterest, or common units). For calculation of our market capitalization and additional information on debt maturities, see “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” and “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership—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 $500 million unsecured revolving credit facility and $150.0 million unsecured term loan facilitycontain financial covenants that could limit the amount of distributions we may pay on our common stock and preferred stock. We rely on cash distributionswe receive from the Operating Partnership to pay distributions on our common stock and preferred stock and to satisfy our other cash needs, and therevolving credit facility and term loan facility provide that the Operating Partnership may not, in any year, make partnership distributions to us or otherholders of its partnership interests in an aggregate amount in excess of the greater of:•95% of the Operating Partnership’s consolidated funds from operations (as defined in each of the revolving credit facility and term loan agreements)for such year; and•an amount which results in distributions to us (excluding any preferred partnership distributions to the extent the same have been deducted fromconsolidated funds from operations (as so defined) 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 the payment offederal 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 on anyborrowings under the revolving credit facility or term loan facility, respectively, when due, then the Operating Partnership may make only those partnershipdistributions to us and other holders of its partnership interests necessary to enable us to make distributions to our stockholders that we reasonably believe arenecessary to maintain our status as a REIT for federal and state income tax purposes. Any limitation on our ability to make distributions to our stockholders,whether as a result of these provisions in the revolving credit facility, the term loan facility or otherwise, could have a material adverse effect on the marketvalue of our common stock.A downgrade in our credit ratings could materially adversely affect our business and financial condition. The credit ratings assigned to theOperating Partnership’s debt securities 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 our common stock or any other securities. If any of the credit rating agencies that have rated the Operating Partnership’sdebt securities or our 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 adverseeffect on our costs and availability of capital, which could in turn have a material adverse effect on 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 our security holders.15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, undeveloped land and other commercial real estate, many of which own properties similar to ours in the same submarkets in whichour properties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates untiltheir available space is leased. If our competitors offer space at rental rates below the rates currently charged by us for comparable space, we may be pressuredto reduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As a result, our financial condition, results ofoperations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributionsto 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, results of operations and cash flows. We carry comprehensive liability, fire, extended coverage, rental loss, and terrorism insurancecovering all of our properties. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of thecoverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss from riots or acts of God. In addition, all of ourproperties are located in earthquake-prone areas. We carry earthquake insurance on our properties in an amount and with deductibles that management believesare commercially 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 real properties, we are subject to environmental and health andsafety laws and regulations. Certain of these laws and regulations impose joint and several liability, without regard to fault, for investigation and clean-upcosts on current and former owners and operators of real property and persons who have disposed of or released hazardous substances into the environment.At some of our properties, there are asbestos-containing materials, or tenants routinely handle hazardous substances as part of their operations. In addition,historical operations, including the presence of underground storage tanks, have caused soil or groundwater contamination at or near some of our properties.Although we believe that the prior owners of the affected properties or other persons may have conducted remediation of known contamination at theseproperties, not all such contamination has been remediated. Unknown or unremediated contamination or the compliance with existing or new environmental orhealth and safety laws and regulations could require us to incur costs or liabilities that could be material. See “Item 1. Business —Environmental Regulationsand 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 various risks, including the following:•we may potentially be unable to acquire a desired property because of competition from other real estate investors with significant capital, includingboth publicly traded and private REITs, institutional investment funds and other real estate investors;•even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;16•even if we enter into agreements for the acquisition of a desired property, we may be unable to complete such acquisitions because they remain subjectto customary conditions to closing, including the completion of due diligence investigations to management’s satisfaction;•we may be unable to finance acquisitions on favorable terms or at all;•we may spend more than budgeted amounts 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, resultsof 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 associated withproperty 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, and otherrequired 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 also have an adverse impact on our financial condition, resultsof operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends anddistributions to our security holders.While we historically have acquired, developed, and redeveloped office properties in California markets, over the past few years we have acquired twelveproperties in greater Seattle and may in the future acquire, develop, or redevelop properties for other uses and expand our business to other geographic regionswhere we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment. Presently, we do not possess thesame 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.17Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financialcondition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses.As described more fully in Note 3 “Acquisitions” to our consolidated financial statements included in this report, on June 27, 2013, we entered into anagreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood City Partners, LLC, to ultimately develop and operate a newoffice complex in Redwood City, California. We are the managing member and expect to eventually own 93% of Redwood City Partners, LLC. In addition tothis venture, we may continue to co-invest in the future with third parties through partnerships, joint ventures or other entities, or through acquiring non-controlling interests in, or sharing responsibility for, managing the affairs of a property, partnership, joint venture or other entity, which may subject us torisks that may not be present with other methods of ownership, including the following:•we would not be able to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity, which would allowfor impasses on decisions that could restrict our ability to sell or transfer our interests in such entity or such entity’s ability to transfer or sell itsassets;•partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions, which could delay construction ordevelopment of a property or increase our financial commitment to the partnership or joint venture;•partners or co-venturers may pursue economic or other business interests, policies or objectives that are competitive or inconsistent with ours;•if we become a limited partner or non-managing member in any partnership or limited liability company, and such entity takes or expects to takeactions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity;•disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officersand/or directors from focusing their time and effort on our business; and•we may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers.We own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sellor otherwise transfer the properties and expose us to the loss of the properties if such agreements are breached by us, terminated or not renewed. Asof December 31, 2013, we owned eleven office buildings, located on various land parcels and regions, which we lease individually on a long-term basis. As ofDecember 31, 2013, we had approximately 1.9 million aggregate rentable square feet, or 14.6% of our total stabilized portfolio, of rental space located on theseleased parcels and we may in the future invest in additional properties that are subject to ground leases or other similar restrictive arrangements. Many of theseground leases and other restrictive agreements impose significant limitations on our uses of the subject property, restrict our ability to sell or otherwise transferour interests in the property or restrict our leasing of the property. These restrictions may limit our ability to timely sell or exchange the properties, impair theproperties’ value or negatively impact our ability to find suitable tenants for the properties. In addition, if we default under the terms of any particular lease, wemay lose the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiate a new lease on favorable terms,if at all. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on our financial condition, results ofoperations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributionsto 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 relatively illiquid,limiting our ability to sell our properties quickly in response to changes in economic or other conditions. In addition, the Code generally imposes a 100%prohibited transaction tax on the Company on profits derived from sales of properties held primarily for sale to customers in the ordinary course of business,which effectively limits our ability to sell properties other than on a selected basis. These restrictions on our ability to sell our properties could have an adverseeffect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt serviceobligations and to pay dividends and distributions to our security holders.18We may invest in securities related to real estate, which could adversely affect our ability to pay dividends and distributions to our security holders.We may purchase securities issued by entities that own real estate and may, in the future, also invest in mortgages. In general, investments in mortgages aresubject 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 have nocontrol over the distributions with respect to these securities, which could adversely affect our ability to pay dividends and distributions to our securityholders.We face risks associated with short-term liquid investments. From time to time, we have significant cash balances that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. These investments mayinclude (either directly or indirectly):•direct obligations issued by the U.S. Treasury;•obligations issued or guaranteed by the U.S. government or its agencies;•taxable municipal securities;•obligations (including certificates of deposits) of banks and thrifts;•commercial paper and other instruments consisting of short-term U.S dollar denominated obligations issued by corporations and banks;•repurchase agreements collateralized by corporate and asset-backed obligations;•both registered and unregistered money market funds; and•other highly rated short-term securities.Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or partof our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities orfunds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverseeffect on our results of operations or financial condition.Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial condition and operating results.Terrorist attacks in the United States and other acts of terrorism or war, may result in declining economic activity, which could harm the demand for and thevalue of our properties. In addition, the public perception that certain locations are at greater risk for attack, such as major airports, ports, and rail facilities,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-lease ourproperties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties through damage,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 theextent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor theirexisting leases.19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.The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will subject us to substantial additionalfederal regulation. There are significant corporate governance and executive compensation-related requirements that have been, and will in the future be,imposed on publicly-traded companies under the Dodd-Frank Act. Several of these provisions require the SEC to adopt additional rules and regulations inthese areas. For example, the Dodd-Frank Act requires publicly-traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, heightens certain independence standards for compensation advisers and authorizes the SEC to promulgate rules thatwould allow stockholders to nominate their own candidates for board seats using a registrant’s proxy materials. Our efforts to comply with these requirementshave resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. Inaddition, if stockholders do not vote to approve our executive compensation practices and/or our equity plan amendments, these actions may interfere with ourability to attract and retain key personnel who are essential to our future success. Given the uncertainty associated with both the results of the existing Dodd-Frank Act requirements and the manner in which additional provisions of the Dodd-Frank Act will be implemented by various regulatory agencies andthrough regulations, the full extent of the impact of such requirements on our operations is unclear. Accordingly, the changes resulting from the Dodd-FrankAct may impact the profitability of business activities, require changes to certain business practices, or otherwise adversely affect 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.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 our securities and our ability to satisfy our debt service obligations and to paydividends and distributions to our security holders.Unfavorable resolution of litigation matters and disputes could have a material adverse effect on our financial condition. From time to time, we areinvolved in legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits allegedly arising out of our actions or the actions ofour operators and tenants in which such operators and tenants have agreed to indemnify, defend and hold us harmless from and against various claims,litigation and liabilities arising in connection with their respective businesses. An unfavorable resolution of litigation could have an effect on our financialcondition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay ourability to pay dividends and distributions to our security holders. Regardless of its outcome, litigation may result in substantial costs and expenses andsignificantly divert the attention of our management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, litigation.In addition, litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations.20Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financialreporting. The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors,misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal controlover financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all ofthe time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result inmisstatements 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 our securities and our ability to satisfy our debt service obligations and to pay dividends and distributionsto our security holders.We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions ofour 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 our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.Risks Related to Our Organizational StructureLoss of our key personnel could harm our operations and financial performance and adversely affect the quoted trading price of our securitiesThe leadership and performance of our executive and senior officers, particularly John B. Kilroy, Jr., President and Chief Executive Officer,Jeffrey C. Hawken, Executive Vice President and Chief Operating Officer, Eli Khouri, Executive Vice President and Chief Investment Officer, Tyler H. Rose,Executive Vice President and Chief Financial Officer, and Justin W. Smart, Executive Vice President, Development and Construction Services, play a key rolein 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 reputationin our industry and investment community. In addition, they have significant relationships with investors, lenders, tenants and industry personnel, whichbenefit the Company. Our ability to retain and motivate these individuals will depend on various factors, including our ability to provide them competitiveshare-based incentive compensation, which may be adversely impacted by our inability to grant share-settled awards under our 2006 Incentive Award Plan.See Note 12 “Share-Based Compensation” to our consolidated financial statements included in this report for more information regarding the number of sharesthat remain available to grant under our 2006 Incentive Award Plan. The loss or limited availability of the services of our key personnel could materially andadversely affect our business, financial condition, and results of operations and could be negatively perceived in the capital markets.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 quoted21trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders may beadversely affected.Our common limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may be inthe 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 limited partners.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 limited partnersholding a majority of the units representing common limited partnership interests before we may dissolve. As of December 31, 2013, limited partners ownedapproximately 2.2% of the Operating Partnership’s partnership interests, of which 0.9% was owned by John B. Kilroy, Jr. In addition, we agreed to usecommercially reasonable efforts to minimize the tax consequences to common limited partners resulting from the repayment, refinancing, replacement, orrestructuring of debt, or any sale, exchange, or other disposition of any of our other assets. The exercise of one or more of these approval rights by the limitedpartners 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 has substantial influence over our affairs.John B. Kilroy, Jr. is the Chairman of our board of directors and our President and Chief Executive Officer. John B. Kilroy, Jr. beneficially owned, as ofDecember 31, 2013, approximately 2.1% of the total outstanding shares of our common stock. The percentage of outstanding shares of common stockbeneficially owned includes 137,334 shares of common stock, 424,680 restricted stock units that were vested and held by John B. Kilroy, Jr. at December 31,2013, and assumes the exchange into shares of our common stock of the 782,059 common units of the Operating Partnership held by John B. Kilroy, Jr.(which may be exchanged for an equal number of shares of our 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, whichever ismore restrictive) of our outstanding common stock without obtaining a waiver from the board of directors. The board of directors has waived the ownershiplimits with respect to John B. Kilroy, Jr., members of his family and some of their affiliated entities. These named individuals and entities may own eitheractually or constructively, in the aggregate, up to 19.6% of the our common stock, excluding Operating Partnership units that are exchangeable into shares ofour common stock. Consequently, John B. Kilroy Jr., has substantial influence over the Company, and because the Company is the manager of the OperatingPartnership, over the Operating Partnership, and could exercise his influence in a manner that is not in the best interest of our stockholders, noteholders orunitholders. Also, John B. Kilroy Jr., may, in the future, have a substantial influence over the outcome of any matters submitted to our stockholders orunitholders 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 to existingsecurity holders. Provisions of the Maryland General Corporation Law, the Company’s charter and bylaws, and the Operating Partnership’s partnershipagreement may delay, deter, or prevent a change of control of the Company, or the removal of existing management. Any of these actions might prevent oursecurity holders from receiving a premium for their shares of common stock or common units over the then-prevailing market price of the shares of ourcommon 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 of ataxable 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 ownership22and transfer of its capital stock that are intended to assist the Company in complying with these requirements and continuing to qualify as a REIT. No singlestockholder may own, either actually or constructively, absent a waiver from the board of directors, more than 7.0% (by value or by number of shares,whichever is more restrictive) of the Company’s outstanding common stock. Similarly, absent a waiver from the board of directors, no single holder of theCompany’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 the Company’s Series G Preferred Stock; and no single holder of the Company’s 6.375%Series H Cumulative Redeemable Preferred stock (the “Series H Preferred Stock”) may actually or constructively own more than 9.8% (by value or by numberof shares, whichever is more restrictive) of the Company’s Series H Preferred Stock.The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individualsand/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than the applicable ownership limit of a particularclass of the Company’s capital stock could, nevertheless, cause that individual or entity, or another individual or entity, to constructively own stock in excessof, 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 status and ifit 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, Jr., members ofhis family 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 our outstanding common stock, excluding common units that are exchangeable into shares of common stock. The board of directors has also waived theownership limits with respect to the initial purchasers of the 4.25% Exchangeable Senior Notes due 2014 (the “4.25% Exchangeable Notes”) and certain oftheir affiliated entities to beneficially own up to 9.8%, in the aggregate, of the Company’s common stock in connection with hedging the capped calltransactions.If anyone acquires shares in excess of any ownership limits, the transfer to the transferee will be void with respect to the excess shares, the excess shareswill be automatically transferred to a trust for the benefit of a qualified charitable organization, and the purported transferee or owner will have no rights withrespect 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, including convertiblepreferred stock, without stockholder approval. The board of directors may establish the preferences, rights, and other terms, including the right tovote and the right to convert into common stock any shares issued. The issuance of preferred stock could delay or prevent a tender offer or a changeof control even if a tender offer or a change of control was in our security holder’s interest. As of December 31, 2013, 8,000,000 shares of theCompany’s preferred stock were issued and outstanding, consisting of 4,000,000 shares of the Company’s Series G Preferred Stock and 4,000,000shares of the Company’s Series H Preferred Stock; and•the Company’s charter states that any director, or the entire board of directors, may be removed from office at any time, but only for cause and thenonly 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 election ofdirectors.The board of directors may change investment and financing policies without stockholder or unitholder approval. Our board of directors determinesour major policies, including policies and guidelines relating to our acquisition, development, and redevelopment activities, leverage, financing, growth,operations and distributions to our security holders. Our board of directors may amend or revise these and other policies and guidelines from time to timewithout stockholder or unitholder approval. Accordingly, our stockholders and unitholders will have limited control over changes in our policies and thosechanges could adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfyour debt service obligations and to pay dividends and distributions to our security holders.23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, 2013, we had approximately $2.2 billion aggregate principalamount of indebtedness outstanding, which represented 33.2% of our total market capitalization. Our total debt and the liquidation value of our preferredequity as a percentage of total market capitalization was approximately 36.3% as of December 31, 2013. See “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” for a calculation of our marketcapitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debt outstandingwould result in an increase in our debt service, which could adversely affect cash flow and our ability to pay dividends and distributions to our securityholders. Higher leverage also increases the risk of default on our obligations and limits our ability to obtain additional financing in the future.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 our stockholders or the Operating Partnership’s unitholders. Further,under certain circumstances, the Company may issue shares of our common stock in exchange for the Operating Partnership’s outstanding 4.25%Exchangeable Notes. Existing security holders have no preemptive rights to acquire any of these securities, and any issuance of equity securities under thesecircumstances may dilute a unitholder’s or stockholder’s investment.The market price of our common stock may be adversely affected by future offerings of debt and equity securities by us or the OperatingPartnership. In the future, we may increase our capital resources by offering our debt securities and/or preferred stock, the Operating Partnership’s debtsecurities and/or equity securities and our or the Operating Partnership’s other borrowings. Upon our liquidation, dissolution or winding-up, holders of suchdebt securities, our preferred stock and Operating Partnership’s equity securities, and lenders with respect to other borrowings by us and the OperatingPartnership, will be entitled to receive distributions of our available assets prior to the holders of our common stock and it is possible that, after makingdistributions on these other securities and borrowings, no assets would be available for distribution to holders of our common stock. In addition, the OperatingPartnership’s debt and equity securities and borrowings are structurally senior to our common stock, our debt securities and borrowings are senior in right ofpayment to our common stock, and our outstanding preferred stock has and any preferred stock we may issue in the future may have a preference over ourcommon stock, and all payments (including dividends, principal and interest) and liquidating distributions on such securities and borrowings could limit ourability to pay dividends or make other distributions to the holders of our common stock. Because any decision to issue securities and make borrowings in thefuture will depend on market conditions and other factors, some of which may be beyond our control, we cannot predict or estimate the amount, timing ornature of our or the Operating Partnership’s future offerings or borrowings. Such future offerings or borrowings may reduce the market price of our commonstock.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, 2013, 82,153,944 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, 2013, the Company had reserved for future issuance the following shares of common stock: 1,805,200 shares issuable upon theexchange, at the Company’s option, of the Operating Partnership’s common units; 7,414 shares remained available for grant under our 2006 Incentive AwardPlan (see Note 12 “Shared-Based Compensation” to our consolidated financial statements included in this report); 1,158,407 shares issuable upon settlementof nonvested restricted stock units (“RSUs”); 143,022 shares contingently issuable upon settlement of RSUs subject to performance conditions; and1,525,000 shares issuable upon exercise of outstanding options, as well as 5,640,939 shares potentially issuable under certain circumstances, in exchangefor the 4.25% Exchangeable Notes. The Company has a currently effective registration statement registering 1,821,503 shares of our common stock forpossible issuance to the holders of the Operating Partnership’s common units. That registration statement also registers 141,634 shares of common stock heldby certain stockholders for possible resale. The Company also has a currently24effective registration statement registering the 5,640,939 shares of our common stock that may potentially be issued in exchange for the OperatingPartnership’s presently outstanding 4.25% Exchangeable Notes. Consequently, if and when the shares are issued, they may be freely traded in the publicmarkets.Risks Related to 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 would besubject to federal income tax at regular corporate rates;•the Company could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and•unless entitled to relief under statutory provisions, the Company could not elect to be taxed as a REIT for four taxable years following the year duringwhich 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 these factors,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 value andquoted 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 Internal Revenue Service (“IRS”) regarding the Company’squalification 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.25If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if thelaws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis. From time to timewe dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section1031 Exchange could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits wouldincrease. This could increase the dividend income to our stockholders by reducing any return of capital they received. In some circumstances, we may berequired to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. As a result, we may be required toborrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to ourstockholders. In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicableyear in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify orrepeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferredbasis.Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends. “Qualified dividends”payable to U.S. stockholders that are individuals, trusts and estates generally are subject to tax at preferential rates. Subject to limited exceptions, dividendspayable by REITs are not eligible for these reduced rates and are taxable at ordinary income tax rates. The more favorable rates applicable to regular corporatequalified 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 as salesfor federal income tax purposes. A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions aresales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we donot 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 or dispositionqualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with ourcharacterization of our properties or that we will always be able to make use of the available safe harbors.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 been made tothe federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future,and any such changes may adversely impact our ability to qualify as a REIT, our tax treatment as a REIT, our ability to comply with contractual obligationsor the tax treatment of our stockholders and limited partners.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.26ITEM 2. PROPERTIESGeneralOur stabilized portfolio of operating properties was comprised of the following office properties at December 31, 2013: Number ofBuildings RentableSquare Feet Number ofTenants Percentage OccupiedStabilized Office Properties (1)105 12,736,099 514 93.4%______________(1)Excludes 12 properties located in San Diego, California that were held for sale at December 31, 2013 (see Note 17 “Discontinued Operations” to our consolidated financial statements included in this report). The sale of theseproperties closed on January 9, 2014 (see Note 23 “Subsequent Events” to our consolidated financial statements included in this report for further details).Our stabilized portfolio includes all of our properties with the exception of properties held for sale, undeveloped land, development and redevelopmentproperties currently under construction or committed for construction, and “lease-up” properties. We define redevelopment properties as those properties forwhich we expect to spend significant development and construction costs on the 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. During the fourth quarter of 2013, we completed one developmentproperty in San Francisco, California and stabilized a redevelopment property in Long Beach, California. As a result, these properties are included in ourstabilized portfolio as of December 31, 2013.As of December 31, 2013, the following properties were excluded from our stabilized portfolio: Number of Properties Estimated RentableSquare FeetProperties Held for Sale (1)12 1,049,035Development properties under construction (2)6 2,538,000Lease-up properties1 410,000_______________(1)Includes 12 properties located in San Diego, California. The sale of these properties closed on January 9, 2014 (see Note 23 “Subsequent Events” to our consolidated financial statements included in this report for furtherdetails).(2) Estimated rentable square feet upon completion.As of December 31, 2013, all of our properties and development and redevelopment projects and all of our business is currently conducted in the state ofCalifornia with the exception of twelve office properties located in the state of Washington. All of our properties and development and redevelopment projectsare 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary created on June 27, 2013 (see Note 3“Acquisitions” to our consolidated financial statements for additional information) and certain properties held in Section 1031 Exchanges, which have beenconsolidated for financial reporting purposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statementsincluded in this report).We own all of our properties through the Operating Partnership and the Finance Partnership. All our properties are held in fee, except for the eleven officebuildings that are held subject to long-term ground leases for the land (see Note 15 “Commitments and Contingencies” to our consolidated financial statementsincluded in this report for additional information regarding our ground lease obligations).In general, the office properties are leased to tenants on a full service gross, 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.27We believe that all of our properties are well maintained and do not require significant capital improvements. As of December 31, 2013, we managed all ofour properties through internal property managers.Office PropertiesThe following table sets forth certain information relating to each of the stabilized office properties owned as of December 31, 2013.Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2013 (1) AnnualizedBase Rent($000’s) (2) Annualized Rent Per SquareFoot (2)Los Angeles and Ventura Counties 23925 Park Sorrento, Calabasas, California 1 2001 11,789 100.0% $421 $35.7223975 Park Sorrento, Calabasas, California 1 2002 104,797 93.5% 3,398 35.6524025 Park Sorrento, Calabasas, California 1 2000 108,670 99.8% 3,493 32.222829 Townsgate Road, Thousand Oaks, California 1 1990 81,067 93.6% 2,064 27.742240 E. Imperial Highway, El Segundo, California(7) 1 1983/2008 122,870 100.0% 4,435 36.092250 E. Imperial Highway, El Segundo, California 1 1983 298,728 100.0% 10,362 34.832260 E. Imperial Highway, El Segundo, California 1 1983/2012 298,728 100.0% 10,404 34.83909 Sepulveda Blvd., El Segundo, California 1 1972/2005 241,607 98.6% 6,354 26.98999 Sepulveda Blvd., El Segundo, California 1 1962/2003 128,592 96.6% 2,924 24.356255 W. Sunset Blvd, Los Angeles, California 1 1971/1999 321,883 82.5% 8,646 35.043750 Kilroy Airport Way, Long Beach, California 1 1989 10,457 86.1% 109 19.953760 Kilroy Airport Way, Long Beach, California 1 1989 165,278 98.2% 4,680 28.833780 Kilroy Airport Way, Long Beach, California 1 1989 219,745 92.2% 5,580 28.103800 Kilroy Airport Way, Long Beach, California(3) 1 2000 192,476 98.5% 5,847 32.123840 Kilroy Airport Way, Long Beach, California 1 1999 136,026 100.0% 4,915 36.133880 Kilroy Airport Way, Long Beach, California 1 1987/2013 98,243 100.0% 2,811 28.623900 Kilroy Airport Way, Long Beach, California 1 1987 126,840 95.0% 2,903 24.1412100 W. Olympic Blvd., Los Angeles, California 1 2003 150,167 94.4% 5,488 38.7112200 W. Olympic Blvd., Los Angeles, California 1 2000 150,302 95.3% 4,211 39.8812233 W. Olympic Blvd., Los Angeles, California(8) 1 1980/2011 151,029 96.4% 2,534 36.5912312 W. Olympic Blvd, Los Angeles, California 1 1950/1997 78,000 —% — —1633 26th Street, Santa Monica, California 1 1972/1997 44,915 100.0% 1,271 28.302100/2110 Colorado Avenue, Santa Monica, California 3 1992/2009 102,864 100.0% 4,357 42.363130 Wilshire Blvd., Santa Monica, California 1 1969/1998 88,339 97.6% 2,766 32.08501 Santa Monica Blvd., Santa Monica, California 1 1974 73,115 84.3% 2,580 41.85Subtotal/Weighted Average –Los Angeles and Ventura Counties 27 3,506,527 93.7% $102,553 $32.8028Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2013 (1) AnnualizedBase Rent($000’s) (2) Annualized Rent Per SquareFoot (2)Orange County 2211 Michelson,Irvine, California 1 2007 271,556 94.1% $9,399 $37.25111 Pacifica,Irvine Spectrum, California 1 1991 67,496 76.9% 1,164 22.44999 Town & Country,Orange, California(4) 1 1977/2009 98,551 100.0% 2,919 29.62Subtotal/Weighted Average –Orange County 3 437,603 92.8% $13,482 $33.47San Diego County 12225 El Camino Real,Del Mar, California(4) 1 1998 58,401 100.0% $1,965 $33.6412235 El Camino Real,Del Mar, California(4) 1 1998 54,673 95.0% 1,881 36.2212340 El Camino Real,Del Mar, California(4) 1 2002 87,405 86.9% 3,293 43.3712390 El Camino Real,Del Mar, California(4) 1 2000 72,332 100.0% 3,069 42.4412348 High Bluff Drive,Del Mar, California(4) 1 1999 38,710 41.7% 601 37.2812400 High Bluff Drive,Del Mar, California(4) 1 2004 208,464 100.0% 9,896 47.473579 Valley Centre Drive,Del Mar, California(4) 1 1999 51,167 92.7% 1,782 37.593611 Valley Centre Drive,Del Mar, California(4) 1 2000 130,349 93.4% 4,679 38.453661 Valley Centre Drive,Del Mar, California(4) 1 2001 129,752 81.2% 2,837 29.763721 Valley Centre Drive,Del Mar, California 1 2003 114,780 79.9% 4,155 45.283811 Valley Centre Drive,Del Mar, California(5) 1 2000 112,067 100.0% 5,199 46.397525 Torrey Santa Fe, 56 Corridor, California(5) 1 2007 103,979 100.0% 3,012 28.977535 Torrey Santa Fe, 56 Corridor, California(5) 1 2007 130,243 100.0% 3,693 28.357545 Torrey Santa Fe, 56 Corridor, California(5) 1 2007 130,354 100.0% 3,609 27.687555 Torrey Santa Fe, 56 Corridor, California(5) 1 2007 101,236 100.0% 3,175 31.3612780 El Camino Real,Del Mar, California(5) 1 2013 140,591 100.0% 6,366 45.2812790 El Camino Real,Del Mar, California 1 2013 78,349 100.0% 3,196 40.7913280 Evening Creek Drive South,I-15 Corridor, California(4) 1 2008 41,194 67.1% 673 24.3513290 Evening Creek Drive South,I-15 Corridor, California(9) 1 2008 59,188 —% — —13480 Evening Creek Drive North,I-15 Corridor, California(4) 1 2008 149,817 100.0% 7,779 51.9213500 Evening Creek Drive North,I-15 Corridor, California(4) 1 2004 147,533 100.0% 6,286 42.6113520 Evening Creek Drive North,I-15 Corridor, California(4) 1 2004 141,128 96.6% 4,818 36.112355 Northside Drive, Mission Valley, California(4) 1 1990 53,610 87.4% 1,236 27.272365 Northside Drive, Mission Valley, California(4) 1 1990 96,436 97.9% 2,599 27.522375 Northside Drive, Mission Valley, California(4) 1 1990 51,516 91.9% 1,418 29.972385 Northside Drive, Mission Valley, California(4) 1 2008 89,023 100.0% 2,801 31.4629Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2013 (1) AnnualizedBase Rent($000’s) (2) Annualized Rent Per SquareFoot (2)2305 Historic Decatur Road,Point Loma, California(10) 1 2009 103,900 100.0% $4,163 $40.074921 Directors Place,Sorrento Mesa, California 1 2008 56,136 100.0% 1,386 24.694939 Directors Place,Sorrento Mesa, California(5) 1 2002 60,662 100.0% 2,276 37.524955 Directors Place,Sorrento Mesa, California(5) 1 2008 76,246 100.0% 2,881 37.7910770 Wateridge Circle,Sorrento Mesa, California(12) 1 1989 174,310 97.5% 3,057 17.986260 Sequence Drive,Sorrento Mesa, California(11) 1 1997 130,536 —% — —6290 Sequence Drive,Sorrento Mesa, California(5) 1 1997 90,000 100.0% 2,098 23.316310 Sequence Drive,Sorrento Mesa, California(5) 1 2000 62,415 100.0% 1,137 18.226340 Sequence Drive,Sorrento Mesa, California(5) 1 1998 66,400 100.0% 1,341 20.206350 Sequence Drive,Sorrento Mesa, California(6) 1 1998 132,600 100.0% 2,507 18.9110390 Pacific Center Court,Sorrento Mesa, California(5) 1 2002 68,400 100.0% 2,771 40.5210394 Pacific Center Court,Sorrento Mesa, California(5) 1 1995 59,630 100.0% 1,077 18.0510398 Pacific Center Court,Sorrento Mesa, California(5) 1 1995 43,645 100.0% 698 15.9910421 Pacific Center Court,Sorrento Mesa, California(5) 1 1995/2002 75,899 100.0% 1,076 14.1810445 Pacific Center Court,Sorrento Mesa, California(5) 1 1995 48,709 100.0% 936 19.2210455 Pacific Center Court,Sorrento Mesa, California(6) 1 1995 90,000 100.0% 1,112 12.355717 Pacific Center Blvd,Sorrento Mesa, California(3) 1 2001/2005 67,995 100.0% 1,503 22.114690 Executive Drive,UTC, California(13) 1 1999 47,212 88.3% 1,014 24.336200 Greenwich Drive,Governor Park, California 1 1999 73,507 —% — —6220 Greenwich Drive,Governor Park , California(4) 1 1996 141,214 100.0% 4,286 30.359785 Towne Center Drive,UTC, California(3) 1 1999 75,534 100.0% 1,373 18.189791 Towne Center Drive,UTC, California(3) 1 1999 50,466 100.0% 917 18.18Subtotal/Weighted Average –San Diego County 48 4,367,713 90.8% $127,627 $32.29San Francisco 4100 Bohannon Drive,Menlo Park, California(5) 1 1985 46,614 100.0% $1,719 $36.874200 Bohannon Drive,Menlo Park, California(5) 1 1987 46,255 66.2% 1,196 39.044300 Bohannon Drive,Menlo Park, California(5) 1 1988 62,920 59.1% 1,110 29.854400 Bohannon Drive,Menlo Park, California(5) 1 1988 46,255 100.0% 1,295 30.284500 Bohannon Drive,Menlo Park, California(5) 1 1990 62,920 100.0% 2,041 32.434600 Bohannon Drive,Menlo Park, California(5) 1 1990 46,255 100.0% 1,837 39.724700 Bohannon Drive,Menlo Park, California(5) 1 1989 62,920 100.0% 2,275 36.16331 Fairchild Drive, Mountain View, California(5) 1 2013 87,565 100.0% 4,185 47.8030Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2013 (1) AnnualizedBase Rent($000’s) (2) Annualized Rent Per SquareFoot (2)303 Second Street,San Francisco, California 1 1988 740,047 91.6% $28,340 $41.87100 First Street,San Francisco, California 1 1988 466,490 96.7% 19,721 44.48250 Brannan Street,San Francisco, California(4) 1 1907/2001 95,008 100.0% 5,413 56.98201 Third Street,San Francisco, California 1 1983 332,893 99.1% 13,882 42.21301 Brannan Street,San Francisco, California(4) 1 1909/1989 74,430 100.0% 3,023 40.614040 Civic Center,San Rafael, California 1 1979/1994 130,237 98.1% 4,106 32.96599 N. Mathilda Avenue,Sunnyvale, California(3) 1 2000 75,810 100.0% 2,202 29.04Subtotal/Weighted Average –San Francisco 15 2,376,619 94.8% $92,345 $41.33Greater Seattle 601 108th Avenue NE,Bellevue, Washington(14) 1 2000 488,470 98.5% $14,074 $29.5610900 NE 4th Street,Bellevue, Washington 1 1983 416,755 87.3% 12,888 35.5510220 NE Points Drive,Kirkland, Washington(3) 1 1987 49,851 96.3% 1,226 25.7910230 NE Points Drive,Kirkland, Washington(3) 1 1988 98,982 94.2% 2,534 27.6010210 NE Points Drive,Kirkland, Washington(3) 1 1990 84,641 100.0% 2,078 24.553933 Lake Washington Blvd NE,Kirkland, Washington(3) 1 1993 46,450 100.0% 1,209 26.03837 N. 34th Street,Lake Union, Washington(3) 1 2008 111,580 100.0% 2,694 24.15701 N. 34th Street,Lake Union, Washington(3) 1 1998 138,995 100.0% 2,600 18.71801 N. 34th Street,Lake Union, Washington(3) 1 1998 169,412 100.0% 4,423 26.11320 Westlake Terry Ave. N.,Lake Union, Washington(3) 1 2013 184,643 100.0% 6,317 34.21321 Terry Ave. N.,Lake Union, Washington(3) 1 2013 135,755 100.0% 4,465 32.8915050 N.E. 36th Street,Redmond, Washington(3) 1 1998 122,103 100.0% 3,130 25.64Subtotal/Weighted Average –Greater Seattle 12 2,047,637 96.7% $57,638 $29.23TOTAL/WEIGHTED AVERAGE 105 12,736,099 93.4% $393,645 $33.68_________________(1)Based on all leases at the respective properties in effect as of December 31, 2013. Includes month-to-month leases as of December 31, 2013.(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, 2013.(3)For these properties, the leases are written on a triple net basis.(4)For these properties, the leases are written on a modified gross basis.(5)For these properties, the leases are written on a modified net basis.(6)For these properties, the leases are written on a gross basis.(7)For this property, leases of approximately 16,000 square feet are written on a full service gross basis and approximately 107,000 square feet is written on a triple net basis.(8)For this property, leases of approximately 41,000 rentable square feet are written on a full service gross basis, and approximately 105,000 rentable square feet is written on a gross basis.(9)As of December 31, 2013, we have executed but not yet commenced one lease for approximately 48,000 square feet on a triple net basis.(10)For this property, leases of approximately 82,000 rentable square feet are written on a modified gross basis, and approximately 22,000 rentable square feet is written on a gross basis.(11)As of December 31, 2013, we have executed but not yet commenced one lease for approximately 131,000 square feet on a modified net basis.(12)For this property, leases of approximately 123,000 rentable square feet are written on a modified net basis, and approximately 46,000 rentable square feet is written on a modified gross basis.(13)For this property, leases of approximately 19,000 rentable square feet are written on a modified net basis, and approximately 22,000 rentable square feet is written on a modified gross basis.(14)For this property, leases of approximately 402,000 rentable square feet are written on a triple net basis, and approximately 78,000 rentable square feet is written on a full service gross basis.31Completed and In-Process Redevelopment ProjectsDuring the year ended December 31, 2013, we completed the following redevelopment project, which was added to our stabilized portfolio: Construction Period Completed Redevelopment Project Start Date Completion Date Stabilization Date (1) Rentable Square Feet % Leased3880 Kilroy Airport WayLong Beach, California 3Q 2011 4Q 2012 4Q 2013 98,243 100%As of December 31, 2013, we had the following redevelopment project in lease up. Estimated Construction Period In-Process Redevelopment Project Start Date Completion Date Estimated StabilizationDate (1) Estimated RentableSquare Feet % Leased Project In Lease-Up (2) 360 Third StreetSan Francisco, California (3)(4) 4Q 2011 1Q 2013 1Q 2014 410,000 96%_______________________(1)Based on management’s estimation of the earlier of stabilized occupancy of 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)As of March 31, 2013, the building improvements were substantially complete. As of December 31, 2013, the building occupancy was 78%.(4)During the fourth quarter of 2013, the Company acquired the land underlying the ground lease for $27.5 million.Completed and In-Process and Future Development Pipeline and Other Land HoldingsDuring the year ended December 31, 2013, we completed the following development project, which was added to our stabilized portfolio of operatingproperties: Construction Period Completed Development Project Start Date Completion / StabilizationDate Rentable Square Feet % Leased331 Fairchild Drive San Francisco, California 4Q 2012 4Q 2013 87,565 100%The following table sets forth certain information relating to our in-process development pipeline as of December 31, 2013. Estimated Construction Period Estimated StabilizationDate Estimated RentableSquare Feet Office %LeasedIn-Process Development Projects Start Date Completion Date UNDER CONSTRUCTION: San Francisco Bay Area, California 690 E. Middlefield Road, Mountain View 2Q 2012 1Q 2015 1Q 2015 341,000 100%350 Mission Street, San Francisco (1) 4Q 2012 1Q 2015 1Q 2016 450,000 100%555 N. Mathilda Avenue, Sunnyvale 4Q 2012 3Q 2014 4Q 2014 587,000 100%333 Brannan Street, San Francisco (2) 4Q 2013 3Q 2015 3Q 2015 185,000 100%Crossing/900, Redwood City (3) 4Q 2013 3Q 2015 3Q 2016 300,000 —% Los Angeles, California Columbia Square, Hollywood (4) 2Q 2013 – 4Q2013 3Q 2014 – 2Q2016 1Q 2015 – 2Q 2017 675,000 —%SUBTOTAL: 2,538,000 62%_______________________(1)In January 2014, the Company obtained full entitlements to increase this project from a 27-story office tower to a 30-story office tower.(2)In January 2014, we signed a 182,000 square foot, twelve-year lease with Dropbox for the entirety of this project.(3)In October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for this project.32(4)In the second quarter of 2013, the Company commenced redevelopment of the historical buildings encompassing approximately 100,000 rentable square feet. In the fourth quarter of 2013, the Company commenceddevelopment of the second phase of its 675,000 square foot mixed-use project, which encompasses office, multi-family and retail components.The following table sets forth certain information relating to our future development pipeline as of December 31, 2013.Location Estimated Rentable Square FeetFUTURE DEVELOPMENT PIPELINE: Los Angeles, California Academy Project, Hollywood (1) 475,000San Diego, California 9455 Towne Centre Drive, San Diego (2) 150,000Carlsbad Oaks – Lots 4, 5, 7 & 8, Carlsbad 288,000The Heights at Del Mar, Del Mar 75,000 – 90,000One Paseo, Del Mar (3) 500,000Pacific Corporate Center – Lot 8, Sorrento Mesa 170,000Rancho Bernardo Corporate Center, I-15 Corridor 320,000 – 1,000,000Santa Fe Summit – Phase II and III, 56 Corridor 600,000Sorrento Gateway – Lot 2, Sorrento Mesa 80,000SUBTOTAL: 2,658,000 – 3,353,000_______________________(1)The Company acquired the property during the fourth quarter of 2013 and added to the Company’s future development pipeline upon acquisition. The Company is planning to demolish the existing structures and iscurrently pursuing mixed-use entitlements for this project.(2)The Company is planning to demolish the existing two-story 45,195 rentable square foot office building and is currently pursuing entitlements to build a new five-story 150,000 rentable square foot 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, 2013.Other Land Holdings Gross Site Estimated Rentable Total Costs as ofProject Acreage Square Feet 12/31/2013 (1) 17150 Von Karman, Irvine, California 8.5 N/A $8.2________________________(1)Represents cash paid and costs incurred as of December 31, 2013. Includes existing investment at the commencement of redevelopment.During 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.33Significant TenantsThe following table sets forth information about our 15 largest tenants based upon annualized base rental revenues, as defined below, as ofDecember 31, 2013.Tenant Name Annualized Base RentalRevenue(1) Percentage of Total Annualized BaseRental Revenue(1) Lease Expiration Date (in thousands) DIRECTV, LLC $23,760 6.1% September 2027Bridgepoint Education, Inc. 15,066 3.8% Various (4)Intuit, Inc. 13,489 3.4% August 2017Delta Dental of California 10,798 2.8% May 2018AMN Healthcare, Inc. 8,341 2.1% July 2018Scan Group (2)(3) 7,100 1.8% Various (5)Group Health Cooperative 6,372 1.6% September 2017Neurocrine Biosciences, Inc. 6,366 1.6% December 2019Microsoft Corporation 6,256 1.6% Various (6)Fish & Richardson P.C. 6,071 1.6% October 2018Splunk, Inc. 5,413 1.4% February 2019Wells Fargo (2) 5,300 1.3% Various (7)Scripps Health 5,199 1.3% June 2021BP Biofuels 5,158 1.3% Various (8)Lucile Salter Packard Children’s Hospital at Stanford 5,111 1.3% September 2020Total $129,800 33.0% _______________________________________(1)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, 2013.(2)The Company has entered into leases with various affiliates of the tenant.(3)In December 2013, Scan Group renewed and expanded their lease at Kilroy Airport Center in Long Beach, CA. As of December 31, 2013 revenue recognition had not commenced for the expansion premises. The annualizedbase rental revenue and rentable square feet presented in this table include the projected annualized base rental revenue of approximately $1.7 million and rentable square feet of approximately 50,000 for the expansionpremises.(4)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.(5)The Scan Group leases, which contribute $0.5 million and $6.6 million, expire in June 2015 and April 2026, respectively.(6)The Microsoft Corporation leases, which contribute $3.1 million and $3.1 million, expire in December 2014 and February 2019, respectively.(7)The Wells Fargo leases, which contribute $0.3 million, $0.2 million, $0.4 million, $0.07 million, $2.0 million, $0.05 million, $0.08 million, and $2.2 million expire in August 2015, June 2016, July 2016, January 2017,September 2017, February 2018, February 2019, and November 2019, respectively.(8)The BP Biofuel leases, which contribute $2.9 million and $2.3 million, expire in November 2015 and March 2017, respectively.34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, 2013. 35Lease ExpirationsThe following table sets forth a summary of our lease expirations for each of the next ten years beginning with 2014, 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 Lease Expiration# of Expiring Leases Total Square Feet % of Total Leased Square Feet Annualized BaseRent (000’s)(2) % of Total AnnualizedBase Rent(2) Annualized Rent perSquare Foot (2) 2014105 1,153,089 9.9% $31,236 7.9% $27.092015107 1,539,015 13.3% 44,479 11.3% 28.90201683 870,819 7.5% 23,318 5.9% 26.78201792 1,735,945 15.0% 56,731 14.4% 32.68201854 1,545,020 13.3% 63,276 16.1% 40.95201946 1,165,713 10.0% 44,072 11.2% 37.81202036 1,409,407 12.1% 47,157 12.0% 33.46202113 349,823 3.0% 15,951 4.1% 45.60202211 185,994 1.6% 7,076 1.8% 38.04202311 399,496 3.5% 15,920 4.0% 39.852024 and beyond16 1,258,027 10.8% 44,434 11.3% 35.32Total(3)574 11,612,348 100.0% $393,650 100.0% $33.90_______________________(1)Excludes lease expirations for properties held for sale at December 31, 2013.(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded 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.(3)The information presented for all lease expiration activity reflects leasing activity through December 31, 2013 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, 2013.Secured DebtAs of December 31, 2013, 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 $545.9 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, 2013, 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, 2013, 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.36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,there were approximately 56 registered holders of the Company’s common stock. The following table illustrates the high, low, and closing prices by quarter,as well as dividends declared, during 2013 and 2012 as reported on the NYSE.2013High Low Close Per Share CommonStock DividendsDeclaredFirst quarter$53.99 $47.86 $52.40 $0.3500Second quarter59.58 50.11 53.01 0.3500Third quarter55.80 47.73 49.95 0.3500Fourth quarter54.04 48.89 50.18 0.35002012High 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 0.3500The 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 AND ISSUER PURCHASES OFEQUITY SECURITIESThere is no established public trading market for the Operating Partnership’s common units. As of the date this report was filed, there were 22 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, 2013 and 2012.2013 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.35002012 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.3500During 2013 and 2012, the Operating Partnership redeemed 16,303 and 10,000 common units, respectively, for the same number of shares of theCompany’s common stock.37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 31,2013. 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 comprises21 office equity REITs, including us. The graph assumes the investment of $100 in us and each of the indices on December 31, 2008 and, as required by theSEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.38ITEM 6.SELECTED FINANCIAL DATA – KILROY REALTY CORPORATIONThe following tables set forth selected consolidated financial and operating data on an historical basis for the Company. 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, 2013 and 2012 and the consolidated statement of operations data for the years endedDecember 31, 2013, 2012 and 2011 have been derived from the historical consolidated financial statements of Kilroy Realty Corporation audited byDeloitte & Touche LLP, an independent registered public accounting firm. The consolidated balance sheet data as of December 31, 2011, 2010 and 2009 andthe consolidated statement of operations data for the years ended December 31, 2010 and 2009 have been derived from the historical consolidated financialstatements of Kilroy Realty Corporation and adjusted to present the income from operating properties that were sold during the year ended December 31, 2013or classified as held for sale at December 31, 2013, as income from discontinued operations and for the impact of subsequent accounting changes requiringretrospective application, if any.Kilroy Realty Corporation Consolidated(in thousands, except share, per share, square footage and occupancy data) Year Ended December 31, 2013 2012 2011 2010 2009Statements of Operations Data: Total revenues from continuing operations$465,098 $381,000 $310,424 $232,683 $206,587Income (loss) from continuing operations15,837 (3,505) (15,584) (6,729) 7,709Income from discontinued operations28,728 280,606 83,073 26,615 30,306Net income available to common stockholders30,630 249,826 50,819 4,512 21,794Per-Share Data: Weighted average shares of common stock outstanding – basic77,343,853 69,639,623 56,717,121 49,497,487 38,705,101Weighted average shares of common stock outstanding – diluted79,108,878 69,639,623 56,717,121 49,497,487 38,732,126Income (loss) from continuing operations available to common stockholders per shareof common stock – basic$0.01 $(0.37) $(0.55) $(0.45) $(0.22)Income (loss) from continuing operations available to common stockholders per shareof common stock – diluted$0.01 $(0.37) $(0.55) $(0.45) $(0.22)Net income available to common stockholders per share – basic$0.37 $3.56 $0.87 $0.07 $0.53Net income available to common stockholders per share – diluted$0.36 $3.56 $0.87 $0.07 $0.53Dividends declared per common share$1.40 $1.40 $1.40 $1.40 $1.63 39 December 31, 2013 2012 2011 2010 2009Balance Sheet Data: Total real estate held for investment, before accumulated depreciation andamortization$5,264,947 $4,757,394 $3,798,690 $3,216,871 $2,520,083Total assets5,111,028 4,616,084 3,446,795 2,816,565 2,084,281Total debt2,204,938 2,040,935 1,821,286 1,427,776 972,016Total noncontrolling interest – preferred units (1)— — 73,638 73,638 73,638Total preferred stock192,411 192,411 121,582 121,582 121,582Total equity (2)2,516,160 2,235,933 1,327,482 1,117,730 883,838Other Data: Funds From Operations (3) (4)$218,621 $165,455 $136,173 $106,639 $107,159Cash flows provided by (used in): Operating activities$240,576 $180,724 $138,256 $119,827 $124,965Investing activities(506,520) (706,506) (634,283) (701,774) (50,474)Financing activities284,621 537,705 485,964 586,904 (74,161)Office Property Data: (5) Rentable square footage12,736,099 13,249,780 11,421,112 10,395,208 8,708,466Occupancy93.4% 92.8% 90.1% 87.5% 80.6%_______________________(1)Represents the redemption value, less issuance costs of our 1,500,000 7.45% Series A Cumulative Preferred Units (“Series A Preferred Units”). The Series A Preferred Units were redeemed in 2012.(2)Includes the noncontrolling interest of the common units of the Operating Partnership and Redwood City Partners, LLC (a consolidated subsidiary created on June 27, 2013, see Note 3 “Acquisitions” to our consolidatedfinancial statements included in this report for additional information).(3)We calculate FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excludingextraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization(excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization ofdeferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets.We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts toreadily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard forreporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not becomparable 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 historicallyrisen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFOexcludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and amore appropriate basis on which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone would provide.However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasingcosts necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our 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 ofoperating properties. For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Non-GAAP Supplemental Financial Measure: Funds FromOperations” including a reconciliation of the Company’s GAAP net income available for common stockholders to FFO for the periods presented.(4)FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $10.7 million, $9.1 million, $9.3 million, $9.7 million and $9.8 million for the years ended December 31, 2013, 2012, 2011,2010 and 2009, respectively.(5)Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented.40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, 2013 and 2012 and the consolidated statement of operations data for the years endedDecember 31, 2013, 2012 and 2011 have been derived from the historical consolidated financial statements of Kilroy Realty, L.P. audited byDeloitte & Touche LLP, an independent registered public accounting firm. The consolidated balance sheet data as of December 31, 2011, 2010 and 2009 andthe consolidated statement of operations data for the years ended December 31, 2010 and 2009 have been derived from the historical consolidated financialstatements of Kilroy Realty, L.P. and adjusted to present the income from operating properties that were sold during the year ended December 31, 2013 orclassified as held for sale at December 31, 2013, as income from discontinued operations, and for the impact of subsequent accounting changes requiringretrospective application, if any.Kilroy Realty, L.P. Consolidated(in thousands, except unit, per unit, square footage and occupancy data) Year Ended December 31, 2013 2012 2011 2010 2009Statements of Operations Data: Total revenues from continuing operations$465,098 $381,000 $310,424 $232,683 $206,587Income (loss) from continuing operations15,837 (3,505) (15,584) (6,729) 7,709Income from discontinued operations28,728 280,606 83,073 26,615 30,306Net income available to common unitholders31,091 255,375 51,764 4,528 22,618Per Unit Data: Weighted average common units outstanding – basic79,166,260 71,403,258 58,437,444 51,220,618 40,436,196Weighted average common units outstanding – diluted80,931,285 71,403,258 58,437,444 51,220,618 40,463,221Income (loss) from continuing operations available to common unitholders per commonunit – basic$0.01 $(0.37) $(0.56) $(0.45) $(0.22)Income (loss) from continuing operations available to common unitholders per commonunit – diluted$0.01 $(0.37) $(0.56) $(0.45) $(0.22)Net income available to common unitholders per unit – basic$0.37 $3.56 $0.86 $0.07 $0.53Net income available to common unitholders per unit – diluted$0.36 $3.56 $0.86 $0.07 $0.53Distributions declared per common unit$1.40 $1.40 $1.40 $1.40 $1.63 December 31, 2013 2012 2011 2010 2009Balance Sheet Data: Total real estate held for investment, before accumulated depreciation andamortization$5,264,947 $4,757,394 $3,798,690 $3,216,871 $2,520,083Total assets5,111,028 4,616,084 3,446,795 2,816,565 2,084,281Total debt2,204,938 2,040,935 1,821,286 1,427,776 972,016Series A redeemable preferred units (1)— — 73,638 73,638 73,638Total preferred capital192,411 192,411 121,582 121,582 121,582Total capital (2)2,516,160 2,235,933 1,327,482 1,117,730 883,838Other Data: Cash flows provided by (used in): Operating activities240,576 180,724 138,256 119,827 124,965Investing activities(506,520) (706,506) (634,283) (701,774) (50,474)Financing activities284,621 537,705 485,964 586,904 (74,161)Office Property Data: (3) Rentable square footage12,736,099 13,249,780 11,421,112 10,395,208 8,708,466Occupancy93.4% 92.8% 90.1% 87.5% 80.6%_______________________(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.(2)Includes the noncontrolling interests in consolidated subsidiaries and Redwood City Partners, LLC (a consolidated subsidiary created on June 27, 2013, see Note 3 “Acquisitions” to our consolidated financial statementsincluded in this report for additional information).(3)Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented.41ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes theretoappearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there are nomaterial differences in the results of operations between the two reporting entities.Forward-Looking StatementsStatements contained in this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historicalfacts may be forward-looking statements, including statements or information concerning projected future occupancy and rental rates, lease expirations, debtmaturity, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, dispositions, futureexecutive incentive compensation, pending, potential or proposed acquisitions and other forward-looking financial data, as well as the discussion in “—Factors That May Influence Future Results of Operations”, “—Liquidity and Capital Resource of the Company”, and “—Liquidity and Capital Resourcesof the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,”“should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similarexpressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are notguarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors thatare difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from thoseindicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results oroutcomes. Numerous factors could cause actual future events to differ materially from those indicated in forward-looking statements, including, among others:•global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants;•adverse economic or real estate conditions in California and Washington including with respect to California’s continuing budget deficits;•risks associated with 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;42•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 “Item 1A. Risk Factors,” and in our other filings with the SEC.All forward-looking statements are based on currently available information and speak only as of the date of this report. We assume no obligation to updateany forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so inconnection with our ongoing requirements under federal securities laws.Company OverviewWe are a self-administered REIT active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets,consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greaterSeattle, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our real estate assets through the OperatingPartnership and the Finance Partnership. We conduct substantially all of our operations through the Operating Partnership. We owned a 97.8% and 97.6%general partnership interest in the Operating Partnership as of December 31, 2013 and 2012, respectively. All our properties are held in fee except for theeleven office buildings which are held subject to long-term ground leases for the land (See Note 15 “Commitments and Contingencies” to our consolidatedfinancial statements included in this report for additional information regarding our ground lease obligations).2013 HighlightsWe made significant progress on several fronts during 2013, 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 2013, we executed new and renewal office leases on 2.2 million square feet, marking the sixth consecutive year that KRC has achievedfull-year leasing of two million square feet. As a result of our consistent and successful leasing efforts, occupancy in our stabilized office portfolio increased to93.4% as of December 31, 2013, up from 92.8% as of December 31, 2012.Operating Property Acquisitions. We remain a disciplined buyer of office properties and continue to focus on value-add opportunities in West Coastmarkets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, entertainment and professionalservices. During 2013, we acquired two office buildings in greater Seattle and two office buildings and an undeveloped land parcel in the Del Mar submarketof San Diego County encompassing approximately 540,000 rentable square feet for a total purchase price of approximately $296.4 million (see Note 3“Acquisitions” to our consolidated financial statements included in this report for more information).Development. During 2013, we continued our focus on value-add and highly accretive development opportunities and expanded our future developmentpipeline through targeted acquisitions of development opportunities on the West Coast. In 2013, we acquired two land sites in Redwood City, California andformed a new consolidated subsidiary, Redwood City Partners, LLC (see Note 3 “Acquisitions” to our consolidated financial statements included in this reportfor more information) and in the fourth quarter we commenced construction of an approximately 300,000 square foot office space (the “Crossing/900” project)at these sites.Additionally, in December 2013, we acquired the Academy Project, a Los Angeles development opportunity, located in the Hollywood submarket, andadded it to our future development pipeline. Following an anticipated 18 to 24 month entitlement process, we plan to develop a mixed-use, media-orientedcampus that will include approximately 475,000 square feet of low- and mid-rise office space, apartments and retail space.43During 2013, we completed one development project, 331 Fairchild Drive in the San Francisco Bay Area with a total investment of approximately$44.7 million and added this property to our stabilized portfolio.As of December 31, 2013, the Company had six development projects under construction, four of which are 100% preleased. These six projects aggregateapproximately 2.5 million square feet of space, and the company estimates its total investment in these projects will be approximately $1.5 billion. The totalestimated investment includes lease commissions and excludes tenant improvement overages. Scheduled completion dates range from 2014 to 2016. See “—Factors that May Influence Future Operations – In-Process and Future Development Pipeline” for additional information.Redevelopment. During 2013, we moved one redevelopment project, 3880 Kilroy Airport Way in the Long Beach submarket of Los Angeles from ourlease-up portfolio to our stabilized portfolio. This project has a total investment of approximately $19.7 million and was 100% leased at stabilization. See “—Factors that May Influence Future Operations – Redevelopment” for additional information.Capital Recycling Program. We have continued to utilize 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” for additional information).In connection with this strategy, during 2013, we completed the sale of three office buildings to unaffiliated third parties in three separate transactions.Gross sales proceeds totaled approximately $56.9 million of which $32.2 million was held at qualified intermediaries at December 31, 2013 for potentialfuture Section 1031 Exchanges. In February 2014, we successfully completed one of the the Section 1031 Exchanges and the $32.2 million cash proceeds werereleased from the qualified intermediary. In addition, as of December 31, 2013, we classified 12 properties located in San Diego, California as properties heldfor sale and included the results for these properties in discontinued operations in our consolidated financial statements for all periods presented. The sale ofthese properties closed on January 9, 2014 for total gross sales proceeds of approximately $294.7 million (see Note 23 “Subsequent Events” to ourconsolidated financial statements included in this report for additional information).Financings. In addition to obtaining funding from our capital recycling program, we successfully completed a variety of financing and capital raisingactivities to fund our continued growth. See “—Liquidity and Capital Resources of the Operating Partnership” for additional information.Critical Accounting PoliciesThe preparation of financial statements in conformity with GAAP requires us to make estimates, assumptions, and judgments that affect the reportedamounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesand expenses for the reporting periods.Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that require our managementteam to 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 “Basis of Presentation& Significant Accounting Policies” to our consolidated financial statements included in this report.44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, 2013, 2012, and 2011, we capitalized $15.1 million, $24.0 million, and $4.3 million, respectively, of tenant-funded tenant improvements. Leases at our development and redevelopment properties generally have higher tenant-funded tenant improvements and we expectthe trend to increase as our development and redevelopment activities increase. For those periods, we also recognized $10.7 million, $9.1 million, and$9.3 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 the amortization of deferred revenue for tenant-funded tenantimprovements, and can also have a significant effect on the timing of our overall revenue recognition.45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, 2013, 2012, and 2011 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, 2013 and 2012, current receivables were carried net of anallowance for uncollectible tenant receivables amount of $2.1 million and $2.6 million, respectively, for each period and deferred rent receivables were carriednet of an allowance for deferred rent of $2.1 million and $2.6 million, respectively.Management’s determination of the adequacy of the allowance for uncollectible 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.46For the years ended December 31, 2013, 2012, and 2011, we recorded a total provision for bad debts for both current tenant receivables and deferred rentreceivables of approximately 0.1%, 0.0%, and 0.2%, respectively, of rental revenue. Our historical experience has been that actual write-offs of current tenantreceivables and deferred rent receivables has approximated the provision for bad debts recorded for the years ended December 31, 2013, 2012, and 2011. Inthe event our estimates were not accurate and we had to change our allowances by 1% of revenue from continuing operations, the potential impact to our netincome available to common stockholders would be approximately $4.7 million, $3.8 million, and $3.1 million for the years ended December 31, 2013, 2012,and 2011, 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 andimprovements, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-placeleases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place leasevalues and tenant relationships, if any.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value 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 theremaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed raterenewal options, if applicable, for below-market operating leases. The amounts recorded for above-market operating leases are included in deferred leasingcosts and acquisition-related intangible assets, net on the balance sheet and are amortized on a straight-line basis as a reduction of rental income over theremaining term of the applicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-relatedliabilities, net on the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leasesplus 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 intangible assets, net on the balance sheet and amortized as an increase to depreciation and amortizationexpense over the remaining term of the applicable leases. If a lease were to be terminated or if termination were determined to be likely prior to its contractualexpiration (for example 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.47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 depreciation and amortizationexpense 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 criteriato be accounted for as business combinations are expensed as incurred. During the years ended December 31, 2013, 2012, and 2011, we expensed$2.0 million, $4.9 million and $4.1 million of acquisition costs respectively, based on the level of our acquisition activity during those years. Our acquisitionexpenses are directly related to our acquisition activity and if our acquisition activity was to increase or decrease, so would our acquisition costs. Costsdirectly associated with development acquisitions accounted for as asset acquisitions are capitalized as part of the cost of the acquisition. During the yearsended December 31, 2013 and 2012, we capitalized $2.3 million and $0.7 million, respectively, of such acquisition costs. We did not capitalize anyacquisition costs during the year ended December 31, 2011.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 cost48basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to 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.For each property where such an indicator occurred and/or for properties within a given submarket where such an indicator occurred, we completed animpairment evaluation. After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over theholding period were in excess of carrying value and, therefore, we did not record any impairment losses for these periods. We determined that for each of theproperties held for sale, that the sale price less estimated costs to sell exceeded the carrying value and therefore we did not record any impairment losses forthese properties.Cost Capitalization and DepreciationWe capitalize costs associated with development and redevelopment activities, capital improvements, tenant improvements, and leasing activities. For theyears ended December 31, 2013, 2012 and 2011, we capitalized $7.3 million, $3.1 million, and $1.7 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 improvementsbased on 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, 2013, the Company had one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, which is describedmore fully in Note 12 “Share-Based Compensation” to our consolidated financial statements included in this report. The Executive Compensation Committeedetermines compensation for our Chief Executive Officer, Chief Operating Officer, Chief Investment Officer and Chief Financial Officer (“the ExecutiveOfficers”). Compensation cost for all share-based awards, including options, requires measurement at estimated fair value on the grant date and compensationcost is recognized over the service vesting period, which represents the requisite service period. The grant date fair value for compensation programs thatcontain market measures are performed using complex pricing valuation models that require the input of assumptions, including judgments to estimateexpected stock price volatility, expected life, and forfeiture rate. Specifically, the grant date fair49value of market measure-based share-based compensation programs are calculated using a Monte Carlo simulation pricing model and the grant date fair valueof stock option grants are calculated using the Black-Scholes valuation model.For the years ended December 31, 2013 and 2012, we recorded approximately $5.3 million and $3.9 million, respectively, of compensation expenserelated to programs that contained market measures and were therefore subject to such valuation models. If the valuation of the grant date fair value for suchprograms changed by 10%, the potential impact to our net income available to common stockholders would be approximately $0.5 million and $0.4 millionfor the years ended December 31, 2013 and 2012, respectively. There was no compensation expense related to market measure-based programs recorded for theyears ended December 31, 2011 since our market measure-based share-based compensation programs and options were granted in 2012.Factors That May Influence Future Results of OperationsAcquisitions. During 2013, we acquired two office buildings in greater Seattle and two office buildings in the Del Mar submarket of San Diego Countyfor a total purchase price of approximately $296.4 million. Additionally, during 2013, we continued or focus on value-add and highly accretive developmentopportunities and expanded our future development pipeline through targeted acquisitions of development opportunities on the West Coast. During 2012, weacquired 14 office buildings in seven transactions with an aggregate purchase price of approximately $674.0 million and six development and redevelopmentprojects in six transactions with an aggregate purchase price of approximately $340.3 million. We generally finance our acquisitions through proceeds from theissuance of debt and equity securities, borrowings under our revolving credit facility, proceeds from our capital recycling program and the assumption ofexisting debt.As a key component of our growth strategy, we continue to evaluate value-add acquisition opportunities (including undeveloped land, development andredevelopment opportunities and office properties). As a result, at any point in time we may have one or more potential acquisitions under consideration thatare in varying stages of evaluation, negotiation or due diligence review, which may include potential acquisitions under contract. We remain a disciplinedbuyer of office properties and continue to focus on value add opportunities in West Coast markets populated by knowledge and creative based tenants in avariety of industries, including technology, media, healthcare, entertainment and professional services. We cannot provide assurance that we will completethese acquisitions. In the future, we may enter into agreements to acquire additional properties or undeveloped land, either as wholly owned properties orthrough joint ventures, and those agreements typically will be subject to the satisfaction of closing conditions. We cannot provide assurance that we will enterinto any agreements to acquire properties or undeveloped land or that the potential acquisitions contemplated by any agreements we may enter into in the futurewill be completed. Costs associated with acquisitions accounted for as business combinations are expensed as incurred, and we may be unable to complete anacquisition after making a nonrefundable deposit or incurring acquisition-related costs. In addition, acquisitions are subject to various other risks anduncertainties. During the year ended December 31, 2013, we expensed approximately $2.0 million of third-party acquisition costs, and we anticipate that wemay incur additional third-party acquisition costs during 2014. During the year ended December 31, 2013, we capitalized $2.3 million of acquisition costsdirectly associated with development acquisitions accounted for as asset acquisitions. We expect that during 2014 we will continue to pursue value-addproperty acquisitions that either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.Capital Recycling Program. We continuously evaluate opportunities for the potential disposition of properties and undeveloped land in our portfolio withthe intent of recycling the proceeds generated from the disposition of non-strategic properties or lower return assets into capital used to fund new operating anddevelopment acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part ofthis strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and stateincome tax purposes.In connection with this strategy, during 2013, we completed the sale of three office building to unaffiliated third parties in three separate transactions.Gross sales proceeds totaled approximately $56.9 million of which $32.2 million was held at qualified intermediaries at December 31, 2013 for potentialfuture Section 1031 Exchanges. In February 2014, we successfully completed one of the the Section 1031 Exchanges and the $32.2 million cash proceeds werereleased from the qualified intermediary. In addition, as of December 31, 2013, we classified 12 properties located in San Diego, California as properties heldfor sale and included the results for these properties in discontinued operations in our consolidated financial statements for all periods presented. The sale ofthese properties closed on January 9, 201450for total gross sales proceeds of approximately $294.7 million, which are being held by qualified intermediaries for potential future Section 1031 Exchanges asof the date of this report. We cannot assure you that any proceeds currently held by qualified intermediaries will be reinvested into qualifying replacementproperty or that the dispositions described above will qualify as Section 1031 Exchanges (see Note 23 “Subsequent Events” to our consolidated financialstatements included in this report for additional information).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 that we will dispose of any additional properties or that futureacquisitions and/or dispositions, if any, will qualify as Section 1031 Exchanges.Leasing Activity and Changes in Rental Rates. The amount of net rental income generated by our properties depends principally on our ability 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 year ended December 31, 2013.Information on Leases Commenced and ExecutedFor Leases Commenced (1) 1st & 2nd Generation (2) 2nd Generation (2) Number ofLeases (3) RentableSquare Feet (3) TI/LC perSq. Ft. (4) Changes inRents (5)(6) Changes inCash Rents (7) Retention Rates (8) Weighted AverageLease Term (inmonths) New Renewal New Renewal Year Ended December 31,2013110 83 1,089,121 1,188,308 37.34 19.3% 8.3% 58.7% 75For Leases Executed (1)(9) 1st & 2nd Generation (2) 2nd Generation (2) Number of Leases (3) Rentable Square Feet (3) TI/LC per Sq. Ft.(4) Changes inRents (5)(6) Changes inCash Rents (7) Weighted Average LeaseTerm(in months) New Renewal New Renewal Year Ended December 31,2013113 77 1,026,042 1,126,607 31.49 20.7% 11.3% 72_______________________(1)Includes leases commenced and executed for properties held for sale at December 31, 2013.(2)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.(3)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.(4)Amounts exclude tenant-funded tenant improvements.(5)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.(6)Excludes commenced and executed leases of approximately 593,000 and 455,000 rentable square feet, respectively, for the year ended December 31, 2013, 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 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.(8)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.(9)For the year ended December 31, 2013, 16 new leases totaling 422,000 rentable square feet were signed but not commenced as of December 31, 2013.As of December 31, 2013, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operatingproperties are approximately 5% under the current average market rental rates, although individual properties within any particular submarket presently maybe leased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above,below, or at the average cash rental rate of our portfolio.51In general, market rental rates have continued to increase in the majority of our submarkets over the last several quarters. Our rental rates and occupancyare impacted by general economic conditions, including the pace of regional economic growth and access to capital. Therefore, we cannot give any assurancethat leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates. Additionally, decreased demandand other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have further negative effects on our futurefinancial condition, results of operations, and cash flows.Scheduled Lease Expirations. The following table sets forth certain information regarding our lease expirations for our stabilized portfolio for the nextfive years.Lease Expirations (1) Year of Lease Expiration Number ofExpiringLeases Total Square Feet % of Total Leased Sq. Ft. Annualized Base Rent (2) % of Total AnnualizedBase Rent (2) Annualized Base Rent per Sq. Ft.(2) 2014 105 1,153,089 9.9% $31,236 7.9% $27.092015 107 1,539,015 13.3% 44,479 11.3% 28.902016 83 870,819 7.5% 23,318 5.9% 26.782017 92 1,735,945 15.0% 56,731 14.4% 32.682018 54 1,545,020 13.3% 63,276 16.1% 40.95Total 441 6,843,888 59.0% $219,040 55.6% $32.01________________________ (1)Excludes lease expirations for properties held for sale at December 31, 2013. The information presented for all lease expiration activity reflects leasing activity through December 31, 2013 for our stabilized portfolio. For leasesthat have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes spaceleased under month-to-month leases, intercompany leases, vacant space, and lease renewal options not executed as of December 31, 2013.(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded 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. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement andleasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”In addition to the 0.8 million rentable square feet, or 6.6%, of currently available space in our stabilized portfolio, leases representing approximately 9.9%and 13.3% of the occupied square footage of our stabilized portfolio are scheduled to expire during 2014 and 2015, respectively. The leases scheduled to expirein 2014 and 2015 represent approximately 2.7 million rentable square feet or 19.2% of our total annualized base rental revenue. We believe that the weightedaverage cash rental rates are approximately 5% under the current average market rental rates for leases scheduled to expire during 2014 and 2015, althoughindividual properties within any particular submarket presently may be leased either above, below, or at the current quoted market rates within thatsubmarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our overall portfolio. Our abilityto re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties arelocated.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 ofDecember 31, 2013, we stabilized the following redevelopment project:•3880 Airport Way, Long Beach, submarket of Los Angeles, California on which we commenced redevelopment in the third quarter of 2011. Thisproperty, encompassing 98,243 rentable square feet, has a total investment of approximately $19.7 million, including $6.3 million net carryingvalue of the project at the commencement of redevelopment. The building was100% leased at December 31, 2013.52As of December 31, 2013, we had one redevelopment project in lease-up.•360 Third Street, South of Market Area, submarket of San Francisco, California on which we commenced redevelopment in the fourth quarter of2011. Redevelopment for this project was completed in the first quarter of 2013 and this property will move to our stabilized portfolio the first quarterof 2014. This project, which encompasses approximately 410,000 rentable square feet, will have a total estimated investment of approximately$186.1 million at completion. As of December 31, 2013, the project was 96% leased and 78% occupied. Included in our total investment is thepurchase of the land underlying the ground lease for $27.5 million which closed in October 2013.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 and 2013, 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.During the fourth quarter of December 31, 2013, we completed construction of the following development project:•331 Fairchild Drive, Mountain View, California, which we acquired in December 2012 and was 100% pre-leased. This property, encompassing87,565 square feet, had a total investment of approximately $44.7 million. In October 2013, the project was substantially complete and the tenanttook possession of the building.As of December 31, 2013, our in-process development pipeline consisted of the following six projects under construction.•690 E. Middlefield Road, Mountain View, California, which we acquired in May 2012. The development project, which is 100% pre-leased toSynopsys, Inc., has a total estimated investment of approximately $196.9 million and is expected to encompass approximately 341,000 rentablesquare feet upon completion. Construction is currently in process and is expected to be completed in the first quarter of 2015.•350 Mission Street, South of Market Financial District, San Francisco, California, which we acquired in October 2012. Shortly after acquisition,we pre-leased the entire project to salesforce.com, inc. In the fourth quarter of 2013, we obtained full entitlements to increase this project from a 27-story building to a 30-story building which increased the square footage from 400,000 square feet to approximately 450,000 square feet.Salesforce.com will occupy the full 30-story building upon completion. The property is expected to be LEED platinum certified, the first ground updevelopment property in the city expected to receive this designation. The development project has a total estimated investment of approximately$277.5 million. Construction is currently in process and is expected to be completed in phases during 2015.•555-599 N. Mathilda Avenue, Sunnyvale, California, which we acquired in December 2012. The project, which is comprised of one operatingproperty and a future development site, is 100% pre-leased. Our plan at this project is to continue operating the existing building and develop anapproximately 587,000 square foot office complex for LinkedIn, Inc., the tenant in the current existing building. The development project has a totalestimated investment of approximately $314.8 million. Construction is currently in process and is expected to be completed in the third quarter of2014.53•Columbia Square, in Hollywood, California, which we acquired in September 2012. The project is a historical media campus located in the heart ofHollywood, two blocks from the corner of Sunset Boulevard and Vine Street. During 2013, we commenced development on approximately 675,000rentable square feet of a mixed-use project, which encompasses office, multi-family and retail components that we plan on completing in multiplephases. The project has a total estimated investment of approximately $392.5 million. Our plan is to create a mixed-use campus that preserves thehistorical character while establishing a new center for entertainment and media companies. Construction is currently in process and is expected to becompleted in three phases between the third quarter of 2014 and the second quarter of 2016.In December 2013, we announced that we will be collaborating with the Kor Group, a Los Angeles-based development and management firm thatspecializes in high-end residential and hospitality projects, on the project programming, design and branding of the residential component ofColumbia Square. This portion of the project will be a mix of high-end long-term rentals and extended stay apartment homes that will cater totraveling business, entertainment and creative professionals. It will be the first luxury extended stay property to be located in the heart of Hollywood.Construction completion of this component is which is expected for the spring of 2016.•333 Brannan Street, South of Market Area, San Francisco, California, which we acquired in July 2012. In January 2014, six weeks after our groundbreaking in the fourth quarter of 2013, we signed a 182,000 square foot, twelve-year lease with Dropbox for the entirety of this project. Dropbox isexpected to take occupancy of the LEED platinum property at the completion of construction in the third quarter of 2015. The project has a totalestimated investment of approximately $98.8 million. Construction is currently in process and is expected to be completed in the third quarter of2015.•Crossing/900, in Redwood City, California, which we entered into an agreement in June 2013 with a local partner and acquired a 0.35 acre land site,completing the first phase of the land assemblage for our plans to develop an approximate 300,000 square foot office project. In October 2013, theCompany acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the project. Theproject has a total estimated investment of approximately $182.0 million and began construction in the fourth quarter of 2013.In the future, we may also enter into agreements to acquire other development or redevelopment opportunities, either as wholly owned properties or throughjoint ventures and those agreements typically will be subject to the satisfaction of closing conditions. In addition, as of December 31, 2013, we had additionalundeveloped land holdings, located primarily in various submarkets in San Diego County and Los Angeles with an aggregate cost basis of approximately$355.5 million and estimated rentable square feet of 2.7 million to 3.4 million.This increase in our development and redevelopment activities will continue to cause an increase in the average development asset balances qualifying forinterest and other carry cost capitalization in future periods. During the year ended December 31, 2013, we capitalized interest on in process developmentprojects, redevelopment projects in lease-up, and development pipeline projects with an aggregate cost basis balance of approximately $1.0 billion atDecember 31, 2013, as it was determined these projects qualified for interest and other carry cost capitalization under GAAP. For the years endedDecember 31, 2013 and 2012, we capitalized $35.4 million and $19.8 million, respectively, of interest to our qualifying redevelopment and developmentprojects. For the years ended December 31, 2013 and 2012, we capitalized $7.3 million and $3.1 million, respectively, of internal costs to our qualifyingredevelopment and development projects.Incentive Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for ourexecutive officers. For 2013, the annual cash bonus program was structured to allow the Executive Compensation Committee to evaluate a variety of keyquantitative and qualitative metrics at the end of the year and make a determination based on the Company’s and management’s overall performance. OurExecutive Compensation Committee also grants equity incentive awards from time to time that include performance-based or market-measure based vestingrequirements and/or time-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future awards may beaffected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals,market conditions and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentivecompensation.54As of December 31, 2013, there was approximately $25.5 million of total unrecognized compensation cost related to outstanding nonvested shares ofrestricted common stock, RSUs and stock options issued under share-based compensation arrangements. Those costs are expected to be recognized over aweighted-average period of 2.2 years. The $25.5 million of unrecognized compensation cost does not reflect the future compensation cost for any potentialshare-based awards that may be issued. Share-based compensation expense for potential future awards could be affected by our operating and developmentperformance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions and other factors. In additionour Executive Compensation Committee granted restricted stock units in January 2014, and, if our stockholders do not approve an increase to the share limitunder our 2006 Plan then these awards may be cash settled and will be subject to variable plan accounting until a sufficient amount of shares are authorizedfor issuance under the 2006 Plan to cover the payment of these awards. Consequently, we cannot predict the amounts that will be recorded in future periods forsuch awards. See Note 12 “Share-Based Compensation” to our consolidated financial statements included in this report for additional information regardingour share-based incentive compensation plan.Stabilized Portfolio InformationAs of December 31, 2013, our stabilized portfolio was comprised of 105 office properties encompassing an aggregate of approximately 12.7 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 properties for which we expect to spend significant development and construction costs on the existing or acquiredbuildings pursuant 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 120.9 gross acres of undeveloped land.At December 31, 2013, our stabilized portfolio excluded 12 properties held for sale, one “lease-up” property and six development properties currentlyunder construction.The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from December 31, 2012 toDecember 31, 2013: Number ofBuildings RentableSquare FeetTotal as of December 31, 2012114 13,249,780Acquisitions (1)4 539,338Completed development and redevelopment properties placed in-service2 185,808Dispositions and properties held for sale at December 31, 2013(15) (1,249,341)Remeasurement— 10,514Total as of December 31, 2013105 12,736,099________________________(1)Excludes development and redevelopment property acquisitions.55Occupancy InformationThe following table sets forth certain information regarding our stabilized portfolio:Stabilized Portfolio OccupancyRegionNumber ofBuildings Rentable Square Feet Occupancy at (1) 12/31/2013 12/31/2012 12/31/2011Los Angeles and Ventura Counties27 3,506,527 93.7% 94.0% 83.5%Orange County3 437,603 92.8% 92.0% 93.4%San Diego County48 4,367,713 90.8% 90.7% 92.5%San Francisco Bay Area15 2,376,619 94.8% 95.5% 93.3%Greater Seattle12 2,047,637 96.7% 93.3% 89.9%Total Stabilized Portfolio105 12,736,099 93.4% 92.8% 90.1% Average Occupancy Year Ended December 31, 2013 2012Stabilized Portfolio (1)92.1% 91.3%Same Store Portfolio (2)92.0% 93.4%__________________________________(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, 2012 and still owned and stabilized as of December 31, 2013. See discussion under “Results of Operations” for additionalinformation.Current Regional InformationWe have generally seen rental rates stabilize and start to improve in many of our submarkets. We have also seen vacancy rates in many of oursubmarkets starting to decrease.Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized portfolio of 3.5 million rentable square feet was 93.7% occupiedwith approximately 219,000 available rentable square feet as of December 31, 2013 compared to 94.0% occupied with approximately 210,100 availablerentable square feet as of December 31, 2012.As of December 31, 2013, leases representing an aggregate of approximately 305,000 and 276,000 rentable square feet are scheduled to expire during 2014and 2015, respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during 2014 and in 2015 representsapproximately 5.0% of our occupied rentable square feet and 4.7% of our annualized base rental revenues in our total stabilized portfolio as ofDecember 31, 2013.San Diego County. Our San Diego County stabilized portfolio of 4.4 million rentable square feet was 90.8% occupied with approximately 401,000available rentable square feet as of December 31, 2013 compared to 90.7% occupied with approximately 486,800 available rentable square feet as ofDecember 31, 2012. As of the date of this report, we have leased approximately 196,000 square feet of the 401,000 available rentable square feet as ofDecember 31, 2013.As of December 31, 2013, leases representing an aggregate of approximately 564,000 and 462,000 rentable square feet are scheduled to expire during 2014and 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2014 and 2015 represents approximately8.8% of our occupied rentable square feet and 6.2% of our annualized base rental revenues in our total stabilized portfolio as of December 31, 2013. As of thedate of this report, of the 2014 lease expirations, we have executed one lease renewal representing approximately 133,000 rentable square feet and have receivednotices of termination for 216,000 rentable square feet. Additionally, subsequent to year end we have received notification of an early termination for anadditional 78,000 rentable square feet originally set to expire in 2020.56San Francisco Bay Area. As of December 31, 2013, our San Francisco Bay Area stabilized portfolio of 2.4 million rentable square feet was 94.8%occupied with approximately 124,000 available rentable square feet, compared to 95.5% occupied with approximately 102,800 available rentable square feet asof December 31, 2012.As of December 31, 2013, leases representing an aggregate of approximately 167,000 and 333,000 rentable square feet are scheduled to expire during 2014and 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2014 and 2015 represents approximately 4.3%of our occupied rentable square feet and 4.6% of our annualized base rental revenues in our total stabilized portfolio as of December 31, 2013.Greater Seattle. As of December 31, 2013, our greater Seattle stabilized portfolio of 2.0 million rentable square feet was 96.7% occupied withapproximately 68,000 available rentable square feet, compared to 93.3% occupied with approximately 116,100 available rentable square feet as ofDecember 31, 2012. The increase in occupancy is primarily attributable to the acquisition of two office buildings encompassing approximately 320,400rentable square feet that were 100.0% occupied as of December 31, 2013.As of December 31, 2013, leases representing an aggregate of approximately 88,000 and 431,000 rentable square feet are scheduled to expire during 2014and 2015, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2014 and 2015 represents approximately4.5% of our occupied rentable square feet and 3.2% of our annualized base rental revenues in our total stabilized portfolio as of December 31, 2013.57Results of OperationsComparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012Net Operating IncomeManagement internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income fromcontinuing operations. We define “Net Operating Income” as operating revenues (rental income, tenant reimbursements, and other property income) lessoperating expenses (property expenses, real estate taxes, provision for bad debts, and ground leases).Net Operating Income from continuing operations is considered by management to be an important and appropriate supplemental performance measure tonet income (loss) because we believe it helps both investors and management to understand the core operations of our properties excluding corporate andfinancing-related costs and noncash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties andallows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspectivenot immediately apparent from GAAP income (loss) from operations or net income (loss). In addition, Net Operating Income is considered by many in the realestate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use differentmethodologies for calculating Net Operating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estatecompanies. Because of the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure ofour financial performance and not as an alternative to GAAP income (loss) from operations or net income (loss).Management further evaluates Net Operating Income by evaluating the performance from the following property groups:•Same Store Properties – which includes the results of all of the office properties that were owned and included in our stabilized portfolio as ofJanuary 1, 2012 and still owned and included in the stabilized portfolio as of December 31, 2013;•Acquisition Properties – which includes the results, from the dates of acquisition through the periods presented, for the fourteen office buildingswe acquired during 2012 and the four office buildings we acquired during the year ended December 31, 2013;•Stabilized Development and Redevelopment Properties – which includes the results generated by one office building that was moved into thestabilized portfolio upon completion of redevelopment in the fourth quarter of 2012, one office building that was moved into the stabilizedportfolio upon completion of development and one redevelopment property that stabilized in December 2013 at the end of the lease-up; and•Other Properties – which includes the results of properties not included in our stabilized portfolio. These properties consist of one office buildingthat was in the “lease-up” phase.The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2013:Group # of Buildings RentableSquare FeetSame Store Properties 84 9,952,622Acquisition Properties 18 2,298,941Stabilized Development and Redevelopment Properties 3 484,536Total Stabilized Portfolio 105 12,736,09958The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the years endedDecember 31, 2013 and 2012. Year Ended December 31, DollarChange PercentageChange 2013 2012 ($ in thousands)Reconciliation to Net Income: Net Operating Income, as defined$324,428 $269,137 $55,291 20.5 %Unallocated (expense) income: General and administrative expenses(39,660) (36,188) (3,472) 9.6Acquisition-related expenses(1,962) (4,937) 2,975 (60.3)Depreciation and amortization(192,734) (153,251) (39,483) 25.8Interest income and other net investment gains1,635 848 787 92.8Interest expense(75,870) (79,114) 3,244 (4.1)Income (loss) from continuing operations15,837 (3,505) 19,342 (551.8)Income from discontinued operations28,728 280,606 (251,878) (89.8)Net income$44,565 $277,101 $(232,536) (83.9)% The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the years endedDecember 31, 2013 and 2012. Year Ended December 31, 2013 2012 SameStore Acqui-sitionsProperties Stabilized Development &Redevelopment Other Total SameStore Acqui-sitionsProperties Stabilized Development &Redevelopment Other Total (in thousands) (in thousands)Operating revenues: Rental income$318,905 $75,613 $11,520 $13,151 $419,189 $312,523 $30,000 $1,562 $5,528 $349,613Tenantreimbursements27,028 10,286 615 384 38,313 24,909 4,683 276 21 29,889Other propertyincome6,709 884 — 3 7,596 1,146 339 — 13 1,498Total352,642 86,783 12,135 13,538 465,098 338,578 35,022 1,838 5,562 381,000Property and related expenses: Propertyexpenses75,062 16,348 2,497 2,699 96,606 67,152 6,784 562 1,721 76,219Real estate taxes29,594 7,187 1,077 2,298 40,156 27,771 2,875 122 1,555 32,323Provision forbad debts295 109 4 (4) 404 152 — — 1 153Ground leases1,649 1,251 88 516 3,504 1,692 718 86 672 3,168Total106,600 24,895 3,666 5,509 140,670 96,767 10,377 770 3,949 111,863Net OperatingIncome, as defined$246,042 $61,888 $8,469 $8,029 $324,428 $241,811 $24,645 $1,068 $1,613 $269,13759 Year Ended December 31, 2013 as compared to the Year Ended December 31, 2012 Same Store Acquisitions Stabilized Development &Redevelopment Other Total Dollar Change Percent Change Dollar Change Percent Change DollarChange Percent Change Dollar Change Percent Change Dollar Change Percent Change ($ in thousands) Operating revenues: Rental income$6,382 2.0 % $45,613 152.0% $9,958 637.5 % $7,623 137.9 % $69,576 19.9%Tenant reimbursements2,119 8.5 5,603 119.6 339 122.8 363 1,728.6 8,424 28.2Other property income5,563 485.4 545 160.8 — — (10) (76.9) 6,098 407.1Total14,064 4.2 51,761 147.8 10,297 560.2 7,976 143.4 84,098 22.1Property and related expenses: Property expenses7,910 11.8 9,564 141.0 1,935 344.3 978 56.8 20,387 26.7Real estate taxes1,823 6.6 4,312 150.0 955 782.8 743 47.8 7,833 24.2Provision for bad debts143 94.1 109 — 4 — (5) — 251 164.1Ground leases(43) (2.5) 533 74.2 2 2.3 (156) (23.2) 336 10.6Total9,833 10.2 14,518 139.9 2,896 376.1 1,560 39.5 28,807 25.8Net Operating Income,as defined$4,231 1.7 % $37,243 151.1% $7,401 (693.0)% $6,416 (397.8)% $55,291 20.5%Net Operating Income increased $55.3 million, or 20.5%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012primarily resulting from:•An increase of $37.2 million attributable to the Acquisition Properties;•An increase of $4.2 million attributable to the Same Store Properties primarily resulting from:•An increase in rental income of $6.4 million primarily resulting from an increase in tenant renewals and new leases at higher rental rates;•An increase in tenant reimbursements of $2.1 million primarily due to higher reimbursable property expenses and real estate taxes;•An increase in other property income of $5.6 million primarily due to the receipt of a $5.2 million property damage settlement payment at one ofour properties;•A partially offsetting increase in property and related expenses of $9.8 million primarily resulting from:•An increase of $7.9 million in property expenses primarily as a result of an increase in certain recurring operating costs of approximately$4.9 million related to property management expenses, utilities, insurance, other service-related costs, $1.2 million of non-recurringexpenses related to a property damage settlement and a $1.8 million decrease in property-related insurance proceeds in the current yearcompared to the prior year; and•An increase in real estate taxes of $1.8 million primarily as a result of higher assessment of value at several properties and a decrease inproperty tax refunds received in the current year compared to the prior year.•An increase of $7.4 million attributable to the Stabilized Development and Redevelopment Properties, of which $6.8 million is attributable to a fullyear of operating activity at 2260 E. Imperial Highway, located in the Los Angeles submarket of El Segundo which was stabilized in the fourthquarter of 2012; and•An increase of $6.4 million attributable to the Other Properties primarily resulting from income generated in 2013 from one redevelopment property inlease-up that was 78% occupied at December 31, 2013 compared to 26% occupied at December 31, 2012.60Other Expenses and IncomeGeneral and Administrative ExpensesGeneral and administrative expenses increased $3.5 million, or 9.6%, for the year ended December 31, 2013 compared to the year ended December 31,2012, primarily attributable to an increase in compensation expense related to higher payroll costs associated with the growth of the Company and the March2012 and April 2013 renegotiations of our Chief Executive Officer’s and Chief Operating Officer’s employment agreements and costs associated with ouraccounting system conversion.Depreciation and AmortizationDepreciation and amortization increased by $39.5 million, or 25.8%, for the year ended December 31, 2013 compared to the year ended December 31,2012, primarily related to the Acquisition Properties.Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest,including capitalized debt discounts/premiums and loan cost amortization for the years ended December 31, 2013 and 2012. Year Ended December 31, DollarChange PercentageChange 2013 2012 ($ in thousands)Gross interest expense$111,238 $98,906 $12,332 12.5 %Capitalized interest(35,368) (19,792) (15,576) 78.7 %Interest expense$75,870 $79,114 $(3,244) (4.1)%Gross interest expense, before the effect of capitalized interest, increased $12.3 million, or 12.5%, for the year ended December 31, 2013 compared to theyear ended December 31, 2012 resulting primarily from an increase in our average outstanding debt balances due to acquisitions and growth of the Company.Capitalized interest increased $15.6 million, or 78.7%, for the year ended December 31, 2013 compared to the year ended December 31, 2012, primarilyattributable to an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.61Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011The prior year discussion of the results from operations is separated into 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 as ofJanuary 1, 2011 and still owned and included in the stabilized portfolio as of December 31, 2013;•Acquisition Properties – which includes the results, from the dates of acquisition through the periods presented, for the ten office buildings weacquired 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 stabilized portfolioupon completion of redevelopment in the fourth quarter of 2012. Both office buildings were moved from the stabilized portfolio during 2012 todevelopment during 2011, thus the prior year results reflect operating results of the properties prior to redevelopment; and•Other Properties – which includes the results of properties not included in our stabilized portfolio. These properties consist of one office buildingin “lease-up,” 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.The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2012 still owned andincluded in the stabilized portfolio as of December 31, 2013.Group # of Buildings RentableSquare FeetSame Store Properties 84 9,952,622Acquisition Properties 14 1,757,543Stabilized Redevelopment Properties 2 410,046Total Stabilized Portfolio 100 12,120,211The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the year 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$269,137 $217,461 $51,676 23.8 %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(153,251) (115,630) (37,621) 32.5Interest income and other net investment gains848 571 277 48.5Interest expense(79,114) (85,785) 6,671 (7.8)Loss from continuing operations(3,505) (15,584) 12,079 (77.5)Income from discontinued operations280,606 83,073 197,533 237.8Net income$277,101 $67,489 $209,612 310.6 % 62The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the year ended December 31,2012 and 2011. Year Ended December 31, 2012 2011 SameStore Acqui-sitionsProperties StabilizedRedevel-opment Other Total SameStore Acqui-sitionsProperties StabilizedRedevel-opment Other Total (in thousands) (in thousands)Operating revenues: Rental income$265,883 $78,555 $214 $4,961 $349,613 $261,140 $24,403 $— $1,535 $287,078Tenant reimbursements16,946 12,626 — 317 29,889 16,242 4,462 59 194 20,957Other property income1,124 365 — 9 1,498 1,886 471 32 — 2,389Total283,953 91,546 214 5,287 381,000 279,268 29,336 91 1,729 310,424Property and related expenses: Property expenses57,459 17,051 446 1,263 76,219 56,588 5,977 301 856 63,722Real estate taxes23,208 7,567 28 1,520 32,323 23,237 2,255 1 1,488 26,981Provision for bad debts153 — — — 153 695 — — — 695Ground leases897 1,512 4 755 3,168 923 446 13 183 1,565Total81,717 26,130 478 3,538 111,863 81,443 8,678 315 2,527 92,963Net Operating Income, as defined$202,236 $65,416 $(264) $1,749 $269,137 $197,825 $20,658 $(224) $(798) $217,461 Year Ended December 31, 2012 as compared to the Year Ended December 31, 2011 Same Store Acquisitions Stabilized Redevelopment Other Total Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change ($ in thousands) Operating revenues: Rental income$4,743 1.8 % $54,152 221.9 % $214 — % $3,426 223.2% $62,535 21.8 %Tenant reimbursements704 4.3 8,164 183.0 (59) (100.0) 123 63.4 8,932 42.6Other property income(762) (40.4) (106) (22.5) (32) (100.0) 9 100.0 (891) (37.3)Total4,685 1.7 62,210 212.1 123 135.2 3,558 205.8 70,576 22.7Property and related expenses: Property expenses871 1.5 11,074 185.3 145 48.2 407 47.5 12,49719.6Real estate taxes(29) (0.1) 5,312 235.6 27 2,700.0 32 2.2 5,34219.8Provision for bad debts(542) (78.0) — — — — — — (542)(78.0)Ground leases(26) (2.8) 1,066 239.0 (9) (69.2) 572 312.6 1,603102.4Total274 0.3 17,452 201.1 163 51.7 1,011 40.0 18,90020.3Net Operating Income,as defined$4,411 2.2 % $44,758 216.7 % $(40) (17.9)% $2,547 319.2% $51,67623.8 %Net Operating Income increased $51.7 million, or 23.8%, 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 $4.4 million attributable to the Same Store Properties primarily resulting from:•An increase in rental income of $4.7 million primarily resulting from an increase in tenant renewals and new leases at higher rental rates;•An increase in tenant reimbursements of $0.7 million primarily due to higher reimbursable property expenses;•A partially offsetting decrease in other property income of $0.8 million primarily due to a property damage settlement payment received in 2011for one of our properties; and•An increase in property and related expenses of $0.3 million.63•An increase of $2.5 million attributable to the Other Properties primarily resulting 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.Other Expenses and IncomeGeneral and Administrative ExpensesGeneral and administrative expenses increased $8.0 million, or 28.6%, for the year ended December 31, 2012 compared to the year endedDecember 31, 2011, primarily attributable to an increase in compensation expense related to the February 2012 stock option grants made to our seniormanagement team, higher payroll costs associated with the March 2012 renegotiation of our Chief Executive Officer’s employment agreement and an increasein payroll and administrative costs associated with the growth of the Company.Depreciation and AmortizationDepreciation and amortization increased by $37.6 million, or 32.5%, for the year ended December 31, 2012 compared to the year endedDecember 31, 2011, primarily related to the Acquisition Properties.Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest,including capitalized debt discounts/premiums and loan cost amortization for the year ended December 31, 2012 and 2011. Year Ended December 31, DollarChange PercentageChange 2012 2011 ($ 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 theyear ended December 31, 2011 resulting from an increase in our average outstanding debt balances primarily as a result of acquisition activity, partially offsetby a decrease in our weighted average GAAP effective rate from approximately 5.2% during the year ended December 31, 2011 to approximately 4.7% duringthe 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, primarilyattributable to an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.64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 anunconsolidated basis and excludes the Operating Partnership and all other subsidiaries.The Company’s business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company’ssource of capital. The Company believes the Operating Partnership’s sources of working capital, specifically its cash flow from operations and borrowingsavailable under its revolving credit facility, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make itsdividend payments to its preferred and common stockholders for the next twelve months. Cash flows from operating activities generated by the OperatingPartnership for the year ended December 31, 2013 were sufficient to cover the Company’s payment of cash dividends to its stockholders. However, there canbe no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including itsability to make distributions to the Company. The unavailability of capital could adversely affect the Operating Partnership’s ability to make distributions tothe 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, depositary shares, warrants and guaranteesof debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on anongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all ofthese types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions,available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it is required by the OperatingPartnership’s partnership agreement to contribute the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred orcommon partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities torepay debt, including borrowings under its revolving credit facility, to develop new or existing properties, to make acquisitions of properties or portfolios ofproperties, or for general corporate purposes.As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reportingpurposes, and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and therevenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled“Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capitalresources of the Company on a consolidated basis and how the Company is operated as a whole.Distribution RequirementsThe Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gain) on an annual basis tomaintain qualification as a REIT for federal income tax purposes 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 its taxable income resulting in a return of capital to its stockholders and the Company currently believes it has the ability tomaintain distributions at the 2013 levels to meet the REIT distribution requirements for 2014. In addition, to the extent that the Company cannot successfullycomplete Section 1031 Exchanges to defer some or all of the taxable gains related to completed or future property dispositions, the Company may choose todistribute a special dividend to avoid having65to pay income taxes on such gains. The Company considers market factors and its performance in addition to REIT requirements in determining ourdistribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearingsecurities, which are consistent with the Company’s intention to maintain its qualification as a REIT. Such investments may include, for example, obligationsof the Government National Mortgage Association, other governmental agency securities, certificates of deposit, and interest-bearing bank deposits.On December 16, 2013, the Board of Directors declared a regular quarterly cash dividend of $0.35 per share of common stock payable onJanuary 15, 2014 to stockholders of record on December 31, 2013 and caused a $0.35 per Operating Partnership unit cash distribution to be paid in respect ofthe Operating Partnership’s common limited partnership interests, including those owned by the Company. The total cash quarterly dividends anddistributions paid on January 15, 2014 was $29.4 million.On December 16, 2013, the Board of Directors declared a dividend of $0.42969 per share on the Series G Preferred Stock and $0.39844 per share on theSeries H Preferred Stock for the period commencing on and including November 15, 2013 and ending on and including February 17, 2014. The dividend willbe payable on February 18, 2014 to Series G Preferred and Series H Preferred stockholders of record on January 31, 2014. The quarterly dividends payable onFebruary 18, 2014 to Series G and Series H Preferred stockholders is expected to total $3.3 million.Debt CovenantsThe covenants contained within the revolving credit facility and the term loan facility prohibit the Company from paying dividends in excess of 95% ofFFO.CapitalizationAs of December 31, 2013, our total debt as a percentage of total market capitalization was 33.2% and our total debt and liquidation value of our preferredequity as a percentage of total market capitalization was 36.3%, which was calculated based on the closing price per share of the Company’s common stock of$50.18 on December 31, 2013 as shown in the following table: Shares/Units at December 31, 2013 AggregatePrincipalAmount or$ ValueEquivalent % of TotalMarketCapitalization ($ in thousands)Debt: Unsecured Revolving Credit Facility $45,000 0.7%Unsecured Term Loan Facility 150,000 2.34.25% Unsecured Exchangeable Notes due 2014 (1) 172,500 2.6Unsecured Senior Notes due 2014 83,000 1.2Unsecured Senior Notes due 2015 (1) 325,000 4.9Unsecured Senior Notes due 2018 (1) 325,000 4.9Unsecured Senior Notes due 2020 (1) 250,000 3.8Unsecured Senior Notes due 2023 (1) 300,000 4.5Secured debt (1) 545,868 8.3Total debt 2,196,368 33.2Equity and Noncontrolling Interests: 6.875% Series G Cumulative Redeemable Preferred stock (2)4,000,000 100,000 1.56.375% Series H Cumulative Redeemable Preferred stock (2)4,000,000 100,000 1.5Common limited partnership units outstanding (3)(4)1,805,200 90,585 1.4Shares of common stock outstanding (4)82,153,944 4,122,485 62.4Total equity and noncontrolling interests 4,413,070 66.8Total Market Capitalization $6,609,438 100.0%________________________ (1)Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of December 31, 2013. The aggregate net unamortized premiums totaled approximately $8.6 million as ofDecember 31, 2013.(2)Value based on $25.00 per share liquidation preference.(3)Represents common units not owned by the Company.(4)Value based on closing price per share of our common stock of $50.18 as of December 31, 2013.66Liquidity and Capital Resources of the Operating PartnershipIn this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we,” “our,” and “us” refer to 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 Operating Partnership’s revolving credit facility and term loan facility;•Proceeds from additional secured or unsecured debt financings;•Proceeds from public or private issuance of debt or equity securities; and•Proceeds from the disposition of selective assets through our capital recycling program.Liquidity Uses•Property or undeveloped land acquisitions;•Property operating and corporate expenses;•Capital expenditures, tenant improvement and leasing costs;•Debt service and principal payments, including debt maturities;•Distributions to common and preferred security holders;•Development and redevelopment costs; and•Outstanding debt repurchases.General StrategyOur general strategy is to maintain a conservative balance sheet with a top credit profile and to maintain a capital structure that allows for financialflexibility and diversification of capital resources. We manage our capital structure to reflect a long-term investment approach and utilize multiple sources ofcapital to meet our long-term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forthabove under the caption “—Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above. We believe our conservative leverageand staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and,therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we mayfinance, as necessary, with future public and private issuances of debt and equity securities.67Summary of 2013 Funding TransactionsWe continue to be active in the capital markets to finance our acquisition and development activity and our continued desire to improve our debt maturitiesand lower our overall weighted average cost of capital. This was primarily a result of the following transactions:Capital Markets / Debt Transactions•In September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock. The net offering proceeds(after deducting underwriting discounts and commissions and offering expenses) of approximately $295.9 million were contributed to the OperatingPartnership (see Notes 10 “Stockholders’ Equity of the Company” and 11 “Preferred and Common Units of the Operating Partnership” to ourconsolidated financial statements included in this report for additional information).•During the year ended December 31, 2013, we issued and sold a total of 1,040,838 of our common stock shares under our at-the-market stockoffering program at a weighted average price of $53.11 per share before selling commissions. The net offering proceeds (after deducting sales agentcompensation) of approximately $54.4 million were contributed to the Operating Partnership (see “—Liquidity Sources” below for additionalinformation).•In January 2013, the Operating Partnership issued unsecured senior notes in an underwritten public offering with an aggregate principal balance of$300.0 million that are scheduled to mature on January 15, 2023. The unsecured senior notes require semi-annual interest payments each Januaryand July based on a stated annual interest rate of 3.800%.•In January 2013, the Operating Partnership assumed a secured mortgage loan with a principal balance of $83.9 million that was recorded at fairvalue resulting in a premium of $11.6 million in connection with an acquisition. We also repaid a secured mortgage loan with an outstandingprincipal balance of $83.1 million that was scheduled to mature in April 2013 (see Note 7 “Secured and Unsecured Debt of the OperatingPartnership” to our consolidated financial statements included in this report for additional information).Capital Recycling Program•During 2013, we completed the sale of three office building to unaffiliated third parties in three separate transactions. Gross sales proceeds totaledapproximately $56.9 million of which $32.2 million was held at qualified intermediaries at December 31, 2013 for potential future Section 1031Exchanges. In February 2014, we successfully completed one of the Section 1031 Exchanges and the $32.2 million cash proceeds were released fromthe qualified intermediary. In addition, as of December 31, 2013, we classified 12 properties located in San Diego, California as properties held forsale and included the results for these properties in discontinued operations in our consolidated financial statements for all periods presented. Thesale of these properties closed on January 9, 2014 for total gross sales proceeds of approximately $294.7 million (see “—Factors that May InfluenceFuture Operations” and Note 23 “Subsequent Events” to our consolidated financial statements included in this report for additional information).After the effect of these aforementioned transactions, as of December 31, 2013, we had approximately $35.4 million of unrestricted cash on hand,$49.8 million of restricted cash and $45.0 million outstanding borrowings on our revolving credit facility.68Liquidity SourcesCredit FacilityThe following table summarizes the balance and terms of our revolving credit facility as of December 31, 2013 and December 31, 2012, respectively: December 31, 2013 December 31, 2012 (in thousands)Outstanding borrowings$45,000 $185,000Remaining borrowing capacity455,000 315,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)1.62% 1.66%Facility fee-annual rate (3)0.300%Maturity date (4)April 2017________________________ (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 London Interbank Offered Rate (“LIBOR”) plus 1.450% as of both December 31, 2013 and December 31, 2012.(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 is amortized through the extended maturity date of the revolving credit facility.(4)Under the terms of the revolving 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 landin our 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 attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, if any,for federal and state income tax purposes.During 2013, we completed the sale of three office buildings to unaffiliated third parties in two separate transactions. Gross sales proceeds totaledapproximately $56.9 million of which $32.2 million was held by qualified intermediaries at December 31, 2013 for potential future Section 1031 Exchanges.In February 2014, we successfully completed one of the Section 1031 Exchanges and the $32.2 million cash proceeds were released from the qualifiedintermediary. In addition, as of December 31, 2013, we classified 12 properties located in San Diego, California as properties held for sale and included theresults for these properties in discontinued operations in our consolidated financial statements for all periods presented. The sale of these properties closed onJanuary 9, 2014 for total gross sales proceeds of approximately $294.7 million, which are being held by qualified intermediaries for potential future Section1031 Exchanges as of the date of this report. We cannot assure you that any proceeds currently held by qualified intermediaries will be reinvested intoqualifying replacement property or that the dispositions described above will qualify as Section 1031 Exchanges.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.69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. The following table sets forth information regarding sales of ourcommon stock under our at-the-market offering program for years ended December 31, 2013 and 2012: Year Ended December 31, 2013 2012 (in millions, except share data)Shares of common stock sold during the year1,040,838 787,118Aggregate gross proceeds$55.3 $37.0Aggregate net proceeds after sales agent compensation$54.4 $36.3The proceeds from the sales were used to fund development and redevelopment expenditures and for general corporate purposes. Since commencement ofthe program, we have sold 2,183,261 shares of common stock having an aggregate gross sales price of $105.3 million. As of December 31, 2013, shares ofcommon stock having an aggregate gross sales price of up to $94.7 million remain available to be sold under this program. Actual future sales will dependupon a variety of factors including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have noobligation to sell the remaining shares available for sale under this 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 andthe Operating 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, depository shares 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 for opportunities to raise capital, and, as circumstances warrant, theCompany and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on anopportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds fromthe sales of its preferred or common stock, it is required by the Operating Partnership’s partnership agreement to contribute the net proceeds from those sales tothe Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership mayuse these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its revolving credit facility, to develop new orexisting properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.70Exchangeable Notes, Unsecured Debt, 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, 2013 was as follows: Aggregate Principal Amount Outstanding (in thousands)Unsecured Revolving Credit Facility$45,000Unsecured Term Loan Facility due 2016150,0004.25% Exchangeable Notes due 2014 (1)172,500Unsecured Senior Notes due 201483,000Unsecured Senior Notes due 2015 (1)325,000Unsecured Senior Notes due 2018 (1)325,000Unsecured Senior Notes due 2020 (1)250,000Unsecured Senior Notes due 2023 (1)300,000Secured Debt (1)545,868Total Exchangeable Notes, Unsecured Debt, and Secured Debt$2,196,368________________________(1)Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of December 31, 2013. The aggregate net unamortized premiums totaledapproximately $8.6 million as of December 31, 2013. 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, 2013 and December 31, 2012 was as follows: Percentage of Total Debt Weighted Average Interest Rate December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012Secured vs. unsecured: Unsecured (1)75.1% 72.9% 4.6% 4.5%Secured24.9 27.1 5.2% 5.2%Variable-rate vs. fixed-rate: Variable-rate8.9 16.4 1.9% 1.8%Fixed-rate (1)91.1 83.6 5.0% 5.3%Stated rate (1) 4.8% 4.7%GAAP effective rate (2) 4.8% 4.7%GAAP effective rate including debt issuance costs 5.1% 5.1%________________________(1)Excludes the impact of the amortization of any debt discounts/premiums.(2)Includes the impact of the amortization of any debt discounts/premiums, excluding debt issuance costs.Liquidity UsesContractual ObligationsThe following table provides information with respect to our contractual obligations as of December 31, 2013. 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, 2013; (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, 2013. 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.71 Payment Due by Period Less than1 Year(2014) 2–3 Years(2015-2016) 4–5 Years(2017-2018) More than5 Years(After 2018) Total (in thousands)Principal payments: secured debt (1)$9,846 $169,535 $198,476 $168,011 $545,868Principal payments: 4.25% Exchangeable Notes (2)172,500 — — — 172,500Principal payments: unsecured revolving credit facility— — 45,000 — 45,000Principal payments: unsecured debt (3)83,000 475,000 325,000 550,000 1,433,000Interest payments: fixed-rate debt (4)98,408 147,748 104,291 106,191 456,638Interest payments: variable-rate debt (5)2,880 3,574 — — 6,454Interest payments: unsecured revolving credit facility (6)729 1,458 184 — 2,371Ground lease obligations (7)3,095 6,190 6,190 156,912 172,387Lease and contractual commitments (8)85,298 2,078 — — 87,376Development and redevelopment commitments (9)375,000 183,000 — — 558,000Total$830,756 $988,583 $679,141 $981,114 $3,479,594________________________(1)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $14.6 million as of December 31, 2013.(2)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $4.1 million as of December 31, 2013.(3)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $1.9 million as of December 31, 2013.(4)As of December 31, 2013, 91.1% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates,interest payment dates and scheduled maturity dates.(5)As of December 31, 2013, 6.8% of our debt bore interest at variable rates which was incurred under the term loan facility. The variable interest rate payments are based on LIBOR plus a spread of 1.750% as ofDecember 31, 2013. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on outstanding principal balances as of December 31, 2013, the scheduled interestpayment dates and the contractual maturity dates.(6)As of December 31, 2013, 2.1% of our debt bore interest at variable rates which was incurred under the unsecured revolving credit facility. The variable interest rate payments are based on LIBOR plus a spread of 1.450%as of December 31, 2013. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on outstanding principal balances as of December 31, 2013, the scheduledinterest payment dates and the contractual maturity dates.(7)Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options.(8)Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures may fluctuate. (9)Amounts represent commitments under signed leases for pre-leased development projects and contractual commitments for lease-up projects and projects under construction as of December 31, 2013. The timing of theseexpenditures may fluctuate based on the ultimate progress of construction.Other Liquidity UsesDebt MaturitiesAs of December 31, 2013, we had unsecured debt with principal balances of $172.5 million and $83.0 million scheduled to mature in November 2014and August 2014, respectively. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhances our abilityto obtain additional sources of liquidity if necessary, and, therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy ofseeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities.Potential Future AcquisitionsIn 2013, we acquired four buildings and two undeveloped land sites for approximately $305.5 million in cash. In 2012, we acquired 14 buildings forapproximately $454.8 million in cash and acquired six development property opportunities for approximately $333.9 million in cash. These transactions werefunded through various capital raising activities and, in selected instances, the assumption of existing indebtedness. We expect to continue to monitor our targetmarkets and to pursue the acquisition of value add office properties and development and redevelopment opportunities that add immediate Net OperatingIncome to our portfolio or play a strategic role in our future growth.72Development and Redevelopment OpportunitiesAs of December 31, 2013, we had six development projects under construction. These projects have a total estimated investment of approximately$1.5 billion, of which we have incurred approximately $637.4 million and committed an additional $558.0 million as of December 31, 2013. In addition, wecurrently have additional development projects that we may commence construction on in 2014. This total estimated investment is based on market conditionsand our anticipation of project approvals. Actual costs could vary depending on changes in circumstances. Ultimate timing of these expenditures may fluctuategiven the ultimate progress and leasing status of the projects.We remain a disciplined buyer of office properties and continue to focus on value add opportunities in West Coast markets populated by knowledge andcreative based tenants in a variety of industries, including technology, media, healthcare, entertainment and professional services. We expect that any materialacquisitions or development activities will be funded with borrowings under the revolving credit facility, the public or private issuance of debt or equitysecurities, the disposition of assets under our capital recycling program or through the assumption of existing debt.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 and condition of the property, the term of the lease, the type of the lease, the involvement of external leasing agents, and overall market conditions.Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to maintain our properties.We believe we could spend approximately $45 to $50 million in capital improvements, tenant improvements and leasing costs in 2014 for propertieswithin our stabilized portfolio, depending on leasing activity, in addition to approximately $87.4 million of lease and contractual commitments included in ourcapital commitments table above.The following tables set forth our historical actual capital expenditures, and tenant improvements and leasing costs for deals commenced, excludingtenant-funded tenant improvements, for renewed and re-tenanted space within our stabilized portfolio for each of the three years during the period endedDecember 31, 2013 on a per square foot basis. Year Ended December 31, 2013 2012 2011Office Properties: Capital Expenditures: Capital expenditures per square foot$0.73 $0.78 $0.71Tenant Improvement and Leasing Costs (1) Replacement tenant square feet (2)850,295 607,118 468,530Tenant improvements per square foot commenced$39.24 $31.75 $24.95Leasing commissions per square foot commenced$12.25 $11.22 $11.46Total per square foot$51.48 $42.97 $36.41Renewal tenant square feet1,188,308 629,664 709,427Tenant improvements per square foot commenced$16.90 $9.63 $27.73Leasing commissions per square foot commenced$10.32 $7.91 $9.27Total per square foot$27.22 $17.53 $37.00Total per square foot per year$5.97 $5.30 $4.01Average remaining lease term (in years)6.3 5.7 9.2________________________(1)Includes only tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation tenants.(2)Excludes leases for which the space was vacant for longer than one year, or vacant when the property was acquired by the Company.Capital expenditures per square foot decreased moderately in 2013. 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 2013 increase in replacement tenantimprovements per square foot commenced is primarily due to increased activity in San Diego and greater Seattle, which commanded higher lease and tenantimprovement rates. The 2013 increase in renewal tenant improvements per square foot commenced is primarily due to the commencement of two significantlease renewals in 2013. Excluding these two leases, office tenant improvements per square foot leased would be materially consistent with the previous year.73Distribution RequirementsFor a discussion of our dividend and distribution requirements, see “Liquidity and Capital Resources of the Company —Distribution Requirements.”Other Potential Future Liquidity UsesWe remain a disciplined buyer of office properties and continue to focus on value add opportunities in West Coast markets populated by knowledge andcreative based tenants in a variety of industries, including technology, media, healthcare, entertainment and professional services. We expect that any materialacquisitions or development activities will be funded with borrowings under the revolving credit facility, the public or private issuance of debt or equitysecurities, 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 the 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 selective assets through our capitalrecycling program. However, our ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by various factors,including the state of economic conditions, the state of the credit and equity markets, significant tenant defaults, a decline in the demand for office properties,a decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of future borrowings. These events could result inthe following:•Decreases in our cash flows from operations, which could create further dependence on the revolving credit facility;•An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and•A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incur additional debt,refinance existing debt at competitive rates, or comply with its existing debt obligations.In addition to the factors noted above, the Operating Partnership’s credit ratings are subject to ongoing evaluation by credit rating agencies and may 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.74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:Unsecured Credit Facility and Term Loan Facility(as defined in the applicable Credit Agreements): Covenant Level Actual Performanceas of December 31, 2013Total debt to total asset value less than 60% 35%Fixed charge coverage ratio greater than 1.5x 2.3xUnsecured debt ratio greater than 1.67x 2.52xUnencumbered asset pool debt service coverage greater than 2.0x 3.3x Unsecured Senior Notes due 2015, 2018, 2020 and 2023(as defined in the applicable Indentures): Total debt to total asset value less than 60% 40%Interest coverage greater than 1.5x 4.2xSecured debt to total asset value less than 40% 10%Unencumbered asset pool value to unsecured debt greater than 150% 266%The Operating Partnership was in compliance with all its debt covenants as of December 31, 2013. 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.Consolidated Historical Cash Flow SummaryThe following summary discussion of our consolidated historical cash flow is based on the consolidated statements of cash flows in Item 15. “Exhibitsand Financial Statement Schedules” and is not meant to be an all-inclusive discussion of the changes in our cash flow for the periods presented below. Thecash flow amounts shown below include the activities of discontinued operations. Our historical cash flow activity for the year ended December 31, 2013 ascompared to the year ended December 31, 2012 is as follows: Year Ended December 31, 2013 2012 DollarChange PercentageChange ($ in thousands)Net cash provided by operating activities$240,576 $180,724 $59,852 33.1 %Net cash used in investing activities(506,520) (706,506) 199,986 (28.3)%Net cash provided by financing activities284,621 537,705 (253,084) (47.1)%Operating ActivitiesOur cash flows from operating activities depend on numerous factors including the occupancy level of our portfolio, the rental rates achieved on ourleases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions and related financingactivities, and other general and administrative costs. Our net cash provided by operating activities increased by $59.9 million, or 33.1%, for the year endedDecember 31, 2013 compared to the year ended December 31, 2012 primarily as a result of an increase in cash Net Operating Income generated from ourAcquisition Properties. See additional information under the caption “—Results of Operations.”75Investing ActivitiesOur cash flows used in investing activities is generally used to fund property, development and redevelopment acquisitions, recurring and nonrecurringcapital expenditures for our operating properties, and development and redevelopment projects, net of proceeds received from dispositions of operatingproperties. Our net cash used in investing activities decreased by $200.0 million, or 28.3%, for the year ended December 31, 2013 compared to the year endedDecember 31, 2012. The net decrease was primarily attributable to the receipt of $228.8 million of restricted cash from escrow during the year endedDecember 31, 2013 related to proceeds from the sale of our industrial portfolio that was set aside at December 31, 2012 to facilitate Section 1031 Exchanges, adecrease of approximately $252.2 million of cash paid for acquisitions of operating properties, net of cash acquired, as compared to the prior period and adecrease of $242.4 million of net proceeds received from dispositions of operating properties as compared to the prior period. This net decrease was offset byan increase of $236.8 million attributable to the increased expenditures for development and redevelopment properties and undeveloped land.Financing ActivitiesOur net cash provided by financing activities is principally impacted by our capital raising activities, net of dividends and distributions paid to commonand preferred security holders. Net cash provided by financing activities decreased by $253.1 million, or 47.1%, for the year ended December 31, 2013compared to the year ended December 31, 2012 primarily due to a decrease in the level of equity raising activities in 2013 compared to the prior year period.Off-Balance Sheet ArrangementsAs of December 31, 2013 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements, or obligations,including contingent obligations.76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 estateand impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferredfinancing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFOincludes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvementassets.We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale ofoperating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists incomparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, itfacilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly,our FFO may not be comparable to all other REITs.Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishespredictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have consideredpresentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation andamortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performancerelative to our competitors and a more appropriate basis on which to make decisions involving operating, financing, and investing activities than the requiredGAAP presentations alone would provide.However, FFO should not be viewed as an alternative measure of our operating performance 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, 2013, 2012, 2011, 2010 and 2009: Year ended December 31, 2013 2012 2011 2010 2009 (in thousands)Net income available to common stockholders$30,630 $249,826 $50,819 $4,512 $21,794Adjustments: Net income attributable to noncontrolling common units of the OperatingPartnership685 6,187 1,474 178 1,025Depreciation and amortization of real estate assets199,558 168,687 135,467 102,898 86,825Net gain on dispositions of discontinued operations(12,252) (259,245) (51,587) (949) (2,485)Funds From Operations (1)$218,621 $165,455 $136,173 $106,639 $107,159_______________________(1)Includes amortization of deferred revenue related to tenant-funded tenant improvements of $10.7 million, $9.1 million, $9.3 million, $9.7 million and $9.8 million for the years ended December 31, 2013, 2012, 2011, 2010 and2009, respectively. Reported amounts are attributable to common stockholders and common unitholders.77The following table presents our weighted average shares of common stock and common units outstanding for the years ended December 31, 2013, 2012,2011, 2010 and 2009: Year Ended December 31, 2013 2012 2011 2010 2009Weighted average shares of common stock outstanding77,343,853 69,639,623 56,717,121 49,497,487 38,705,101Weighted average common units outstanding1,822,407 1,763,635 1,720,323 1,723,131 1,731,095Effect of participating securities – nonvested shares and restricted stockunits1,224,208 1,127,534 924,747 812,865 785,582Total basic weighted average shares / units outstanding80,390,468 72,530,792 59,362,191 52,033,483 41,221,778Effect of dilutive securities – Exchangeable Notes, stock options andcontingently issuable shares1,765,025 1,123,482 187,134 15,708 27,025Total diluted weighted average shares / units outstanding82,155,493 73,654,274 59,549,325 52,049,191 41,248,803InflationThe 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.78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, 2013 and 2012, we did not have any interest-rate sensitive derivative assets orliabilities.Information about our changes in interest rate risk exposures from December 31, 2012 to December 31, 2013 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, 2013, approximately 8.9% of our total outstanding debt of $2.2 billion was subject to variable interest rates. The remaining 91.1%bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes.In general, interest rate fluctuations applied to our variable-rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuationsapplied to our fixed-rate debt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated andneed to be refinanced. However, interest rate fluctuations will impact the fair value of the fixed-rate debt instruments.We generally determine the fair value of our secured debt, revolving credit facility, 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 revolving credit facility and unsecured term loan facility by obtaining the period-end LIBOR rate and then adding anappropriate credit spread based on information obtained from third-party financial institutions. These credit spreads take into account factors, including butnot 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 tothe collateral. These calculations are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cashflow. We determine the fair value of the liability component of our 4.25% Exchangeable Notes by performing discounted cash flow analyses using anappropriate market interest rate based upon spreads for our publicly traded debt. We determine the fair value of each of our publicly traded unsecured seniornotes based on their quoted trading price at the end of the reporting period. See Note 16 “Fair Value Measurements and Disclosures” in the consolidatedfinancial statements included in this report for additional information on the fair value of our financial assets and liabilities as of December 31, 2013 andDecember 31, 2012.As of December 31, 2013, the total outstanding balance of our variable-rate debt was comprised of borrowings on our revolving credit facility of$45.0 million and borrowings on our unsecured term loan facility of $150.0 million, which were indexed to LIBOR plus a spread of 1.450% (weighted averageinterest rate of 1.62%) and 1.750% (weighted average interest rate of 1.92%), respectively. As of December 31, 2012, the total outstanding balance of ourvariable-rate debt was comprised of borrowings on our revolving credit facility of $185.0 million and borrowings on our unsecured term loan facility of$150.0 million, which were indexed to LIBOR plus a spread of 1.450% (weighted average interest rate of 1.66%) and 1.750% (weighted average interest rate of1.97%), respectively. Assuming no changes in the outstanding balance of our existing variable-rate debt as of December 31, 2013, a 100 basis point increasein the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, by approximately $2.0 million. Comparatively, ifinterest rates were 100 basis points higher as of December 31, 2012, our projected annual interest expense, before the effect of capitalization, would have been$3.4 million higher.The total carrying value of our fixed-rate debt, including our 4.25% Exchangeable Notes, was approximately $2.0 billion and $1.7 billion as ofDecember 31, 2013 and December 31, 2012, respectively. The total estimated fair value of our fixed-rate debt was approximately $2.1 billion and $1.9 billionas of December 31, 2013 and December 31, 2012, respectively. For sensitivity purposes, a 100 basis point increase in the discount rate equates to a decrease inthe total fair value of our fixed-rate debt of approximately $85.1 million, or 4.0%, as of December 31, 2013. Comparatively, a 100 basis point increase in thediscount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately $71.8 million, or 3.8%, as of December 31, 2012.79ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the index included at Item 15. “Exhibits and Financial Statement Schedules.”ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.80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 withinthe time 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, 2013, 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 our 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 (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess ourinternal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectivelyas of December 31, 2013.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.81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, 2013, based on criteriaestablished in Internal Control – Integrated Framework (1992) 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, 2013, based onthe criteria established in Internal Control – Integrated Framework (1992) 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, 2013, of the Company and our report dated February 13, 2014,expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 201482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 December 31, 2013, the end of the period covered by this report. Based on the foregoing, the Chief Executive Officerand Chief Financial Officer of its general partner concluded, as of that time, that the Operating Partnership’s disclosure controls and procedures were effectiveat 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 OperatingPartnership’s internal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonablylikely to materially affect, the Operating Partnership’s internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingInternal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and 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 (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financialreporting operated effectively as of December 31, 2013.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.83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, 2013, based oncriteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over FinancialReporting. Our responsibility 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, 2013,based on the criteria established in Internal Control – Integrated Framework (1992) 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, 2013, of the Operating Partnership and our report datedFebruary 13, 2014, expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 201484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 2014.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 2014.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 2014.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 2014.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 2014.85PART IVITEM 15.EXHIBITS AND 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, 2013 and 2012 – Kilroy Realty CorporationF - 3Consolidated Statements of Operations for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty CorporationF - 4Consolidated Statements of Equity for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty CorporationF - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty CorporationF - 6Consolidated Balance Sheets as of December 31, 2013 and 2012 – Kilroy Realty, L.P.F - 9Consolidated Statements of Operations for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty, L.P.F - 10Consolidated Statements of Capital for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty, L.P.F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2013, 2012 and 2011 – Kilroy Realty, L.P.F - 12Notes to Consolidated Financial StatementsF - 14Schedule II – Valuation and Qualifying AccountsF - 60Schedule III – Real Estate and Accumulated DepreciationF - 61All 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) ExhibitsExhibitNumber 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(previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10,2012)3.(ii).1 Second Amended and Restated Bylaws of Kilroy Realty Corporation (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)86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 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))4.5 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)4.6 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)4.7 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percent ofthe total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees tofurnish copies of these agreements to the Commission upon request4.8 Note and Guarantee Agreement, dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and thepurchasers whose names appear in the acceptance form at the end of the Note and Guarantee Agreement (previously filed by KilroyRealty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004)4.9 Form of 6.45% Series B Guaranteed Senior Note due 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-Kas filed with the Securities and Exchange Commission on August 11, 2004)4.10 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)4.11 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 exhibiton Form 8-K as filed with the Securities and Exchange Commission on November 25, 2009)4.12 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)4.13 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(previously filed by Kilroy Realty Corporation as an exhibit on Form 8−K as filed with the Securities and Exchange Commission onMay 25, 2010)4.14 Registration Rights Agreement, dated May 24, 2010, among Kilroy Realty, L.P., Kilroy Realty Corporation, J.P. Morgan SecuritiesInc., Banc of America Securities LLC and Barclays Capital Inc. (previously filed by Kilroy Realty Corporation as an exhibit on Form8−K as filed with the Securities and Exchange Commission on May 25, 2010)4.15 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)87ExhibitNumber Description4.16 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 Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon July 6, 2011)4.17 Registration Rights Agreement, dated as of July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Qfor the quarter ended June 30, 2012)4.18 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 “3.800% Notes due 2023,” including the form of 3.800% Notes due 2023 and the form of related guarantee (previously filed byKilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon January 14, 2013)4.19 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 Realty Corporation and Kilroy Realty, L.P. as an exhibit to theRegistration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)4.20 Supplemental Indenture, dated July 5, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, andU.S. Bank National Association, as trustee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit to theRegistration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)10.1 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries (previously filedby Kilroy 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 KilroyLong Beach 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 ofLong Beach for Kilroy Long Beach Phase III (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statementon Form 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))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 onForm S-11 (No. 333-15553))88ExhibitNumber Description10.11 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 asan exhibit 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 RealtyCorporation and The Allen Group and the Allens dated October 21, 1997 (previously filed by Kilroy Realty Corporation as an exhibiton Form 10-Q for the quarter ended September 30, 1998) 10.18† 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)10.19† Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Kfor the year ended December 31, 2006)10.20† 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)10.21† Third Amendment to Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form8-K as filed with the Securities and Exchange Commission on May 27, 2009)10.22† 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)10.23*† Fifth Amendment to Kilroy Realty 2006 Incentive Award Plan10.24† 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)10.25† 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)10.26† 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) 10.27† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Roseeffective as of December 31, 2009 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year endedDecember 31, 2008) 10.28† 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) 10.29† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth 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) 10.30† 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)89ExhibitNumber Description10.31 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)10.32 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)10.33 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)10.34 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)10.35† 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)10.36† 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)10.37 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)10.38 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)10.39 Deed of Trust, Security Agreement and Fixture Filing, dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filedby Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on January 13, 2011)10.40 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)10.41 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 January13, 2011)10.42 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.43 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.44 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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 andExchange Commission on July 28, 2011)10.45 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.46† 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)90ExhibitNumber Description10.47† 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)10.48† 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)10.49 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)10.50 First Amendment to Term Loan Agreement, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibit onForm 10-K for the year ended December 31, 2012)10.51 Guaranty of Payment of Kilroy Realty Corporation, dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 2, 2012)10.52 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)10.53 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)10.54 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 andExchange Commission on July 5, 2012)10.55 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)10.56 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)10.57 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)10.58 Amended and Restated Revolving Credit Agreement dated November 28, 2012 (previously filed by Kilroy Realty Corporation as anexhibit on Form 10-K for the year ended December 31, 2012)10.59 Amended and Restated Guaranty of Payment, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibiton Form 10-K for the year ended December 31, 2012)10.60† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken (previously filed byKilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended March 31, 2013)10.61† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawkeneffective as of January 1, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securitiesand Exchange Commission on April 5, 2013)10.62† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation andJeffrey C. Hawken, dated April 4, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended June 30, 2013)10.63† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation andJohn Kilroy, Jr., dated March 30, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended June 30, 2013)10.64† Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended June 30, 2013)10.65† Form of Stock Award Deferral Program Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibiton Form 10-Q for the quarter ended June 30, 2013)10.66 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays CapitalInc. (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter endedSeptember 30, 2013)91ExhibitNumber Description10.67 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Wells FargoSecurities, LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarterended September 30, 2013)10.68 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Merrill Lynch,Pierce, Fenner & Smith Incorporated (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended September 30, 2013)10.69 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and J.P. MorganSecurities LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarterended September 30, 2013)12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined FixedCharges and Preferred Dividends of Kilroy Realty Corporation12.2* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges of Kilroy Realty, L.P.21.1* List of Subsidiaries of Kilroy Realty Corporation21.2* List of Subsidiaries of Kilroy Realty, L.P.23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P.24.1* Power of Attorney (included on the signature page of this Form 10-K)31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation31.3* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.31.4* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty, L.P.32.1* Section 1350 Certification of Chief Executive Officer of Kilroy Realty Corporation32.2* Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation32.3* Section 1350 Certification of Chief Executive Officer of Kilroy Realty, L.P.32.4* Section 1350 Certification of Chief Financial Officer of Kilroy Realty, L.P.101.1 The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the year ended December 31, 2013,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.(1)Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 ofthe Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.92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 13, 2014. 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, 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, andeach 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 all amendments to said Form10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Kilroy Realty Corporation 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 behalf ofthe registrant and in the capacities and on the dates indicated.Name TitleDate /s/ John B. Kilroy, Jr. Chairman of the Board, President and ChiefExecutive Officer (Principal Executive Officer)February 13, 2014John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 13, 2014Tyler H. Rose /s/ Heidi R. Roth Senior Vice President, Chief Accounting Officerand Controller (Principal Accounting Officer)February 13, 2014Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 13, 2014Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 13, 2014William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 13, 2014Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 13, 2014Dale F. Kinsella 93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 13, 2014. 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, Jr., Jeffrey C. Hawken, Tyler H. Rose and Heidi R. Roth, and each of themsingly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, theForm 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 our capacities as officersand directors to enable Kilroy Realty Corporation, as sole general partner and on behalf of Kilroy Realty, L.P., to comply with the provisions of the SecuritiesExchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as theymay 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 behalf ofthe registrant and in the capacities and on the dates indicated.Name TitleDate /s/ John B. Kilroy, Jr. Chairman of the Board, President and ChiefExecutive Officer (Principal Executive Officer)February 13, 2014John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and Chief FinancialOfficer (Principal Financial Officer)February 13, 2014Tyler H. Rose /s/ Heidi R. Roth Senior Vice President, Chief Accounting Officerand Controller (Principal Accounting Officer)February 13, 2014Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 13, 2014Edward F. Brennan, Ph.D. /s/ William P. Dickey DirectorFebruary 13, 2014William P. Dickey /s/ Scott S. Ingraham DirectorFebruary 13, 2014Scott S. Ingraham /s/ Dale F. Kinsella DirectorFebruary 13, 2014Dale F. Kinsella 94KILROY REALTY CORPORATION AND KILROY REALTY, L.P.CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 AND 2012AND FOR THE THREE YEARS ENDED DECEMBER 31, 2013TABLE OF CONTENTS PageFINANCIAL STATEMENTS OF KILROY REALTY CORPORATION: Report of Independent Registered Public Accounting FirmF - 2Consolidated Balance Sheets as of December 31, 2013 and 2012F - 3Consolidated Statements of Operations for the Years ended December 31, 2013, 2012, and 2011F - 4Consolidated Statements of Equity for the Years ended December 31, 2013, 2012, and 2011F - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2013, 2012, and 2011F - 6FINANCIAL STATEMENTS OF KILROY REALTY, L.P.: Report of Independent Registered Public Accounting FirmF - 8Consolidated Balance Sheets as of December 31, 2013 and 2012F - 9Consolidated Statements of Operations for the Years ended December 31, 2013, 2012, and 2011F - 10Consolidated Statements of Capital for the Years ended December 31, 2013, 2012, and 2011F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2013, 2012, and 2011F - 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 - 60Schedule III – Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 61F - 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, 2013 and 2012, andthe related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2013. 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 ofDecember 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, 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 Company’s internalcontrol over financial reporting as of December 31, 2013, based on the criteria established in Internal Control – Integrated Framework (1992) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2014, expressed an unqualified opinion on theCompany’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 2014F - 2KILROY REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2013 December 31, 2012ASSETS REAL ESTATE ASSETS (Notes 3 and 17): Land and improvements$657,491 $612,714Buildings and improvements3,590,699 3,335,026Undeveloped land and construction in progress1,016,757 809,654Total real estate held for investment5,264,947 4,757,394Accumulated depreciation and amortization(818,957) (756,515)Total real estate held for investment, net ($234,532 and $319,770 of VIE, Note 2)4,445,990 4,000,879REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 17)213,100 —CASH AND CASH EQUIVALENTS35,377 16,700RESTRICTED CASH (Note 17)49,780 247,544MARKETABLE SECURITIES (Notes 13 and 16)10,008 7,435CURRENT RECEIVABLES, NET (Note 5)10,743 9,220DEFERRED RENT RECEIVABLES, NET (Note 5)127,123 115,418DEFERRED LEASING COSTS AND ACQUISITION-RELATEDINTANGIBLE ASSETS, NET (Notes 3 and 4)186,622 189,968DEFERRED FINANCING COSTS, NET (Notes 2 and 7)16,502 18,971PREPAID EXPENSES AND OTHER ASSETS, NET15,783 9,949TOTAL ASSETS$5,111,028 $4,616,084LIABILITIES AND EQUITY LIABILITIES: Secured debt (Notes 3, 6, 7 and 16)$560,434 $561,096Exchangeable senior notes, net (Notes 6, 7 and 16)168,372 163,944Unsecured debt, net (Notes 6, 7 and 16)1,431,132 1,130,895Unsecured line of credit (Notes 6, 7 and 16)45,000 185,000Accounts payable, accrued expenses and other liabilities (Note 15)198,467 154,734Accrued distributions (Note 10)31,490 28,924Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)101,286 117,904Rents received in advance and tenant security deposits44,240 37,654Liabilities and deferred revenue of real estate assets held for sale (Note 17)14,447 —Total liabilities2,594,868 2,380,151COMMITMENTS AND CONTINGENCIES (Note 15) EQUITY (Notes 9 and 10): Stockholders’ Equity: Preferred Stock, $.01 par value, 30,000,000 shares authorized, 6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference)96,155 96,1556.375% Series H Cumulative Redeemable Preferred stock, $.01 par value,4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference)96,256 96,256Common stock, $.01 par value, 150,000,000 shares authorized,82,153,944 and 74,926,981 shares issued and outstanding, respectively822 749Additional paid-in capital2,478,975 2,126,005Distributions in excess of earnings(210,896) (129,535)Total stockholders’ equity2,461,312 2,189,630Noncontrolling Interests: Common units of the Operating Partnership49,963 46,303Noncontrolling interest in consolidated subsidiary (Note 3)4,885 —Total noncontrolling interests54,848 46,303Total equity2,516,160 2,235,933TOTAL LIABILITIES AND EQUITY$5,111,028 $4,616,084See accompanying notes to consolidated financial statements.F - 3KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended December 31, 2013 2012 2011REVENUES: Rental income$419,189 $349,613 $287,078Tenant reimbursements38,313 29,889 20,957Other property income (Note 15)7,596 1,498 2,389Total revenues465,098 381,000 310,424EXPENSES: Property expenses96,606 76,219 63,722Real estate taxes40,156 32,323 26,981Provision for bad debts404 153 695Ground leases (Note 4 and 15)3,504 3,168 1,565General and administrative expenses39,660 36,188 28,148Acquisition-related expenses1,962 4,937 4,053Depreciation and amortization (Notes 2 and 4)192,734 153,251 115,630Total expenses375,026 306,239 240,794OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)1,635 848 571Interest expense (Note 7)(75,870) (79,114) (85,785)Total other (expenses) income(74,235) (78,266) (85,214)INCOME (LOSS) FROM CONTINUING OPERATIONS15,837 (3,505) (15,584)DISCONTINUED OPERATIONS (Note 17) Income from discontinued operations16,476 21,361 31,486Net gain on dispositions of discontinued operations12,252 259,245 51,587Total income from discontinued operations28,728 280,606 83,073NET INCOME44,565 277,101 67,489Net income attributable to noncontrolling common units of the Operating Partnership(685) (6,187) (1,474)NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION43,880 270,914 66,015PREFERRED DISTRIBUTIONS AND DIVIDENDS: Distributions to noncontrolling cumulative redeemable preferred units of theOperating Partnership (Note 9)— (3,541) (5,588)Preferred dividends (Note 10)(13,250) (10,567) (9,608)Original issuance costs of redeemed preferred stock and preferred units (Notes 9 and 11)— (6,980) —Total preferred distributions and dividends(13,250) (21,088) (15,196)NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$30,630 $249,826 $50,819Income (loss) from continuing operations available to common stockholders per share of common stock – basic (Note 18)$0.01 $(0.37) $(0.55)Income (loss) from continuing operations available to common stockholders per share of common stock – diluted (Note 18)$0.01 $(0.37) $(0.55)Net income available to common stockholders per share – basic (Note 18)$0.37 $3.56 $0.87Net income available to common stockholders per share – diluted (Note 18)$0.36 $3.56 $0.87Weighted average shares of common stock outstanding – basic (Note 18)77,343,853 69,639,623 56,717,121Weighted average shares of common stock outstanding – diluted (Note 18)79,108,878 69,639,623 56,717,121See 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 TotalEquityNumber ofShares CommonStock AdditionalPaid-inCapital Distributionsin Excess ofEarnings BALANCE AT DECEMBER 31, 2010$121,582 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 6,392,805 64 233,248 233,312 233,312Issuance of share-based compensation awards 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 5,000 91 91 (91) —Adjustment for noncontrolling interest in the OperatingPartnership (3,409) (3,409) 3,409 —Preferred dividends and distributions (15,196) (15,196) (15,196)Dividends declared per share of common stock and commonunit ($1.40 per share/unit) (81,017) (81,017) (2,406) (83,423)BALANCE AT 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 and Series H Preferred stock192,411 192,411 192,411Redemption of Series E and Series F Preferred Stock(121,582) (4,918) (126,500) (126,500)Redemption of Series A Preferred units (2,062) (2,062) (2,062)Issuance of common stock 16,024,618 161 671,941 672,102 672,102Issuance of share-based compensation awards 62,137 1,291 1,291 1,291Noncash amortization of share-based compensation 8,537 8,537 8,537Repurchase of common stock and restricted stock units (22,312) (877) (877) (877)Settlement of restricted stock units for shares of common stock 27,821 (784) (784) (784)Exercise of stock options 5,000 129 129 129Issuance of common units in connection with an operatingproperty acquisition 5,604 5,604Exchange of common units of the Operating Partnership 10,000 231 231 (231) —Adjustment for noncontrolling interest in the OperatingPartnership (3,460) (3,460) 3,460 —Preferred dividends and distributions (14,108) (14,108) (14,108)Dividends declared per share of common stock and commonunit ($1.40 per share/unit) (101,911) (101,911) (2,482) (104,393)BALANCE AS OF DECEMBER 31, 2012192,411 74,926,981 749 2,126,005 (129,535) 2,189,630 46,303 2,235,933Net income 43,880 43,880 685 44,565Issuance of common stock (Note 10) 7,215,838 72 349,879 349,951 349,951Issuance of share-based compensation awards (Note 12) 1,448 1,448 1,448Noncash amortization of share-based compensation (Note 12) 9,563 9,563 9,563Repurchase of common stock and restricted stock units (Note12) (42,896) (2,521) (2,521) (2,521)Settlement of restricted stock units for shares of common stock (Note 12) 37,245 1 — 1 1Exercise of stock options 473 128 128 128Exchange of common units of the Operating Partnership 16,303 450 450 (450) —Adjustment for noncontrolling interest in the OperatingPartnership (Note 2) (5,977) (5,977) 5,977 —Contribution by noncontrolling interest in consolidatedsubsidiary (Note 3) 4,885 4,885Preferred dividends and distributions (13,250) (13,250) (13,250)Dividends declared per share of common stock and commonunit ($1.40 per share/unit) (111,991) (111,991) (2,552) (114,543)BALANCE AS OF DECEMBER 31, 2013$192,411 82,153,944 $822 $2,478,975 $(210,896) $2,461,312 $54,848 $2,516,160See accompanying notes to consolidated financial statements.F - 5KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2013 2012 2011CASH FLOWS FROM OPERATING ACTIVITIES: Net income$44,565 $277,101 $67,489Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): Depreciation and amortization of buildings and improvements and leasing costs199,558 168,687 135,467Increase (decrease) in provision for bad debts396 (42) 644Depreciation of furniture, fixtures and equipment1,929 1,213 1,130Noncash amortization of share-based compensation awards (Note 12)8,616 7,670 4,482Noncash amortization of deferred financing costs and net debt discounts5,315 8,433 13,540Noncash amortization of net (below)/above market rents (Note 4)(7,777) (6,699) 1,056Net gain on dispositions of discontinued operations (Note 17)(12,252) (259,245) (51,587)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(10,713) (9,136) (9,349)Straight-line rents(24,135) (21,530) (21,331)Net change in other operating assets(4,615) (1,297) (5,434)Net change in other operating liabilities40,137 17,320 2,779Insurance proceeds received for property damage and other, net(448) (1,751) (630)Net cash provided by operating activities240,576180,724 138,256CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(202,682) (454,841) (603,301)Expenditures for acquisitions of development and redevelopment properties (Note 3)(102,769) (333,942) —Expenditures for operating properties(129,873) (86,377) (62,739)Expenditures for development and redevelopment properties and undeveloped land(320,141) (83,310) (28,517)Net proceeds received from dispositions of operating properties (Note 17)21,178 263,572 64,171Insurance proceeds received for property damage448 1,751 —(Increase) decrease in acquisition-related deposits(2,596) 5,000 (5,000)Decrease (increase) in restricted cash (Note 3)229,915 (18,359) 1,103Net cash used in investing activities(506,520) (706,506) (634,283)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock (Note 10)349,951 672,102 233,312Net 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) —Borrowings on unsecured line of credit55,000 704,000 550,000Repayments on unsecured line of credit(195,000) (701,000) (527,000)Proceeds from the issuance of secured debt (Note 7)— 97,000 135,000Principal payments on secured debt(93,688) (106,262) (127,665)Proceeds from the issuance of unsecured debt (Note 7)299,901 150,000 324,476Repayments of exchangeable senior notes (Note 7)— (148,000) —Financing costs(4,384) (7,963) (9,060)Decrease in loan deposits and other— — 2,859Repurchase of common stock and restricted stock units(2,520) (1,661) (1,152)Proceeds from exercise of stock options128 129 395Dividends and distributions paid to common stockholders and common unitholders(111,517) (97,386) (80,005)Dividends and distributions paid to preferred stockholders and preferred unitholders(13,250) (14,165) (15,196)Net cash provided by financing activities284,621 537,705 485,964Net increase (decrease) in cash and cash equivalents18,677 11,923 (10,063)Cash and cash equivalents, beginning of year16,700 4,777 14,840Cash and cash equivalents, end of year$35,377 $16,700 $4,777F - 6KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)(in thousands) Year Ended December 31, 2013 2012 2011SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $32,742, $17,657, and $7,615 as of December 31, 2013, 2012 and 2011, respectively$65,157 $71,633 $68,280NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$73,482 $54,198 $14,301Tenant improvements funded directly by tenants$7,633 $17,719 $3,288Assumption of secured debt in connection with property acquisitions (Notes 3 and 7)$95,496 $221,032 $30,042Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 3)$1,811 $37,535 $4,515Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 3)$4,885 $— $—NONCASH FINANCING TRANSACTIONS: Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 10)$29,392 $26,863 $21,188Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Note 10)$1,694 $1,694 $1,909Grant date fair value of share-based compensation awards (Note 12)$10,721 $31,396 $7,797Issuance of common units in the Operating Partnership in connection with an operating property acquisition (Note 3)$— $5,604 $—Exchange of common units of the Operating Partnership into shares of the Company’s common stock (Note 10)$450 $231 $91See accompanying notes to consolidated financial statements.F - 7REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Partners of Kilroy Realty, L.P.Kilroy Realty, L.P.Los Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty, L.P. (the “Operating Partnership”) as of December 31, 2013 and 2012,and the related consolidated statements of operations, capital, and cash flows for each of the three years in the period ended December 31, 2013. 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 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 Operating Partnership as ofDecember 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, 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 Operating Partnership’sinternal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control – Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2014, expressed an unqualifiedopinion on the Operating Partnership’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 2014F - 8KILROY REALTY, L.P.CONSOLIDATED BALANCE SHEETS(in thousands, except unit data) December 31, 2013 December 31, 2012ASSETS REAL ESTATE ASSETS (Notes 3 and 17): Land and improvements$657,491 $612,714Buildings and improvements3,590,699 3,335,026Undeveloped land and construction in progress1,016,757 809,654Total real estate held for investment5,264,947 4,757,394Accumulated depreciation and amortization(818,957) (756,515)Total real estate held for investment, net ($234,532 and $319,770 of VIE, Note 2)4,445,990 4,000,879 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 17)213,100 —CASH AND CASH EQUIVALENTS35,377 16,700RESTRICTED CASH (Note 17)49,780 247,544MARKETABLE SECURITIES (Notes 13 and 16)10,008 7,435CURRENT RECEIVABLES, NET (Note 5)10,743 9,220DEFERRED RENT RECEIVABLES, NET (Note 5)127,123 115,418DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4)186,622 189,968DEFERRED FINANCING COSTS, NET (Notes 2 and 7)16,502 18,971PREPAID EXPENSES AND OTHER ASSETS, NET15,783 9,949TOTAL ASSETS$5,111,028 $4,616,084LIABILITIES AND CAPITAL LIABILITIES: Secured debt (Notes 3, 6, 7 and 16)$560,434 $561,096Exchangeable senior notes, net (Notes 6, 7 and 16)168,372 163,944Unsecured debt, net (Notes 6, 7 and 16)1,431,132 1,130,895Unsecured line of credit (Notes 6, 7 and 16)45,000 185,000Accounts payable, accrued expenses and other liabilities (Note 15)198,467 154,734Accrued distributions (Note 11)31,490 28,924Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)101,286 117,904Rents received in advance and tenant security deposits44,240 37,654Liabilities and deferred revenue of real estate assets held for sale (Note 17)14,447 —Total liabilities2,594,868 2,380,151COMMITMENTS AND CONTINGENCIES (Note 15) CAPITAL (Notes 9 and 11): Partners’ Capital: 6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued andoutstanding ($100,000 liquidation preference)96,155 96,1556.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued andoutstanding ($100,000 liquidation preference)96,256 96,256Common units, 82,153,944 and 74,926,981 held by the general partner and 1,805,200 and 1,826,503 held by common limited partners issued and outstanding, respectively2,315,361 2,040,243Total Partners’ Capital2,507,772 2,232,654Noncontrolling interests in consolidated subsidiaries (Note 3)8,388 3,279Total capital2,516,160 2,235,933TOTAL LIABILITIES AND CAPITAL$5,111,028 $4,616,084See 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, 2013 2012 2011REVENUES: Rental income$419,189 $349,613 $287,078Tenant reimbursements38,313 29,889 20,957Other property income (Note 15)7,596 1,498 2,389Total revenues465,098 381,000 310,424EXPENSES: Property expenses96,606 76,219 63,722Real estate taxes40,156 32,323 26,981Provision for bad debts404 153 695Ground leases (Notes 4 and 15)3,504 3,168 1,565General and administrative expenses39,660 36,188 28,148Acquisition-related expenses1,962 4,937 4,053Depreciation and amortization (Notes 2 and 4)192,734 153,251 115,630Total expenses375,026 306,239 240,794OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)1,635 848 571Interest expense (Note 7)(75,870) (79,114) (85,785)Total other (expenses) income(74,235) (78,266) (85,214)INCOME (LOSS) FROM CONTINUING OPERATIONS15,837 (3,505) (15,584)DISCONTINUED OPERATIONS (Note 17) Income from discontinued operations16,476 21,361 31,486Net gain on dispositions of discontinued operations12,252 259,245 51,587Total income from discontinued operations28,728 280,606 83,073NET INCOME44,565 277,101 67,489Net income attributable to noncontrolling interests in consolidated subsidiaries(224) (638) (529)NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.44,341 276,463 66,960Preferred distributions (Note 11)(13,250) (14,108) (15,196)Original issuance costs of redeemed preferred units (Notes 9 and 11)— (6,980) —Total preferred distributions(13,250) (21,088) (15,196)NET INCOME AVAILABLE TO COMMON UNITHOLDERS$31,091 $255,375 $51,764Income (loss) from continuing operations available to common unitholders per unit – basic (Note 19)$0.01 $(0.37) $(0.56)Income (loss) from continuing operations available to common unitholders per unit – diluted (Note 19)$0.01 $(0.37) $(0.56)Net income available to common unitholders per unit – basic (Note 19)$0.37 $3.56 $0.86Net income available to common unitholders per unit – diluted (Note 19)$0.36 $3.56 $0.86Weighted average common units outstanding – basic (Note 19)79,166,260 71,403,258 58,437,444Weighted average common units outstanding – diluted (Note 19)80,931,285 71,403,258 58,437,444See 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 Interests inConsolidated Subsidiaries Preferred Units Number of CommonUnits Common Units Total CapitalBALANCE AS OF DECEMBER 31, 2010$121,582 54,072,801 $994,511 $1,116,093 $1,637 $1,117,730Net income 66,960 66,960 529 67,489Issuance of common units 6,392,805 233,312 233,312 233,312Issuance of share-based compensation awards 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 and Series H Preferred units192,411 192,411 192,411Redemption of Series E and Series F Preferred units(121,582) (4,918) (126,500) (126,500)Redemption of Series A Preferred units (2,062) (2,062) (2,062)Issuance of common units 16,024,618 672,102 672,102 672,102Issuance of common units in connection with an operating property acquisition 118,372 5,604 5,604 5,604Issuance of share-based compensation awards 62,137 1,291 1,291 1,291Noncash amortization of share-based compensation 8,537 8,537 8,537Repurchase of common units and restricted stock units (22,312) (877) (877) (877)Settlement of restricted stock units 27,821 (784) (784) (784)Exercise of stock options 5,000 129 129 129Preferred 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, 2012192,411 76,753,484 2,040,243 2,232,654 3,279 2,235,933Net income 44,341 44,341 224 44,565Issuance of common units (Note 11) 7,210,838 349,951 349,951 349,951Issuance of share-based compensation awards (Note 12) — 1,448 1,448 1,448Noncash amortization of share-based compensation(Note 12) 9,563 9,563 9,563Repurchase of common units and restricted stock units (Note 12) (42,896) (2,521) (2,521) (2,521)Settlement of restricted stock units (Note 12) 37,245 1 1 1Exercise of stock options 473 128 128 128Contribution by noncontrolling interest in consolidated subsidiary (Note 3) 4,885 4,885Preferred distributions (13,250) (13,250) (13,250)Distributions declared per common unit ($1.40 per unit) (114,543) (114,543) (114,543)BALANCE AS OF DECEMBER 31, 2013$192,411 83,959,144 $2,315,361 $2,507,772 $8,388 $2,516,160See accompanying notes to consolidated financial statements.F - 11KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2013 2012 2011CASH FLOWS FROM OPERATING ACTIVITIES: Net income$44,565 $277,101 $67,489Adjustments to reconcile net income to net cash provided by operating activities (including discontinuedoperations): Depreciation and amortization of buildings and improvements and leasing costs199,558 168,687 135,467Increase (decrease) in provision for bad debts396 (42) 644Depreciation of furniture, fixtures and equipment1,929 1,213 1,130Noncash amortization of share-based compensation awards (Note 12)8,616 7,670 4,482Noncash amortization of deferred financing costs and net debt discounts5,315 8,433 13,540Noncash amortization of net (below)/above market rents (Note 4)(7,777) (6,699) 1,056Net gain on dispositions of discontinued operations (Note 17)(12,252) (259,245) (51,587)Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(10,713) (9,136) (9,349)Straight-line rents(24,135) (21,530) (21,331)Net change in other operating assets(4,615) (1,297) (5,434)Net change in other operating liabilities40,137 17,320 2,779Insurance proceeds received for property damage and other, net(448) (1,751) (630)Net cash provided by operating activities240,576 180,724 138,256CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(202,682) (454,841) (603,301)Expenditures for acquisitions of development and redevelopment properties (Note 3)(102,769) (333,942) —Expenditures for operating properties(129,873) (86,377) (62,739)Expenditures for development and redevelopment properties and undeveloped land(320,141) (83,310) (28,517)Net proceeds received from dispositions of operating properties (Note 17)21,178 263,572 64,171Insurance proceeds received for property damage448 1,751 —(Increase) decrease in acquisition-related deposits(2,596) 5,000 (5,000)Decrease (increase) in restricted cash (Note 3)229,915 (18,359) 1,103Net cash used in investing activities(506,520) (706,506) (634,283)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common units (Note 11)349,951 672,102 233,312Net 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) —Borrowings on unsecured line of credit55,000 704,000 550,000Repayments on unsecured line of credit(195,000) (701,000) (527,000)Proceeds from the issuance of secured debt (Note 7)— 97,000 135,000Principal payments on secured debt(93,688) (106,262) (127,665)Proceeds from the issuance of unsecured debt (Note 7)299,901 150,000 324,476Repayments of exchangeable senior notes (Note 7)— (148,000) —Financing costs(4,384) (7,963) (9,060)Decrease in loan deposits and other— — 2,859Repurchase/redemption of common units and restricted stock units(2,520) (1,661) (1,152)Proceeds from exercise of stock options128 129 395Distributions paid to common unitholders(111,517) (97,386) (80,005)Distributions paid to preferred unitholders(13,250) (14,165) (15,196)Net cash provided by financing activities284,621 537,705 485,964Net increase (decrease) in cash and cash equivalents18,677 11,923 (10,063)Cash and cash equivalents, beginning of year16,700 4,777 14,840Cash and cash equivalents, end of year$35,377 $16,700 $4,777F - 12KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)(in thousands) Year Ended December 31, 2013 2012 2011SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $32,742, $17,657, and $7,615 as ofDecember 31, 2013, 2012 and 2011, respectively$65,157 $71,633 $68,280NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$73,482 $54,198 $14,301Tenant improvements funded directly by tenants$7,633 $17,719 $3,288Assumption of secured debt in connection with property acquisition (Notes 3 and 7)$95,496 $221,032 $30,042Assumption of other assets and liabilities in connection with operating and development propertyacquisitions, net (Note 3)$1,811 $37,535 $4,515Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 3)$4,885 $— $—NONCASH FINANCING TRANSACTIONS: Accrual of distributions payable to common unitholders (Note 11)$29,392 $26,863 $21,188Accrual of distributions payable to preferred unitholders (Note 11)$1,694 $1,694 $1,909Grant date fair value of share-based compensation awards (Note 12)$10,721 $31,396 $7,797Issuance of common units in connection with an operating property acquisition (Note 3)$— $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, 20131.Organization and OwnershipKilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office submarkets along the WestCoast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles,Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry.Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, asamended (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 stabilized portfolio of operating properties was comprised of the following office properties at December 31, 2013: Number ofBuildings RentableSquare Feet (unaudited) Number ofTenants Percentage Occupied (unaudited)Stabilized Office Properties (1)105 12,736,099 514 93.4%______________(1)Excludes 12 properties located in San Diego, California that were held for sale at December 31, 2013 (see Note 17 “Discontinued Operations” for additional information). The sale of these properties closed on January 9, 2014(see Note 23 “Subsequent Events” for additional information).Our stabilized portfolio includes all of our properties with the exception of properties held for sale, undeveloped land, development and redevelopmentproperties currently under construction or committed for construction, and “lease-up” properties. We define redevelopment properties as those properties forwhich we expect to spend significant development and construction costs on the 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. During the fourth quarter of 2013, we completed one developmentproperty in San Francisco, California and stabilized a redevelopment property in Long Beach, California. As a result, these properties are included in ourstabilized portfolio as of December 31, 2013.As of December 31, 2013, the following properties were excluded from our stabilized portfolio: Number of Properties Estimated RentableSquare Feet (unaudited)Properties Held for Sale (1)12 1,049,035Development properties under construction (2)6 2,538,000Lease-up properties1 410,000_______________(1)Includes 12 properties located in San Diego, California. The sale of these properties closed on January 9, 2014 (see Note 23 “Subsequent Events” for additional information).(2) Estimated rentable square feet upon completion.As of December 31, 2013, all of our properties and development and redevelopment projects and all of our business was conducted in the state ofCalifornia with the exception of twelve office properties located in the state of Washington. All of our properties and development and redevelopment projectsare 100% owned, excluding a development project owned by Redwood City Partners, LLC, a consolidated subsidiary created on June 27, 2013 (see Note 3“Acquisitions” for additional information) and certain properties held in Section 1031 Exchanges, which have been consolidated for financial reportingpurposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” for additional information).F - 14KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)As of December 31, 2013, the Company owned a 97.8% common general partnership interest in the Operating Partnership. The remaining 2.2% commonlimited partnership interest in the Operating Partnership as of December 31, 2013 was owned by non-affiliated investors and certain of our executive officersand directors (see Note 9 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” for additional information). Both the general andlimited common partnership interests in the Operating Partnership are denominated in common units. The number of common units held by the Company isat all times equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributionsand payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as providedin the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership (as amended, the “Partnership Agreement.” See Note 9“Noncontrolling Interests on the Company’s Consolidated Financial Statements” for additional information).Kilroy Realty Finance, Inc., which is a wholly owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0%common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest.Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of the Operating Partnership, is the entity through which we conduct substantiallyall of our development activities. With the exception of the Operating Partnership and Redwood City Partners, LLC (see Note 3 “Acquisitions” and Note 9“Noncontrolling Interests on the Company’s Consolidated Financial Statements” for additional information), 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, Redwood City Partners, LLC and all of our wholly owned and controlled subsidiaries. The consolidatedfinancial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the FinancePartnership, KSLLC, Redwood City Partners, LLC and all wholly owned and controlled subsidiaries of the Operating Partnership. All intercompanybalances and transactions have been eliminated in the consolidated financial statements.Partially Owned Entities and Variable Interest EntitiesOur accounting policy is to consolidate entities in which we have a controlling financial interest and significant decision making control over the entitiesoperations. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of thatentity, we consider factors such as ownership interest, board representation, management representation, size of our investment (including loans), authority tocontrol decisions, and contractual and substantive participating rights of the members. In addition to evaluating control rights, we also consolidate entities inwhich the other member has no substantive kick-out rights to remove the Company as the managing member.We also evaluate whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary. VIEs are entities in which the equityinvestors do not have sufficient equity at risk to finance their endeavors without additional financial support or that the holders of the equity investment atrisk do not have a controlling financial interest. We are deemed to be the primary beneficiary of a VIE when we have the power to direct the activities of the VIEthat most significantly impact the VIEs economic performance and the obligation to absorb losses or receive benefits that could potentially be significant to theVIE.If the requirements for consolidation are not met, the Company would account for investments under the equity method of accounting if we have theability to exercise significant influence over the entity. Equity method investments would be initially recorded at cost and subsequently adjusted for our shareof net income or loss and cash contributions and distributions each period. The Company did not have any equity method investments at December 31, 2013or December 31, 2012.F - 15KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)As of December 31, 2013, the consolidated financial statements of the Company and the Operating Partnership included four VIEs, in which we weredeemed to be the primary beneficiary. One of the VIEs was established during the second quarter of 2013 as a result of an acquisition (see Note 3“Acquisitions” for additional information regarding the Redwood City, California acquisition) and the remaining VIEs were established during the third andfourth quarter of 2013 to facilitate a potential like-kind exchange pursuant to Section 1031 of the Code (“Section 1031 Exchanges”) to defer taxable gains ondispositions for federal and state income tax purposes. To realize the tax deferral available under a Section 1031 Exchange, the Company must complete theSection 1031 Exchanges, if any, and complete the sale of the to-be-exchanged properties within 180 days of the acquisition date (see Note 3 “Acquisitions” foradditional information). The VIEs established during the third and fourth quarter of 2013 will be terminated upon the completion of the Section 1031Exchanges or the expiration of the 180 day period, as applicable. The impact of consolidating the VIEs increased the Company’s total assets, liabilities andnoncontrolling interests by approximately $251.8 million (of which $234.5 million is related to real estate held for investment on our consolidated balancesheet), $12.1 million and $4.9 million, respectively, at December 31, 2013. In February 2014, we successfully completed one of the Section 1031 Exchanges.As of December 31, 2012, the consolidated financial statements of the Company and the Operating Partnership included two VIEs, in which we weredeemed to be the primary beneficiary. The VIEs were established during 2012 to facilitate potential Section 1031 Exchanges to defer taxable gains ondispositions for federal and state income tax purposes. The impact of consolidating the VIEs increased the Company’s total assets and liabilities byapproximately $337.0 million (of which $319.8 million is related to real estate held for investment on our consolidated balance sheet) and $111.1 million,respectively, at December 31, 2012. The Section 1031 Exchanges were completed in March 2013 and these entities were no longer VIEs at December 31, 2013.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 (i) land and improvements, buildings and improvements, undeveloped land andconstruction in progress and (ii) identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasingcosts, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Any debtassumed and equity (including common units of the Operating Partnership) issued in connection with a property acquisition is recorded at fair value on thedate of acquisition.The fair value of land and improvements is derived from comparable sales of land and improvements within the same submarket and/or region. The fairvalue of buildings and improvements, tenant improvements and leasing costs considers the value of the property as if it was vacant as well as currentreplacement 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) ourestimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-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 renewal options,if applicable, for below-market operating leases. Our below-market operating leases generally do not include fixed rate or below-market renewal options. Theamounts recorded for above-market operating leases are included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet andare amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-marketoperating leases are included in deferred revenue and acquisition-related intangible liabilities, net on the balance sheet and are amortized on a straight-line basisas 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.F - 16KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The fair value of acquired in-place leases is derived based on our assessment of lost revenue and costs incurred for the period required to lease the“assumed vacant” property to the occupancy level when purchased. The amount recorded for acquired in-place leases is included in deferred leasing costs andacquisition-related intangible assets, net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remaining term ofthe applicable leases. Fully amortized intangible assets are written off each quarter.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 and improvements underlying our properties at the purchase price paid and capitalize the associated acquisition costs.During the years ended December 31, 2013 and 2012, we capitalized $2.3 million and $0.7 million, respectively, in acquisition costs associated with theacquisition of undeveloped land. We did not capitalize any acquisition costs during the year ended December 31, 2011.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 andinsurance.•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, no 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 - 17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 constructionin progress are transferred to land and improvements, buildings and improvements, and deferred leasing costs and acquisition-related intangible assets, net onour consolidated balance sheets as the historical cost of the property.Depreciation and Amortization of Buildings and ImprovementsThe cost of buildings and improvements and tenant improvements are depreciated using the straight-line method of accounting 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, 2013, 2012, and 2011 was $145.3 million, $125.9 million and $106.0 million, respectively.Asset Description Depreciable LivesBuildings and improvements 25 – 40 yearsTenant improvements 1 – 20 years (1)________________________(1)Tenant improvements are amortized over the shorter of the lease term or the estimated useful life. 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 immediatesale, 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, 2013, there are 12 properties located in San Diego, California that were held for sale. As of December 31, 2012, we did not have any buildingsand improvements classified as held for sale.Revenue RecognitionWe recognize revenue from rent, tenant reimbursements, parking and other revenue once all of the following criteria are met: (i) the agreement has beenfully executed and delivered, (ii) services have been rendered, (iii) the amount is fixed or determinable, and (iv) the collectability of the amount is reasonablyassured.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, we evaluate whether the Companyowns or the tenant owns the tenant improvements. When we conclude that the Company is the owner of tenant improvements, rental revenue recognition beginswhen the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, when weconclude that the Company is not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins when the tenant takespossession of or controls the space.F - 18KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)When we conclude that the Company is the owner of tenant improvements, we record the cost to construct the tenant improvements, whether paid for orreimbursed by the tenants, as a capital asset. For these tenant improvements, we record the amount funded by or reimbursed by the tenants as deferredrevenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease.When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvementsas a lease incentive, which is included in deferred leasing costs and acquisition-related intangible assets, net on our consolidated balance sheets and amortizedas 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 “Employee Benefit Plans” for additional information). The Deferred Compensation Planassets are held in a limited rabbi trust and invested in various mutual and money market funds. As a result, the marketable securities are treated as tradingsecurities for financial reporting purposes and are adjusted to fair value at the end of each accounting period, with the corresponding gains and losses recordedin interest income and other net investment gains.F - 19KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 each quarter.Deferred Financing CostsFinancing costs related to the origination or assumption of long-term debt are deferred and generally amortized using the straight-line method ofaccounting, which approximates the effective interest method, over the contractual terms of the applicable financings. As of December 31, 2013 and 2012,deferred financing costs were reported net of accumulated amortization of $13.2 million and $16.6 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 $14.6 million and $7.2 million as of December 31, 2013 and 2012, respectively. Our unsecured senior notes are presented net of unamortizeddiscounts of $1.9 million and $2.1 million, as of December 31, 2013 and 2012, 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.F - 20KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Noncontrolling Interests in the Company’s Consolidated Financial StatementsNoncontrolling interests in the Company’s consolidated financial statements represent the common limited partnership interests in the OperatingPartnership not held by the Company (“noncontrolling common units”) and our interest in a consolidated subsidiary, formed during the year endedDecember 31, 2013, Redwood City Partners, LLC (see Note 3 “Acquisitions” for additional information).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 must be further evaluated to determine whether equity or temporary equity classification on the balance sheet is appropriate. Since the commonunits contain such a provision, we evaluated the accounting guidance and determined that the common units qualify for equity presentation in the Company’sconsolidated financial statements (see Note 9 “Noncontrolling Interests on the Company’s Consolidated Financial Statements”).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, 2013 and 2012.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 “Preferred and Common Units of the Operating Partnership”).The Company is the holder of both the Series G and Series H Preferred Units and for each Series G and Series H Preferred Unit, the Company has anequivalent number of shares of the Company’s 6.875% Series G Cumulative Redeemable Preferred Stock and shares of the Company’s 6.375% Series HCumulative Redeemable Preferred Stock publicly issued and outstanding.Common Partnership Interests on the Operating Partnership’s Consolidated Balance SheetsThe common units held by the Company and the noncontrolling common units held by the common limited partners are 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 theCompany’s Consolidated Financial Statements” for additional information).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 and theOperating Partnership‘s interest in a new consolidated subsidiary, Redwood City Partners, LLC (see Note 3 “Acquisitions” for additional information). The1.0% general partnership interest in the Finance Partnership noncontrolling interest is presented in the permanent equity section of the Operating Partnership’sconsolidated balance sheets given that these interests are not convertible or redeemable into any other ownership interest of the Company or the OperatingPartnership.F - 21KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Equity OfferingsUnderwriting commissions and offering costs incurred in connection with common equity offerings and our at-the-market stock offering program (seeNote 10 “Stockholders’ Equity of the Company”) are reflected as a reduction of additional paid-in capital. Issuance costs incurred in connection with preferredequity offerings are reflected as a reduction of the carrying value of the preferred equity.The Company records preferred stock issuance costs as a noncash 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. Equity awards settled in cash are valued at the fair value of our common stock on theperiod end date through the settlement date. Equity awards settled in cash are remeasured at each reporting period and are recognized as a liability in theconsolidated balance sheet during the vesting period until settlement.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, afterthe allocation 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 18 “Net Income Available to Common StockholdersF - 22KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Per Share of the Company”). 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”), vested market-measure RSUs and dividend equivalentsissued to holders of RSUs) containing nonforfeitable rights to dividends or dividend equivalents are accounted for as participating securities and included inthe computation of basic and diluted net income (loss) available to common stockholders per share pursuant to the two-class method. The dilutive effect ofstock options are reflected in the weighted average diluted outstanding shares calculation by application of the treasury stock method. The dilutive effect of theexchangeable debt instruments is reflected in the weighted average diluted outstanding shares calculation when the average quoted trading price of theCompany’s common stock on the NYSE for the periods presented was above the exchangeable debt exchange prices. The dilutive effect of the outstandingnonvested shares of common stock (“nonvested shares”) and RSUs that have not yet been granted but are contingently issuable under the share-basedcompensation programs is reflected in the weighted average diluted shares calculation by application of the treasury stock method at the beginning of thequarterly period in which all necessary conditions have been 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 recordedat fair 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. Observable inputs reflect market data obtained from independentsources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use of observable market data when available. The followingis the fair value hierarchy:•Level 1 – quoted prices for identical instruments in active markets;•Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not activeand 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.F - 23KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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% ofour adjusted taxable income, as defined in the Code, to our stockholders and satisfy certain other organizational and operating requirements. For distributionswith respect to taxable years ended on or before December 31, 2011, Internal Revenue Service (“IRS”) guidance allows REITs to satisfy up to 90% of thisrequirement through the distribution of shares of common stock, if certain conditions are met. We generally will not be subject to federal income taxes if wedistribute 100% of our taxable income for each year to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal incometaxes (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and we may not be able to qualify as a REIT for foursubsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and tofederal income taxes and excise taxes on our undistributed taxable income. Accordingly, no provision for income taxes has been made in the accompanyingfinancial statements. We believe that we have met all of the REIT distribution and technical requirements for the years ended December 31, 2013, 2012 and2011, and we were not subject to any federal income taxes (see Note 20 “Tax Treatment of Distributions” for additional information). We intend to continue toadhere to these requirements and maintain the Company’s REIT status.In addition, any taxable income from our taxable REIT subsidiary, which was formed in 2002, is subject to federal, state, and local income taxes. For theyears ended December 31, 2013, 2012 and 2011 the taxable REIT subsidiary had de minimis taxable income.Uncertain Tax PositionsWe include favorable tax positions in the calculation of tax liabilities if it is more likely than not that our adopted tax position will prevail if challenged bytax authorities.As a result of our REIT status, we are able to claim a dividends-paid deduction on our tax return to deduct the full amount of common and preferreddividends paid to stockholders when computing our annual taxable income. Since this dividends-paid deduction has historically exceeded our taxable income,the Company has historically had significant return of capital to its stockholders. In order for us to be required to record any unrecognized tax benefits oradditional tax liabilities, any adjustment for potential uncertain tax positions would need to exceed the return of capital.We evaluated the potential impact of identified uncertain tax positions for all tax years still subject to potential audit under state and federal income tax lawand concluded that our return of capital would not be materially affected for any of the years still subject to potential audit. As of December 31, 2013, theyears still subject to audit are 2009 through 2012 under the California state income tax law and 2010 through 2012 under the federal income tax law. Weconcluded that we did not have any unrecognized tax benefits or any additional tax liabilities as of December 31, 2013 and 2012.F - 24KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Use of EstimatesThe preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expensesduring the reported periods. Actual results could differ from those estimates.SegmentWe currently operate in one operating segment, our office properties segment. As of December 31, 2013, all of our properties and development andredevelopment projects and all of our business was conducted in the state of California with the exception of twelve office properties located in the state ofWashington.Concentration of Credit RiskAll of our properties and development and redevelopment projects and all of our business is currently conducted in the state of California with theexception of the ownership and operation of twelve office properties located in the state of Washington. The ability of the tenants to honor the terms of theirleases is dependent upon the economic, regulatory, and social factors affecting the communities in which the tenants operate.As of December 31, 2013, our 15 largest tenants represented approximately 33.0% 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, 2013 and 2012, we had cash accounts in excess of FDIC insured limits.Recent Accounting PronouncementsThere are no recently issued accounting pronouncements that are expected to have a material effect on our financial condition and results of operations infuture periods.F - 25KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)3.AcquisitionsOperating PropertiesDuring the years ended December 31, 2013 and 2012, we acquired the 18 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 “Stockholders’ Equity of theCompany”), borrowings under the unsecured line of credit (see Note 7 “Secured and Unsecured Debt of the Operating Partnership”), disposition proceeds (seeNote 17 “Discontinued Operations”), the assumption of existing debt and/or the issuance of common units of the Operating Partnership.Property Date of Acquisition Number of Buildings Rentable Square Feet(unaudited) Occupancy as of December 31,2013 (unaudited) Purchase Price(in millions) (1)2013 Acquisitions 320 Westlake Ave. N. and 321 Terry Ave. N., Seattle, WA (2)(3) January 16, 2013 2 320,398 100.0% $170.012780 and 12790 El Camino Real, San Diego, CA (4) September 19, 2013 2 218,940 100.0% 126.4Total (5) 4 539,338 $296.4 2012 Acquisitions 4100-4700 Bohannon Dr., Menlo Park, CA February 29, 2012 7 374,139 89.0% $162.5701 and 801 N. 34th St., Seattle, WA (6) June 1, 2012 2 308,407 100.0% 105.4837 N. 34th St., Seattle, WA June 1, 2012 1 111,580 100.0% 39.210900 NE 4th St., Bellevue, WA (7) July 24, 2012 1 416,755 87.3% 186.16255 W. Sunset Blvd., Los Angeles, CA (8) July 31, 2012 1 321,883 82.5% 78.812233 Olympic Blvd., Los Angeles, CA (9) October 5, 2012 1 151,029 96.4% 72.9599 N. Mathilda Ave., Sunnyvale, CA (10) December 17, 2012 1 75,810 100.0% 29.1Total (11) 14 1,759,603 $674.0________________________(1)Excludes acquisition-related costs and non-lease related accrued liabilities assumed. Includes assumed unpaid leasing commissions and tenant improvements.(2)We acquired these properties through a new special purpose entity wholly owned by the Finance Partnership.(3)In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.9 million that was recorded at fair value on the acquisition date, resulting in a premium of approximately $11.6 million(see Note 7 “Secured and Unsecured Debt of the Operating Partnership”).(4)As of December 31, 2013, these properties, together the “Heights of Del Mar” project, are temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges (see Note 2 “Basis of Presentation and SignificantAccounting Policies”). The $126.4 million purchase price includes $9.4 million for 4.2 acres of undeveloped land the Company acquired in connection with this acquisition.(5)The results of operations for the properties acquired during 2013 contributed $17.5 million and $0.9 million to revenues and net income from continuing operations, respectively, for the year ended December 31, 2013.(6)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 “Secured and Unsecured Debt of the Operating Partnership”).(7)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 recording this debt at fair value on the acquisition date. InJanuary 2013, we repaid this loan prior to the stated maturity (see Note 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information).(8)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 closing stock price on the NYSE on the acquisition date. Inconnection with this acquisition we also assumed secured debt with an outstanding principal balance of $53.9 million and a premium of $3.1 million as a result of recording this debt at fair value on the acquisition date (seeNote 7 “Secured and Unsecured Debt of the Operating Partnership”). We also assumed $4.7 million of accrued liabilities in connection with this acquisition that are not included in the purchase price above.(9)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 “Secured and Unsecured Debt of the Operating Partnership”).(10)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 Sites” section of thisfootnote, for a total purchase price of $137.6 million.(11)The results of operations for the properties acquired during 2012 contributed $18.9 million and $3.4 million to revenues and net income from continuing operations, respectively, for the year ended December 31, 2012.F - 26KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 our2013 acquisitions:2013 AcquisitionsTotal 2013Acquisitions (1) (in thousands)Assets Land and improvements$53,790Buildings and improvements (2)218,211Undeveloped land and construction in progress (3)9,360Deferred leasing costs and acquisition-related intangible assets (4)30,789Total assets acquired312,150Liabilities Deferred revenue and acquisition-related intangible liabilities (5)4,190Secured debt (6)95,496Accounts payable, accrued expenses and other liabilities422Total liabilities assumed100,108Net assets and liabilities acquired (7)$212,042_______________(1)The purchase price of the two acquisitions completed during the year ended December 31, 2013 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of December 31, 2013.(2)Represents buildings, building improvements and tenant improvements.(3)In connection with one of the acquisitions, we acquired undeveloped land of approximately 4.2 acres that was added to the Company’s future development pipeline upon acquisition.(4)Represents in-place leases (approximately $19.6 million with a weighted average amortization period of 4.7 years), above-market leases (approximately $3.2 million with a weighted average amortization period of 6.1 years),and leasing commissions (approximately $7.9 million with a weighted average amortization period of 5.9 years).(5)Represents below-market leases (approximately $4.2 million with a weighted average amortization period of 7.7 years).(6)Represents the mortgage loan, which includes an unamortized premium of approximately $11.6 million at the date of acquisition, assumed in connection with the properties acquired in January 2013 (see Note 7 “Securedand Unsecured Debt of the Operating Partnership” for additional information).(7)Reflects the purchase price net of assumed secured debt and other lease-related obligations.The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for our 2012acquisitions:2012 Acquisitions4100-4700 Bohannon Dr.,Menlo Park, CA 10900NE 4th St.,Bellevue, WA 599 N. Mathilda, Sunnyvale,CA All OtherAcquisitions (1) Total 2012Acquisitions (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 $469,748________________________(1)The purchase price of all other acquisitions during the year ended December 31, 2012 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of 2012.(2)In connection with the acquisitions of 701, 801, and 837 N. 34th St., 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 Ave., N.E., Bellevue, WA, we assumed the lessee obligation under a ground lease that is scheduled to expire inNovember 2093 (see Note 15 “Commitments and Contingencies” for additional information pertaining to these ground leases).(3)Represents buildings, building improvements and tenant improvements.F - 27KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(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 “Secured and Unsecured Debt ofthe Operating Partnership”).(7)Reflects the purchase price plus cash and restricted cash received, net of assumed secured debt, lease-related obligations and other accrued liabilities.Development and Redevelopment Project SitesCrossing/900On June 27, 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood CityPartners, LLC. In connection with this transaction, the Company acquired a 0.35 acre land site, completing the first phase of the land assemblage for its plansto develop an approximate 300,000 square foot office project (the “Crossing/900” project) in Redwood City, California. In October 2013, the Company acquireda 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the Crossing/900 project. The related assets,liabilities, and noncontrolling interest acquired in connection with this transaction are included in our consolidated financial statements as of the date ofacquisition. The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands): Phase I Phase II Total Crossing/900Assets Undeveloped land and construction in progress$11,222 $17,000 $28,222Total assets11,222 17,000 28,222Liabilities Secured debt (1)1,750 — 1,750Accounts payable, accrued expenses and other liabilities1,952 1,475 3,427Total liabilities3,702 1,475 5,177Noncontrolling interest in consolidated subsidiary4,885 — 4,885Net assets and liabilities acquired$2,635 $15,525 $18,160________________________(1)This note was repaid as of December 31, 2013.Academy ProjectIn November 2013, we acquired an undeveloped land project site, Academy Project, in Hollywood, California for a purchase price of $45.7 million,including the assumption of $0.7 million of accrued liabilities. As of December 31, 2013, this property was temporarily being held in a separate VIE tofacilitate a potential Section 1031 Exchange (see Note 2 “Basis of Presentation and Significant Accounting Policies” for additional information). As ofDecember 31, 2013, the project is included in our future development pipeline and, as a result, the underlying assets were included as undeveloped land andconstruction in progress in our consolidated financial statements.360 Third StreetIn November 2012, we exercised an option to purchase the land underlying the ground leases at 360 Third Street in San Francisco, California for$27.5 million. This transaction closed in October 2013 and the land was included as land and improvements in our consolidated financial statements on theacquisition date. As of December 31, 2013, this property was temporarily being held in a separate VIE to facilitate a potential Section 1031 Exchange (see Note2 “Basis of Presentation and Significant Accounting Policies” for additional information). In February 2014, we successfully completed this Section 1031Exchange.F - 28KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)During the year ended December 31, 2012, we acquired six development and redevelopment project sites, respectively from unrelated third parties. Unlessotherwise noted, we funded these acquisitions with proceeds from the Company’s public offering of common stock (see Note 10 “Stockholders’ Equity of theCompany”), disposition proceeds (see Note 17 “Discontinued Operations”) and/or borrowings under the unsecured line of credit (see Note 7 “Secured andUnsecured Debt of the Operating Partnership” for additional information).Project Date of Acquisition Type Purchase Price(in millions) (1)2012 Acquisitions 690 E. Middlefield Road, Mountain View, CA (2)(3) May 9, 2012 Development $74.5333 Brannan Street, San Francisco, CA July 20, 2012 Development 18.5Columbia Square, Los Angeles, CA (4) September 28, 2012 Development andRedevelopment 65.0350 Mission Street, San Francisco, CA October 23, 2012 Development 52.0331 Fairchild Drive, Mountain View, CA (2)(5)(6) December 4, 2012 Development 21.8555 N. Mathilda Avenue, Sunnyvale, CA (2)(7)(8) December 17, 2012 Development 108.5Total $340.3________________________(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)In October, we stabilized the 331 Fairchild Drive development project in Mountain View, California.(7)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 “Basis of Presentation and Significant Accounting Policies”). The VIE wasterminated in upon exchange in 2013.(8)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 development andredevelopment acquisitions:2012 Acquisitions555 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 acquired131,493 245,884 377,377Liabilities 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 $344,554________________________(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.F - 29KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)4.Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, netThe following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-marketoperating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases andabove-market ground lease obligation) as of December 31, 2013 and 2012: December 31, 2013 December 31, 2012 (in thousands)Deferred Leasing Costs and Acquisition-related Intangible Assets, net: Deferred leasing costs$178,720 $168,087Accumulated amortization(63,246) (61,443)Deferred leasing costs, net115,474 106,644Above-market operating leases27,635 27,977Accumulated amortization(14,283) (12,180)Above-market operating leases, net13,352 15,797In-place leases100,318 101,061Accumulated amortization(42,999) (34,019)In-place leases, net57,319 67,042Below-market ground lease obligation490 690Accumulated amortization(13) (205)Below-market ground lease obligation, net477 485Total deferred leasing costs and acquisition-related intangible assets, net$186,622 $189,968Acquisition-related Intangible Liabilities, net: (1) Below-market operating leases$69,385 $70,486Accumulated amortization(25,706) (17,555)Below-market operating leases, net43,679 52,931Above-market ground lease obligation6,320 6,320Accumulated amortization(223) (122)Above-market ground lease obligation, net6,097 6,198Total acquisition-related intangible liabilities, net$49,776 $59,129_______________(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 intangible liabilities, including amounts attributable todiscontinued operations, for years ended December 31, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands)Deferred leasing costs (1)$25,902 $20,804 $16,905Above-market operating leases (2)5,664 5,695 5,946In-place leases (1)29,363 21,976 12,575Below-market ground lease obligation (3)8 205 —Below-market operating leases (4)(13,441) (12,393) (4,890)Above-market ground lease obligation (5)(101) (85) (37)Total$47,395 $36,202 $30,499_______________(1)The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.(2)The amortization of 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.F - 30KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangible assets as ofDecember 31, 2013 for future periods:YearDeferred Leasing Costs Above-MarketOperating Leases (1) In-Place Leases Below-Market GroundLease Obligation (2) Below-MarketOperating Leases (3) Above-Market GroundLease Obligation (4) (in thousands)2014$25,454 $4,946 $19,168 $8 $(11,891) $(101)201521,293 2,991 12,584 8 (9,385) (101)201618,435 1,963 9,361 8 (7,195) (101)201715,872 1,646 7,659 8 (6,127) (101)201812,255 1,045 4,574 8 (4,525) (101)Thereafter22,165 761 3,973 437 (4,556) (5,592)Total$115,474 $13,352 $57,319 $477 $(43,679) $(6,097)_______________(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, 2013 and 2012: December 31, 2013 (1) December 31, 2012 (in thousands)Current receivables$12,866 $11,801Allowance for uncollectible tenant receivables(2,123) (2,581)Current receivables, net$10,743 $9,220_______________(1)Excludes current receivables, net related to properties held for sale at December 31, 2013.Deferred Rent Receivables, netDeferred rent receivables, net consisted of the following as of December 31, 2013 and 2012: December 31, 2013 (1) December 31, 2012 (in thousands)Deferred rent receivables$129,198 $118,025Allowance for deferred rent receivables(2,075) (2,607)Deferred rent receivables, net$127,123 $115,418_______________(1)Excludes deferred rent receivables, net related to properties held for sale at December 31, 2013.F - 31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$150.0 million unsecured term loan facility, the 6.45% unsecured senior notes due 2014, the 5.00% unsecured senior notes due 2015, the 4.80% unsecuredsenior notes due 2018, the 6.625% unsecured senior notes due 2020, the 3.80% unsecured senior notes due in 2023 and the 4.25% Exchangeable Notes. As ofDecember 31, 2013 and 2012, the Operating Partnership had $1.6 billion and $1.5 billion, respectively, outstanding in total under these unsecured debtobligations.In addition, although the remaining $0.6 billion of the Operating Partnership’s debt for both December 31, 2013 and 2012 is secured and non-recourse tothe Company, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of paymentsand 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, 2013 and 2012: December 31,Type of DebtAnnual Stated Interest Rate(1) GAAPEffective Rate (1)(2) Maturity Date 2013 (3) 2012 (3) (in thousands)Mortgage note payable4.27% 4.27% February 2018 $133,117 $135,000Mortgage note payable (4)4.48% 4.48% July 2027 97,000 97,000Mortgage note payable (5)6.05% 3.50% June 2019 92,502 —Mortgage note payable (6)6.37% 3.55% April 2013 — 83,116Mortgage note payable6.51% 6.51% February 2017 67,663 68,615Mortgage note payable (7)5.23% 3.50% January 2016 54,570 56,302Mortgage note payable (8)5.57% 3.25% February 2016 41,654 43,016Mortgage note payable (9)5.09% 3.50% August 2015 34,845 35,379Mortgage note payable4.94% 4.00% April 2015 27,641 28,941Mortgage note payable7.15% 7.15% May 2017 8,972 11,210OtherVarious Various Various 2,470 2,517Total $560,434 $561,096______________(1)All interest rates presented are fixed-rate interest rates.(2)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.(3)Amounts reported include the amounts of unamortized debt premiums of $14.6 million and $7.2 million as of December 31, 2013 and 2012, respectively.(4)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 three years of interest only payments.(5)In January 2013, 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 had a principal balance of $83.9 millionat the acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $11.6 million. The loan requires monthly principal and interest payments based on a 6.4 yearamortization period.(6)In January 2013, we repaid this loan prior to the stated maturity date.(7)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.F - 32KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(8)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 of approximately $2.7 million.(9)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 of approximately $1.7 million.The Operating Partnership’s secured debt was collateralized by 21 operating properties as of December 31, 2013 with a combined net book value ofapproximately $1.0 billion and 20 operating properties at December 31, 2012 with a combined net book value of approximately $1.0 billion.Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customarysecured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.As of December 31, 2013, 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.4.25% Exchangeable Senior NotesThe table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the“4.25% Exchangeable Notes”) outstanding as of December 31, 2013 and 2012.4.25% Exchangeable NotesDecember 31, 2013 2012 (in thousands)Principal amount$172,500 $172,500Unamortized discount(4,128) (8,556)Net carrying amount of liability component$168,372 $163,944Carrying amount of equity component$19,835Issuance dateNovember 2009Maturity dateNovember 2014Stated coupon rate (1)4.25%Effective interest rate (2)7.13%Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)27.8307Exchange price, as adjusted (3)$35.93Number of shares on which the aggregate consideration to be delivered on conversion (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 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at thedate 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, shares of the Company’s common stock. At any time prior toAugust 15, 2014, the Operating Partnership may irrevocably elect, in its sole discretion without the 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 sharesF - 33KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)of common stock. Any shares of common stock delivered for settlement will be based on a daily exchange value calculated on a proportionate basis for eachday of a 30 trading-day observation period.During the year ended December 31, 2013 and the three months ended December 31, 2012, the closing sale price per share of the common stock of theCompany was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As aresult, for the three month period ended December 31, 2012 and for the year ended December 31, 2013, the 4.25% Exchangeable Notes were exchangeable atthe exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods. Noholders exchanged the 4.25% Exchangeable Notes during 2013 and 2012.For the years ended December 31, 2013 and 2012, the per share average trading price of the Company’s common stock on the NYSE was higher than the$35.93 exchange price for the 4.25% Exchangeable Notes, as presented below: Year Ended December 31, 2013 2012Per share average trading price of the Company’s common stock$52.12 $45.72The approximate fair value of the shares exchangeable at December 31, 2013 and 2012, using the per share average trading price presented in the tableabove, would have been as follows: Year Ended December 31, 2013 2012 (in thousands)Approximate fair value of shares upon conversion$247,000 $221,200Principal amount of the 4.25% Exchangeable Notes172,500 172,500Approximate fair value in excess amount of principal amount$74,500 $48,700See Notes 18 “Net Income Available to Common Stockholders Per Share of the Company” and 19 “Net Income Available to Common Unitholders PerUnit of the Operating Partnership” for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations forthe periods presented.Interest Expense for the Exchangeable NotesThe unamortized discount on the 4.25% Exchangeable Notes and the 3.25% Exchangeable Notes due April 2012 (the “3.25% Exchangeable Notes” andtogether with the 4.25% Exchangeable Notes, the “Exchangeable Notes”) is accreted as additional interest expense from the date of issuance through thematurity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notesand attributable to the 3.25% Exchangeable Notes (which were repaid upon maturity in April 2012), in each case based on the respective effective interestrates, before the effect of capitalized interest, for the years ended December 31, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands)Contractual interest payments (1)$7,331 $8,721 $12,141Amortization of discount (1)4,427 5,052 6,928Interest expense attributable to the Exchangeable Notes (1)$11,758 $13,773 $19,069_______________(1)The Company repaid the 3.25% Exchangeable Notes in April 2012. Interest payments and discount amortization for the year ended December 31, 2013 are solely attributable to the 4.25% Exchangeable Notes.F - 34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 cappedcalls for the 3.25% Exchangeable Notes were terminated when the notes were repaid in April 2012. The table below summarizes our capped call optionpositions for the 4.25% Exchangeable Notes for both December 31, 2013 and December 31, 2012: 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 the4.25% Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial costs of capped calls were recorded as areduction to additional 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, 2013 and 2012: Principal Amountas of December 31, Issuance date Maturity date Statedcoupon rate Effective interest rate (1) 2013 2012 (in thousands)3.800% Unsecured Senior Notes (2)January 2013 January 2023 3.800% 3.804% $300,000 $—Unamortized discount (90) —Net carrying amount $299,910 $— 4.800% Unsecured Senior Notes (3)July 2011 July 2018 4.800% 4.827% $325,000 $325,000Unamortized discount (339) (413)Net carrying amount $324,661 $324,5876.625% Unsecured Senior Notes (4)May 2010 June 2020 6.625% 6.743% $250,000 $250,000Unamortized discount (1,367) (1,580)Net carrying amount $248,633 $248,420 5.000% Unsecured Senior Notes (5)November 2010 November 2015 5.000% 5.014% $325,000 $325,000Unamortized discount (73) (112)Net carrying amount $324,927 $324,888________________________(1)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs.(2)Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(3)Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(4)Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.(5)Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.In 2013, we used a portion of the net proceeds from the 3.800% unsecured senior note offering for general corporate purposes, including the repayment ofborrowings under the Operating Partnership’s revolving credit facility.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, 2013 and 2012, 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 - 35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. The Company’s outstanding borrowings under the term loan facility were$150.0 million as of December 31, 2013 and 2012.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, we amended and restated our revolving credit facility to extend the maturity date and reduce the interest rate and facility fee. The following tablesummarizes the balance and terms of our revolving credit facility as of December 31, 2013 and 2012, respectively: December 31, 2013 December 31, 2012 (in thousands)Outstanding borrowings$45,000 $185,000Remaining borrowing capacity455,000 315,000Total borrowing capacity (1)$500,000 $500,000Interest rate (2)1.62% 1.66%Facility fee-annual rate (3)0.300%Maturity date (4)April 2017_______________(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% as of both December 31, 2013 and December 31, 2012.(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 is amortized through the extended maturity date of the revolving credit facility.(4)Under the 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 term loan facility, the unsecured senior notes, 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, 2013 and 2012.F - 36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, 2013:Year(in thousands)2014$265,3462015395,1042016249,4312017116,7482018451,728Thereafter718,011Total (1)$2,196,368________________________ (1)Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $8.6 million.Capitalized Interest and Loan FeesThe following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net ofcapitalized interest, for the years ended December 31, 2013, 2012 and 2011. 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 “Discontinued Operations” for interestexpense reported in discontinued operations). Year Ended December 31, 2013 2012 2011 (in thousands)Gross interest expense$111,238 $98,906 $94,915Capitalized interest(35,368) (19,792) (9,130)Interest expense$75,870 $79,114 $85,785F - 37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, 2013 and 2012: December 31, 2013 2012 (in thousands)Deferred revenue related to tenant-funded tenant improvements (1)$48,341 $56,461Other deferred revenue3,169 2,314Acquisition-related intangible liabilities, net (2)49,776 59,129Total$101,286 $117,904________________________(1)Excludes deferred revenue related to tenant-funded tenant improvements related to properties held for sale at December 31, 2013.(2)See Note 2 “Basis of Presentation and Significant Accounting Policies” and 4 “Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net” for additional information.Deferred Revenue Related to Tenant-funded Tenant ImprovementsDuring the years ended December 31, 2013, 2012, and 2011, $10.7 million, $9.1 million, and $9.3 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, 2013 for the next five years and thereafter:Year Ending(in thousands)2014$8,68620157,62020167,16520176,07020184,479Thereafter14,321Total$48,3419. Noncontrolling Interests on the Company’s Consolidated Financial StatementsCommon Units of the Operating PartnershipThe Company owned a 97.8% and 97.6% common general partnership interest in the Operating Partnership as of December 31, 2013 and 2012,respectively. The remaining 2.2% and 2.4% common limited partnership interest as of December 31, 2013 and 2012, respectively, was owned by non-affiliateinvestors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,805,200 and 1,826,503 common unitsoutstanding held by these investors, executive officers and directors as of December 31, 2013 and 2012, respectively.The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cashredemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unitupon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, asreported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $90.8 million and $85.4 million as of December 31, 2013 and December 31, 2012, respectively. Thisredemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of ourtermination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidatingdistribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.F - 38KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Noncontrolling Interest in Consolidated SubsidiaryThe noncontrolling interest in consolidated subsidiary represents the third party equity interest in Redwood City Partners, LLC (see Note 3“Acquisitions”). This noncontrolling interest was $4.9 million at December 31, 2013.7.45% 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 noncash chargeof $2.1 million as a reduction to net income available to common stockholders for the original issuance costs related to the Series A Preferred Units.10.Stockholders’ Equity of the Company2012 Preferred 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, and commenced on November 15, 2012. The Series H Preferred Stock is presented in stockholders’ equity on the consolidatedbalance sheet net 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 7.80% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) and 7.50%Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) as discussed below. Dividends on the Series G Preferred Stock are cumulativeand are payable quarterly in arrears on the 15th day of each February, May, August and November, and commenced on May 15, 2012. The Series GPreferred 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 theSeries H Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterlydividend periods (whether or not consecutive). The Company may not redeem the Series G Preferred Stock prior to March 27, 2017 nor the Series H PreferredStock prior to August 15, 2017, except in limited circumstances relating to the Company’s continuing qualification as a REIT and upon certain specifiedchange in control transactions in which the Company’s shares of common stock and the acquiring or surviving entity common securities would not be listedon the NYSE, NYSE Amex or NASDAQ, or any successor exchanges. On or after March 27, 2017 or August 15, 2017, the Company may, at its option,redeem the 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 $25.00per share in cash, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a specified change ofcontrol transaction, 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 daysafter the change of control occurred, by paying $25.00 per share in cash, plus any accrued and unpaid distributions through the date of redemption. If theCompany does 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-determinedF - 39KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)formula subject to a maximum share cap of 4,390,000 shares of common stock for the Series G Preferred Stock and 4,187,600 shares of common stock forthe Series H Preferred Stock.2012 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 Series E Preferred Stock andall 3,450,000 outstanding shares of its 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 Preferred Stock”) were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing$126.5 million in aggregate, plus all accrued and unpaid dividends to the Series E and F Redemption Date.During the year ended December 31, 2012, we recognized a non-recurring noncash 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 September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock. The net offering proceeds, afterdeducting sales agent compensation and offering expenses, were approximately $295.9 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 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.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. The following table sets for information regarding sales of our commonstock under our at-the-market offering program for the years ended December 31, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in millions, except share data)Share of common stock sold during the period1,040,838 787,118 355,305Aggregate gross proceeds$55.3 $37.0 $13.0Aggregate net proceeds after sales agent compensation$54.4 $36.3 $12.8F - 40KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The proceeds sales were used to fund acquisitions, development and redevelopment expenditures and general corporate purposes including repayment ofborrowings under the revolving credit facility. Since commencement of the program, we have sold 2,183,261 shares of common stock and, as ofDecember 31, 2013, approximately $94.7 million remains available to be sold under this program. Actual future sales will depend upon a variety of factorsincluding but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell theremaining shares available for sale under this program.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, 2013, 2012 or 2011.Accrued Dividends and DistributionsThe following tables summarize accrued dividends and distributions for the noted outstanding shares of common stock, preferred stock, andnoncontrolling units as of December 31, 2013 and 2012: December 31, 2013 2012 (in thousands)Dividends and Distributions payable to: Common stockholders$28,754 $26,224Noncontrolling common unitholders of the Operating Partnership632 639RSU holders (1)405 367Total accrued dividends and distribution to common stockholders and noncontrolling unitholders29,791 27,230Preferred stockholders1,699 1,694Total accrued dividends and distributions$31,490 $28,924______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12 “Share-Based Compensation” for additional information). December 31, 2013 2012Outstanding Shares and Units: Common stock (1)82,153,944 74,926,981Noncontrolling common units1,805,200 1,826,503RSUs (2)1,158,407 1,048,863Series G Preferred stock4,000,000 4,000,000Series H Preferred stock4,000,000 4,000,000______________________(1)The amount includes nonvested shares.(2)The amount includes nonvested RSUs. Does not include the 143,022 market measure-based RSUs since not all the necessary performance conditions have been met as of December 31, 2013.F - 41KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)11.Preferred and Common Units of the Operating Partnership2012 Preferred 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.2012 Preferred Unit Redemption7.45% Series A Cumulative Redeemable Preferred UnitsOn the Series A Redemption Date, the Operating Partnership redeemed all 1,500,000 outstanding units of its Series A Preferred Units as discussed inNote 9.7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred UnitsOn April 16, 2012, the Company redeemed all 1,610,000 outstanding units of its 7.80% Series E Cumulative Redeemable Preferred Units (“Series EPreferred Units”) and all 3,450,000 outstanding units of its 7.50% Series F Cumulative Redeemable Preferred Units (“Series F Preferred Units”). For eachshare of Series E and Series F Preferred Stock that was outstanding, the Company had an equivalent number of Series E Preferred Units and Series FPreferred Units outstanding with substantially similar terms as the Series E and Series F Preferred Stock.Common UnitsIssuance of Common UnitsIn September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock as discussed in Note 10. The netoffering proceeds of approximately $295.9 million were contributed by the Company to the Operating Partnership in exchange for 6,175,000 common units.In 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.In April 2011, the Company completed an underwritten public offering of 6,037,500 shares of its common stock as discussed in Note 10. The netoffering proceeds of approximately $221.0 million were contributed by the Company to the Operating Partnership in exchange for 6,037,500 common units.F - 42KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)At-The-Market Stock Offering ProgramDuring the year ended December 31, 2013, 2012 and 2011, the Company utilized its at-the-market stock offering program to issue shares of commonstock as discussed in Note 10. The net offering proceeds and the shares of common stock contributed by the Company to the Operating Partnership inexchange for common units for the years ended December 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012 2011 (in millions, except share and per share data)Shares of common stock contributed by the Company1,040,838 787,118 355,305Common units exchanged for share of common stock by the Company1,040,838 787,118 355,305Aggregate gross proceeds$55.3 $37.0 $13.0Aggregate net proceeds after sales agent compensation$54.4 $36.3 $12.8Common Units OutstandingThe following table sets forth the number of common units held by the Company and the number of common units held by non-affiliate investors andcertain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date: December 31, 2013 December 31, 2012Company owned common units in the Operating Partnership82,153,944 74,926,981Company owned general partnership interest97.8% 97.6%Noncontrolling common units of the Operating Partnership1,805,200 1,826,503Ownership interest of noncontrolling interest2.2% 2.4%For a further discussion of the noncontrolling common units during the years ended December 31, 2013 and 2012, refer to Note 9 “NoncontrollingInterests on the Company’s Consolidated Financial Statements”.Accrued DistributionsThe following tables summarize accrued distributions for the noted common and preferred units as of December 31, 2013 and 2012: December 31, 2013 December 31, 2012 (in thousands)Distributions payable to: General partner$28,754 $26,224Common limited partners632 639RSU holders (1)405 367Total accrued distributions to common unitholders29,791 27,230Preferred unitholders1,699 1,694Total accrued distributions$31,490 $28,924______________________(1)The amount includes the value of the dividend equivalents that will be paid with additional fully-vested RSUs (see Note 12 “Share-Based Compensation” for additional information). December 31, 2013 December 31, 2012Outstanding Units: Common units held by the general partner82,153,944 74,926,981Common units held by the limited partners1,805,200 1,826,503RSUs (1)1,158,407 1,048,863Series G Preferred units4,000,000 4,000,000Series H Preferred units4,000,000 4,000,000______________________(1) Does not include the 143,022 market measure-based RSUs since not all the necessary performance conditions have been met as of December 31, 2013.F - 43KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)12. Share-Based CompensationStockholder Approved Equity Compensation PlansAs of December 31, 2013, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the“2006 Plan”). As of December 31, 2013, 7,414 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) was2,539 shares as of December 31, 2013.The Executive Compensation Committee, which is comprised of four independent directors, may grant the following share-based awards as providedunder the 2006 Plan: incentive stock options, nonqualified stock options, restricted stock (nonvested shares), stock appreciation rights, performance shares,performance stock units, dividend equivalents, stock payments, deferred stock, RSUs, profit interest units, performance bonus awards, performance-basedawards, and other incentive awards to eligible individuals. For each award granted under our share-based incentive compensation programs, the OperatingPartnership simultaneously issues to the Company a number of common units equal to the number of shares of common stock ultimately paid by theCompany in respect of such awards.All of our outstanding share-based awards issued prior to 2007 were issued under the 1997 Stock Option and Incentive Plan (the “1997 Plan”), whichwas terminated by our board of directors in September 2006. Any awards that were outstanding upon the termination of the 1997 Plan continued in effect inaccordance with the terms of such plan and the applicable award agreement following termination of the 1997 Plan.Stock Award Deferral ProgramWe have a Stock Award Deferral Program (the “RSU Program”) under the 2006 Plan. Under the RSU Program, participants may defer receipt of awardsof nonvested 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 or (2) upon other certain events specified 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. The share-based awards are generally issued in the first quarter after the end of our prior fiscal year. The share-basedawards generally have a service vesting period, which has historically ranged from one to five years, depending on the type of award.On January 10, 2013, the Executive Compensation Committee of the Company’s Board of Directors granted 157,744 RSUs to certain officers of theCompany. On April 4, 2013, the terms of 61,327 time-based RSUs were modified to include market and performance-based vesting requirements based ontotal shareholder return and FFO per share targets. The RSUs will vest in five equal annual installments over the five-years requisite service period based onthe achievement of certain absolute or relative total shareholder return goals measured annually or, if neitherF - 44KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)of the shareholder return hurdles are achieved for an applicable year during the performance period, those RSUs will remain eligible to vest in a subsequentyear (ending in 2018) based on the achievement of a cumulative total shareholder return goal, as well as (in each case) continued employment through theapplicable vesting date. The Company’s closing stock price on the date of modification was $53.05. The compensation expense related to the modified RSUswill be recognized using the accelerated attribution expense method through the remainder of the five-year requisite service period.On April 4, 2013, the Executive Compensation Committee of the Company’s Board of Directors granted 19,084 RSUs to the Company’s Chief OperatingOfficer as part of his modified employment agreement. Fifty-percent of the RSUs granted are scheduled to vest in six equal annual installments beginning onDecember 31, 2013 through December 31, 2018. The grant date fair value of these time-based RSUs was $0.5 million, which was based on the $53.05closing share price of the Company’s common stock on the New York Stock Exchange on the grant date. Compensation expense will be recognized on astraight-line basis over the service vesting period for these time-based RSUs. The remaining 50% of the RSUs granted are scheduled to vest in six equal annualinstallments for each calendar year during 2013 through 2018 based on the achievement of certain absolute or relative total shareholder return goals measuredannually or, if neither of the shareholder return hurdles are achieved for an applicable year during the performance period, those RSUs will remain eligible tovest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal. The grant date fair value of these marketmeasure-based RSUs was $0.4 million and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. Thegrant date fair value is allocated among each of the six annual vesting tranches for these market measure-based RSUs and compensation expense will berecognized over the service vesting period using the accelerated expense attribution method.The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over 12 years as that is expected to bemost consistent with future volatility and equates to a time period twice as long as the six 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 six 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 six yearvesting period. April 2013 Market-Measure based RSU GrantGrant date fair value per share$44.55Expected share price volatility27.00%Risk-free interest rate0.90%Dividend yield3.60%Expected life6 yearsOn March 30, 2012, the Executive Compensation Committee of the Company’s Board of Directors granted 206,477 RSUs to the Company’s ChiefExecutive 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$4.8 million, 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$4.3 million and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The grant date fair value isallocated among each of the seven annual vesting tranches for these market measure-based RSUs and compensation expense will be recognized over the servicevesting period using the accelerated expense attribution method.F - 45KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) March 2012 Market Measure-based RSUGrantGrant date fair value per share$41.20Expected share price volatility31.00%Risk-free interest rate1.60%Dividend yield3.80%Expected life7 yearsThe 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 theseven year vesting period.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 boardmembers’ annual compensation and to newly elected non-employee board members in accordance with our board of directors compensation program. Theshare-based awards are generally issued in the second quarter, and the individual share awards vest in equal annual installments over the applicable servicevesting period, which will be one year.Summary of Market-Measure Based RSUsA summary of our market-measure based RSU activity from January 1, 2013 through December 31, 2013 is presented below: Nonvested RSUs Vested RSUs Total RSUs Amount Weighted-AverageGrant Date Fair ValuePer Share Outstanding at January 1, 201388,491 $41.20 — 88,491Granted9,542 44.55 — 9,542Vested(16,338) 41.53 16,338 —Settled (1)— (16,338) (16,338)Issuance of dividend equivalents— — —Modified from time based (2)61,327 53.05 — 61,327Canceled — —Outstanding as of December 31, 2013143,022 $46.47 — 143,022_______________(1)Represents vested RSUs that were settled in cash or shares of the Company’s common stock. Total shares settled include 8,526 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimumstatutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs, at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.(2)On April 4, 2013 the terms of time-based RSU’s granted to certain officers of the Company in January were modified to include market-measure and performance-based vesting requirements.F - 46KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)A summary of our market-measure based RSU activity for years ended December 31, 2013 and 2012 is presented below: RSUs Granted RSUs VestedYears ended December 31,Non-VestedRSUs Issued Weighted-Average Grant DateFair ValuePer Share Vested RSUs Total Vest-Date Fair Value(in thousands)20139,542 $44.55 (16,338) $8112012103,239 41.20 (14,748) 695There were no market measure awards granted in 2011.Summary of Time-Based RSUsA summary of our time-based RSU activity from January 1, 2013 through December 31, 2013 is presented below: Nonvested RSUs Vested RSUs Total RSUs Amount Weighted-AverageGrant Date Fair ValuePer Share Outstanding at January 1, 2013279,102 $41.30 769,761 1,048,863Granted, net of forfeitures173,758 49.45 — 173,758Vested(89,873) 40.33 89,873 —Settled (1) (26,886) (26,886)Issuance of dividend equivalents (2) 27,593 27,593Modified to market-measure based (3)(61,327) 53.05 — (61,327)Canceled (1)(4) (3,594) (3,594)Outstanding as of December 31, 2013301,660 $44.74 856,747 1,158,407_______________(1)Represents vested RSUs that were settled in cash or shares of the Company’s common stock. Total shares settled include 13,490 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimumstatutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs, at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.(2)RSUs issued as dividend equivalents are vested upon issuance.(3)On April 4, 2013, the terms of time-based RSUs granted to certain officers of the Company in January were modified to include market-measure based vesting requirements.(4)For shares vested, but not yet settled, we accept the return of RSUs, at the current quoted closing share price of the Company’s common stock, to satisfy minimum statutory tax-withholding requirements related to either theissuance or vesting of RSUs in accordance with the terms of the 2006 Plan.A summary of our time-based RSU activity for the years ended December 31, 2013, 2012 and 2011 is presented below: RSUs Granted RSUs VestedYear ended December 31,Non-VestedRSUs Issued Weighted-Average Grant DateFair ValuePer Share Vested RSUs Total Vest-Date Fair Value (1)(in thousands)2013173,758 $49.45 (89,873) $4,4952012204,829 44.34 (73,688) 3,1182011107,673 37.94 (85,466) 3,273_______________(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 - 47KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Summary of Nonvested Restricted StockA summary of our nonvested restricted stock activity from January 1, 2013 through December 31, 2013 is presented below: Non-VestedRestricted Stock Weighted-AverageGrant DateFair ValuePer ShareOutstanding at January 1, 201395,241 $40.42Granted— —Vested (1)(47,291) 39.12Outstanding as of December 31, 201347,950 $41.71_______________(1)The total shares vested include 20,880 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested. Weaccept the return of shares at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.A summary of our nonvested and vested restricted stock activity for years ended December 31, 2013, 2012 and 2011 is presented below: Shares Granted Shares VestedYears ended December 31,Non-VestedShares Issued Weighted-Average Grant DateFair ValuePer Share Vested Shares Total Fair Value at VestDate(1)(in thousands)2013— $— (47,291) $2,290201262,137 41.84 (50,862) 2,110201168,727 37.83 (34,793) 1,334_______________(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 date 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 “February 2012” grant). The options will vest ratably in annualinstallments over a five year period, subject to continued employment through the applicable vesting date. The term of each option is ten years from the date ofthe grant. Dividends will not be 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 GrantFair value of options granted per share$9.20Expected stock price volatility33.00%Risk-free interest rate1.35%Dividend yield3.80%Expected life of option6.5 yearsThe 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 - 48KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)A summary of our stock option activity from January 1, 2013 through December 31, 2013 is presented below: Number of Options Exercise Price Remaining Contractual Term(years)Outstanding at January 1, 20131,540,000 $42.61 Granted— — Exercised(3,000) 42.61 Forfeited(12,000) 42.61 Outstanding at December 31, 2013 (1)(2)1,525,000 $42.61 8.2_______________(1)As of December 31, 2013, 305,000 of the outstanding stock options were exercisable.(2)The total intrinsic value of options outstanding at December 31, 2013 was $11.5 million.Share-based Compensation Cost Recorded During the PeriodThe total compensation cost for all share-based compensation programs was $9.6 million, $8.5 million and $5.6 million for the years endedDecember 31, 2013, 2012 and 2011, respectively. Of the total share-based compensation costs, $0.9 million, $0.9 million and $1.1 million was capitalizedas part of real estate assets for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there was approximately$25.5 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that isexpected to be recognized over a weighted-average period of 2.2 years. The remaining compensation cost related to these nonvested incentive awards had beenrecognized in periods prior to December 31, 2013. The $25.5 million of unrecognized compensation costs does not reflect the future compensation cost relatedto share-based awards that were granted subsequent to December 31, 2013.13.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 the401(k) Participant’s annual salary. 401(k) Participants vest immediately in the amounts contributed by us. For each of the years ended December 31, 2013,2012, and 2011, we contributed $0.9 million, $0.7 million and $0.6 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 “Fair Value Measurements and Disclosures” for further discussion of our Deferred Compensation Plan assets as of December 31, 2013 and2012. Our liability of $9.9 million and $7.3 million under the Deferred Compensation Plan was fully funded as of December 31, 2013 and 2012,respectively.F - 49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, 2013 for future periods is summarized as follows:Year Ending(in thousands)2014$387,1882015371,9482016351,5402017309,2212018252,933Thereafter725,964Total$2,398,79415.Commitments and ContingenciesGeneralAs of December 31, 2013, we had commitments of approximately $645.4 million, excluding our ground lease commitments, for contracts and executedleases directly related to our operating and redevelopment properties.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, WANovember 2093701, 801 and 837 N. 34th Street, Seattle, WA (2)December 2041Kilroy Airport Center Phases I, II, and III, Long Beach, CAJuly 2084____________________(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, 2013 for five years and thereafter was as follows:Year Ending(in thousands)2014$3,09520153,09520163,09520173,09520183,095Thereafter156,912Total (1)(2)(3)(4)$172,387________________________(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, 2013.(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 aboveassume the annual lease rental obligation in effect as of December 31, 2013.(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 assume the annual lease rental obligation in effect as of December 31, 2013.F - 50KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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.Property Damage SettlementDuring the year ended December 31, 2013, we settled an outstanding matter related to property damage at one of our properties. In connection with thissettlement, we received cash payments of $5.2 million and $0.9 million, during the years ended December 31, 2013 and December 31, 2012, respectively,and recognized this amount in other property income.Settlements with Prior TenantsDuring the year ended December 31, 2013, we settled an outstanding matter with a prior tenant at one of the properties disposed of in December 2012. Inconnection with this settlement, we received a net cash payment of $3.7 million, which is included in income from discontinued operations in our consolidatedstatements of operations in 2013.During the year ended December 31, 2011, we settled a matter with a prior tenant at one of the properties held for sale as of December 31, 2013. Inconnection with this settlement, we received a net cash payment totaling $3.7 million. In the fourth quarter of 2012, we received the final cash distributionunder the bankruptcy claim of $0.9 million. Both payments are included in income from discontinued operations in our consolidated statements of operations.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(see Note 13 “Employee Benefit Plans” for additional information). The following table sets forth the fair value of our marketable securities as ofDecember 31, 2013 and 2012: Fair Value (Level 1) (1) 2013 2012Description(in thousands)Marketable securities (2)$10,008 $7,435_______________(1)Based on quoted prices in active markets for identical securities.(2)The marketable securities are held in a limited rabbi trust.F - 51KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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, 2013, 2012 and 2011: December 31, 2013 2012 2011Description(in thousands)Net gain (loss) on marketable securities$1,489 $723 $(153)Financial Instruments Disclosed at Fair ValueThe following table sets forth the carrying value and the fair value of our other financial instruments as of December 31, 2013 and 2012: December 31, 2013 2012 Carrying Value Fair Value Carrying Value Fair Value (in thousands)Liabilities Secured debt (1)$560,434 $568,760 $561,096 $591,993Exchangeable senior notes, net (1)168,372 178,190 163,944 181,223Unsecured debt, net (2)1,431,132 1,523,052 1,130,895 1,254,047Unsecured line of credit (1)45,000 45,012 185,000 185,049_______________(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 $873.5 million and $929.3million, respectively, as of December 31, 2013. The carrying value and fair value of the Level I instruments at December 31, 2012, was $573.0 million and $653.0 million, respectively. The carrying value and fair value ofthe Level II instruments was $557.7 million and $593.7 million, respectively, as of December 31, 2013. The carrying value and fair value of the Level II instruments at December 31, 2012, was $558.0 million and$601.0million, respectively.F - 52KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)17.Discontinued OperationsProperties Held for SaleAs of December 31, 2013, the following properties were classified as held for sale:Location City/Submarket Property Type Number of Buildings Rentable Square Feet(unaudited)San Diego Properties, San Diego, CA (1) I-15 Corridor/Sorrento Mesa Office 12 1,049,035________________________ (1)The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and15378 Avenue of Science.There were no properties held for sale as of December 31, 2012. On January 9, 2014, the Company completed the sale of the 12 properties located in SanDiego, California. See Note 23 “Subsequent Events” for further details.DispositionsThe following table summarizes the properties sold during the years ended December 31, 2013, 2012 and 2011:Location Property Type Month of Disposition Number of Buildings RentableSquare Feet (unaudited) Sales Price(in millions) (1)2013 Dispositions 26541 Agoura Road, Calabasas, CA Office June 1 90,156 $14.78101 Kaiser Boulevard, Anaheim, CA Office October 1 59,790 9.64910 Directors Place, San Diego CA Office December 1 50,360 32.6Total 2013 dispositions 3 200,306 $56.9 2012 Dispositions 15004 Innovation Drive and 10243 Genetic Center Drive, San Diego, CA Office January 2 253,676 $146.1Industrial Portfolio (2) Industrial November/December 39 3,413,354 5151, 5153 & 5155 Camino Ruiz, Camarillo, CA Office December 4 265,372 4175 E. La Palma Avenue, Anaheim, CA Office December 1 43,263 Subtotal industrial portfolio 44 3,721,989 354.2Total 2012 dispositions 46 3,975,665 $500.3 2011 Dispositions 10350 Barnes Canyon and 10120 Pacific Heights Drive, San Diego, CA Office September 2 90,558 $23.92031 E. Mariposa Avenue, Los Angeles, CA Industrial December 1 192,053 42.2Total 2011 dispositions 3 282,611 $66.1__________________(1)Represents gross sales price before the impact of broker commissions and closing costs.(2)The industrial portfolio was sold in two tranches in November and December 2012 to two separate third party buyers.At December 31, 2013 and 2012, approximately $32.2 million and $228.8 million, respectively, of net proceeds related to the sale of the buildings duringthe years ended December 31, 2013 and 2012 were temporarily being held at a qualified intermediary, at our direction, for the purpose of facilitating Section1031 Exchanges. The cash proceeds are included in restricted cash on the consolidated balance sheets at December 31, 2013 and 2012. In February 2014, wesuccessfully completed one of the Section 1031 Exchanges and the $32.2 million cash proceeds were released from the qualified intermediary. In January 2013,we successfully completed two Section 1031 Exchanges and $228.8 million cash proceeds were released from the qualified intermediary.F - 53KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The major classes of assets and liabilities of the properties held for sale as of December 31, 2013 were as follows:Real estate assets and other assets held for sale(in thousands)Land and improvements$49,656Buildings and improvements209,594Total real estate held for sale259,250Accumulated depreciation and amortization(63,110)Total real estate held for sale, net196,140Current receivables, net269Deferred rent receivables, net8,978Deferred leasing costs and acquisition-related intangible assets, net5,791Prepaid expenses and other assets, net1,922Real estate and other assets held for sale, net$213,100 Liabilities and deferred revenue of real estate assets held for sale Accounts payable, accrued expenses and other liabilities$1,153Deferred revenue and acquisition-related intangible liabilities, net10,723Rents received in advance and tenant security deposits2,571Liabilities and deferred revenue of real estate assets held for sale$14,447Discontinued OperationsFor the years ended December 31, 2013, 2012 and 2011, discontinued operations included the income of all properties sold in 2013, 2012 and 2011 andclassified as held for sale at December 31, 2013. For the years ended December 31, 2012 and 2011, discontinued operations also included the income of all theproperties sold in 2012. For the year ended December 31, 2011, discontinued operations also included the income of all the properties sold in 2011 andclassified as held for sale as of December 31, 2011. The following table summarizes the revenue and expense components that comprise income fromdiscontinued operations for the years ended December 31, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands)Revenues: Rental income$24,694 $42,240 $59,266Tenant reimbursements3,408 6,322 8,522Other property income4,619 1,912 4,935Total revenues32,721 50,474 72,723Expenses: Property expenses4,716 7,724 9,832Real estate taxes2,784 4,935 6,652Provision for bad debts(8) (195) (51)Ground leases— — 214Depreciation and amortization8,753 16,649 20,966Interest expense (1)— — 3,624Total expenses16,245 29,113 41,237Income from discontinued operations before net gain on dispositions of discontinued operations16,476 21,361 31,486Net gain on dispositions of discontinued operations12,252 259,245 51,587Total income from discontinued operations$28,728 $280,606 $83,073__________________(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.F - 54KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)18.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, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands, except unit and per unit amounts)Numerator: Income (loss) from continuing operations$15,837 $(3,505) $(15,584)(Income) loss from continuing operations attributable to noncontrolling common units of the Operating Partnership(56) 609 863Preferred distributions and dividends(13,250) (21,088) (15,196)Allocation to participating securities (1)(1,689) (1,602) (1,309)Numerator for basic and diluted income (loss) from continuing operations available to common stockholders842 (25,586) (31,226)Income from discontinued operations28,728 280,606 83,073Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership(629) (6,796) (2,337)Numerator for basic and diluted net income available to common stockholders$28,941 $248,224 $49,510Denominator: Basic weighted average vested shares outstanding77,343,853 69,639,623 56,717,121Effect of dilutive securities – contingently issuable shares and stock options1,765,025 — —Diluted weighted average vested shares and common stock equivalents outstanding79,108,878 69,639,623 56,717,121Basic earnings per share: Income (loss) from continuing operations available to common stockholders per share$0.01 $(0.37) $(0.55)Income from discontinued operations per share of common stock0.36 3.93 1.42Net income available to common stockholders per share$0.37 $3.56 $0.87Diluted earnings per share: Income (loss) from continuing operations available to common stockholders per share$0.01 $(0.37) $(0.55)Income from discontinued operations per share of common stock0.35 3.93 1.42Net income available to common stockholders per share$0.36 $3.56 $0.87________________________ (1)Participating securities include nonvested shares, vested and non-vested time-based RSUs and vested market-measure RSUs.The impact of the contingently issuable shares, which consist of the 4.25% Exchangeable Notes and 1,525,000 stock options, were considered in ourdiluted earnings per share calculation for year ended December 31, 2013 because we reported income from continuing operations attributable to commonstockholders in the respective period and the effect was dilutive. The 143,022 market measure-based RSUs are not included in dilutive securities since they areconsidered contingently issuable shares as not all the necessary performance conditions have been met as of December 31, 2013. The impact of theExchangeable Notes and stock options was not considered in our diluted earnings per share calculation for the years ended December 31, 2012 and 2011because we reported a loss from continuing operations attributable to common stockholders and the effect was anti-dilutive. See Note 7 “Secured andUnsecured Debt of the Operating Partnership” for additional information regarding the Exchangeable Notes and Note 12 “Share-Based Compensation” foradditional information regarding the stock options and other share-based compensation.F - 55KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)19.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, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands, except unit and per unit amounts)Numerator: Income (loss) from continuing operations$15,837 $(3,505) $(15,584)Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries(224) (174) (529)Preferred distributions(13,250) (21,088) (15,196)Allocation to participating securities (1)(1,689) (1,602) (1,309)Numerator for basic and diluted income (loss) from continuing operations available to common unitholders674 (26,369) (32,618)Income from discontinued operations28,728 280,606 83,073Income from discontinued operations attributable to noncontrolling interests in consolidated subsidiaries— (464) —Numerator for basic and diluted net income available to common unitholders$29,402 $253,773 $50,455Denominator: Basic weighted average vested units outstanding79,166,260 71,403,258 58,437,444Effect of dilutive securities - contingently issuable shares and stock options1,765,025 — —Diluted weighted average vested units and common unit equivalents outstanding80,931,285 71,403,258 58,437,444Basic earnings per unit: Income (loss) from continuing operations available to common unitholders per unit$0.01 $(0.37) $(0.56)Income from discontinued operations per common unit0.36 3.93 1.42Net income available to common unitholders per unit$0.37 $3.56 $0.86Diluted earnings per unit: Income (loss) from continuing operations available to common unitholders per unit$0.01 $(0.37) $(0.56)Income from discontinued operations per common unit0.35 3.93 1.42Net income available to common unitholders per unit$0.36 $3.56 $0.86________________________ (1)Participating securities include nonvested shares, vested and non-vested time-based RSUs and vested market-measure RSUs.The impact of the contingently issuable units, which consist of the 4.25% Exchangeable Notes and 1,525,000 stock options, were considered in ourdiluted earnings per unit calculation for the years ended December 31, 2013 because the Operating Partnership reported income from continuing operationsattributable to common unitholders in the respective periods and the effect was dilutive. The 143,022 market measure-based RSUs are not included in dilutivesecurities since they are considered contingently issuable shares as not all the necessary performance conditions have been met as of December 31, 2013. Theimpact of the Exchangeable Notes and stock options was not considered in our diluted earnings per unit calculation for the years ended December 31, 2012and 2011 because the Operating Partnership reported a loss from continuing operations attributable to common unitholders and the effect was anti-dilutive. SeeNote 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information regarding the Exchangeable Notes and Note 12 “Share-BasedCompensation” for additional information regarding the stock options and other share-based compensation.F - 56KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)20.Tax Treatment of DistributionsThe following table reconciles the dividends declared per share of common stock to the dividends paid per share of common stock during the years endedDecember 31, 2013, 2012 and 2011 as follows: Year Ended December 31,Dividends2013 2012 2011Dividends declared per share of common stock1.400 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 share of common stock1.400 1.400 1.400The unaudited income tax treatment for the dividends to common stockholders reportable for the years ended December 31, 2013, 2012 and 2011 asidentified in the table above was as follows: Year Ended December 31,Shares of Common Stock2013 2012 2011Ordinary income$0.756 54.00% $0.577 41.21% $0.230 16.43%Qualified dividend0.003 0.21 — — — —Return of capital0.620 44.29 0.823 58.79 1.170 83.57Capital gains (1)— — — — — —Unrecaptured section 1250 gains0.021 1.50 — — — — $1.400 100.00% $1.400 100.00% $1.400 100.00%_________________(1)Capital gains are comprised entirely of 20% rate gains for 2013 and 15% rate gains for 2012 and 2011.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 years ended December 31, 2013 and 2012 was as follows: Year Ended December 31,Preferred Shares2013 2012Ordinary income$1.668 97.03% $1.089 100.00%Qualified dividend0.006 0.35 — —Capital gains (1)— — — —Unrecaptured section 1250 gains0.045 2.62 — — $1.719 100.00% $1.089 100.00%__________________(1)Capital gains are comprised entirely of 20% rate gains for 2013 and 15% rate gains for 2012.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 years ended December 31, 2013 and 2012 was as follows: Year Ended December 31,Preferred Shares2013 2012Ordinary income$1.546 96.99% $0.398 100.00%Qualified dividend0.006 0.38 — —Capital gains (1)— — — —Unrecaptured section 1250 gains0.042 2.63 — — $1.594 100.00% $0.398 100.00%__________________(1)Capital gains are comprised entirely of 20% rate gains for 2013 and 15% rate gains for 2012.F - 57KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The 7.80% Series E Cumulative Redeemable Preferred Stock was redeemed on April 16, 2012. The unaudited income tax treatment for the dividends toSeries E preferred stockholders reportable for the years ended December 31, 2012 and 2011 is seen in the table below. Year Ended December 31,Preferred Shares2012 2011Ordinary income$0.818 100.00% $1.950 100.00%Capital gains (1)— — — —Unrecaptured section 1250 gains— — — — $0.818 100.00% $1.950 100.00%__________________(1)Capital gains are comprised entirely of 15% rate gains.The 7.50% Series F Cumulative Redeemable Preferred Stock was redeemed on April 16, 2012. The unaudited income tax treatment for the dividends toSeries F preferred stockholders reportable for the years ended December 31, 2012 and 2011 is seen in the table below. Year Ended December 31,Preferred Shares2012 2011Ordinary income$0.786 100.00% $1.875 100.00%Capital gains (1)— — — —Unrecaptured section 1250 gains— — — — $0.786 100.00% $1.875 100.00%_________________(1)Capital gains are comprised entirely of 15% rate gains.21.Quarterly Financial Information of the Company (Unaudited)Summarized quarterly financial data for the years ended December 31, 2013 and 2012 was as follows: 2013 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$110,964 $117,835 $115,697 $120,602Income from continuing operations (2)186 7,437 2,683 5,531Income from discontinued operations (2)2,202 2,666 6,344 17,516Net income2,388 10,103 9,027 23,047Net income attributable to Kilroy Realty Corporation2,409 9,946 8,897 22,628Preferred dividends and distributions(3,313) (3,313) (3,312) (3,312)Net (loss) income available to common stockholders(904) 6,633 5,585 19,316Net (loss) income available to common stockholders per share – basic(0.02) 0.08 0.07 0.23Net (loss) income available to common stockholders per share – diluted(0.02) 0.08 0.07 0.23 2012 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$85,858 $91,584 $98,985 $104,573(Loss) income from continuing operations (2)(848) (1,873) (2,141) 1,357Income from discontinued operations (2)79,519 4,150 4,663 192,274Net 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) 2.49____________________(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, 2013 and2012.(2)All periods have been adjusted from amounts previously disclosed in our quarterly filings on Form 10-Q to reclassify amounts related to discontinued operations (see Note 17 “Discontinued Operations” for additionalinformation).F - 58KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)22.Quarterly Financial Information of the Operating Partnership (Unaudited)Summarized quarterly financial data for the years ended December 31, 2013 and 2012 was as follows: 2013 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$110,964 $117,835 $115,697 $120,602Income (loss) from continuing operations (2)186 7,437 2,683 5,531Income from discontinued operations (2)2,202 2,666 6,344 17,516Net income2,388 10,103 9,027 23,047Net income attributable to the Operating Partnership2,319 10,041 8,980 23,001Preferred distributions(3,313) (3,313) (3,312) (3,312)Net income (loss) available to common unitholders(994) 6,728 5,668 19,689Net income (loss) available to common unitholders per unit – basic(0.02) 0.08 0.07 0.23Net income (loss) available to common unitholders per unit – diluted(0.02) 0.08 0.07 0.23 2012 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$85,858 $91,584 $98,985 $104,573Income from continuing operations (2)(848) (1,873) (2,141) 1,357Income from discontinued operations (2)79,519 4,150 4,663 192,274Net 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___________________(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, 2013 and2012.(2)All periods have been adjusted from amounts previously disclosed in our quarterly filings on Form 10-Q to reclassify amounts related to discontinued operations (see Note 17 “Discontinued Operations”).23.Subsequent EventsOn January 9, 2014, the Company completed the sale of the 12 properties located in San Diego, California that were held for sale at December 31, 2013for a gross sales price of $294.7 million.On January 15, 2014, aggregate dividends, distributions and dividend equivalents of $29.8 million were paid to common stockholders and commonunitholders of record on December 31, 2013 and RSU holders of record on January 15, 2014.On January 29, 2014, the Executive Compensation Committee granted 236,604 RSUs to the Executive Officers and other key employees under the 2006Plan. 119,098 of these RSUs are subject to market and performance-based vesting requirements, which could cause the final vested amount of RSUs toincrease or decrease. The compensation cost related to the time-based RSUs is expected to be recognized over a period of four years. The compensation costrelated to the market-measure based RSUs is expected to be recognized over a period of three years. In addition, if our stockholders do not approve an increaseto the share limit under our 2006 Plan then these awards may be cash settled and will be subject to variable plan accounting until a sufficient amount of sharesare authorized for issuance under the 2006 Plan to cover the payment of these awards.On February 13, 2014, the Board of Directors declared a regular quarterly cash dividend of $0.35 per share of common stock payable on April 16, 2014to stockholders of record on March 31, 2014. The Board of Directors also declared a dividend of $0.42969 per share on the Series G Preferred Stock and$0.39844 per share on the Series H Preferred Stock for the period commencing on and including February 18, 2014 and ending on and includingMay 14, 2014. The dividend will be payable on May 15, 2014 to Series G Preferred and Series H Preferred stockholders of record on April 30, 2014.F - 59KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2013, 2012 and 2011(in thousands) Balance atBeginningof Period Charged toCosts andExpenses (1) Recoveries(Deductions) Balanceat Endof PeriodAllowance for Uncollectible Tenant Receivables for the year endedDecember 31, 2013 – Allowance for uncollectible tenant receivables$2,581 $396 $(843) $2,1342012 – Allowance for uncollectible tenant receivables2,590 (42) 33 2,5812011 – Allowance for uncollectible tenant receivables2,819 923 (1,152) 2,590Allowance for Unbilled Deferred Rent for the year endedDecember 31, 2013 – Allowance for deferred rent$2,607 $— $(532) $2,0752012 – Allowance for deferred rent3,406 — (799) 2,6072011 – Allowance for deferred rent3,831 (279) (146) 3,406_______________(1)Includes amounts reported in Discontinued Operations (see Note 17 “Discontinued Operations”).F - 60KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2013 Initial Cost Gross Amounts at WhichCarried at Close of Period Property Location Encumb-rances Land andimprove-ments BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land andimprove-ments BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)Office Properties: 23925 Park Sorrento, Calabasas,CA $8,972(5)$50 $2,346 $306 $50 $2,652 $2,702 $1,355 35 2001(C)11,78923975 Park Sorrento, Calabasas,CA (5)765 17,720 5,703 765 23,423 24,188 11,838 35 2002(C)104,79724025 Park Sorrento, Calabasas,CA (5)845 15,896 4,739 845 20,635 21,480 10,722 35 2000(C)108,6702240 E. Imperial Highway, ElSegundo, CA 1,044 11,763 25,423 1,048 37,182 38,230 18,782 35 1983(C)122,8702250 E. Imperial Highway, ElSegundo, CA 2,579 29,062 28,016 2,547 57,110 59,657 42,353 35 1983(C)298,7282260 E. Imperial Highway, ElSegundo, CA 2,51828,37035,519 2,547 63,860 66,407 2,809 35 1983(C)298,728909 Sepulveda Blvd., ElSegundo, CA 67,663(6)3,577 34,042 42,343 3,577 76,385 79,962 23,669 35 2005(C)241,607999 Sepulveda Blvd., ElSegundo, CA (6)1,407 34,326 11,677 1,407 46,003 47,410 15,113 35 2003(C)128,5923750 Kilroy Airport Way, LongBeach, CA 1,941 10,327 12,268 12,268 8,618 35 1989(C)10,4573760 Kilroy Airport Way, LongBeach, CA 17,467 8,888 26,355 26,355 20,057 35 1989(C)165,2783780 Kilroy Airport Way, LongBeach, CA 22,319 14,766 37,085 37,085 30,223 35 1989(C)219,7453800 Kilroy Airport Way, LongBeach, CA 19,408 15,265 34,673 34,673 17,783 35 2000(C)192,4763840 Kilroy Airport Way, LongBeach, CA 13,586 9,218 22,804 22,804 11,827 35 1999(C)136,0263880 Kilroy Airport Way, LongBeach, CA 9,704 6,860 16,564 16,564 583 35 1997(A)98,2433900 Kilroy Airport Way, LongBeach, CA 12,615 9,128 21,743 21,743 11,848 35 1997(A)126,840Kilroy Airport Center, Phase IV,Long Beach, CA(4) 4,997 4,997 4,997 4,976 35 12100 W. Olympic Blvd.,Los Angeles, CA 352 45,611 15,532 9,633 51,862 61,495 17,338 35 2003(C)150,16712200 W. Olympic Blvd.,Los Angeles, CA 4,329 35,488 15,501 3,977 51,341 55,318 27,960 35 2000(C)150,30212233 W. Olympic Blvd.,Los Angeles, CA 39,948(7)22,100 53,170 1,145 22,100 54,315 76,415 2,145 35 2012(A)151,02912312 W. Olympic Blvd.,Los Angeles, CA 3,325 12,202 813 3,399 12,941 16,340 6,046 35 1997(A)78,0006255 W. Sunset Blvd., LosAngeles, CA 52,738(8)18,111 60,320 18,501 18,111 78,821 96,932 4,508 35 2012(A)321,8831633 26th St., Santa Monica,CA 2,080 6,672 3,037 2,040 9,749 11,789 5,263 35 1997(A)44,9152100/2110 Colorado Ave., SantaMonica, CA 97,000(9)5,474 26,087 13,125 5,476 39,210 44,686 15,647 35 1997(A)102,8643130 Wilshire Blvd., SantaMonica, CA 8,921 6,579 11,409 9,188 17,721 26,909 10,428 35 1997(A)88,339501 Santa Monica Blvd., SantaMonica, CA 4,547 12,044 6,667 4,551 18,707 23,258 10,245 35 1998(A)73,1152829 Townsgate Rd., ThousandOaks, CA 5,248 8,001 6,069 5,248 14,070 19,318 8,026 35 1997(A)81,06712225 El Camino Real, Del Mar,CA 1,700 9,633 2,992 1,683 12,642 14,325 5,750 35 1.998(A)58,40112235 El Camino Real, Del Mar,CA 1,507 8,543 4,637 1,530 13,157 14,687 7,009 35 1998(A)54,67312340 El Camino Real, Del Mar,CA (6)4,201 13,896 7,366 4,201 21,262 25,463 7,505 35 2002(C)87,40512390 El Camino Real, Del Mar,CA (6)3,453 11,981 1,264 3,453 13,245 16,698 7,200 35 2000(C)72,33212348 High Bluff Dr., Del Mar,12348 High Bluff Dr., Del Mar,CA 1,629 3,096 3,452 1,629 6,548 8,177 4,621 35 1999(C)38,71012400 High Bluff Dr., Del Mar,CA 15,167 40,497 11,610 15,167 52,107 67,274 18,064 35 2004(C)208,4643579 Valley Centre Dr., DelMar, CA 2,167 6,897 7,139 2,858 13,345 16,203 6,304 35 1999(C)51,1673611 Valley Centre Dr., Del Mar,CA 4,184 19,352 17,453 5,259 35,730 40,989 16,382 35 2000(C)130,3493661 Valley Centre Dr., Del Mar,CA 4,038 21,144 10,204 4,725 30,661 35,386 14,482 35 2001(C)129,752F - 61KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2013 Initial Cost Gross Amounts at WhichCarried at Close of Period Property Location Encumb-rances Land andimprove-ments BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land andimprove-ments BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)3721 Valley Centre Dr., Del Mar,CA $4,297 $18,967 $12,913 $4,254 $31,923 $36,177 $8,511 35 2003(C)114,7803811 Valley Centre Dr., Del Mar,CA 3,452 16,152 20,077 4,457 35,224 39,681 15,032 35 2000(C)112,06712780 El Camino Real, CA 18,398 54,954 — 18,398 54,954 73,352 548 35 2013(A)140,59112790 El Camino Real, CA 10,252 21,236 — 10,252 21,236 31,488 216 35 2013(A)78,3496200 Greenwich Dr., GovernorPark, CA 1,583 5,235 3,994 1,722 9,090 10,812 4,950 35 1999(C)73,5076220 Greenwich Dr., GovernorPark, CA 3,213 10,628 19,365 3,426 29,780 33,206 9,023 35 1997(A)141,21413280 Evening Creek Dr. South, I-15 Corridor, CA 3,701 8,398 3,163 3,701 11,561 15,262 2,200 35 2008(C)41,19413290 Evening Creek Dr. South, I-15 Corridor, CA 5,229 11,871 1,687 5,229 13,558 18,787 1,975 35 2008(C)59,18813480 Evening Creek Dr. North, I-15 Corridor, CA 7,997 41,766 7,997 41,766 49,763 8,485 35 2008(C)149,81713500 Evening Creek Dr. North, I-15 Corridor, CA 7,581 35,903 10,873 7,580 46,777 54,357 13,272 35 2004(A)147,53313520 Evening Creek Dr. North, I-15 Corridor, CA 7,581 35,903 12,784 7,580 48,688 56,268 14,636 35 2004(A)141,1287525 Torrey Santa Fe, 56 Corridor,CA 2,348 28,035 4,061 2,348 32,096 34,444 7,685 35 2007(C)103,9797535 Torrey Santa Fe, 56 Corridor,CA 2,950 33,808 5,992 2,950 39,800 42,750 9,857 35 2007(C)130,2437545 Torrey Santa Fe, 56 Corridor,CA 2,950 33,708 8,118 2,950 41,826 44,776 11,099 35 2007(C)130,3547555 Torrey Santa Fe, 56 Corridor,CA 2,287 24,916 3,712 2,287 28,628 30,915 6,833 35 2007(C)101,2362355 Northside Dr., Mission Valley,CA 4,066 8,332 884 3,270 10,012 13,282 1,743 35 2010(A)53,6102365 Northside Dr., Mission Valley,CA 7,359 15,257 1,061 5,919 17,758 23,677 2,735 35 2010(A)96,4362375 Northside Dr., Mission Valley,CA 3,947 8,146 2,121 3,175 11,039 14,214 1,578 35 2010(A)51,5162385 Northside Dr., Mission Valley,CA 2,752 14,513 5,303 5,759 16,809 22,568 2,585 35 2010(A)89,0232305 Historic Decatur Rd., PointLoma, CA 5,240 22,220 424 5,240 22,644 27,884 2,451 35 2010(A)103,9004921 Directors Place, SorrentoMesa, CA 3,792 11,091 4,761 3,792 15,852 19,644 2,740 35 2008(C)56,1364939 Directors Place, SorrentoMesa, CA 2,225 12,698 4,360 2,198 17,085 19,283 7,673 35 2002(C)60,6624955 Directors Place, SorrentoMesa, CA 2,521 14,122 3,697 3,179 17,161 20,340 11,303 35 2000(C)76,24610770 Wateridge Circle, SorrentoMesa, CA 4,560 26,671 236 4,560 26,907 31,467 5,313 35 2011(A)174,3106260 Sequence Dr., Sorrento Mesa,CA 3,206 9,803 1,414 3,212 11,211 14,423 5,580 35 1997(A)130,5366290 Sequence Dr., Sorrento Mesa,CA 2,403 7,349 4,925 2,407 12,270 14,677 7,058 35 1997(A)90,000F - 62KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2013 Initial Cost Gross Amounts at WhichCarried at Close of Period Property Location Encumb-rances Land andimprove-ments BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land andimprove-ments BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)6310 Sequence Dr., Sorrento Mesa,CA 2,940 4,946 329 2,941 5,274 8,215 2,875 35 2000(C)62,4156340 Sequence Dr., Sorrento Mesa,CA 2,434 7,302 9,964 2,464 17,236 19,700 9,058 35 1998(A)66,4006350 Sequence Dr., Sorrento Mesa,CA 4,941 14,824 (4,109) 4,922 10,734 15,656 6,282 35 1998(A)132,60010390 Pacific Center Ct., SorrentoMesa, CA 3,267 5,779 7,501 3,267 13,280 16,547 4,917 35 2002(C)68,40010394 Pacific Center Ct., SorrentoMesa, CA 2,696 7,134 (781) 1,671 7,378 9,049 3,511 35 1998(A)59,63010398 Pacific Center Ct., SorrentoMesa, CA 1,947 5,152 1,317 1,222 7,194 8,416 3,174 35 1998(A)43,64510421 Pacific Center Ct., SorrentoMesa, CA 2,926 7,979 21,864 2,926 29,843 32,769 13,320 35 1998(A)75,89910445 Pacific Center Ct., SorrentoMesa, CA 2,247 5,945 1,837 1,809 8,220 10,029 3,155 35 1998(A)48,70910455 Pacific Center Ct., SorrentoMesa, CA 4,044 10,701 (2,250) 3,780 8,715 12,495 3,968 35 1998(A)90,0005717 Pacific Center Blvd., SorrentoMesa, CA 2,693 6,280 4,220 2,693 10,500 13,193 3,024 35 2001(C)67,9954690 Executive Dr., UTC, CA (6)1,623 7,926 2,400 1,623 10,326 11,949 5,361 35 1999(A)47,2129785 Towne Center Dr., UTC, CA 2,722 9,932 (1,076) 2,329 9,249 11,578 3,898 35 1999(A)75,5349791 Towne Center Dr., UTC, CA 1,814 6,622 1,122 2,217 7,341 9,558 3,094 35 1999(A)50,4662211 Michelson, Irvine, CA (9)9,319 82,836 2,377 9,319 85,213 94,532 11,078 35 2010(A)271,556111 Pacifica, Irvine, CA 5,165 4,653 4,491 5,166 9,143 14,309 5,465 35 1997(A)67,496999 Town & Country, Orange, CA 7,867 9,579 148 7,867 9,727 17,594 1,459 35 2010(A)98,5514100 Bohannon Dr., Menlo Park,CA 4,835 15,526 213 4,835 15,739 20,574 1,007 35 2012(A)46,6144200 Bohannon Dr., Menlo Park,CA 4,798 15,406 441 4,798 15,847 20,645 945 35 2012(A)46,2554300 Bohannon Dr., Menlo Park,CA 6,527 20,958 1,351 6,527 22,309 28,836 1,504 35 2012(A)62,9204400 Bohannon Dr., Menlo Park,CA 4,798 15,406 1,096 4,798 16,502 21,300 1,078 35 2012(A)46,2554500 Bohannon Dr., Menlo Park,CA 6,527 20,957 1,355 6,527 22,312 28,839 1,446 35 2012(A)62,9204600 Bohannon Dr., Menlo Park,CA 4,798 15,406 872 4,798 16,278 21,076 840 35 2012(A)46,2554700 Bohannon Dr., Menlo Park,CA 6,527 20,958 1,134 6,527 22,092 28,619 1,403 35 2012(A)62,920331 Fairchild Drive, CA 18,396 17,712 6,549 18,396 24,261 42,657 220 35 2013(C)87,565303 Second St., San Francisco, CA $133,117(10)63,550 154,153 23,306 63,550 177,459 241,009 25,676 35 2010(A)740,047100 First St., San Francisco, CA 49,150 131,238 15,824 49,150 147,062 196,212 18,375 35 2010(A)466,490250 Brannan St., San Francisco,CA 7,630 22,770 3,999 7,630 26,769 34,399 3,494 35 2011(A)95,008201 Third St., San Francisco, CA 19,260 84,018 18,300 19,260 102,318 121,578 12,621 35 2011(A)332,893301 Brannan St., San Francisco,CA 5,910 22,450 1,669 5,910 24,119 30,029 2,145 35 2011(A)74,430360 Third St., San Francisco, CA 182,325 28,460 153,865 182,325 4,064 35 2011(A)(14)4040 Civic Center, San Rafael, CA 10,210 18,029 2,643 10,210 20,672 30,882 2,556 35 2011(A)130,237599 N. Mathilda Ave., Sunnyvale,CA 13,538 12,559 — 13,538 12,559 26,097 591 35 2012(A)75,810601 108th Ave., Bellevue, WA — 214,095 12,169 — 226,264 226,264 23,061 35 2011(A)488,47010900 NE 4th St., Bellevue, WA 25,080 150,877 14,624 25,080 165,501 190,581 8,872 35 2012(A)416,755F - 63KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2013 Initial Cost Gross Amounts at WhichCarried at Close of Period Property Location Encumb-rances Land andimprove-ments BuildingsandImprove-ments CostsCapitalizedSubsequent toAcquisition/Improvement Land andimprove-ments BuildingsandImprove-ments Total AccumulatedDepreciation Deprecia-tionLife (1) Date ofAcquisition(A)/Construction(C) (2) RentableSquareFeet (3)(unaudited) (in thousands)10220 NE Points Dr.,Kirkland, WA $27,322(11)2,554 12,080 891 2,554 12,971 15,525 1,345 35 2011(A)49,85110230 NE Points Dr.,Kirkland, WA (11)5,071 24,694 3,184 5,071 27,878 32,949 2,895 35 2011(A)98,98210210 NE Points Dr.,Kirkland, WA (11)4,336 24,187 2,256 4,336 26,443 30,779 2,688 35 2011(A)84,6413933 Lake WA Blvd.NE, Kirkland, WA (11)2,380 15,114 1,058 2,380 16,172 18,552 1,735 35 2011(A)46,45015050 N.E. 36th St.,Redmond, WA 9,260 34,650 197 9,260 34,847 44,107 3,524 35 2010(A)122,103837 N. 34th St., LakeUnion, WA — 37,404 548 — 37,952 37,952 2,419 35 2012(A)111,580320 Westlake AvenueNorth, WA 82,638(12)14,710 82,018 — 14,710 82,018 96,728 2,720 35 2013(A)184,643321 Terry AvenueNorth, WA (12)10,430 60,003 281 10,430 60,284 70,714 1,963 35 2013(A)135,755701 N. 34th St., LakeUnion, WA 34,000(13)— 48,027 241 — 48,268 48,268 3,193 35 2012(A)138,995801 N. 34th St., LakeUnion, WA (13)— 58,537 193 — 58,730 58,730 3,371 35 2012(A)169,41217150 Von Karman,Irvine, CA 4,848 7,342 2,501 7,684 7,007 14,691 7,007 35 1997(A)(16)TOTAL OPERATINGPROPERTIES $543,398 $614,976 $2,715,858 $917,356 $657,491 $3,590,699 $4,248,190 $818,957 12,736,099Undeveloped land andconstruction in progress(17) $2,470(16)616,226 90,512 310,019 588,479 428,278 1,016,757 — TOTAL ALLPROPERTIES $545,868(18)$1,231,202 $2,806,370 $1,227,375 $1,245,970 $4,018,977 $5,264,947 $818,957 12,736,099 __________________________(1)The initial costs of buildings and improvements 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 oruseful 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 $8.9 million mortgage note.(6)These properties secure a $67.7 million mortgage note.(7)This property secures a $39.9 million mortgage note.(8)This property secures a $52.7 million mortgage note.(9)These properties secure a $97.0 million mortgage note.(10)This property secures a $133.1 million mortgage note.(11)This property secures a $27.3 million mortgage note.(12)These properties secure a $82.6 million mortgage note.(13)These properties secure a $34.0 million mortgage note.(14)Excludes approximately 410,000 rentable square feet as this building was under redevelopment at December 31, 2013. The cost basis is included in “Undeveloped land and construction in progress” below.(15)During the fourth quarter of 2011, we completed demolition of the industrial building on this site to prepare for the possible sale of the land and improvements, since we successfully obtained entitlements to reposition this sitefor residential use. Our ultimate decision to sell this site and the timing of any potential future sale will depend upon market conditions and other factors.(16)Represents the principal balance of the public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of our undeveloped land parcels. The Bonds are secured byproperty tax payments.(17)Includes initial cost of 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, 2013.(18)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $7.2 million as of December 31, 2013.F - 64KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2013The aggregate gross cost of property included above for federal income tax purposes approximated $4.6 billion as of December 31, 2013.The following table reconciles the historical cost of total real estate held for investment from January 1, 2011 to December 31, 2013: Year Ended December 31, 2013 2012 2011 (in thousands)Total real estate held for investment, beginning of year$4,757,394 $3,798,690 $3,216,871Additions during period: Acquisitions384,650 1,023,384 617,923Improvements, etc. 452,331 207,345 84,736Total additions during period836,981 1,230,729 702,659Deductions during period: Cost of real estate sold(56,993) (264,533) (21,052)Properties held for sale(259,251) — (89,937)Other (1)(13,184) (7,492) (9,851)Total deductions during period(329,428) (272,025) (120,840)Total real estate held for investment, end of year$5,264,947 $4,757,394 $3,798,690__________________________(1)Related to the redevelopment property transferred to construction in progress during the year.The following table reconciles the accumulated depreciation from January 1, 2011 to December 31, 2013: Year Ended December 31, 2013 2012 2011 (in thousands)Accumulated depreciation, beginning of year$756,515 $742,503 $672,429Additions during period: Depreciation of real estate145,325 125,906 105,982Total additions during period145,325 125,906 105,982Deductions during period: Write-offs due to sale(17,144) (109,797) (11,152)Properties held for sale(63,110) — (14,905)Other (1)(2,629) (2,097) (9,851)Total deductions during period(82,883) (111,894) (35,908)Accumulated depreciation, end of year$818,957 $756,515 $742,503__________________________(1)Related to the redevelopment property transferred to construction in progress during the year.F - 65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 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))4.5 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)4.6 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)4.7 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percent of thetotal assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees to furnishcopies of these agreements to the Commission upon request4.8 Note and Guarantee Agreement, dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and thepurchasers whose names appear in the acceptance form at the end of the Note and Guarantee Agreement (previously filed by Kilroy RealtyCorporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004)4.9 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)4.10 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)ExhibitNumber Description4.11 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)4.12 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)4.13 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)4.14 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)4.15 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)4.16 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 Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onJuly 6, 2011)4.17 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)4.18 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 “3.800% Notes due 2023,” including the form of 3.800% Notes due 2023 and the form of related guarantee (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 14, 2013)4.19 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 Realty Corporation and Kilroy Realty, L.P. as an exhibit to the RegistrationStatement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)4.20 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 Realty Corporation and Kilroy Realty, L.P. as an exhibit to theRegistration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)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))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))ExhibitNumber Description10.5 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 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 AllenGroup and 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† 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)10.19† 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)10.20† 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)10.21† 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)10.22† 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)10.23*† Fifth Amendment to Kilroy Realty 2006 Incentive Award PlanExhibitNumber Description10.24† 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)10.25† 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)10.26† 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) 10.27† 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) 10.28† 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) 10.29† 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) 10.30† 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)10.31 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)10.32 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)10.33 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)10.34 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)10.35† 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)10.36† 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)10.37 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)10.38 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)10.39 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)10.40 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)10.41 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)ExhibitNumber Description10.42 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.43 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.44 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.45 Sales Agreement, dated July 25, 2011, between Kilroy Realty Corporation, Kilroy Realty, L.P. 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)10.46† 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)10.47† 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)10.48† 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)10.49 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)10.50 First Amendment to Term Loan Agreement, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibit onForm 10-K for the year ended December 31, 2012)10.51 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)10.52 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)10.53 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)10.54 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)10.55 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)10.56 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)10.57 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)10.58 Amended and Restated Revolving Credit Agreement dated November 28, 2012 (previously filed by Kilroy Realty Corporation as anexhibit on Form 10-K for the year ended December 31, 2012)10.59 Amended and Restated Guaranty of Payment, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibit onForm 10-K for the year ended December 31, 2012)10.60† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken (previously filed byKilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended March 31, 2013)10.61† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawkeneffective as of January 1, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities andExchange Commission on April 5, 2013)ExhibitNumber Description10.62† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation andJeffrey C. Hawken, dated April 4, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter endedJune 30, 2013)10.63† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation andJohn Kilroy, Jr., dated March 30, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter endedJune 30, 2013)10.64† Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended June 30, 2013)10.65† Form of Stock Award Deferral Program Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit onForm 10-Q for the quarter ended June 30, 2013)10.66 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays CapitalInc. (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended September30, 2013)10.67 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Wells FargoSecurities, LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter endedSeptember 30, 2013)10.68 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Merrill Lynch,Pierce, Fenner & Smith Incorporated (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Qfor the quarter ended September 30, 2013)10.69 Amendment to Sales Agreement, dated October 2, 2013, between Kilroy Realty Corporation, Kilroy Realty, L.P. and J.P. MorganSecurities LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter endedSeptember 30, 2013)12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined FixedCharges and Preferred Dividends of Kilroy Realty Corporation12.2* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges of Kilroy Realty, L.P.21.1* List of Subsidiaries of Kilroy Realty Corporation21.2* List of Subsidiaries of Kilroy Realty, L.P.23.1* Consent of Deloitte & Touche LLP for Kilroy Realty Corporation23.2* Consent of Deloitte & Touche LLP for Kilroy Realty, L.P.24.1* Power of Attorney (included on the signature page of this Form 10-K)31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation31.3* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.31.4* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty, L.P.32.1* Section 1350 Certification of Chief Executive Officer of Kilroy Realty Corporation32.2* Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation32.3* Section 1350 Certification of Chief Executive Officer of Kilroy Realty, L.P.32.4* Section 1350 Certification of Chief Financial Officer of Kilroy Realty, L.P.101.1 The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the year ended December 31, 2013, 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 11 or 12 of the Securities Act of 1933 or Section 18 of theSecurities Exchange Act of 1934 and otherwise are not subject to liability under these sections.Exhibit 10.23FIFTH AMENDMENT TOKILROY REALTY2006 INCENTIVE AWARD PLANTHIS FIFTH AMENDMENT TO KILROY REALTY 2006 INCENTIVE AWARD PLAN (this “Fifth Amendment”), dated as ofDecember 16, 2013 (the “Fifth Amendment Effective Date”), is made and adopted by Kilroy Realty Corporation, a Maryland corporation (the“Company”). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Plan (as definedbelow).WHEREAS, the Company maintains the Kilroy Realty 2006 Incentive Award Plan (as amended, the “Plan”);WHEREAS, pursuant to Section 14.1 of the Plan, the Plan may be amended by the Committee at any time and from time to time with theapproval of the Board of Directors of the Company; andWHEREAS, the Company desires to amend the Plan as set forth herein.NOW, THEREFORE, BE IT RESOLVED, that the Plan be and hereby is amended as follows:1.Section 12.5 of the Plan is hereby deleted and replaced in its entirety with the following:“Delegation of Authority. To the extent permitted by applicable law, the Board or Committee may from time to timedelegate to a committee of one or more members of the Board and/or one or more officers of the Company the authority to grant or amendAwards or to take other actions authorized pursuant to this Article 12; provided, however, that in no event shall an officer of the Company bedelegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16of the Exchange Act, (b) Covered Employees with respect to Awards intended to constitute Qualified Performance-Based Compensation, or(c) officers of the Company (or members of the Board) to whom authority to grant or amend Awards has been delegated hereunder;provided, further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under Section 162(m)of the Code and other applicable law. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committeespecifies at the time of such delegation, and the Board or the Committee may at any time rescind the authority so delegated or appoint a newdelegatee. At all times, the delegatee(s) appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board and theCommittee.”2.Effective as of the Fifth Amendment Effective Date, this Fifth Amendment shall be and is hereby incorporated into and forms apart of the Plan.3.Except as set forth herein, the Plan shall remain in full force and effect.[SIGNATURE PAGE FOLLOWS]I hereby certify that the foregoing Fifth Amendment was duly adopted by the Board of Directors of Kilroy Realty Corporation onDecember 16, 2013.Executed on this 16th day of December, 2013.By: /s/ Tyler H. RoseName: Tyler H. RoseTitle: Executive Vice President, Chief FinancialOfficer, and SecretaryI hereby certify that the foregoing Fifth Amendment was duly adopted by the Board of Directors of Kilroy Realty Corporation onDecember 16, 2013.Executed on this 16th day of December, 2013.By: /s/ Joseph E. MagriName: Joseph E. MagriTitle: Vice President, Corporate Counsel,and Assistant Secretary2Exhibit 12.1KILROY REALTY CORPORATIONStatement of Computation of Ratio of Earnings to Fixed Charges(in thousands, except ratios) Year Ended December 31, 2013 2012 2011 2010 2009Earnings: Income (loss) from continuing operations $15,837 $(3,505) $(15,584) $(6,729) $7,709Plus Fixed Charges: Interest expense (including amortization of loan costs) 75,870 79,114 85,785 55,082 40,926Capitalized interest and loan costs 35,368 19,792 9,130 10,015 9,683Estimate of interest within rental expense 4,073 3,475 1,481 997 871Distributions on Cumulative Redeemable Preferred units — 3,541 5,588 5,588 5,588Fixed Charges 115,311 105,922 101,984 71,682 57,068Plus: Amortization of capitalized interest (1) 5,823 5,318 4,622 4,348 4,067Less: Capitalized interest and loan costs (35,368) (19,792) (9,130) (10,015) (9,683)Less: Distributions on Cumulative Redeemable Preferred units — (3,541) (5,588) (5,588) (5,588)Earnings 101,603 84,402 76,304 53,698 53,573 Combined Fixed Charges and Preferred Dividends: Fixed Charges (from above) 115,311 105,922 101,984 71,682 57,068Preferred Dividends 13,250 10,567 9,608 9,608 9,608Combined Fixed Charges and Preferred Dividends $128,561 $116,489 $111,592 $81,290 $66,676Consolidated ratio of earnings to fixed charges 0.88x 0.80x 0.75x 0.75x 0.94xConsolidated ratio of earnings to combined fixed charges and preferreddividends 0.79x 0.72x 0.68x 0.66x 0.80xDeficiency $26,958 $32,087 $35,288 $27,592 $13,103________________________(1)Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis of total interest costs andloan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations before the effect ofnoncontrolling interest plus fixed charges and amortization of capital interest, reduced by capitalized interest and loan costs and distributions on cumulative redeemable preferredunits. Fixed charges consist of interest costs, whether expensed or capitalized, amortization of loan costs, an estimate of the interest within rental expense, and distributions oncumulative redeemable preferred units.We have computed the consolidated ratio of earnings to combined fixed charges and preferred dividends by dividing earnings by combined fixed charges and preferreddividends. Earnings consist of income from continuing operations before the effect of noncontrolling interest plus fixed charges and amortization of capitalized interest, reduced bycapitalized interest and loan costs and distributions on Series A cumulative redeemable preferred units. Fixed charges consist of interest costs, whether expensed or capitalized,amortization of loan costs, an estimate of the interest within rental expense, and distributions on Series A cumulative redeemable preferred units.Exhibit 12.2KILROY REALTY, L.P.Statement of Computation of Ratio of Earnings to Fixed Charges(in thousands, except ratios) Year Ended December 31, 2013 2012 2011 2010 2009Earnings: Income (loss) from continuing operations $15,837 $(3,505) $(15,584) $(6,729) $7,709Plus Fixed Charges: Interest expense (including amortization of loan costs) 75,870 79,114 85,785 55,082 40,926Capitalized interest and loan costs 35,368 19,792 9,130 10,015 9,683Estimate of interest within rental expense 4,073 3,475 1,481 997 871Fixed Charges 115,311 102,381 96,396 66,094 51,480Plus: Amortization of capitalized interest (1) 5,823 5,318 4,622 4,348 4,067Less: Capitalized interest and loan costs (35,368) (19,792) (9,130) (10,015) (9,683)Earnings $101,603 $84,402 $76,304 $53,698 $53,573 Ratio of earnings to fixed charges 0.88x 0.82x 0.79x 0.81x 1.04x________________________(1)Amount represents an estimate of capitalized interest that has been amortized each year based on our established depreciation policy and an analysis of total interest costs andloan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations before the effect ofnoncontrolling interest plus fixed charges and amortization of capital interest and reduced by capitalized interest and loan costs. Fixed charges consist of interest costs, whetherexpensed or capitalized, amortization of loan costs and an estimate of the interest within rental expense.Exhibit 21.1SUBSIDIARIES OF KILROY REALTY CORPORATIONNAME OF SUBSIDIARYOR ORGANIZATION STATE OF INCORPORATIONOR FORMATIONKilroy Realty, L.P. DelawareKilroy Realty Finance, Inc. DelawareKilroy Realty Finance Partnership, L.P. DelawareKilroy Services, LLC DelawareKilroy Realty TRS, Inc. DelawareKilroy Realty Management, L.P. DelawareKilroy RB, LLC DelawareKilroy RB II, LLC DelawareKilroy Realty 303, LLC DelawareKR Westlake Terry, LLC DelawareKR 6255 Sunset, LLC DelawareKR MML 12701, LLC DelawareKR 690 Middlefield, LLC DelawareKR Lakeview, LLC DelawareKR Tribeca West, LLC DelawareKR 331 Fairchild, LLC DelawareKR Hollywood, LLC DelawareKR 350 Mission, LLC DelawareFremont Lake Union, LLC DelawareKR 555 Mathilda, LLC DelawareKR Redwood City Member, LLC DelawareRedwood City Partners, LLC DelawareExhibit 21.2SUBSIDIARIES OF KILROY REALTY, L.P.NAME OF SUBSIDIARYOR ORGANIZATION STATE OF INCORPORATIONOR FORMATIONKilroy Realty Finance Partnership, L.P. DelawareKilroy Services, LLC DelawareKilroy Realty TRS, Inc. DelawareKilroy Realty Management, L.P. DelawareKilroy RB, LLC DelawareKilroy RB II, LLC DelawareKilroy Realty 303, LLC DelawareKR Westlake Terry, LLC DelawareKR 6255 Sunset, LLC DelawareKR MML 12701, LLC DelawareKR 690 Middlefield, LLC DelawareKR Lakeview, LLC DelawareKR Tribeca West, LLC DelawareKR 331 Fairchild, LLC DelawareKR Hollywood, LLC DelawareKR 350 Mission, LLC DelawareFremont Lake Union, LLC DelawareKR 555 Mathilda, LLC DelawareKR Redwood City Member, LLC DelawareRedwood City Partners, LLC DelawareExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-191524 on Form S-3 and Registration Statement Nos. 333-43227, 333-77739,333-135385, 333-161954 and 333-167452 on Forms S-8 of our reports dated February 13, 2014, relating to the financial statements and financial statementschedules of Kilroy Realty Corporation and the effectiveness of Kilroy Realty Corporation's internal control over financial reporting, appearing in this AnnualReport on Form 10-K of Kilroy Realty Corporation for the year ended December 31, 2013./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 2014Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-191524-01 on Form S-3 of our reports dated February 13, 2014, relating to thefinancial statements and financial statement schedules of Kilroy Realty, L.P. and the effectiveness of Kilroy Realty, L.P.’s internal control over financialreporting, appearing in this Annual Report on Form 10-K of Kilroy Realty, L.P. for the year ended December 31, 2013./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 13, 2014Exhibit 31.1Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, John B. Kilroy, Jr., certify that:1.I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerDate: February 13, 2014Exhibit 31.2Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Tyler H. Rose, certify that:1.I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerDate: February 13, 2014Exhibit 31.3Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, John B. Kilroy, Jr., certify that:1.I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P. ;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerKilroy Realty Corporation, sole general partner of Kilroy Realty, L.P.Date: February 13, 2014Exhibit 31.4Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Tyler H. Rose, certify that:1.I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P. ;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P.Date: February 13, 2014Exhibit 32.1Certification of Chief Executive OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the“Company”) hereby certifies, to his knowledge, that:(i)the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2013 (the “Report”) fully complieswith the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive Officer Date:February 13, 2014The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of the Company or Kilroy Realty, L.P. under the Securities Act of 1933, as amended, orthe Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained insuch filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2Certification of Chief Financial OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the“Company”) hereby certifies, to his knowledge, that:(i)the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2013 (the “Report”) fully complieswith the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial Officer Date:February 13, 2014The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of the Company or Kilroy Realty, L.P. under the Securities Act of 1933, as amended, orthe Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporation language contained insuch filing. The signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.3Certification of Chief Executive OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, thesole general partner of Kilroy Realty, L.P. (the “Operating Partnership”), hereby certifies, to his knowledge, that:(i)the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended December 31, 2013 (the "Report")fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended;and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theOperating Partnership./s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date:February 13, 2014The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporationlanguage contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership andwill be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.4Certification of Chief Financial OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, thesole general partner of Kilroy Realty, L.P. (the "Operating Partnership"), hereby certifies, to his knowledge, that:(i)the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended December 31, 2013 (the "Report")fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended;and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theOperating Partnership./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date:February 13, 2014The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporationlanguage contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership andwill be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

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