Kilroy Realty
Annual Report 2014

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, 2014OR¨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 the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Kilroy Realty Corporation Yes x No ¨ Kilroy Realty, L. P. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Kilroy Realty Corporation Yes x No ¨ Kilroy Realty, L. P. Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Kilroy Realty CorporationxLarge 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 $5,152,002,640based on the quoted closing price on the New York Stock Exchange for such shares on June 30, 2014.There is no public trading market for the common units of limited partnership interest of Kilroy Realty, L.P. As a result, the aggregate market value of the common units oflimited partnership interest held by non-affiliates of Kilroy Realty, L.P. cannot be determined.As of February 6, 2015, 86,377,404 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, 2014 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unlessstated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy RealtyCorporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership”mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidated subsidiaries.The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of December 31, 2014, the Companyowned an approximate 98.0% common general partnership interest in the Operating Partnership. The remaining approximate 2.0% 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 itto enter 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 OperatingPartnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds inthe Operating Partnership. As a result, the Company does not conduct business itself, other than acting as the sole general partner of the OperatingPartnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated underany indebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of theCompany either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with nopublicly-traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the OperatingPartnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through theOperating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of 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:•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;•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 19, Net Income Available to Common Stockholders Per Share of the Company;◦Note 20, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;◦Note 22, Quarterly Financial Information of the Company (Unaudited); and◦Note 23, Quarterly Financial Information of the Operating Partnership (Unaudited).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 Factors11Item 1B. Unresolved Staff Comments29Item 2. Properties30Item 3. Legal Proceedings39Item 4. Mine Safety Disclosures39 PART II Item 5. Market for Kilroy Realty Corporation’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities40 Market for Kilroy Realty, L.P.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities41Item 6. Selected Financial Data – Kilroy Realty Corporation43 Selected Financial Data – Kilroy Realty, L.P.45Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations46Item 7A. Quantitative and Qualitative Disclosures About Market Risk83Item 8. Financial Statements and Supplementary Data84Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure84Item 9A. Controls and Procedures85Item 9B. Other Information89 PART III Item 10. Directors, Executive Officers and Corporate Governance89Item 11. Executive Compensation89Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters89Item 13. Certain Relationships and Related Transactions, and Director Independence89Item 14. Principal Accountant Fees and Services89 PART IV Item 15. Exhibits and Financial Statement Schedules90 SIGNATURES97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 generally conduct substantially allof our operations 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, 2014: Number ofBuildings RentableSquare Feet Number ofTenants Percentage OccupiedStabilized Office Properties111 14,096,617 526 94.4%Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently under construction orcommitted for construction, “lease-up” properties, undeveloped land, and real estate assets held for sale. We define redevelopment properties as thoseproperties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, theintended result of which is a higher economic return on the property. As of December 31, 2014, we had no redevelopment properties. We define “lease-up”properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of majorconstruction activities. There were no operating properties in “lease-up” as of December 31, 2014. As of December 31, 2014, we had one land parcel held forsale. During the year ended December 31, 2014, we stabilized a redevelopment project in San Francisco, California, a development project consisting of threeoffice buildings encompassing 587,429 square feet and a development project consisting of two office buildings encompassing 340,913 square feet, both inthe San Francisco Bay Area, California. These projects are included in our stabilized portfolio as of December 31, 2014.As of December 31, 2014, the following properties were excluded from our stabilized portfolio: Number ofProperties/Projects Estimated RentableSquare Feet (1)Development projects under construction6 1,732,000_______________(1)Estimated rentable square feet upon completion. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That MayInfluence Future Results of Operations —Completed, In-Process and Future Development Pipeline” for more information.Our stabilized portfolio also excludes our future development pipeline, which is comprised of nine potential development sites, representingapproximately 104 gross acres of undeveloped land on which we believe we have the potential to develop over 3.0 million square feet of office space,depending upon economic conditions.As of December 31, 2014, all of our properties and development projects were owned and all of our business was conducted in the state of California withthe exception of thirteen office properties located in the state of Washington. All of our properties and development projects are 100% owned, excluding adevelopment project owned by Redwood City Partners, LLC, a consolidated subsidiary (see Note 3 “Acquisitions” to our consolidated financial statementsincluded in this report) and certain properties held at qualified intermediaries for potential future transactions that are intended to qualify as like-kindexchanges pursuant to Section 1031 of the Code (“Section 1031 Exchanges”) to defer taxable gains on dispositions for federal and state income tax purposes,which have been consolidated for financial5reporting purposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report).We own our interests in all of our real estate assets through the Operating Partnership and the Finance Partnership and generally conduct substantially allof our operations through the Operating Partnership of which we owned a 98.0% common general partnership interest as of December 31, 2014. Theremaining 2.0% common limited partnership interest in the Operating Partnership as of December 31, 2014 was owned by non-affiliated investors and certainof our executive officers and directors. Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company, is the sole general partner of the FinancePartnership and owns a 1.0% common general partnership interest. The Operating Partnership owns the remaining 99.0% common limited partnershipinterest. We conduct substantially all of our development activities through Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of theOperating Partnership. With the exception of the Operating Partnership, certain properties held in Section 1031 Exchanges and Redwood City Partners LLC,all of the Company’s subsidiaries 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 andstrategies include:•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, andconstruction and development management;•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 active development program and our extensive future development pipeline of undeveloped land sites (see “Item 7: Management’s Discussionand Analysis of Financial Condition and Results of Operations —Information on Leases Commenced and Executed” for additional informationpertaining to the Company’s in-process and future development pipeline);•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 related2014 and 2015 property and land dispositions);•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; and•our strong financial position that has and will continue to allow us to pursue attractive acquisition and development and redevelopmentopportunities.“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 mitigateportfolio credit risk;•managing operating expenses through the efficient use of internal property management, leasing, marketing, financing, accounting, legal, andconstruction and development management functions;7•maintaining and developing long-term relationships with a diverse tenant base;•managing our properties to offer the maximum degree of utility and operational efficiency to tenants;•building 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;•actively pursuing LEED certification for over 1.7 million square feet of office space under construction. During the past few years we havesignificantly enhanced the sustainability profile of our portfolio, ending the year with 39% of our properties LEED certified and 56% ENERGYSTAR certified. During 2014, the Company was recognized for our sustainability efforts with multiple industry leadership awards, includingNAREIT's 2014 Office Leader in the Light Award. The company is also recognized by the Global Real Estate Sustainability Benchmark as the NorthAmerican leader in sustainability and was ranked first among 151 North American participants across all asset types;•continuing to effectively manage capital improvements to enhance our properties’ competitive advantages in their respective markets and improvethe efficiency of building systems;•enhancing our management team with individuals who have extensive regional experience and are highly knowledgeable in their respectivemarkets; and•attracting and retaining motivated employees by providing financial and other incentives to meet our operating and financial goals.Development and Redevelopment Strategies. We and our predecessors have developed office properties primarily located in California since 1947. Asof December 31, 2014, our future development pipeline was comprised of nine potential development sites, representing approximately 104 gross acres ofundeveloped land on which we believe we have the potential to develop over 3.0 million square feet of office space, depending upon economic conditions.Our strategy with respect to development is to:•maintain a disciplined approach by emphasizing pre-leasing, commencing development in stages or phasing, and cost control;•be the premier provider of modern and collaborative office buildings on the West Coast with focus on design and environment;•reinvest capital from dispositions of selective assets into new state-of-the-market development and acquisition assets with higher cash flow and ratesof return;•execute on our development projects under construction and our future development pipeline, including expanding entitlements; and•evaluate redevelopment opportunities in supply-constrained markets because such efforts generally achieve similar returns to new development withreduced entitlement risk and shorter construction periods.Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing or acquired buildingspursuant to a formal plan, the intended result of which is a higher economic return on the property. We may engage in the additional development orredevelopment of office properties when market conditions support a favorable risk-adjusted return on such development or redevelopment. We expect thatour significant working relationships with tenants, municipalities and landowners on the West Coast will give us further access to development andredevelopment opportunities. We cannot assure you that we will be able to successfully develop or redevelop any of our properties or that we will haveaccess to additional development or redevelopment opportunities.8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 acquisitionof value add office properties and development and redevelopment opportunities that add immediate Net Operating Income to our portfolio or play astrategic role in 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.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, 2014, our total debt as a percentage of total market capitalizationwas 28.2%, and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 30.4%, both of which werecalculated based on the quoted closing price per share of the Company’s common stock of $69.07 on December 31, 2014 (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, 2014, our 15 largest tenants in terms of annualized base rental revenues represented approximately 35.3% of our total annualizedbase rental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, 2014. Annualized base rental revenueincludes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization ofdeferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existingleases and expense reimbursement 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 properties9are located. For further discussion of the potential impact of competitive conditions on our business, see “Item 1A. Risk Factors.”Segment and Geographic Financial InformationDuring 2014 and 2013, we had one reportable segment, our office properties segment. For information about our office property revenues and long-livedassets and other financial information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results ofOperations.”As of December 31, 2014, all of our properties and development projects were owned and all of our business was conducted in the state of California withthe exception of thirteen office properties located in the state of Washington. All of our properties and development projects are 100% owned, excluding adevelopment project owned by Redwood City Partners, LLC, a consolidated subsidiary, and certain properties held in Section 1031 Exchanges, which havebeen consolidated 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, 2014, we employed 226 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; however, if a Phase 1 doesrecommend that soil samples be taken or other subsurface investigations take place, we generally perform such recommended actions. Depending on the ageof the property, the Phase I may have included an assessment of asbestos-containing materials or a separate hazardous materials survey may have beenconducted. For properties where asbestos-containing materials were identified or suspected, an operations and maintenance plan was generally prepared andimplemented.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. Although we may be required to conduct further clean-up of the soil at these properties (see Note 15 “Commitments and Contingencies” to ourconsolidated financial statements included in this report for additional information regarding our ground lease obligations), we are not aware of any suchcondition, liability, or concern by any other means that would give rise to material environmental liability. However, our assessments may have failed toreveal all environmental conditions, liabilities, or compliance concerns; there may be material environmental conditions, liabilities, or compliance concernsthat arose at a property after the review was completed; future laws, ordinances, or regulations may impose material additional environmental liability; andenvironmental conditions at our properties may be affected in the future by tenants, third parties, or the condition of land or operations near our properties,such as the presence of underground storage tanks. We cannot be certain that costs of future environmental compliance will not have an adverse effect on ourfinancial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and topay dividends and distributions to security holders.10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, 2014, other than routine cleaning materials, approximately 5-10% of our tenants handled hazardous substances and/or wastes onapproximately 2-5% of the aggregate square footage of our properties as part of their routine operations. These tenants are primarily involved in the lifesciences business. The hazardous substances and wastes are primarily comprised of diesel fuel for emergency generators and small quantities of lab and lightmanufacturing chemicals including, but not limited to, alcohol, ammonia, carbon dioxide, cryogenic gases, dichlorophenol, methane, naturalyte acid,nitrogen, nitrous oxide, and oxygen which are routinely used by life science companies. We are not aware of any material noncompliance, liability, or claimrelating to hazardous or toxic substances or petroleum products in connection with any of our properties, and management does not believe that on-goingactivities by our tenants will have a material adverse effect on our operations.Costs related to government regulation and private litigation over environmental matters. Under applicable environmental laws and regulations, wemay be liable for the costs of removal, remediation, or disposal of certain hazardous or toxic substances present or released on our properties. These lawscould impose liability without regard to whether we are responsible for, or even knew of, the presence or release of the hazardous materials. Governmentinvestigations and remediation actions may have substantial costs, and the presence or release of hazardous substances on a property could result ingovernmental clean-up actions, personal injury actions, or similar claims by private plaintiffs.Potential environmental liabilities may exceed our environmental insurance coverage limits, transactional indemnities or holdbacks. We carry whatwe 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 theindemnitors, may be less than the resulting liabilities or may otherwise fail to address the liabilities adequately. Therefore, we cannot provide any assurancethat our insurance coverage or transactional indemnities will be sufficient or that our liability, if any, will not have a material adverse effect on our financialcondition, results of operations, cash flows, quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividendsand distributions to security holders.ITEM 1A. RISK FACTORSThe following section sets forth material factors that may adversely affect our business and operations. The following factors, 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 moderateeconomic growth in the United States, there continues to be concern regarding the stability of the economy and credit markets generally. Volatility in theU.S. and international capital markets and concern over a return to recessionary conditions in global economies, and in the California economy in particular,may adversely affect our liquidity and financial condition and the liquidity and financial condition of our tenants. If these market conditions continue, theymay limit our ability and the ability of our tenants to 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 economic conditionsand regulations, as well as natural disasters, in those areas. Because all of our properties are concentrated in California and greater Seattle we may beexposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, our properties are concentrated inLos Angeles, Orange County, San Diego County and the San Francisco Bay Area, exposing us to risks associated with those specific11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 trends in thereal estate industry. Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities, aresubject 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;•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, ability toborrow funds and cash flows. As of December 31, 2014, our 15 largest tenants represented approximately 35.3% of total annualized base rental revenues. Seefurther discussion on the composition of our tenants by industry and our largest tenants under “Item 2. Properties —Significant Tenants.”12Our financial condition, results of operations, ability to borrow funds and cash flows would be adversely affected if any of our significant tenants fails torenew 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, 2014, we derived approximately 98.3% ofour 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 substantiallyless than 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 our financialcondition, results of operations and cash flows. As of December 31, 2014, as a percentage of our annualized base rental revenue, 45% of our tenants operatedin the technology and media industry, 15% in the finance, insurance and real estate industries, 14% in the professional, business and other services industries,10% in the education and health services industries and 16% in other industries. As we expand our acquisition and development activities in marketspopulated by knowledge and creative based tenants in the technology and media industry, our tenant mix may become more concentrated, further exposingus to risks associated with that industry. For a further discussion of the composition of our tenants by industry, see “Item 2. Properties —Significant Tenants.”An economic downturn in any of these industries, or in any industry in which a significant number of our tenants currently or may in the future operate, couldnegatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or default on lease obligations, fail to renewtheir leases or renew their leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy their obligations to us. Asa result, a downturn in an industry in which a significant number of our tenants operate could adversely affect our financial conditions, result of operationsand cash flows.We may be unable to renew leases or re-lease available space. Most of our income is derived from the rent earned from our tenants. We had office spacerepresenting approximately 5.6%, of the total square footage of our properties that was not occupied as of December 31, 2014. In addition, leases representingapproximately 8.7% and 6.0% of the leased rentable square footage of our properties are scheduled to expire in 2015 and 2016, respectively. Above marketrental rates on some of our properties may force us to renew or re-lease expiring leases at rates below current lease rates. We cannot provide any assurance thatleases will be renewed, available space will be re-leased or that our rental rates will be equal to or above the current rental rates. If the average rental rates forour properties decrease, existing tenants do not renew their leases, or available space is not re-leased, 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 holderscould be adversely affected.We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties. Our properties are subject toregulation under federal laws, such as the Americans with Disabilities Act of 1990 (the “ADA”), pursuant to which all public accommodations must meetfederal requirements related to access and use by disabled persons, and state and local laws addressing earthquake, fire, and life safety requirements. Althoughwe believe that our properties substantially comply with requirements under applicable governmental regulations, none of our properties have been auditedor investigated for compliance by any regulatory agency. If we were not in compliance with material provisions of the ADA or other regulations affecting ourproperties, we might be required to take remedial action, which could include making modifications or renovations to our properties. Federal, state, or localgovernments may also enact future laws and regulations that could require us to make significant modifications13or renovations 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, such as Title 24 of theCalifornia Code of Regulations (“Title 24”), which prescribes building energy efficiency standards for residential and nonresidential buildings in the State ofCalifornia. If we were not in compliance with material provisions of Title 24 or other regulations affecting our properties, we might be required to takeremedial action, which could include making modifications or renovations to our properties. Changes in the existing land use rules and regulations andapproval process that restrict or delay our ability to develop, redevelop or use our properties (such as potential restrictions on the use and/or density of newdevelopments, water use and other uses and activities) or prescribe additional standards 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.We may not be able to meet our debt service obligations. As of December 31, 2014, we had approximately $2.5 billion aggregate principal amount ofindebtedness, of which $395.1 million is contractually due prior to December 31, 2015. Our total debt and preferred equity at December 31, 2014 represented30.4% of our total market capitalization (which we define as the aggregate of our long-term debt, liquidation value of our preferred equity, and the marketvalue of the Company’s common stock and the Operating Partnership’s common units of limited partnership interest, or common units). For calculation ofour market capitalization and additional information on debt maturities, see “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations —Liquidity and Capital Resources of the Company —Capitalization” and “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership —Liquidity Uses.”The instruments and agreements governing some of our outstanding indebtedness (including borrowings under the Operating Partnership’s unsecuredrevolving credit facility, unsecured term loan facility and unsecured term loan) contain provisions that require us to repurchase for cash or repay thatindebtedness under specified circumstances or upon the occurrence of specified events (including certain changes of control of the Company), and our futuredebt agreements and debt securities may contain similar provisions or may require that we offer to repurchase the applicable indebtedness for cash underspecified circumstances or upon the occurrence of specified events. We may not have sufficient funds to pay our indebtedness when due (including upon anysuch required repurchase, repayment or offer to repurchase), and we may not be able to arrange for the financing necessary to make those payments onfavorable terms or at all. In addition, our ability to make required payments on our indebtedness when due (including upon any such required repurchase,repayment or offer to repurchase) may be limited by the terms of other debt instruments or agreements. Our failure to pay amounts due in respect of any of ourindebtedness when due may constitute an event of default under the instrument governing that indebtedness, which could permit the holders of thatindebtedness to require the immediate repayment of that indebtedness in full and, in the case of secured indebtedness, could allow them to sell the collateralsecuring that indebtedness and use the proceeds to repay that indebtedness. Moreover, any acceleration of or default in respect of any of our indebtednesscould, in turn, constitute an event of default under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of thatother indebtedness.We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in anamount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs, including cash distributions necessary tomaintain the Company’s REIT qualification. Additionally, if we incur additional indebtedness in connection with future acquisitions or for any otherpurpose, our debt service obligations could increase.We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness or obtain additionalfinancing will depend on, among other things:•our financial condition, results of operations and market conditions at the time; and•restrictions in the agreements governing our indebtedness.14As a result, we may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we do not generate sufficient cash flow fromoperations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficientcash to enable us meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additionalequity financing, delaying capital expenditures, or strategic acquisitions and alliances. Any of these events or circumstances could have a material adverseeffect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations andto pay dividends and distributions to our security holders. In addition, foreclosures could create taxable income without accompanying cash proceeds, whichcould require us to borrow or sell assets to raise the funds necessary to meet the REIT distribution requirements discussed below, even if such actions are noton favorable terms.The covenants in the agreements governing the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility and unsecuredterm loan may limit our ability to make distributions to the holders of our common stock. The Operating Partnership’s $600.0 million unsecured revolvingcredit facility, $150.0 million unsecured term loan facility and $39.0 million unsecured term loan contain financial covenants that could limit the amount ofdistributions payable by us on our common stock and preferred stock. We rely on cash distributions we receive from the Operating Partnership to paydistributions on our common stock and preferred stock and to satisfy our other cash needs, and the unsecured revolving credit facility, unsecured term loanfacility and unsecured term loan provide that the Operating Partnership may not, in any year, make partnership distributions to us or other holders of itspartnership interests in an aggregate amount in excess of the greater of:•95% of the Operating Partnership’s consolidated funds from operations (as defined in the agreements governing the unsecured revolving creditfacility, unsecured term loan facility and unsecured term loan) 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 agreements governing the unsecured revolving credit facility, unsecured term loan facility and unsecured term loan each provides that, ifthe Operating Partnership fails to pay any principal of or interest on any borrowings or other amounts payable under such agreement when due, the OperatingPartnership may make only those partnership distributions that result in distributions to us in an amount sufficient to permit us to make distributions to ourstockholders that we reasonably believe are necessary to maintain our status as a REIT for federal and state income tax purposes. Any limitation on ourability to make distributions to our stockholders, whether as a result of these provisions in the unsecured revolving credit facility, the unsecured term loanfacility, unsecured term loan or otherwise, could have a material adverse effect on the market value of our common stock.A downgrade in our credit ratings could materially adversely affect our business and financial condition. The credit ratings assigned to the OperatingPartnership’s debt securities and our preferred stock could change based upon, among other things, our results of operations and financial condition. Theseratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawn by a ratingagency in the future if, in its judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common stock and are not recommendationsto buy, sell or hold our common stock or any other securities. If any of the credit rating agencies that have rated the Operating Partnership’s debt securities orour preferred stock downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list”for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costsand availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price ofour 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 andoperators of office, undeveloped land and other commercial real estate, many of which own properties similar to ours in the same submarkets in which ourproperties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates 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 to maintain,repair and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants in terms 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 may from time to timebe required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that any such expenditurewould 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 adversely affect our financial condition, results of operations and cash flows. We carrycomprehensive liability, fire, extended coverage, rental loss and terrorism insurance covering all of our properties. Management believes the policyspecifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance forgenerally uninsurable losses such as loss from riots or acts of God. In addition, all of our properties are located in earthquake-prone areas. We carryearthquake insurance on our properties in an amount and with deductibles that management believes are commercially reasonable. However, the amount ofour earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may also discontinue earthquake insurance on some or all ofour properties in the future if the cost of premiums for earthquake insurance exceeds the value of the coverage discounted for the risk of loss. If we experiencea loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cashflows from those properties. Further, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, evenif 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 laws andregulations 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 and further clean-up at these properties may be required. Unknown or unremediatedcontamination or the compliance with existing or new environmental or health and safety laws and regulations could require us to incur costs or liabilitiesthat could be material. See “Item 1. Business —Environmental Regulations and Potential Liabilities.”We may be unable to complete acquisitions and successfully operate acquired properties. We continually evaluate the market of available propertiesand may continue to acquire office properties and undeveloped land when strategic opportunities exist. Our ability to acquire properties on favorable termsand successfully 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;16•even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;•even if we enter into agreements for the acquisition of a desired property, we may be unable to complete such acquisitions because they remainsubject to 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,results of operations, cash flows, the quoted trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends anddistributions to our security holders could be adversely affected.We may be unable to successfully complete and operate acquired, developed, and redeveloped properties. There are significant risks 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 acquiredthirteen properties in greater Seattle and may in the future acquire, develop or redevelop properties for other uses and expand our business to othergeographic regions where we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment. Presently, wedo not possess the17same level of familiarity with other outside markets, which could adversely affect our ability to acquire, develop or redevelop properties or to achieveexpected performance.We face risks associated with the development of mixed-use commercial properties. We are currently developing, and in the future may develop,properties either alone or through joint ventures that are known as “mixed-use” developments. This means that in addition to the development of officespace, the project may also include space for residential, retail or other commercial purposes. Generally we have less experience developing and managingnon-office real estate. As a result, if a development project includes non-office space, we may develop that space ourselves or seek to partner with a third-party developer with more experience. If we do not partner with such a developer, or if we choose to develop the space ourselves, we would be exposed tospecific risks associated with the development and ownership of non-office real estate. In addition, if we elect to participate in the development through ajoint venture, we may be exposed to the risks associated with the failure of the other party to complete the development as expected, which could require thatwe identify another joint venture partner and/or complete the project ourselves (including providing any necessary financing). In the case of residentialproperties, these risks include competition for prospective tenants from other operators whose properties may be perceived to offer a better location or betteramenities or whose rent may be perceived as a better value given the quality, location and amenities that the tenant seeks. With residential properties, we willalso compete against apartments, condominiums and single-family homes that are for sale or rent. Because we have less experience with residentialproperties, we may retain third parties to manage these properties. If we decide to wholly own a non-office project and hire a third-party manager, we could bedependent on that party and its key personnel to provide services to us, and we may not find a suitable replacement if the management agreement isterminated, or if key personnel leave or otherwise become unavailable to us.Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition,and disputes between us and our co-venturers and could expose us to potential liabilities and losses. In addition to the Redwood City Partners, LLC ventureformed during 2013 (see Note 2 “Basis of Presentation and Significant Accounting Policies” and Note 3 “Acquisitions” to our consolidated financialstatements included in this report), we may continue to co-invest in the future with third parties through partnerships, joint ventures or other entities, orthrough 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 to risks 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 wouldallow for 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.18We own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sell orotherwise transfer the properties and expose us to the loss of the properties if such agreements are breached by us, terminated or not renewed. As ofDecember 31, 2014, we owned eleven office buildings, located on various land parcels and regions, which we lease individually on a long-term basis. As ofDecember 31, 2014, we had approximately 1.9 million aggregate rentable square feet, or 13.2% of our total stabilized portfolio, of rental space located onthese leased parcels and we may in the future invest in additional properties that are subject to ground leases or other similar restrictive arrangements. Manyof these ground leases and other restrictive agreements impose significant limitations on our uses of the subject property, restrict our ability to sell orotherwise transfer our interests in the property or restrict our leasing of the property. These restrictions may limit our ability to timely sell or exchange theproperties, impair the properties’ value or negatively impact our ability to find suitable tenants for the properties. In addition, if we default under the terms ofany particular lease, we may lose the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiate a newlease on favorable terms, if at all. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on ourfinancial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and topay dividends and distributions to our security holders.Real estate assets are illiquid, and we may not be able to sell our properties when we desire. Our investments in our 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 anadverse effect 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.We may invest in securities related to real estate, which could adversely affect our ability to pay dividends and distributions to our security holders. Wemay 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 haveno control 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-terminvestments 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;19•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 part ofour 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 throughdamage, destruction, or loss, and the availability of insurance for these acts may be less, and cost more, which could adversely affect our financial condition.To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue tohonor their existing leases.Terrorist acts and engagement in war by the United States also may adversely affect the markets in which our securities trade and may cause furthererosion of business and consumer confidence and spending and may result in increased volatility in national and international financial markets andeconomies. Any one of these events may cause a decline in the demand for our office leased space, delay the time in which our new or renovated propertiesreach stabilized occupancy, increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our accessto capital 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 andso-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 withour ability to attract and retain key personnel who are essential to our future success. Given the uncertainty associated with both the results of the existingDodd-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 our properties.In addition, the real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Forexample, under a current California law commonly referred to as “Proposition 13,” property tax reassessment generally occurs as a result of a “change inownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may20not determine whether there has 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 the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount ofproperty taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactivebasis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application tocommercial property and/or introduce split tax roll legislation. Such initiatives, if successful, would increase the assessed value and/or tax rates applicable tocommercial property in California, including our office properties. An increase in the assessed value of our properties or our property tax rates couldadversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt serviceobligations and to pay dividends and distributions to our security holders.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 actionsof our 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 businessoperations.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 internalcontrol over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all controlobjectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future couldresult in misstatements of our results of operations, restatements of our financial statements, or otherwise adversely impact our financial condition, results ofoperations, cash flows, the quoted trading price of 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 of ourinformation technology (IT) networks and related systems. We face risks associated with security breaches, whether through cyber attacks or cyber intrusionsover 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, among other things:•result in unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuableinformation of ours or others, including personally identifiable and account information that could be used to compete against us or for disruptive,destructive or otherwise harmful purposes and outcomes;•result in unauthorized access to or changes to our financial accounting and reporting systems and related data;21•result in our inability to maintain building systems relied on by our tenants;•require significant management attention and resources to remedy any damage that result;•subject us to regulatory penalties or claims for breach of contract, damages, credits, penalties or terminations of leases or other agreements; or•damage our reputation among our tenants and investors.These events could have an adverse impact on our financial condition, results of operations, cash flows, the quoted trading price of our securities, andour ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.An increase in interest rates would increase our interest costs on variable rate debt and could adversely affect our financial condition, results ofoperations and cash flows. As of December 31, 2014 approximately 13.4% of our total outstanding debt was subject to variable interest rates and thereforesubject to interest rate risk. In addition, we have an unsecured revolving credit facility bearing interest at a variable rate on all amounts drawn on the facilityand we may incur additional variable rate debt in the future. Increase in interest rates on variable rate debt would increase our interest expense. Further, risinginterest rates could limit our ability to refinance existing debt when it matures. To mitigate this risk, in the future we may enter into interest rate swapagreements or other interest rate hedging contracts. While these agreements would be intended to lessen the impact of rising interest rates on us, they couldalso expose us to the risk that the counterparties fail to perform, or the underlying transactions could fail to qualify as highly-effective cash flow hedgesunder the accounting guidance.The trading price of our common stock may fluctuate significantly. The trading price of our common stock may fluctuate significantly. Between January1, 2014 and December 31, 2014, the closing sale price of KRC’s common stock on the New York Stock Exchange, or the NYSE, ranged from $50.18 to$71.10 per share. The trading price of our common stock may fluctuate in response to many factors, including:•actual or anticipated variations in our operating results, funds from operations, cash flows, liquidity or distributions;•our ability to successfully execute on our development program;•our ability to successfully complete acquisitions and operate acquired properties;•earthquakes;•changes in our earnings estimates or those of analysts;•publication of research reports about us, the real estate industry generally or the office and industrial sectors in which we operate;•the failure to maintain our current credit ratings or comply with our debt covenants;•increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;•changes in market valuations of similar companies;•adverse market reaction to any debt or equity securities we may issue or additional debt we incur in the future;•additions or departures of key management personnel;•actions by institutional stockholders;22•speculation in the press or investment community;•high levels of volatility in the credit markets;•general market and economic conditions; and•the realization of any of the other risk factors included in this report.Many of the factors listed above are beyond our control. These factors may cause the trading price of our common stock to decline, regardless of ourfinancial performance and condition and prospects. It is impossible to provide any assurance that the trading price of our common stock or the amount ofdividends we pay on our common stock will not decline in the future, and it may be difficult for holders to resell shares of our common stock at prices theyfind attractive or at all.Changes in accounting pronouncements could adversely affect our operating results, in addition to the reported financial performance of our tenants.Uncertainties posed by various initiatives of accounting standard-setting by the Financial Accounting Standards Board and the Securities and ExchangeCommission, which establish and govern accounting standards for U.S. companies, may change the financial accounting and reporting standards or theirinterpretation and application of these standards that govern the preparation of our financial statements, including proposed changes in lease accounting.Proposed and/or future changes in accounting standards could have a material impact on our reported financial condition and results of operations. Insome cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financialstatements. Similarly, these changes could have a material impact on our tenants’ reported financial condition or results of operations or could impact ourtenants’ business decisions in leasing real estate.We face risks associated with our tenants and contractual counterparties being designated “Prohibited Persons” by the Office of Foreign AssetsControl. Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”)maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”). OFAC regulations and other laws prohibitconducting business or engaging in transactions with Prohibited Persons (the “OFAC Requirements”). Certain of our loan and other agreements require us tocomply with OFAC Requirements. Our leases and other agreements, in general, require the other party to comply with OFAC Requirements. If a tenant orother party with whom we contract is placed on the OFAC list we may be required by the OFAC Requirements to terminate the lease or other agreement. Anysuch termination could result in a loss of revenue or a damage claim by the other party that the termination was wrongful.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 securities. Theleadership and performance of our executive and senior officers, play a key role in the success of the Company. They are integral to the Company’s successfor many reasons, including that each has a strong national or regional reputation in our industry and investment community. In addition, they havesignificant relationships with investors, lenders, tenants and industry personnel, which benefit the Company.Our growth depends on external sources of capital that are outside of our control and the inability to obtain capital on terms that are acceptable to 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 itstaxable 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, our23current and expected future earnings, our cash flows and cash distributions and the quoted trading price of our securities. If we cannot obtain capital fromthird-party sources, 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 may be adversely affected.Our common limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may be in thebest interests of all our security holders. The Company may not withdraw as the Operating Partnership’s general partner or transfer its general partnershipinterest in the Operating Partnership without the approval of the holders of at least 60% of the units representing common limited partnership interests,including the common units held by the Company in its capacity as the Operating Partnership’s general partner. In addition, the Company may not engage ina merger, consolidation or other combination or the sale of substantially all of its assets or such similar transaction, without the approval of the holders of60% of the common units, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. The right of ourcommon limited partners to vote on these transactions could limit our ability to complete a change of control transaction that might otherwise be in the bestinterest 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 aslong as limited partners own at least 5% of all of the Operating Partnership’s partnership interests, we must obtain the approval of limited partners holding amajority of the units representing common limited partnership interests before we may dissolve. As of December 31, 2014, limited partners ownedapproximately 2.0% 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. isthe Chairman of our board of directors and our President and Chief Executive Officer. John B. Kilroy, Jr. beneficially owned, as of December 31, 2014,approximately 1.8% of the total outstanding shares of our common stock. The percentage of outstanding shares of common stock beneficially ownedincludes 86,929 shares of common stock, 434,329 restricted stock units (“RSUs”) that were vested and held by John B. Kilroy, Jr. at December 31, 2014, andassumes 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 beexchanged 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.24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 aREIT has been made). The Company’s charter contains restrictions on the ownership and transfer of its capital stock that are intended to assist the Companyin complying with these requirements and continuing to qualify as a REIT. No single stockholder may own, either actually or constructively, absent a waiverfrom the board of directors, more than 7.0% (by value or by number of shares, whichever is more restrictive) of the Company’s outstanding common stock.Similarly, absent a waiver from the board of directors, no single holder of the Company’s 6.875% Series G Cumulative Redeemable Preferred stock (the“Series G Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of theCompany’s Series G Preferred Stock; and no single holder of the Company’s 6.375% Series H Cumulative Redeemable Preferred stock (the “Series HPreferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of the Company’sSeries H Preferred Stock.The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of 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 inexcess of, and thereby subject such stock to, the applicable ownership limit.The board of directors may waive the ownership limits if it is satisfied that the excess ownership would not jeopardize the Company’s REIT 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.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 tenderoffers that may be beneficial to our security holders, or limit security holders’ opportunity to receive a potential premium for their shares and/or units if aninvestor attempted 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, 2014, 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.25The board of directors may change investment and financing policies without stockholder or unitholder approval. Our board of directors determines ourmajor policies, including policies and guidelines relating to our acquisition, development and redevelopment activities, leverage, financing, growth,operations, indebtedness, capitalization and distributions to our security holders. Our board of directors may amend or revise these and other policies andguidelines from time to time without stockholder or unitholder approval. Accordingly, our stockholders and unitholders will have limited control overchanges in our policies and those changes 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.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 theamount or percentage of indebtedness, funded or otherwise, that we may incur. As of December 31, 2014, we had approximately $2.5 billion aggregateprincipal amount of indebtedness outstanding, which represented 28.2% of our total market capitalization. Our total debt and the liquidation value of ourpreferred equity as a percentage of total market capitalization was approximately 30.4% as of December 31, 2014. See “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” for a calculation of ourmarket capitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debtoutstanding would result in an increase in our debt service, which could adversely affect cash flow and our ability to pay dividends and distributions to oursecurity holders. 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. Existingsecurity holders have no preemptive rights to acquire any of these securities, and any issuance of equity securities under these circumstances may dilute aunitholder'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 Operating Partnership. Inthe future, we may increase our capital resources by offering our debt securities and preferred stock, the Operating Partnership’s debt securities and equitysecurities and our or the Operating Partnership’s other borrowings. Upon our liquidation, dissolution or winding-up, holders of such debt securities, ourpreferred stock and Operating Partnership’s equity securities, and lenders with respect to other borrowings by us and the Operating Partnership, will beentitled to receive distributions of our available assets prior to the holders of our common stock and it is possible that, after making distributions on theseother securities and borrowings, no assets would be available for distribution to holders of our common stock. In addition, the Operating Partnership’s debtand equity securities and borrowings are structurally senior to our common stock, our debt securities and borrowings are senior in right of payment to ourcommon stock, and our outstanding preferred stock has and any preferred stock we may issue in the future may have a preference over our common stock, andall payments (including dividends, principal and interest) and liquidating distributions on such securities and borrowings could limit our ability to paydividends or make other distributions to the holders of our common stock. Because any decision to issue securities and make borrowings in the future willdepend on market conditions and other factors, some of which may be beyond our control, we cannot predict or estimate the amount, timing or nature of ouror the Operating Partnership’s future offerings or borrowings. Such future offerings or borrowings may reduce the market price of our common stock.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, 2014, 86,259,684 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.26As of December 31, 2014, the Company had reserved for future issuance the following shares of common stock: 1,804,200 shares issuable upon theexchange, at the Company’s option, of the Operating Partnership’s common units; 681,626 shares remained available for grant under our 2006 IncentiveAward Plan (see Note 12 “Shared-Based Compensation” to our consolidated financial statements included in this report); 1,248,352 shares issuable uponsettlement of RSUs; 247,089 shares contingently issuable upon settlement of RSUs subject to performance conditions; and 1,008,000 shares issuable uponexercise of outstanding options. The Company has a currently effective registration statement registering 7,120,000 shares of our common stock for possibleissuance under our 2006 Incentive Award Plan. The Company has a currently effective registration statement registering 1,821,503 shares of our commonstock for possible issuance to and resale by certain holders of the Operating Partnership’s common units. That registration statement also registers 141,634shares of common stock held by certain stockholders for possible resale. Consequently, if and when the shares are issued, they may be freely traded in thepublic markets. The Company has a currently effective registration statement registering a total of up to 9,236,100 shares of our common stock (subject tocertain anti-dilution and other potential adjustments) issuable upon conversion of our Series G preferred stock and Series H preferred stock following a“Change of Control” (as defined in the terms of the Series G preferred stock and Series H preferred stock, respectively) of the Company, and, if and whenissued, will generally be freely tradable in the public markets. The Company also has a currently effective registration statement registering 1,575,981 sharesof our common stock issued in net settlement of the 4.25% Exchangeable Notes. Consequently, if and when the shares are issued or sold under theseregistration statements, they will be freely tradable in the public markets. Risks Related to Taxes and the Company’s Status as a REITLoss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’s common stock. The Companycurrently 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 were to lose itsREIT status, the Company would face adverse tax consequences that would substantially reduce the funds available for distribution to its stockholders foreach 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 yearduring which the Company was disqualified.In addition, if the Company failed to qualify as a REIT, it would not be required to make distributions to its stockholders. As a result of all 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 asa REIT 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.27To maintain the Company’s REIT status, we may be forced to borrow funds during unfavorable market conditions. To qualify as a REIT, the Companygenerally must distribute to its stockholders at least 90% of the Company’s net taxable income each year (excluding any net capital gains), and the Companywill 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, the Companywill 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 of 85% of itsordinary income, 95% of its net capital gains, and 100% of its undistributed income from prior years. To maintain the Company’s REIT status and avoid thepayment of federal income and excise taxes, the Operating Partnership may need to borrow funds and distribute or loan the proceeds to the Company so it canmeet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs couldresult from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes, or the effect of nondeductiblecapital expenditures, the creation of reserves or required debt or amortization payments.If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the lawsapplicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis. From time to time we disposeof properties in transactions that are intended to qualify as Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section 1031Exchange could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits would increase.This could increase the dividend income to our stockholders by reducing any return of capital they received. In some circumstances, we may be required topay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. As a result, we may be required to borrow funds inorder to pay additional dividends or taxes and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. Inaddition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year inquestion, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify or repealthe 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 deferred basis.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 regularcorporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractivethan investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including theshares of our capital stock.The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales forfederal income tax purposes. A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are salesor other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do notintend 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 withour characterization 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. To qualifyas a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature anddiversification 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 more of theasset 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 certain statutoryrelief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. In order to meet these tests, we may be required to foregoinvestments 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.28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 thefuture, 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 contractualobligations or the tax treatment of our stockholders and limited partners.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.29ITEM 2. PROPERTIESGeneralOur stabilized portfolio of operating properties was comprised of the following office properties at December 31, 2014: Number ofBuildings RentableSquare Feet Number ofTenants Percentage OccupiedStabilized Office Properties111 14,096,617 526 94.4%Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently under construction orcommitted for construction, “lease-up” properties, undeveloped land, and real estate assets held for sale. We define redevelopment properties as thoseproperties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, theintended result of which is a higher economic return on the property. As of December 31, 2014, we had no redevelopment properties. We define “lease-up”properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of majorconstruction activities. There were no operating properties in “lease-up” as of December 31, 2014. As of December 31, 2014, we had one land parcel held forsale. During the year ended December 31, 2014, we stabilized a redevelopment project in San Francisco, California, a development project consisting of threeoffice buildings encompassing 587,429 square feet and a development project consisting of two office buildings encompassing 340,913 square feet, both inthe San Francisco Bay Area, California. These projects are included in our stabilized portfolio as of December 31, 2014. These projects are included in ourstabilized portfolio as of December 31, 2014.As of December 31, 2014, the following properties were excluded from our stabilized portfolio: Number ofProperties/Projects Estimated RentableSquare Feet (1)Development projects under construction6 1,732,000_______________(1)Estimated rentable square feet upon completion. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That MayInfluence Future Results of Operations —Completed, In-Process and Future Development Pipeline” for more information.Our stabilized portfolio also excludes our future development pipeline, which is comprised of nine potential development sites, representingapproximately 104 gross acres of undeveloped land on which we believe we have the potential to develop over 3.0 million square feet of office space,depending upon economic conditions.As of December 31, 2014, all of our properties and development projects were owned and all of our business was conducted in the state of California withthe exception of thirteen office properties located in the state of Washington. All of our properties and development projects are 100% owned, excluding adevelopment project owned by Redwood City Partners, LLC, a consolidated subsidiary (see Note 3 “Acquisitions” to our consolidated financial statementsincluded in this report) 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).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 financialstatements included in this report for additional information regarding our ground lease obligations).In general, the office properties are leased to tenants on a full service gross, 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 firstyear of occupancy (“Base Year”) or a negotiated30amount approximating the tenant’s pro-rata share of real estate taxes, insurance and operating expenses (“Expense Stop”). The tenant pays its pro-rata shareof increases in expenses above the Base Year or Expense Stop. A modified gross lease is similar to a full service gross lease, except tenants are obligated topay their proportionate share of certain operating expenses, usually electricity, directly to the service provider. In addition, some office properties, primarilyin the greater Seattle region, are leased to tenants on a triple net basis, pursuant to which the tenants pay their proportionate share of real estate taxes,operating costs and utility costs.We believe that all of our properties are well maintained and do not require significant capital improvements. As of December 31, 2014, we managed allof our 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, 2014.Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2014 (1) AnnualizedBase Rent(in $000’s) (2) Annualized RentPer Square Foot (2)Los Angeles and Ventura Counties 23925 Park Sorrento, Calabasas, California(3) 1 2001 11,789 100.0% $421 $35.7223975 Park Sorrento, Calabasas, California(3) 1 2002 104,797 100.0% 3,482 34.1024025 Park Sorrento, Calabasas, California(3) 1 2000 108,671 96.9% 3,638 34.562829 Townsgate Road, Thousand Oaks, California(3) 1 1990 81,067 100.0% 2,306 28.452240 E. Imperial Highway, El Segundo, California(4) 1 1983/ 2008 122,870 100.0% 4,129 33.602250 E. Imperial Highway, El Segundo, California(8) 1 1983 298,728 100.0% 9,779 32.872260 E. Imperial Highway, El Segundo, California(4) 1 1983/ 2012 298,728 100.0% 10,497 35.14909 Sepulveda Blvd., El Segundo, California(3) 1 1972/ 2005 241,607 100.0% 6,643 27.82999 Sepulveda Blvd., El Segundo, California(3) 1 1962/ 2003 128,592 92.7% 2,861 24.436255 W. Sunset Blvd, Los Angeles, California(9) 1 1971/ 1999 324,617 90.6% 10,256 35.713750 Kilroy Airport Way, Long Beach, California(3) 1 1989 10,457 86.1% 109 19.953760 Kilroy Airport Way, Long Beach, California(3) 1 1989 165,278 75.3% 3,726 29.953780 Kilroy Airport Way, Long Beach, California(3) 1 1989 219,822 83.4% 4,335 24.193800 Kilroy Airport Way, Long Beach, California(3) 1 2000 192,476 98.5% 5,792 30.553840 Kilroy Airport Way, Long Beach, California(3) 1 1999 136,026 100.0% 4,915 36.133880 Kilroy Airport Way, Long Beach, California(10) 1 1987/ 2013 96,035 100.0% 2,793 29.083900 Kilroy Airport Way, Long Beach, California(3) 1 1987 126,840 90.8% 2,801 24.3612100 W. Olympic Blvd., Los Angeles, California(3) 1 2003 150,167 94.4% 5,421 38.2312200 W. Olympic Blvd., Los Angeles, California(3) 1 2000 150,117 97.9% 4,438 31.4812233 W. Olympic Blvd., Los Angeles, California(11) 1 1980/ 2011 151,029 94.5% 2,115 39.3731Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2014 (1) AnnualizedBase Rent(in $000’s) (2) Annualized RentPer Square Foot (2)12312 W. Olympic Blvd, Los Angeles, California(12) 1 1950/ 1997 76,644 —% — —1633 26th Street, Santa Monica, California(3) 1 1972/ 1997 44,915 100.0% 1,270 28.282100/2110 Colorado Avenue, Santa Monica, California(3) 3 1992/ 2009 102,864 100.0% 4,357 42.363130 Wilshire Blvd., Santa Monica, California(3) 1 1969/ 1998 88,339 95.7% 2,762 33.59501 Santa Monica Blvd., Santa Monica, California(3) 1 1974 73,115 78.8% 2,558 45.70Subtotal/Weighted Average –Los Angeles and Ventura Counties 27 3,505,590 92.8% $101,404 $32.39Orange County 2211 Michelson,Irvine, California(3) 1 2007 271,556 98.7% $9,736 $36.72Subtotal/Weighted Average –Orange County 1 271,556 98.7% $9,736 $36.72San 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 82.1% 1,648 36.7112340 El Camino Real,Del Mar, California(4) 1 2002 87,374 88.8% 3,370 43.4312390 El Camino Real,Del Mar, California(4) 1 2000 72,332 100.0% 3,069 42.4412348 High Bluff Drive,Del Mar, California(13) 1 1999 38,806 100.0% 1,275 32.8612400 High Bluff Drive,Del Mar, California(4) 1 2004 209,220 100.0% 10,670 51.003579 Valley Centre Drive,Del Mar, California(4) 1 1999 50,677 100.0% 1,902 37.543611 Valley Centre Drive,Del Mar, California(4) 1 2000 130,349 96.3% 5,202 41.433661 Valley Centre Drive,Del Mar, California(4) 1 2001 129,782 89.7% 3,410 36.033721 Valley Centre Drive,Del Mar, California(4) 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(4) 1 2013 78,349 100.0% 3,196 40.7913280 Evening Creek Drive South,I-15 Corridor, California(3) 1 2008 41,196 86.6% 889 24.9113290 Evening Creek Drive South,I-15 Corridor, California(4) 1 2008 61,180 100.0% 1,453 23.7513480 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 42.6132Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2014 (1) AnnualizedBase Rent(in $000’s) (2) Annualized RentPer Square Foot (2)13520 Evening Creek Drive North,I-15 Corridor, California(4) 1 2004 141,128 96.6% 4,829 36.192355 Northside Drive, Mission Valley, California(3) 1 1990 53,610 87.4% 1,197 26.422365 Northside Drive, Mission Valley, California(3) 1 1990 96,436 73.3% 2,239 31.672375 Northside Drive, Mission Valley, California(14) 1 1990 51,516 91.9% 1,398 29.542385 Northside Drive, Mission Valley, California(3) 1 2008 89,023 100.0% 2,801 31.462305 Historic Decatur Road,Point Loma, California(15) 1 2009 103,900 46.3% 1,492 31.124921 Directors Place,Sorrento Mesa, California(4) 1 2008 56,136 84.9% 1,242 26.054939 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(5) 1 1989 174,310 70.8% 1,854 15.026260 Sequence Drive,Sorrento Mesa, California(6) 1 1997 130,536 100.0% 2,908 22.286290 Sequence Drive,Sorrento Mesa, California(5) 1 1997 90,000 —% — —6310 Sequence Drive,Sorrento Mesa, California(5) 1 2000 62,415 100.0% 1,295 20.756340 Sequence Drive,Sorrento Mesa, California(5) 1 1998 66,400 100.0% 1,416 21.326350 Sequence Drive,Sorrento Mesa, California(6) 1 1998 132,600 100.0% 3,111 23.4610390 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% 1,182 19.8310398 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(7) 1 1995 90,000 100.0% 1,112 12.355717 Pacific Center Blvd,Sorrento Mesa, California(6) 1 2001/ 2005 67,995 100.0% 1,503 22.114690 Executive Drive,UTC, California(16) 1 1999 47,212 100.0% 1,077 22.826200 Greenwich Drive,Governor Park, California(3) 1 1999 73,507 —% — —6220 Greenwich Drive,Governor Park, California(4) 1 1996 141,214 100.0% 4,286 30.35Subtotal/Weighted Average –San Diego County 46 4,244,068 90.9% $126,903 $33.12San Francisco 4100 Bohannon Drive,Menlo Park, California(6) 1 1985 47,379 100.0% $1,719 $36.274200 Bohannon Drive,Menlo Park, California(6) 1 1987 45,451 100.0% 1,739 38.264300 Bohannon Drive,Menlo Park, California(6) 1 1988 63,079 100.0% 2,485 39.3933Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2014 (1) AnnualizedBase Rent(in $000’s) (2) Annualized RentPer Square Foot (2)4400 Bohannon Drive,Menlo Park, California(6) 1 1988 48,146 100.0% 1,489 32.974500 Bohannon Drive,Menlo Park, California(6) 1 1990 63,078 100.0% 2,041 32.354600 Bohannon Drive,Menlo Park, California(17) 1 1990 48,147 100.0% 1,172 40.924700 Bohannon Drive,Menlo Park, California(6) 1 1989 63,078 100.0% 2,275 36.07331 Fairchild Drive, Mountain View, California(5) 1 2013 87,147 100.0% 4,185 48.03680 E. Middlefield RoadMountain View, California(5) 1 2014 170,090 100.0% 7,666 45.07690 E. Middlefield RoadMountain View, California(5) 1 2014 170,823 100.0% 7,699 45.07303 Second Street,San Francisco, California(18) 1 1988 740,047 97.9% 32,410 44.94100 First Street,San Francisco, California(19) 1 1988 466,490 95.7% 21,182 48.33250 Brannan Street,San Francisco, California(4) 1 1907/ 2001 95,008 100.0% 5,413 56.98201 Third Street,San Francisco, California(3) 1 1983 344,551 92.2% 13,755 44.93301 Brannan Street,San Francisco, California(4) 1 1909/ 1989 74,430 100.0% 3,336 44.82360 Third Street,San Francisco, California(20) 1 2013 429,996 99.2% 20,595 48.401310 Chesapeake Terrace,Sunnyvale, California(6) 1 1989 76,244 100.0% 2,369 31.081315 Chesapeake Terrace,Sunnyvale, California(6) 1 1989 55,635 100.0% 1,424 25.601320-1324 Chesapeake Terrace,Sunnyvale, California(6) 1 1989 79,720 52.0%(21) 1,271 30.671325-1327 Chesapeake Terrace,Sunnyvale, California(6) 1 1989 55,383 100.0% 1,234 22.29505 N. Mathilda Avenue,Sunnyvale, California(5) 1 2014 212,322 100.0% 9,449 44.50555 N. Mathilda Avenue,Sunnyvale, California(5) 1 2014 212,322 100.0% 9,449 44.50605 N. Mathilda Avenue,Sunnyvale, California(5) 1 2014 162,785 100.0% 7,244 44.50599 N. Mathilda Avenue,Sunnyvale, California(5) 1 2000 75,810 100.0% 2,202 29.04Subtotal/Weighted Average –San Francisco 24 3,887,161 97.3% $163,803 $43.84Greater Seattle 601 108th Avenue NE,Bellevue, Washington(6) 1 2000 488,470 99.3% $16,408 $34.1910900 NE 4th Street,Bellevue, Washington(3) 1 1983 416,755 97.4% 14,532 35.9310220 NE Points Drive,Kirkland, Washington(6) 1 1987 49,851 100.0% 1,287 26.0510230 NE Points Drive,Kirkland, Washington(6) 1 1990 98,982 76.4% 2,075 27.9610210 NE Points Drive,Kirkland, Washington(6) 1 1988 84,641 94.4% 1,962 24.573933 Lake Washington Blvd NE,Kirkland, Washington(6) 1 1993 46,450 100.0% 1,303 28.06837 N. 34th Street,Lake Union, Washington(6) 1 2008 111,580 100.0% 3,255 29.1734Property Location No. ofBuildings Year Built/Renovated RentableSquare Feet PercentageOccupied at12/31/2014 (1) AnnualizedBase Rent(in $000’s) (2) Annualized RentPer Square Foot (2)701 N. 34th Street,Lake Union, Washington(6) 1 1998 138,995 100.0% 2,719 19.56801 N. 34th Street,Lake Union, Washington(5) 1 1998 169,412 100.0% 4,423 26.11320 Westlake Terry Avenue North,Lake Union, Washington(6) 1 2007 184,643 100.0% 6,314 34.20321 Terry Avenue North,Lake Union, Washington(6) 1 2013 135,755 100.0% 4,465 32.8915050 NE 36th StreetRedmond, Washington(5) 1 1998 122,103 100.0% 3,124 25.59401 Terry Avenue North,Lake Union, Washington(5) 1 2003 140,605 100.0% 6,207 44.15Subtotal/Weighted Average –Greater Seattle 13 2,188,242 98.1% $68,074 $31.85TOTAL/WEIGHTED AVERAGE 111 14,096,617 94.4% $469,920 $35.87_________________(1)Based on all leases at the respective properties in effect as of December 31, 2014. Includes month-to-month leases as of December 31, 2014.(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-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existingleases and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2014.(3)For these properties, the leases are written on a full service gross 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 triple net basis.(7)For these properties, the leases are written on a gross basis.(8)For this property, leases of approximately 52,000 rentable square feet are written on a full service gross basis and approximately 246,000 rentable square feet are written on amodified gross basis.(9)For this property, leases of approximately 5,000 rentable square feet are written on a modified gross basis, approximately 272,000 rentable square feet are written on a full servicegross basis and approximately 17,000 rentable square feet is written on a triple net basis.(10)For this property, leases of approximately 46,000 rentable square feet are written on a modified net basis and approximately 50,000 rentable square feet are written on a fullservice gross basis.(11)For this property, leases of approximately 26,000 rentable square feet are written on a full service gross basis, approximately 12,000 rentable square feet are written on a modifiedgross basis and approximately 104,000 rentable square feet are written on a gross basis.(12)As of December 31, 2014, we had executed a lease for the entire building on a modified net basis. This lease is expected to commence in the first quarter of 2015.(13)For this property, leases of approximately 23,000 rentable square feet are written on a full service gross basis and approximately 16,000 rentable square feet are written on amodified gross basis.(14)For this property, leases of approximately 29,000 rentable square feet are written on a gross basis and approximately 19,000 rentable square feet are written on a full service grossbasis.(15)For this property, leases of approximately 26,000 rentable square feet are written on a full service gross basis and approximately 22,000 rentable square feet are written on a grossbasis.(16)For this property, leases of approximately 28,000 rentable square feet are written on a full service gross basis and approximately 20,000 rentable square feet are written on a triplenet basis.(17)For this property, leases of approximately 20,000 rentable square feet are written on a gross basis and approximately 29,000 rentable square feet are written on a triple net basis.(18)For this property, leases of approximately 617,000 rentable square feet are written on a full service gross basis, approximately 18,000 rentable square feet are written on a triplenet basis, approximately 38,000 rentable square feet are written on a gross basis and approximately 26,000 rentable square feet are written on a modified gross basis.(19)For this property, leases of approximately 84,000 rentable square feet are written on a gross basis, approximately 355,000 rentable square feet are written on a full service grossbasis and approximately 7,000 rentable square feet is written on a triple net basis.(20)For this property, leases of approximately 389,000 rentable square feet are written on a modified gross basis and approximately 37,000 rentable square feet are written on a fullservice gross basis.(21)As of the date of this report this building is 100% occupied.35Completed Development and Redevelopment ProjectsDuring the year ended December 31, 2014, we completed the following development projects, which were added to our stabilized portfolio of operatingproperties: Construction Period Completed Development Project Start Date Completion /Stabilization Date Rentable Square Feet % Occupied505, 555 and 605 N. Mathilda AvenueSunnyvale, California 4Q 2012 3Q 2014 587,429 100.0%680 and 690 E. Middlefield RoadMountain View, California 2Q 2012 4Q 2014 340,913 100.0%During the year ended December 31, 2014, we also stabilized the following redevelopment project, which was added to our stabilized portfolio ofoperating properties: Construction Period Completed Redevelopment Project Start Date Completion Date Stabilization Date Rentable SquareFeet % Occupied360 Third StreetSan Francisco, California 4Q 2011 1Q 2013 1Q 2014 429,996 99.2%In-Process and Future Development PipelineThe following table sets forth certain information relating to our in-process development pipeline as of December 31, 2014. Estimated Construction Period EstimatedStabilization Date Estimated RentableSquare Feet Office %LeasedIn-Process Development Projects Start Date Completion Date UNDER CONSTRUCTION: San Francisco Bay Area, California 350 Mission Street, San Francisco 4Q 2012 4Q 2015 4Q 2015 450,000 100%333 Brannan Street, San Francisco 4Q 2013 4Q 2015 4Q 2015 185,000 100%Crossing/900, Redwood City (1) 4Q 2013 4Q 2015 1Q 2017 339,000 100% Los Angeles, California Columbia Square Office and Historic (2) 2Q 2013 – 3Q2013 2Q 2015 – 1Q2016 2Q 2015 – 1Q2017 480,000 59%Columbia Square Residential (2) 3Q 2013 1Q 2016 1Q 2017 205,000 —%San Diego, California The Heights at Del Mar 4Q 2014 4Q 2015 4Q 2016 73,000 —%SUBTOTAL: 1,732,000 82%_______________________(1)The Company anticipates the first building, totaling approximately 226,000 square feet, to be completed in the fourth quarter of 2015 and the second building, totalingapproximately 113,000 square feet, to be completed in the first quarter of 2017.(2)In the second quarter of 2013, the Company commenced redevelopment of Phase I comprised of the historical buildings encompassing approximately 110,000 rentable squarefeet. In the fourth quarter of 2013, the Company commenced development of Phase II comprised of approximately 370,000 rentable square feet for the office component anddevelopment of Phase III comprised of approximately 205,000 rentable square feet for the residential component.36The following table sets forth certain information relating to our future development pipeline as of December 31, 2014.Location Estimated Rentable Square FeetFUTURE DEVELOPMENT PIPELINE: San Francisco Bay Area, California The Exchange on 16th (1) 645,000Flower Mart (2) TBDLos Angeles, California Academy Project, Hollywood 475,000San Diego, California 9455 Towne Centre Drive, San Diego (3) 150,000Carlsbad Oaks – Lots 4, 5, 7 & 8, Carlsbad 288,000One Paseo, Del Mar (4) 500,000Pacific Corporate Center – Lot 8, Sorrento Mesa 170,000Santa Fe Summit – Phase II and III, 56 Corridor 600,000Sorrento Gateway – Lot 2, Sorrento Mesa 80,000_______________________(1)In May 2014, the Company completed the acquisition of this undeveloped land for a total purchase price of $95.0 million (plus approximately $2.3 million in accrued liabilities,which are not included in this purchase price).(2)In the fourth quarter of 2014, the Company closed on two adjacent land sites in the Central SOMA district for a total purchase price of $71.0 million (plus approximately $13.4million in transaction costs and accrued liabilities, net, which are not included in this purchase price).(3)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 150,000rentable square foot building.(4)Estimated rentable square feet reflects existing office entitlements. The Company is currently pursuing mixed-use entitlements for this project, which would increase the estimatedrentable square feet.Significant TenantsThe following table sets forth information about our 15 largest tenants based upon annualized base rental revenues, as defined below, as ofDecember 31, 2014.Tenant Name Annualized Base RentalRevenue(1) Percentage of TotalAnnualized Base Rental Revenue(1) Lease Expiration Date (in thousands) LinkedIn Corporation $28,344 6.0% Various (4)DIRECTV, LLC 22,964 4.9% September 2027Synopsys, Inc. 15,364 3.3% August 2030Bridgepoint Education, Inc. 15,066 3.2% Various (5)Intuit, Inc. 13,489 2.9% August 2017Delta Dental of California 10,718 2.3% Various (6)AMN Healthcare, Inc. 9,001 1.9% July 2027Scan Group (2)(3) 6,969 1.5% Various (7)Concur Technologies 6,564 1.4% December 2025Group Health Cooperative 6,372 1.4% September 2017Neurocrine Biosciences, Inc. 6,366 1.4% December 2019Microsoft Corporation 6,250 1.3% Various (8)Institute for Systems Biology 6,207 1.3% March 2021Fish & Richardson, P.C. 6,071 1.3% October 2018Pac-12 Enterprises, LLC 5,603 1.2% Various (9)Total $165,348 35.3% _______________________________________(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-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existingleases, and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2014.(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, California. As of December 31, 2014, revenue recognition had notcommenced for the expansion premises. The annualized base rental revenue and rentable square feet37presented in this table include the projected annualized base rental revenue of approximately $1.6 million and rentable square feet of approximately 50,000 for the expansionpremises.(4)The LinkedIn Corporation leases, which contribute $2.2 million and $26.1 million, expire in July 2019 and September 2026, respectively.(5)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.(6)The Delta Dental leases, which contribute $0.4 million and $10.3 million, expire in May 2015 and May 2018, respectively.(7)The Scan Group leases, which contribute $0.3 million and $6.7 million, expire in June 2015 and April 2026, respectively.(8)The Microsoft Corporation leases, which contribute $3.1 million and $3.1 million, expire in February 2019 and December 2021, respectively.(9)The Pac-12 Enterprises leases, which contribute $0.1 million and $5.5 million, expire in October 2016 and July 2023, respectively.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 theNorth American Industry Classification System as of December 31, 2014.38Lease ExpirationsThe following table sets forth a summary of our lease expirations for each of the next ten years beginning with 2015, assuming that none of the tenantsexercise renewal options or termination rights. See further discussion of our lease expirations under “Item 1A. Risk Factors”.Lease ExpirationsYear of Lease Expiration# of Expiring Leases Total Square Feet % of Total Leased Square Feet Annualized BaseRent (000’s)(1) % of Total AnnualizedBase Rent(1) Annualized Rent perSquare Foot (1) 2015109 1,124,952 8.7% $34,948 7.5% $31.07201681 780,353 6.0% 23,460 5.0% 30.062017107 1,812,670 14.0% 60,573 12.8% 33.42201866 1,350,180 10.4% 54,136 11.5% 40.10201980 1,486,088 11.4% 54,028 11.5% 36.36202068 1,789,865 13.8% 64,617 13.8% 36.10202121 617,215 4.8% 28,770 6.1% 46.61202217 638,163 4.9% 19,682 4.2% 30.84202312 387,270 3.0% 16,835 3.6% 43.47202416 521,693 4.0% 15,716 3.3% 30.122025 and beyond21 2,468,520 19.0% 97,159 20.7% 39.36Total(2)598 12,976,969 100.0% $469,924 100.0% $36.21_______________________(1)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-fundedtenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain variousexpense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.(2)The information presented for all lease expiration activity reflects leasing activity through December 31, 2014 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to anew tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, vacant space andlease renewal options not executed as of December 31, 2014.Secured DebtAs of December 31, 2014, the Operating Partnership had nine outstanding mortgage notes payable and one outstanding secured note payable, whichwere secured by certain of our properties. Our secured debt represents an aggregate indebtedness of approximately $536.0 million. See additional informationregarding our secured debt in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and CapitalResources—Liquidity Sources,” Notes 6 and 7 to our consolidated financial statements and Schedule III—Real Estate and Accumulated Depreciationincluded with this report. Management believes that, as of December 31, 2014, the value of the properties securing the applicable secured obligations in eachcase exceeded the principal amount of the outstanding obligation.ITEM 3.LEGAL PROCEEDINGSWe and our properties are subject to routine litigation incidental to our business. As of December 31, 2014, 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.39PART IIITEM 5.MARKET FOR KILROY REALTY CORPORATION’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESThe Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “KRC.” As of the date this report was filed, therewere approximately 100 registered holders of the Company’s common stock. The following table illustrates the high, low, and closing prices by quarter, aswell as dividends declared, during 2014 and 2013 as reported on the NYSE.2014High Low Close Per Share CommonStock DividendsDeclaredFirst quarter$59.53 $49.72 $58.58 $0.3500Second quarter62.88 57.29 62.28 0.3500Third quarter63.96 58.03 59.44 0.3500Fourth quarter71.47 58.73 69.07 0.35002013High 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 0.3500The 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.The table below reflects our purchases of equity securities during the three month period leading up to December 31, 2014.Period Total Number of Shares (orUnits) Purchased Average Price Paid per Share(or Unit) Total Number of Shares (orUnits) Purchased as Part ofPublicly Announced Plans orPrograms Maximum Number (orApproximate Dollar Value)that May Yet to be PurchasedUnder the Plans or ProgramsOctober 1 - October 31, 2014 — $— — —November 1 - November 30, 2014 (1) 404,136 $42.81 — —December 1 - December 31, 2014 — $— — —Total 404,136 $42.81 — —_______________(1)Purchases were made pursuant to capped call options the Company entered into in connection with the Operating Partnership's issuance of the 4.25% Exchangeable Notes. Thecapped call options are not part of the terms of the 4.25% Exchangeable Notes and do not affect the holders' rights under the 4.25% Exchangeable Notes.40MARKET FOR KILROY REALTY, L.P.’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESThere 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, 2014 and 2013.2014 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.35002013 Per Unit CommonUnit DistributionDeclaredFirst quarter $0.3500Second quarter 0.3500Third quarter 0.3500Fourth quarter 0.3500During 2014 and 2013, the Operating Partnership redeemed 1,000 and 16,303 common units, respectively, for the same number of shares of theCompany’s common stock.41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 31,2014. 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 thatcomprises 23 office equity REITs, including us. The graph assumes the investment of $100 in us and each of the indices on December 31, 2009 and, asrequired by the SEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.42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 beread in conjunction with our financial statements and notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” included in this report.The consolidated balance sheet data as of December 31, 2014 and 2013 and the consolidated statement of operations data for the years endedDecember 31, 2014, 2013 and 2012 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, 2012, 2011 and 2010 andthe consolidated statement of operations data for the years ended December 31, 2011 and 2010 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 endedDecember 31, 2014, as income from discontinued operations, and adjusted for the impact of subsequent accounting changes requiring retrospectiveapplication, if any.Kilroy Realty Corporation Consolidated(in thousands, except share, per share, square footage and occupancy data) Year Ended December 31, 2014 2013 2012 2011 2010Statements of Operations Data: Total revenues from continuing operations$521,725 $457,111 $373,318 $304,574 $230,078Income (loss) from continuing operations59,313 14,935 (5,475) (16,664) (7,369)Income from discontinued operations124,495 29,630 282,576 84,153 27,255Net income available to common stockholders166,969 30,630 249,826 50,819 4,512Per-Share Data: Weighted average shares of common stock outstanding – basic83,090,235 77,343,853 69,639,623 56,717,121 49,497,487Weighted average shares of common stock outstanding – diluted84,967,720 77,343,853 69,639,623 56,717,121 49,497,487Income (loss) from continuing operations available to common stockholders pershare of common stock – basic$0.52 $0.00 $(0.40) $(0.57) $(0.46)Income (loss) from continuing operations available to common stockholders pershare of common stock – diluted$0.51 $0.00 $(0.40) $(0.57) $(0.46)Net income available to common stockholders per share – basic$1.99 $0.37 $3.56 $0.87 $0.07Net income available to common stockholders per share – diluted$1.95 $0.37 $3.56 $0.87 $0.07Dividends declared per common share$1.40 $1.40 $1.40 $1.40 $1.40 43 December 31, 2014 2013 2012 2011 2010Balance Sheet Data: Total real estate held for investment, before accumulated depreciation andamortization$6,057,932 $5,264,947 $4,757,394 $3,798,690 $3,216,871Total assets5,633,736 5,111,028 4,616,084 3,446,795 2,816,565Total debt2,469,413 2,204,938 2,040,935 1,821,286 1,427,776Total noncontrolling interest – preferred units (1)— — — 73,638 73,638Total preferred stock192,411 192,411 192,411 121,582 121,582Total equity (2)2,723,936 2,516,160 2,235,933 1,327,482 1,117,730Other Data: Funds From Operations (3) (4)$250,744 $218,621 $165,455 $136,173 $106,639Cash flows provided by (used in): Operating activities$245,253 $240,576 $180,724 $138,256 $119,827Investing activities(501,436) (506,520) (706,506) (634,283) (701,774)Financing activities244,587 284,621 537,705 485,964 586,904Office Property Data: (5) Rentable square footage14,096,617 12,736,099 13,249,780 11,421,112 10,395,208Occupancy94.4% 93.4% 92.8% 90.1% 87.5%_______________________(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 wereredeemed in 2012.(2)Includes the noncontrolling interest of the common units of the Operating Partnership and Redwood City Partners, LLC (a consolidated subsidiary created during 2013, seeNote 3 “Acquisitions” to our consolidated financial 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 inaccordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated withdepreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), andafter adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenantimprovements 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 estateassets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results betweenperiods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to otherREITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time.Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for realestate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along withthe required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisionsinvolving 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 thelevel of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impactour results from operations.Adjustments to arrive at FFO were as follows: net income attributable to noncontrolling common units of the Operating Partnership,depreciation and amortization of real estate assets, and net gain on dispositions of discontinued operations. For additional information, see “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Non-GAAP Supplemental Financial Measure: Funds From Operations” including a reconciliation ofthe 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 $11.0 million, $10.7 million, $9.1 million, $9.3 million and $9.7 million for theyears ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.(5)Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented.44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 Conditionand Results of Operations” included in this report.The consolidated balance sheet data as of December 31, 2014 and 2013 and the consolidated statement of operations data for the years endedDecember 31, 2014, 2013 and 2012 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, 2012, 2011 and 2010 andthe consolidated statement of operations data for the years ended December 31, 2011 and 2010 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, 2014, asincome from discontinued operations, and adjusted for the impact of subsequent accounting changes requiring retrospective application, if any.Kilroy Realty, L.P. Consolidated(in thousands, except unit, per unit, square footage and occupancy data) Year Ended December 31, 2014 2013 2012 2011 2010Statements of Operations Data: Total revenues from continuing operations$521,725 $457,111 $373,318 $304,574 $230,078Income (loss) from continuing operations59,313 14,935 (5,475) (16,664) (7,369)Income from discontinued operations124,495 29,630 282,576 84,153 27,255Net income available to common unitholders170,298 31,091 255,375 51,764 4,528Per Unit Data: Weighted average common units outstanding – basic84,894,498 79,166,260 71,403,258 58,437,444 51,220,618Weighted average common units outstanding – diluted86,771,983 79,166,260 71,403,258 58,437,444 51,220,618Income (loss) from continuing operations available to common unitholders percommon unit – basic$0.52 $0.00 $(0.40) $(0.58) $(0.47)Income (loss) from continuing operations available to common unitholders percommon unit – diluted$0.51 $0.00 $(0.40) $(0.58) $(0.47)Net income available to common unitholders per unit – basic$1.99 $0.37 $3.56 $0.86 $0.07Net income available to common unitholders per unit – diluted$1.94 $0.37 $3.56 $0.86 $0.07Distributions declared per common unit$1.40 $1.40 $1.40 $1.40 $1.40 December 31, 2014 2013 2012 2011 2010Balance Sheet Data: Total real estate held for investment, before accumulated depreciation andamortization$6,057,932 $5,264,947 $4,757,394 $3,798,690 $3,216,871Total assets5,633,736 5,111,028 4,616,084 3,446,795 2,816,565Total debt2,469,413 2,204,938 2,040,935 1,821,286 1,427,776Series A redeemable preferred units (1)— — — 73,638 73,638Total preferred capital192,411 192,411 192,411 121,582 121,582Total capital (2)2,723,936 2,516,160 2,235,933 1,327,482 1,117,730Other Data: Cash flows provided by (used in): Operating activities245,253 240,576 180,724 138,256 119,827Investing activities(501,436) (506,520) (706,506) (634,283) (701,774)Financing activities244,587 284,621 537,705 485,964 586,904Office Property Data: (3) Rentable square footage14,096,617 12,736,099 13,249,780 11,421,112 10,395,208Occupancy94.4% 93.4% 92.8% 90.1% 87.5%_______________________(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 during 2013, see Note 3 “Acquisitions” to our consolidated financialstatements included 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.45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 notesthereto appearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there areno material 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,future executive 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, amongothers:•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;46•the ability to successfully complete development and redevelopment properties on schedule and within budgeted amounts;•defaults on leases for land on which some of our properties are located;•adverse changes to, or implementations of, applicable laws, regulations or legislation;•environmental uncertainties and risks related to natural disasters; and•the Company’s ability to maintain its status as a REIT.The factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance. For adiscussion of additional risk factors, see the factors included in this report under the caption “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 soin connection 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 properties through the OperatingPartnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. We owned a 98.0% and97.8% general partnership interest in the Operating Partnership as of December 31, 2014 and 2013, respectively. All our properties are held in fee except forthe eleven office buildings that 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).2014 HighlightsWe made significant progress on several fronts during 2014 and are well-positioned for continued long-term growth through our strong leasingperformance, development and redevelopment efforts, well timed acquisitions, ongoing capital recycling program and successful financing activities.Leasing. During 2014, we executed new and renewal office leases within our stabilized portfolio on 2.3 million square feet, and, including developmentproperties, we executed new and renewal office leases on 3.2 million square feet. As a result of our consistent and strong leasing efforts, occupancy in ourstabilized office portfolio increased to 94.4% as of December 31, 2014, up from 93.4% as of December 31, 2013.Development. During 2014, 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 2014, we acquired three undeveloped land sites, including onefully entitled 3.1 acre land parcel in the Mission Bay submarket of San Francisco and two adjacent land sites totaling approximately five acres located in theCentral SOMA submarket of San Francisco. The land sites were acquired in three separate transactions for a total purchase price of $166.0 million (see Note 3“Acquisitions” to our consolidated financial statements included in this report for more information).During 2014, we completed two development projects, 505, 555 and 605 N. Mathilda Avenue in the Sunnyvale submarket of San Francisco, with a totalinvestment of approximately $293.5 million and 680 and 690 E. Middlefield Road in the Mountain View, submarket of San Francisco, with a totalinvestment of approximately $185.0 million and added these properties to our stabilized portfolio. These projects were 100% pre-leased at completion.During the fourth quarter of 2014, we commenced development of The Heights at Del Mar, an approximately 73,000 square-foot office project located in SanDiego’s Del Mar submarket.As of December 31, 2014, the Company had six development projects under construction, three of which are 100% preleased. These six projectsaggregate approximately 1.7 million square feet of space, and the Company estimates its total investment in these projects will be approximately$1.0 billion. The total estimated investment includes lease commissions and excludes tenant improvement overages. Scheduled completion dates range from2015 to 2016. See “—Factors that May Influence Future Operations—Completed, In-Process and Future Development Pipeline” for additional information.Redevelopment. During 2014, we stabilized our one redevelopment property, 360 Third Street, in the South of Market Area (“SOMA”) submarket of SanFrancisco, California, that was in lease-up at December 31, 2013. This project had a total investment of approximately $188.2 million and was 99.2%occupied as of December 31, 2014.Operating Property Acquisitions. We remain a disciplined buyer of office properties and development opportunities and continue to focus on value-addopportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare,entertainment and professional services. During 2014, we acquired one office building in greater Seattle and four office buildings in the Sunnyvalesubmarket of San Francisco, comprising approximately 408,000 rentable square feet in two separate transactions for a total purchase price of approximately$206.6 million (see Note 3 “Acquisitions” to our consolidated financial statements included in this report for more information). As of December 31, 2014,these properties were 100% leased.Capital Recycling Program. We have continued to utilize our capital recycling program to provide additional capital to fund potential acquisitions,finance development and redevelopment expenditures, 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 and/ordevelopment projects where we can add additional value to generate higher returns (see “—Factors that May Influence Future Operations” for additionalinformation).In connection with this strategy, during 2014, we completed the sale of 17 office buildings to unaffiliated third parties in five separate transactions andcompleted the sale of a land parcel to an unaffiliated third party. Gross sales proceeds totaled approximately $432.6 million of which $59.2 million was heldat qualified intermediaries at December 31, 2014 for potential future Section 1031 Exchanges. In addition, as of December 31, 2014, we classified one landparcel located in Irvine, California as held for sale. The sale of this land parcel closed on January 15, 2015 for total gross proceeds of approximately$26.0 million.Financings. In addition to obtaining funding from our capital recycling program during 2014, we successfully completed a variety of financing andcapital raising activities 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 ofrevenues and 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 managementwhen47evaluating 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.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 ownerof tenant 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 inreaching a conclusion. The factors we evaluate include but are not limited to the following:•whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenantimprovements;•whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowancewas spent on prior to payment by the landlord for such tenant improvements;•whether the tenant improvements are unique to the tenant or reusable by other tenants;•whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or 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 theleased premises. During the years ended December 31, 2014, 2013, and 2012, we capitalized $49.8 million, $15.1 million and $24.0 million, respectively, oftenant-funded tenant improvements. The increasing trend from 2013 to 2014 is related to the completion of development and redevelopment projects in2014. Leases at our development properties generally have higher tenant-funded tenant improvements. We expect the trend to continue as we stabilizeprojects currently under development. For the years ended December 31, 2014, 2013, and 2012, we also recognized $11.0 million, $10.7 million and$9.1 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 commencement of revenue recognition.48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 and 2012 has been that our final reconciliation and billing process resulted in final amounts that approximated the total annual tenantreimbursement 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 rentreceivables. Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenanceexpenses, property taxes, and other costs recoverable from tenants. Deferred rent receivables represent the amount by which the cumulative straight-linerental revenue recorded to date exceeds cash rents billed to date under the lease agreement. As of December 31, 2014 and 2013, current receivables werecarried net of an allowance for uncollectible tenant receivables amount of $2.0 million and $2.1 million, respectively, for each period and deferred rentreceivables were carried net of an allowance for deferred rent of $2.0 million and $2.1 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, andthe status 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.49For the years ended December 31, 2014, 2013 and 2012, we recorded a total provision for bad debts for both current tenant receivables and deferred rentreceivables of approximately 0.0%, 0.1% and 0.0%, 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, 2014, 2013 and 2012. 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 $5.2 million, $4.7 million and $3.8 million for the years ended December 31, 2014, 2013and 2012, 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 assessand consider fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that wedeem appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, andmarket and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to:land and improvements, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-placelease values and tenant relationships, if any.The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value 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 usinga market 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 fixedrate renewal options, if applicable, for below-market operating leases. The amounts recorded for above-market operating leases are included in deferredleasing costs and acquisition-related intangible assets, net on the balance sheet and are amortized on a straight-line basis as a reduction of rental income overthe remaining 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. If a lease were to be terminated or if termination were determined to be likely prior to its contractual expiration (for example resultingfrom bankruptcy), amortization of the related above-market or below-market lease intangible would be accelerated.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 totenant reimbursable operating costs estimated to be incurred during the assumed lease-up period; and (3) the value associated with lost rental revenue fromexisting leases during the assumed lease-up period. Factors considered by us in performing these analyses include an estimate of the carrying costs during theexpected lease-up periods, current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insuranceand other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand at market rates. Inestimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses. The amount recorded for acquired in-placeleases is included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet and amortized as an increase to depreciation andamortization expense over the remaining term of the applicable leases. If a lease were to be terminated or if termination were determined to50be likely prior to its contractual expiration (for example resulting from bankruptcy), amortization of the related unamortized in-place lease intangible wouldbe accelerated.The determination of the fair value of any debt assumed in connection with a property acquisition is estimated by discounting the future cash flowsusing interest rates available for the issuance of debt with similar terms and remaining maturities.The determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of acquisitions requires us to make significantjudgments and assumptions about the numerous inputs discussed above. The use of different assumptions in these fair value calculations could significantlyaffect the reported amounts of the allocation of our acquisition related assets and liabilities and the related depreciation and amortization expense recordedfor such assets and liabilities. In addition, because the value of above and below market leases are amortized as either a reduction or increase to 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 accountingcriteria to be accounted for as business combinations are expensed as incurred. During the years ended December 31, 2014, 2013, and 2012, we expensed$1.5 million, $2.0 million and $4.9 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.We record development acquisitions that do 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. Costs directly associated with developmentacquisitions accounted for as asset acquisitions are capitalized as part of the cost of the acquisition. During the years ended December 31, 2014, 2013, and2012, we capitalized $4.5 million, $2.3 million, and $0.7 million, respectively, of such acquisition costs.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 givenasset may 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, forecasted low occupancy levels or near term lease expirations 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 for propertieswithin 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; and51•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 ofthe real 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 costbasis. 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 the landheld for sale, that the sale price less estimated costs to sell exceeded the carrying value and therefore we did not record any impairment loss for this property.Cost Capitalization and DepreciationWe capitalize costs associated with development and redevelopment activities, capital improvements, tenant improvements, and leasing activities. Forthe years ended December 31, 2014, 2013 and 2012, we capitalized $11.4 million, $7.3 million and $3.1 million, respectively, of internal costs to ourqualifying development and redevelopment 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 orestimated remaining 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 exercisesignificant judgment. Expenditures that meet one or more of the following criteria generally qualify for capitalization:•provide benefit in future periods;•extend the useful life of the asset beyond our original estimates; and52•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, 2014, the Company had one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, which isdescribed more fully in Note 12 “Share-Based Compensation” to our consolidated financial statements included in this report. The Executive CompensationCommittee determines compensation for Executive Officers. Compensation cost for all share-based awards, including options, requires measurement atestimated fair value on the grant date and compensation cost is recognized over the service vesting period, which represents the requisite service period. Thegrant date fair value for compensation programs that contain market measures are performed using complex pricing valuation models that require the input ofassumptions, including judgments to estimate expected stock price volatility, expected life, and forfeiture rate. Specifically, the grant date fair value ofmarket measure-based share-based compensation programs are calculated using a Monte Carlo simulation pricing model and the grant date fair value of stockoption grants are calculated using the Black-Scholes valuation model.For the years ended December 31, 2014, 2013, and 2012 we recorded approximately $8.1 million, $5.3 million, and $3.9 million, respectively, ofcompensation expense related to programs that contained market measures and were therefore subject to such valuation models. If the valuation of the grantdate fair value for such programs changed by 10%, the potential impact to our net income available to common stockholders would be approximately$0.8 million, $0.5 million, and $0.4 million for the years ended December 31, 2014, 2013, and 2012, respectively.Factors That May Influence Future Results of OperationsCompleted, In-Process and Future Development PipelineWe believe that a significant portion of our long-term future growth will come from the completion of our under construction and in-processdevelopment projects as well as executing on our future development pipeline, including expanding entitlements, subject to market conditions. During 2013and 2014, we increased our focus on value-add and highly accretive development opportunities and expanded our future development pipeline throughtargeted 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 ourdevelopment program with discipline and will be pursuing opportunities with attractive economic returns in locations with proximity to publictransportation or transportation access and retail amenities and in markets with strong fundamentals and visible demand. We plan to develop in phases asappropriate and we strongly favor starting projects that are pre-leased.During the second half of 2014, we completed construction and stabilized the following two development projects:•505, 555 and 605 N. Mathilda Avenue, Sunnyvale, California, which we acquired in December 2012 and was 100% pre-leased to LinkedIn, Inc. Thisdevelopment encompassed three buildings totaling 587,429 square feet and had a total estimated investment of $293.5 million. In September 2014,the project was substantially complete and added to the stabilized portfolio.•680 and 690 E. Middlefield Road, Mountain View, California, which we acquired in May 2012 and was 100% pre-leased to Synopsys, Inc. Thisdevelopment encompassed two buildings totaling 340,913 rentable square feet and had a total estimated investment of approximately$185.0 million. In October 2014, the project was substantially complete and added to the stabilized portfolio.53As of December 31, 2014, our in-process development pipeline consisted of the following six projects under construction, which was 82% pre-leased atDecember 31, 2014.•350 Mission Street, SOMA, San Francisco, California, which we acquired in October 2012. This development project, which is 100% pre-leased tosalesforce.com, Inc., has a total estimated investment of $279.3 million and will encompass approximately 450,000 rentable square feet uponcompletion. The property is expected to be LEED platinum certified, the first ground up development property in the city expected to receive thisdesignation. Construction is currently in process and is currently expected to be completed towards the end of 2015, and the tenant is expected tooccupy in phases.•333 Brannan Street, SOMA, San Francisco, California, which we acquired in July 2012. The development project is 100% pre-leased to Dropbox,has a total estimated investment of $102.1 million and is expected to encompass 185,000 rentable square feet. Construction is currently in processand is currently expected to be completed in the fourth quarter of 2015.•Crossing/900, Redwood City, California, which we acquired in June 2013 with a local partner. This development project is 100% pre-leased to Box,Inc., has a total estimated investment of approximately $188.4 million and will encompass approximately 339,000 rentable square feet uponcompletion. Construction is currently in process and is expected to be completed in phases between the fourth quarter of 2015 and the first quarter of2017.•Columbia Square, Hollywood, California, which we acquired in September 2012. This development project is comprised of two phases, historicaland new office and residential and is located in the heart of Hollywood, California, two blocks from the corner of Sunset Boulevard and Vine Street. During 2013, we commenced development on both phases comprising approximately 685,000 rentable square feet. The two office components,comprising 480,000 square feet have an estimated investment of approximately $296.6 million and are expected to be completed in phases betweenthe second quarter of 2015 and the first quarter of 2016, and stabilized in phases between the second quarter of 2015 and the first quarter of 2017.The second phase, the residential component of the project, comprising 205,000 square feet will be a mix of high-end, long-term rentals andextended stay apartment homes and has an estimated investment of $137.2 million. It will be the first luxury extended stay property to be located inthe heart of Hollywood. Construction of this project is expected to be completed in the first quarter of 2016 and stabilized in the first quarter of2017.•The Heights at Del Mar, Del Mar, California, which we acquired in September 2013. The project is a 73,000 square foot office project and has a totalestimated investment of $43.6 million. Construction on this project is currently in process and is expected to be completed in the fourth quarter of2015.In addition, as of December 31, 2014, we had additional undeveloped land holdings located in various submarkets in San Diego County, San FranciscoBay Area and Los Angeles with an aggregate cost basis of approximately $531.1 million at which we believe we could develop more than 3.0 millionrentable square feet. In the future, we may also enter into agreements to acquire other development or redevelopment opportunities, either as wholly ownedproperties or through joint ventures and those agreements typically will be subject to the satisfaction of closing conditions.Increase in our development activities could continue to cause an increase in the average development asset balances qualifying for interest and othercarry cost capitalization in future periods. During the year ended December 31, 2014, we capitalized interest on in process development projects, aredevelopment project in lease-up, and development pipeline projects with an average aggregate cost basis of approximately $1.0 billion, as it wasdetermined these projects qualified for interest and other carry cost capitalization under GAAP. For the years ended December 31, 2014 and 2013, wecapitalized $47.1 million and $35.4 million, respectively, of interest to our qualifying development projects. For the years ended December 31, 2014 and2013, we capitalized $11.4 million and $7.3 million, respectively, of internal costs to our qualifying redevelopment and development projects.54Acquisitions. During the year ended December 31, 2014, we acquired five office buildings in two transactions for an aggregate purchase price ofapproximately $206.6 million and three undeveloped land sites, including two adjacent land sites, in three transactions with an aggregate purchase price ofapproximately $166.0 million. During 2014, we continued our focus on value-add and highly accretive development opportunities and expanded our futuredevelopment pipeline through targeted acquisitions of development opportunities on the West Coast. During 2013, we acquired four office buildings in twotransactions with an aggregate purchase price of approximately $296.4 million and two development projects. We generally finance our acquisitions throughproceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility, proceeds from our capital recyclingprogram, the assumption of existing debt and cash flows from operations.As a key component of our growth strategy, we continue to evaluate value-add acquisition opportunities (including undeveloped land, developmentopportunities and office properties). As a result, at any point in time we may have one or more potential acquisitions under consideration that are in varyingstages of evaluation, negotiation or due diligence review, which may include potential acquisitions under contract. We remain a disciplined buyer ofdevelopment opportunities and operating 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 cannot provideassurance that we will complete additional future acquisitions. In the future, we may enter into agreements to acquire additional properties or undevelopedland, either as wholly owned properties or through joint ventures, and those agreements typically will be subject to the satisfaction of closing conditions. Wecannot provide assurance that we will enter into any agreements to acquire properties, or undeveloped land, or that the potential acquisitions contemplatedby any agreements we may enter into in the future will be completed.Costs associated with acquisitions accounted for as business combinations are expensed as incurred, and we may be unable to complete an acquisitionafter making a nonrefundable deposit or incurring acquisition-related costs. In addition, acquisitions are subject to various other risks and uncertainties.During the year ended December 31, 2014, we expensed approximately $1.5 million of third-party acquisition costs, and we may incur additional third-partyacquisition costs during 2015. During the year ended December 31, 2014, we capitalized $4.5 million of acquisition costs directly associated withdevelopment acquisitions accounted for as asset acquisitions. We expect that during 2015 we will continue to pursue value-add property and landacquisitions 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 portfoliowith the intent of recycling the proceeds generated from the disposition of less-strategic properties 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 this strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, ifany, for federal and state income tax purposes.In connection with our capital recycling strategy, during 2014, we completed the sale of 17 properties and one undeveloped land parcel to unaffiliatedthird parties in five separate transactions for gross sales proceeds totaling approximately $432.6 million of which approximately $59.2 million wastemporarily being held at qualified intermediaries at December 31, 2014 for Section 1031 Exchanges. As of December 31, 2014, we also had one land parcelclassified as held for sale that was sold in January 2015 for a gross sales price of $26.0 million. 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 abilityto maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely55affect our rental income in future periods. The following tables set forth certain information regarding leasing activity for our stabilized portfolio during theyear ended December 31, 2014.Information on Leases Commenced and ExecutedFor Leases Commenced 1st & 2nd Generation (1) 2nd Generation (1) Number ofLeases (2) RentableSquare Feet (2) TI/LC perSq. Ft. (3) Changes inRents (4)(5) Changes inCash Rents (6) Retention Rates(7) WeightedAverageLease Term (inmonths) New Renewal New Renewal Year Ended December 31,2014106 81 1,045,717 1,333,231 33.43 19.7% 9.4% 58.6% 69For Leases Executed (8) 1st & 2nd Generation (1) 2nd Generation (1) Number of Leases (2) Rentable Square Feet (2) TI/LC per Sq. Ft.(3) Changes inRents (4)(5) Changes inCash Rents (6) Weighted Average LeaseTerm(in months) New Renewal New Renewal Year Ended December 31,2014108 81 1,014,888 1,333,231 37.14 25.4% 13.0% 74_______________________(1)First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasingincludes space where we have made capital expenditures to maintain the current market revenue stream.(2)Represents leasing activity for leases that commenced or signed during the period, including first and second generation space, net of month-to-month leases. Excludes leasing onnew construction.(3)Amounts exclude tenant-funded tenant improvements.(4)Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer thanone year or vacant when the property was acquired.(5)Excludes commenced and executed leases of approximately 465,950 and 321,475 rentable square feet, respectively, for the year ended December 31, 2014, for which the spacewas vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningfulmarket comparison.(6)Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer thanone year or vacant when the property was acquired.(7)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.(8)For the year ended December 31, 2014, 25 new leases totaling 489,482 rentable square feet were signed but not commenced as of December 31, 2014.As of December 31, 2014, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operatingproperties, are approximately 10% under the current average market rental rates, although individual properties within any particular submarket presentlymay be leased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above,below, or at the average cash rental rate of our portfolio.In general, market rental rates have continued to increase in the majority of our submarkets over the last several quarters. 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.56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) 2015 109 1,124,952 8.7% $34,948 7.5% $31.072016 81 780,353 6.0% 23,460 5.0% 30.062017 107 1,812,670 14.0% 60,573 12.8% 33.422018 66 1,350,180 10.4% 54,136 11.5% 40.102019 80 1,486,088 11.4% 54,028 11.5% 36.36Total 443 6,554,243 50.5% $227,145 48.3% $34.66________________________ (1)The information presented for all lease expiration activity reflects leasing activity through December 31, 2014 for our stabilized portfolio. For leases that have been renewed earlyor space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms.Excludes space leased under month-to-month leases, intercompany leases, vacant space, and lease renewal options not executed as of December 31, 2014.(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization ofdeferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expensereimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages representpercentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by theCompany for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”In addition to the 0.8 million rentable square feet, or 5.6%, of currently available space in our stabilized portfolio, leases representing approximately8.7% and 6.0% of the occupied square footage of our stabilized portfolio are scheduled to expire during 2015 and 2016, respectively. The leases scheduledto expire in 2015 and 2016 represent approximately 1.9 million rentable square feet or 12.5% of our total annualized base rental revenue. We believe that theweighted average cash rental rates are approximately 10% under the current average market rental rates for leases scheduled to expire during 2015 and 2016,although individual 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.Incentive Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for ourexecutive officers. For 2014, 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.As of December 31, 2014, there was approximately $30.3 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 2.5 years. The $30.3 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.57Stabilized Portfolio InformationAs of December 31, 2014, our stabilized portfolio was comprised of 111 office properties encompassing an aggregate of approximately 14.1 millionrentable square feet. Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently underconstruction or committed for construction, “lease-up” properties, undeveloped land, and real estate assets held for sale. We define redevelopment propertiesas those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formalplan, the intended result of which is a higher economic return on the property. As of December 31, 2014, we had no redevelopment properties. We definelease-up properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessationof major construction activities. There were no operating properties in “lease-up” as of December 31, 2014. As of December 31, 2014, we had one land parcelheld for sale. Our stabilized portfolio also excludes our future development pipeline, which is comprised of nine potential development sites, representingapproximately 104 gross acres of undeveloped land on which we believe we have the potential to develop over 3.0 million square feet of office space,depending upon economic conditions.The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from December 31, 2013 toDecember 31, 2014: Number ofBuildings RentableSquare FeetTotal as of December 31, 2013 (1)105 12,736,102Acquisitions (2)5 407,587Completed development and redevelopment properties placed in-service6 1,356,053Dispositions (1)(5) (422,284)Remeasurement— 19,159Total as of December 31, 2014111 14,096,617________________________(1)Excludes the twelve properties held for sale as of December 31, 2013.(2)Excludes development and redevelopment property acquisitions.Occupancy InformationThe following table sets forth certain information regarding our stabilized portfolio:Stabilized Portfolio OccupancyRegionNumber ofBuildings Rentable Square Feet Occupancy at (1) 12/31/2014 12/31/2013 12/31/2012Los Angeles and Ventura Counties27 3,505,590 92.8% 93.7% 94.0%Orange County1 271,556 98.7% 92.8% 92.0%San Diego County46 4,244,068 90.9% 90.8% 90.7%San Francisco Bay Area24 3,887,161 97.3% 94.8% 95.5%Greater Seattle13 2,188,242 98.1% 96.7% 93.3%Total Stabilized Portfolio111 14,096,617 94.4% 93.4% 92.8%58 Average Occupancy Year Ended December 31, 2014 2013Stabilized Portfolio (1)93.5% 92.1%Same Store Portfolio (2)92.7% 91.4%__________________________________(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, 2013 and still owned and stabilized as of December 31, 2014. See discussionunder “Results of Operations” for additional information.Current Regional InformationThe West Coast real estate markets in which we operate have strengthened in every quarter of 2014, driven by steadily improving economic conditions,net positive job growth and rising business confidence and expansion, especially among the region's many tech, social media, entertainment, life science andcommunication industries.San Francisco Bay Area. In 2014, the San Francisco Bay Area market outperformed all other real estate markets on the West Coast and across the countrywith the technology sector continuing to drive growth. Strong demand and a limited supply pipeline continue to drive asking rents higher. As ofDecember 31, 2014, our San Francisco Bay Area stabilized portfolio of 3.9 million rentable square feet was 97.3% occupied with approximately 104,000available rentable square feet compared to 94.8% occupied with approximately 124,000 available rentable square feet as of December 31, 2013. As ofJanuary 31, 2015, we were 98.9% leased in the San Francisco Bay Area.As of December 31, 2014, leases representing an aggregate of approximately 216,000 and 118,000 rentable square feet are scheduled to expire during2015 and 2016, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2015 and 2016 representsapproximately 2.6% of our occupied rentable square feet and 3.1% of our annualized base rental revenues in our total stabilized portfolio as ofDecember 31, 2014.Greater Seattle. During 2014, demand in Seattle remained strong and the region saw year over year asking rents increase. As of December 31, 2014, ourgreater Seattle stabilized portfolio of 2.2 million rentable square feet was 98.1% occupied with approximately 43,000 available rentable square feet comparedto 96.7% occupied with approximately 68,000 available rentable square feet as of December 31, 2013. As of January 31, 2015, we were 98.0% leased in theGreater Seattle Area.As of December 31, 2014, leases representing an aggregate of approximately 176,000 and 91,000 rentable square feet are scheduled to expire during2015 and 2016, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2015 and 2016 representsapproximately 2.1% of our occupied rentable square feet and 1.6% of our annualized base rental revenues in our total stabilized portfolio as ofDecember 31, 2014.San Diego County. San Diego showed strong signs of growth during 2014 and rental rates continued to increase. As of January 31, 2015, our San Diegoportfolio was 93.9% leased. Our San Diego County stabilized portfolio of 4.2 million rentable square feet was 90.9% occupied with approximately 386,000available rentable square feet as of December 31, 2014 compared to 90.8% occupied with approximately 401,000 available rentable square feet as ofDecember 31, 2013.As of December 31, 2014, leases representing an aggregate of approximately 419,000 and 294,000 rentable square feet are scheduled to expire during2015 and 2016, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during 2015 and 2016 representsapproximately 5.5% of our occupied rentable square feet and 3.7% of our annualized base rental revenues in our total stabilized portfolio as ofDecember 31, 2014.Los Angeles and Ventura Counties. During 2014, the Los Angeles market posted its strongest net absorption year since 2005. This activity was mainlycentered in the submarkets of West Los Angeles, Santa Monica, Hollywood and Playa Vista. The strong growth was driven by expansion amongsttechnology, media and co-working firms. Our Los Angeles and Ventura Counties stabilized portfolio of 3.5 million rentable square feet was 92.8% occupiedwith approximately 252,000 available rentable square feet as of December 31, 2014 compared to 93.7% occupied with59approximately 219,000 available rentable square feet as of December 31, 2013. Across our Los Angeles portfolio, as of January 31, 2015, we were 95.4%leased.As of December 31, 2014, leases representing an aggregate of approximately 290,000 and 250,000 rentable square feet are scheduled to expire during2015 and 2016, respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during 2015 and in 2016represent approximately 4.1% of our occupied rentable square feet and 3.7% of our annualized base rental revenues in our total stabilized portfolio as ofDecember 31, 2014.60Results of OperationsComparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013Net 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 measureto net 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 for twocomparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 2013 and still owned and included in thestabilized portfolio as of December 31, 2014;•Acquisition Properties – which includes the results, from the dates of acquisition through the periods presented, for the four office buildings weacquired during 2013 and the five office building we acquired during the year ended December 31, 2014;•Stabilized Development and Redevelopment Properties – which includes the results generated by the following:◦One development project comprising three office buildings, that was completed and stabilized in the third quarter of 2014;◦One development project consisting of two office buildings, that was completed and stabilized in the fourth quarter of 2014;◦One redevelopment property that was stabilized in 2014 following its one year lease-up period; and◦Two office redevelopment buildings and one office development building that were stabilized in 2013.•Other Properties – which includes the results of three office properties and certain of our in-process and future development projects.61The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2014:Group # of Buildings RentableSquare FeetSame Store Properties 93 11,309,444Acquisition Properties 9 946,925Stabilized Development and Redevelopment Properties 9 1,840,248Total Stabilized Portfolio 111 14,096,617The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the years endedDecember 31, 2014 and 2013. Year Ended December 31, DollarChange PercentageChange 2014 2013 ($ in thousands)Reconciliation to Net Income: Net Operating Income, as defined$372,881 $319,679 $53,202 16.6 %Unallocated (expense) income: General and administrative expenses(46,152) (39,660) (6,492) 16.4Acquisition-related expenses(1,479) (1,962) 483 (24.6)Depreciation and amortization(202,417) (188,887) (13,530) 7.2Interest income and other net investment gains561 1,635 (1,074) (65.7)Interest expense(67,571) (75,870) 8,299 (10.9)Gain on sale of land3,490 — 3,490 100.0Income from continuing operations59,313 14,935 44,378 297.1Income from discontinued operations (1)124,495 29,630 94,865 320.2Net income$183,808 $44,565 $139,243 312.4 % ________________________(1) Includes net gains on dispositions of discontinued operations of $121.9 million and $12.3 million for the years ended December 31, 2014 and 2013, respectively (see Note 18"Discontinued Operations" to our consolidated financial statements included in this report for additional information regarding our discontinued operations).The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the years endedDecember 31, 2014 and 2013. Year Ended December 31, 2014 2013 SameStore Acqui-sitions Stabilized Development& Redevelopment Other Total SameStore Acqui-sitions Stabilized Development& Redevelopment Other Total (in thousands) (in thousands)Operating revenues: Rental income$386,456 $29,423 $49,617 $832 $466,328 $370,128 $14,810 $23,685 $3,276 $411,899Tenantreimbursements38,264 5,182 3,151 120 46,717 33,704 2,981 937 425 38,047Other propertyincome8,656 — 11 13 8,680 7,155 7 1 2 7,165Total433,376 34,605 52,779 965 521,725 410,987 17,798 24,623 3,703 457,111Property and related expenses: Property expenses90,468 2,695 6,818 533 100,514 86,844 1,953 4,170 1,148 94,115Real estate taxes35,583 2,996 5,482 1,136 45,197 34,331 1,397 2,124 1,565 39,417Provision for baddebts(181) 13 226 — 58 383 13 — — 396Ground leases2,932 — 143 — 3,075 2,900 — 604 — 3,504Total128,802 5,704 12,669 1,669 148,844 124,458 3,363 6,898 2,713 137,432Net Operating Income,as defined$304,574 $28,901 $40,110 $(704) $372,881 $286,529 $14,435 $17,725 $990 $319,67962 Year Ended December 31, 2014 as compared to the Year Ended December 31, 2013 Same Store Acquisitions Stabilized Development &Redevelopment Other Total DollarChange Percent Change DollarChange PercentChange DollarChange PercentChange DollarChange Percent Change DollarChange Percent Change ($ in thousands) Operating revenues: Rental income$16,328 4.4 % $14,613 98.7 % $25,932 109.5 % $(2,444) (74.6)% $54,429 13.2 %Tenant reimbursements4,560 13.5 2,201 73.8 2,214 236.3 (305) (71.8) 8,670 22.8Other property income1,501 21.0 (7) (100.0) 10 1,000.0 11 550.0 1,515 21.1Total22,389 5.4 16,807 94.4 28,156 114.3 (2,738) (73.9) 64,614 14.1Property and related expenses: Property expenses3,624 4.2 742 38.0 2,648 63.5 (615) (53.6) 6,399 6.8Real estate taxes1,252 3.6 1,599 114.5 3,358 158.1 (429) (27.4) 5,780 14.7Provision for bad debts(564) (147.3) — — 226 100.0 — — (338) (85.4)Ground leases32 1.1 — — (461) (76.3) — — (429) (12.2)Total4,344 3.5 2,341 69.6 5,771 83.7 (1,044) (38.5) 11,412 8.3Net Operating Income,as defined$18,045 6.3 % $14,466 100.2 % $22,385 126.3 % $(1,694) (171.1)% $53,202 16.6 %Net Operating Income increased $53.2 million, or 16.6%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013primarily resulting from:•An increase of $22.4 million attributable to the Stabilized Development and Redevelopment Properties, of which $17.0 million is attributable to theproperties completed and/or stabilized in September and October of 2014 and $5.4 million is attributable to properties completed and/or stabilizedin 2013;•An increase of $18.0 million attributable to the Same Store Properties primarily resulting from:•An increase in rental income of $16.3 million primarily resulting from an increase in tenant renewals and new leases at higher rental rates;•An increase in tenant reimbursements of $4.6 million primarily due to higher reimbursable property expenses and real estate taxes and increasedoccupancy;•An increase in other property income of $1.5 million. During the year ended December 31, 2014 we recognized lease termination fees of $6.3million. During the year ended December 31, 2013 we received a $5.2 million property damage settlement payment at one of our properties;•A partially offsetting increase in property and related expenses of $4.3 million primarily resulting from:•An increase of $3.6 million in property expenses primarily as a result of a $2.6 million increase in certain recurring operating costs relatedto utilities, parking, janitorial, repairs and maintenance, and other service-related costs and $1.0 million of non-recurring expenses relatedto a property damage settlement;•A net increase in real estate taxes of $1.3 million primarily as a result of higher assessment of value at several properties; and•A decrease in the provision for bad debt of $0.6 million primarily due to an improvement in collections of tenant receivables.63•An increase of $14.5 million attributable to the Acquisition Properties, of which $7.4 million is attributable to properties acquired in 2013, $6.1million related to a property acquired in the first quarter of 2014 and $1.0 million related to a property acquired in the fourth quarter of 2014.Other Expenses and IncomeGeneral and Administrative ExpensesGeneral and administrative expenses increased $6.5 million, or 16.4%, for the year ended December 31, 2014 compared to the year ended December 31,2013, primarily attributable to an increase in compensation expense related to higher payroll costs and other professional services associated with the growthof the Company.Depreciation and AmortizationDepreciation and amortization increased by $13.5 million, or 7.2%, for the year ended December 31, 2014 compared to the year ended December 31,2013, primarily related to the Acquisition Properties and Stabilized Development and Redevelopment Properties.Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest,including capitalized debt discounts/premiums and loan cost amortization for the years ended December 31, 2014 and 2013. Year Ended December 31, DollarChange PercentageChange 2014 2013 ($ in thousands)Gross interest expense$114,661 $111,238 $3,423 3.1 %Capitalized interest(47,090) (35,368) (11,722) 33.1Interest expense$67,571 $75,870 $(8,299) (10.9)%Gross interest expense, before the effect of capitalized interest, increased $3.4 million, or 3.1%, for the year ended December 31, 2014 compared to theyear ended December 31, 2013 resulting primarily from an increase in our average outstanding debt balances due to increased development and acquisitionsand growth of the Company.Capitalized interest increased $11.7 million, or 33.1%, for the year ended December 31, 2014 compared to the year ended December 31, 2013, primarilyattributable to an increase in our development activity, which resulted in higher average asset balances qualifying for interest capitalization during 2014 ascompared to 2013.64Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012The 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, 2012 and still owned and included in the stabilized portfolio as of December 31, 2014;•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 2013;•Stabilized Redevelopment Properties – which includes the results generated by one office building that was moved into the stabilized portfolioupon completion of redevelopment in the fourth quarter of 2012, one office building that was moved into the stabilized portfolio uponcompletion 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 officebuilding that 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 still owned andincluded in the stabilized portfolio as of December 31, 2014.Group # of Buildings RentableSquare FeetSame Store Properties 79 9,530,338Acquisition Properties 18 2,298,941Stabilized Development and Redevelopment Properties 3 484,536Total Stabilized Portfolio 100 12,313,815The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the year endedDecember 31, 2013 and 2012. Year Ended December 31, DollarChange PercentageChange 2013 2012 ($ in thousands)Reconciliation to Net Income: Net Operating Income, as defined$319,679 $264,437 $55,242 20.9 %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(188,887) (150,521) (38,366) 25.5Interest income and other net investment gains1,635 848 787 92.8Interest expense(75,870) (79,114) 3,244 (4.1)Income (loss) from continuing operations14,935 (5,475) 20,410 (372.8)Income from discontinued operations29,630 282,576 (252,946) (89.5)Net income$44,565 $277,101 $(232,536) (83.9)% 65The following tables summarize the Net Operating Income from continuing operations, as defined, for our total portfolio for the year endedDecember 31, 2013 and 2012. Year Ended December 31, 2013 2012 SameStore Acqui-sitions StabilizedRedevel-opment Other Total SameStore Acqui-sitions StabilizedRedevel-opment Other Total (in thousands) (in thousands)Operating revenues: Rental income$311,615 $75,613 $11,520 $13,151 $411,899 $305,074 $30,000 $1,562 $5,528 $342,164Tenant reimbursements26,762 10,286 615 384 38,047 24,687 4,683 276 21 29,667Other property income6,278 884 — 3 7,165 1,135 339 — 13 1,487Total344,655 86,783 12,135 13,538 457,111 330,896 35,022 1,838 5,562 373,318Property and related expenses: Property expenses72,571 16,348 2,497 2,699 94,115 64,931 6,784 562 1,721 73,998Real estate taxes28,855 7,187 1,077 2,298 39,417 27,010 2,875 122 1,555 31,562Provision for bad debts287 109 4 (4) 396 152 — — 1 153Ground leases1,649 1,251 88 516 3,504 1,692 718 86 672 3,168Total103,362 24,895 3,666 5,509 137,432 93,785 10,377 770 3,949 108,881Net Operating Income, asdefined$241,293 $61,888 $8,469 $8,029 $319,679 $237,111 $24,645 $1,068 $1,613 $264,437 Year Ended December 31, 2013 as compared to the Year Ended December 31, 2012 Same Store Acquisitions Stabilized Redevelopment Other Total DollarChange Percent Change DollarChange PercentChange DollarChange Percent Change DollarChange PercentChange DollarChange Percent Change ($ in thousands)Operating revenues: Rental income$6,541 2.1 % $45,613 152.0% $9,958 637.5% $7,623 137.9 % $69,735 20.4%Tenant reimbursements2,075 8.4 5,603 119.6 339 122.8 363 1,728.6 8,380 28.2Other property income5,143 453.1 545 160.8 — — (10) (76.9) 5,678 381.8Total13,759 4.2 51,761 147.8 10,297 560.2 7,976 143.4 83,793 22.4Property and related expenses: Property expenses7,640 11.8 9,564 141.0 1,935 344.3 978 56.8 20,117 27.2Real estate taxes1,845 6.8 4,312 150.0 955 782.8 743 47.8 7,855 24.9Provision for bad debts135 88.8 109 100.0 4 100.0 (5) (500.0) 243 158.8Ground leases(43) (2.5) 533 74.2 2 2.3 (156) (23.2) 336 10.6Total9,577 10.2 14,518 139.9 2,896 376.1 1,560 39.5 28,551 26.2Net Operating Income,as defined$4,182 1.8 % $37,243 151.1% $7,401 693.0% $6,416 397.8 % $55,242 20.9%Net Operating Income increased $55.2 million, or 20.9%, 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 $6.5 million primarily resulting from an increase in tenant renewals and new leases at higher rental rates;66•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 primarily due to the receipt of a $5.2 million property damage settlement payment at one of our properties;and•A partially offsetting increase in property and related expenses of $9.6 million primarily resulting from:•An increase of $7.6 million in property expenses primarily as a result of an increase in certain recurring operating costs of approximately$4.6 million related to property management expenses, utilities, insurance, and other service-related costs; $1.2 million of non-recurring expenses related to a property damage settlement and a $1.8 million decrease in property-related insurance proceeds in 2013compared to 2012; 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 2013 compared to 2012.•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 a property stabilized in the fourth quarter of 2012: and•An increase of $6.4 million attributable to the Other Properties primarily resulting from income generated from one redevelopment property in lease-up that was 78% occupied at December 31, 2013 compared to 26% occupied at December 31, 2012.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 endedDecember 31, 2012, primarily attributable to an increase in compensation expense related to higher payroll costs associated with the growth of the Companyand the March 2012 and April 2013 renegotiations of our Chief Executive Officer’s and Chief Operating Officer’s employment agreements and costsassociated with our accounting system conversion.Depreciation and AmortizationDepreciation and amortization increased by $38.4 million, or 25.5%, for the year ended December 31, 2013 compared to the year endedDecember 31, 2012, primarily related to the Acquisition Properties.67Interest ExpenseThe following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest,including capitalized debt discounts/premiums and loan cost amortization for the year ended December 31, 2013 and 2012. Year Ended December 31, DollarChange PercentageChange 2013 2012 ($ in thousands)Gross interest expense$111,238 $98,906 $12,332 12.5 %Capitalized interest(35,368) (19,792) (15,576) 78.7Interest 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 development and acquisition activityand 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 interestcapitalization.68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’sprimary source of capital. The Company believes the Operating Partnership’s sources of working capital, specifically its cash flow from operations andborrowings available under its unsecured revolving credit facility, are adequate for it to make its distribution payments to the Company and, in turn, for theCompany to make its dividend payments to its preferred and common stockholders for the next twelve months. Cash flows from operating activitiesgenerated by the Operating Partnership for the year ended December 31, 2014 were sufficient to cover the Company’s payment of cash dividends to itsstockholders. However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amountssufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital could adversely affect the OperatingPartnership’s ability to make distributions to the Company, which would in turn, adversely affect the Company’s ability to pay cash dividends to itsstockholders.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 of thesetypes in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, availablepricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceedsfrom those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. TheOperating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its unsecuredrevolving credit facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporatepurposes.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 andthe revenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The sectionentitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity andcapital resources 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 lessthan 100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retainedearnings to fund its on-going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may berequired to use borrowings under the Operating Partnership’s revolving credit facility, if necessary, to meet REIT distribution requirements and maintain itsREIT status. The Company may also need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, as wellas potential developments 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, throughthe Operating Partnership, common unitholders from the Operating Partnership's cash flow from operating activities. All such distributions are at thediscretion of the board of directors. The Company has historically distributed amounts in excess of its taxable income resulting in a return of capital to itsstockholders and the Company currently believes it has the ability to maintain distributions at the 2014 levels to meet the REIT69distribution requirements for 2015. However, there can be no assurance that the Company will have the ability to do so. In addition, to the extent that theCompany cannot successfully complete Section 1031 Exchanges to defer some or all of the taxable gains related to completed or future propertydispositions, the Company may choose to distribute a special dividend to avoid having to pay income taxes on such gains. The Company considers marketfactors and its performance in addition to REIT requirements in determining its distribution levels. Amounts accumulated for distribution to stockholders areinvested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with the Company’s intention to maintain itsqualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmentalagency securities, certificates of deposit, and interest-bearing bank deposits.On December 9, 2014, the Board of Directors declared a regular quarterly cash dividend of $0.35 per share of common stock payable on January 14, 2015to stockholders of record on December 31, 2014 and caused a $0.35 per Operating Partnership unit cash distribution to be paid in respect of the OperatingPartnership’s common limited partnership interests, including those owned by the Company. The total cash quarterly dividends and distributions paid onJanuary 14, 2015 were $31.3 million.On December 9, 2014, the Board of Directors declared a dividend of $0.42969 per share on the Series G Preferred Stock and $0.39844 per share on 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 16, 2015 to Series G Preferred and Series H Preferred stockholders of record on January 31, 2015. The quarterly dividends payable onFebruary 16, 2015 to Series G and Series H Preferred stockholders is expected to total $3.3 million.Debt CovenantsThe covenants contained within the unsecured revolving credit facility, unsecured term loan facility and unsecured term loan generally prohibit theCompany from paying dividends in excess of 95% of FFO.70CapitalizationAs of December 31, 2014, our total debt as a percentage of total market capitalization was 28.2% and our total debt and liquidation value of our preferredequity as a percentage of total market capitalization was 30.4%, which was calculated based on the closing price per share of the Company’s common stockof $69.07 on December 31, 2014 as shown in the following table: Shares/Units at December 31, 2014 AggregatePrincipalAmount or$ ValueEquivalent % of TotalMarketCapitalization ($ in thousands)Debt: Unsecured Revolving Credit Facility $140,000 1.6%Unsecured Term Loan Facility 150,000 1.7Unsecured Term Loan 39,000 0.5Unsecured Senior Notes due 2015 (1) 325,000 3.7Unsecured Senior Notes due 2018 (1) 325,000 3.7Unsecured Senior Notes due 2020 (1) 250,000 2.9Unsecured Senior Notes due 2023 (1) 300,000 3.4Unsecured Senior Notes due 2029 (1) 400,000 4.6Secured debt (1) 536,022 6.1Total debt 2,465,022 28.2Equity and Noncontrolling Interests: 6.875% Series G Cumulative Redeemable Preferred stock (2)4,000,000 100,000 1.16.375% Series H Cumulative Redeemable Preferred stock (2)4,000,000 100,000 1.1Common limited partnership units outstanding (3)(4)1,804,200 124,616 1.5Shares of common stock outstanding (4)86,259,684 5,957,956 68.1Total equity and noncontrolling interests 6,282,572 71.8Total Market Capitalization $8,747,594 100.0%________________________ (1)Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of December 31, 2014. The aggregate net unamortized premiumstotaled approximately $4.4 million as of December 31, 2014.(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 $69.07 as of December 31, 2014.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 unsecured 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; and71•Proceeds from the disposition of assets through our capital recycling program.Liquidity Uses•Development and redevelopment costs;•Property or undeveloped land acquisitions;•Property operating and corporate expenses;•Capital expenditures, tenant improvement and leasing costs;•Debt service and principal payments, including debt maturities;•Distributions to common and preferred security holders; and•Outstanding debt repayments.General StrategyOur general strategy is to maintain a conservative balance sheet with a strong 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, although there can be no assurance inthis regard. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhances our ability to obtainadditional sources of liquidity if necessary, and, therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seekingattractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities.Summary of 2014 Funding TransactionsWe continue to be active in the capital markets to finance our acquisition and development activity and our continued desire to improve our debtmaturities and lower our overall weighted average cost of capital. This was primarily a result of the following transactions:Capital Markets / Debt Transactions•During the year ended December 31, 2014, the Company completed its existing at-the-market stock offering program (the “July 2011 At-The-MarketProgram”) and in December 2014 commenced a new at-the-market stock offering program (the “December 2014 At-The-Market Program”) underwhich we may offer to sell shares of our common stock with an aggregate gross sales price of up $300.0 million. During 2014, we issued and sold atotal of 1,599,123 shares of our common stock under our at-the-market stock offering programs at a weighted average price of $65.49 per sharebefore selling commissions. The net offering proceeds (after deducting sales agent compensation) were approximately $103.1 million (see “—Liquidity Sources” below for additional information).•In July 2014, the Operating Partnership issued unsecured senior notes in an underwritten public offering with an aggregate principal balance of$400.0 million that are scheduled to mature in August 2029. The unsecured senior notes require semi-annual interest payments each February andAugust based on a stated annual interest rate of 4.250%.•In August 2014, we repaid the Series B unsecured senior notes with an outstanding principal balance of $83.0 million upon maturity (see Note 5“Secured and Unsecured Debt of the Operating Partnership” to our consolidated financial statements included in this report for additionalinformation).72•During the year ended December 31, 2014, we settled $37.0 million of early exchanges of the 4.25% Exchangeable Notes due 2014 and repaid theremaining $135.5 million principal balance upon maturity. In connection with the exchanges, we issued 1,575,981 net shares of common stockrepresenting the value of the exchange option at maturity (see Note 5 “Secured and Unsecured Debt of the Operating Partnership” to ourconsolidated financial statements included in this report for additional information).Capital Recycling Program•During the year ended December 31, 2014, we completed the sale of fourteen properties located in San Diego, one office property located in Irvine,one office property in San Rafael, one office property in Orange, and one undeveloped land parcel located in San Diego to unaffiliated third partiesin six separate transactions for gross sales proceeds totaling approximately $432.6 million. (See “—Factors that May Influence Future Operations”included in this report for additional information).After the effect of these aforementioned transactions, as of December 31, 2014, we had approximately $23.8 million of unrestricted cash on hand,$75.2 million of restricted cash and $140.0 million outstanding borrowings on our unsecured revolving credit facility.Liquidity SourcesUnsecured Revolving Credit FacilityThe following table summarizes the balance and terms of our unsecured revolving credit facility as of December 31, 2014 and December 31, 2013: December 31, 2014 December 31, 2013 (in thousands)Outstanding borrowings$140,000 $45,000Remaining borrowing capacity460,000 455,000Total borrowing capacity (1)(2)$600,000 $500,000Interest rate (2)(3)1.41% 1.62%Facility fee-annual rate (4)0.250% 0.300%Maturity date (2)July 2019 April 2017_______________(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $311.0 million under an accordionfeature under the terms of the unsecured revolving credit facility and unsecured term loan facility.(2)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of December 31, 2014. In the second quarter of 2014, theCompany amended the terms of our unsecured revolving credit facility to increase the borrowing capacity to $600.0 million, extended the maturity to July 2019 and reduced theannual interest rate to LIBOR plus 1.250%. The amendment did not affect the outstanding borrowings under the unsecured revolving credit facility.(3)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.(4)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. Asof December 31, 2014, $5.9 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.We intend to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, tofinance development 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 undevelopedland in our portfolio with the intent of recycling the proceeds generated from the disposition of less strategic or lower return assets into capital used to fundnew operating and development acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general73corporate purposes. As part of this strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on thesales, if any, for federal and state income tax purposes.In connection with our capital recycling strategy, through December 31, 2014, we completed the sale of the properties and land noted above for grosssales proceeds totaling approximately $432.6 million. As of December 31, 2014, approximately $59.2 million of the gross sales proceeds were temporarilybeing held at qualified intermediaries, at our direction, for the purpose of facilitating Section 1031 Exchanges. During 2013, we completed the sale ofthree office buildings to unaffiliated third parties in three separate transactions, for gross sales proceeds totaling approximately $56.9 million. See “—Factorsthat May Influence Future Operations” for additional information.We currently anticipate that we could dispose of approximately $250.0 million to $400.0 million of less strategic and lower return real estate assets in2015. However, the timing of any potential future disposition transactions will depend on market conditions and other factors including but not limited toour capital needs and our ability to defer some or all of the taxable gains on the sales. We cannot assure you that we will dispose of any additional propertiesor that future acquisitions and/or dispositions, if any, will qualify as Section 1031 Exchanges.At-The-Market Stock Offering ProgramThe following table sets forth information regarding sales of our common stock under our at-the-market offering program for the year endedDecember 31, 2014 and 2013: Year Ended December 31, 20142013 (in millions, except share and per share data)Shares of common stock sold during the year1,599,1231,040,838Weighted average price per common share$65.49$53.11Aggregate gross proceeds$104.7$55.3Aggregate net proceeds after sales agent compensation$103.1$54.4The proceeds from sales were used to fund acquisitions, development expenditures and general corporate purposes including repayment of borrowingsunder the unsecured revolving credit facility. During the year ended December 31, 2014, under the July 2011 At-The-Market Program, we sold 1,457,623shares of common stock and completed the program. Since commencement of the December 2014 At-The-Market Program, as of December 31, 2014, we sold141,500 shares of common stock and approximately $290.0 million remains available to be sold under this program. Actual future sales will depend upon avariety 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 the December 2014 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 generally contributes the net proceeds from those sales to the Operating Partnership in exchange forcorresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from thesale of its debt securities to repay debt, including borrowings under its unsecured revolving credit facility, to develop new or existing properties, to makeacquisitions of properties or portfolios of properties, or for general corporate purposes.74Unsecured and Secured DebtThe aggregate principal amount of our unsecured and secured debt of the Operating Partnership outstanding as of December 31, 2014 was as follows: Aggregate Principal Amount Outstanding (in thousands)Unsecured Revolving Credit Facility$140,000Unsecured Term Loan Facility150,000Unsecured Term Loan39,000Unsecured 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)300,000Unsecured Senior Notes due 2029 (1)400,000Secured Debt (1)536,022Total Unsecured and Secured Debt$2,465,022________________________(1)Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of December 31, 2014. The aggregate net unamortized premiumstotaled approximately $4.4 million as of December 31, 2014.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, 2014 and December 31, 2013 was as follows: Percentage of Total Debt Weighted Average Interest Rate December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013Secured vs. unsecured: Unsecured (1)78.3% 75.1% 4.2% 4.6%Secured21.7 24.9 5.2% 5.2%Variable-rate vs. fixed-rate: Variable-rate13.4 8.9 1.5% 1.9%Fixed-rate (1)86.6 91.1 4.9% 5.0%Stated rate (1) 4.4% 4.8%GAAP effective rate (2) 4.3% 4.8%GAAP effective rate including debt issuance costs 4.5% 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, 2014. The table: (i) indicates the maturities andscheduled principal repayments of our secured and unsecured debt and unsecured revolving credit facility; (ii) indicates the scheduled interest payments ofour fixed-rate and variable-rate debt as of December 31, 2014; (iii) provides information about the minimum commitments due in connection with our groundlease obligations and other lease and contractual commitments; and (iv) provides estimated development commitments as of December 31, 2014. Note thatthe table does not reflect our available debt maturity extension options and reflects gross aggregate principal amounts before the effect of unamortizeddiscounts/premiums.75 Payment Due by Period Less than1 Year(2015) 2-3 Years(2016-2017) 4-5 Years(2018-2019) More than5 Years(After 2019) Total (in thousands)Principal payments: secured debt (1)$70,103 $171,179 $203,097 $91,643 $536,022Principal payments: unsecured debt (2)325,000 — 654,000 950,000 1,929,000Interest payments: fixed-rate debt (3)101,552 118,902 95,594 235,539 551,587Interest payments: variable-rate debt (4)2,948 5,897 4,410 — 13,255Interest payments: unsecured revolving credit facility (5)1,974 3,948 2,953 — 8,875Ground lease obligations (6)3,120 6,240 6,240 154,358 169,958Lease and contractual commitments (7)87,493 — — — 87,493Development commitments (8) 389,000 76,000 — — 465,000Total$981,190 $382,166 $966,294 $1,431,540 $3,761,190___________(1)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $10.3 million as of December 31, 2014.(2)Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $5.9 million as of December 31, 2014.(3)As of December 31, 2014, 86.6% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-ratepayments based on the contractual interest rates, interest payment dates and scheduled maturity dates.(4)As of December 31, 2014, 7.7% of our debt bore interest at variable rates which was incurred under the unsecured term loan facility and unsecured term loan. The variableinterest rate payments are based on LIBOR plus a spread of 1.400% as of December 31, 2014. The information in the table above reflects our projected interest rate obligationsfor these variable-rate payments based on outstanding principal balances as of December 31, 2014, the scheduled interest payment dates and the contractual maturity dates.(5)As of December 31, 2014, 5.7% of our debt bore interest at variable rates, which was incurred under the unsecured revolving credit facility. The variable interest rate paymentsare based on LIBOR plus a spread of 1.250% as of December 31, 2014. The information in the table above reflects our projected interest rate obligations for these variable-ratepayments based on outstanding principal balances as of December 31, 2014, the scheduled interest payment dates and the contractual maturity dates.(6)Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options.(7)Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures mayfluctuate.(8)Amounts represent commitments under signed leases for pre-leased development projects and contractual commitments for projects under construction as of December 31, 2014.The timing of these expenditures may fluctuate based on the ultimate progress of construction. We may start additional construction in 2015 (see “—Development” for additionalinformation).Other Liquidity UsesDebt MaturitiesAs of December 31, 2014, we had unsecured debt with principal balances of $325.0 million scheduled to mature in November 2015. We believe ourconservative leverage and staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity ifnecessary, and therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities,which we may finance, as necessary, with future public and private issuances of debt and equity securities.DevelopmentAs of December 31, 2014, we had six development projects under construction. These projects have a total estimated investment of approximately $1.0billion, of which we have incurred approximately $575.3 million and committed an additional $465.0 million as of December 31, 2014. In addition, wecurrently have additional development projects that we may commence construction on in 2015. We currently believe we could potentially spend $50.0 to$75.0 million during 2015 in addition to the amount committed as of December 31, 2014. This total estimated investment is based on market conditions andour 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.76Potential Future AcquisitionsDuring the year ended December 31, 2014, we acquired five office buildings and three undeveloped land sites for approximately $351.0 million in cash.In 2013, we acquired four buildings and two undeveloped land sites for approximately $305.5 million in cash. These transactions were funded throughvarious capital raising activities and, in selected instances, the assumption of existing indebtedness and issuance of common stock. We expect to continue tomonitor our target markets and pursue the acquisition of value add development opportunities and operating properties that add immediate Net OperatingIncome to our portfolio or play a strategic role in our future growth.Potential Future Leasing Costs and Capital ImprovementsThe amounts we incur for tenant improvements and leasing costs depend on leasing activity in each period. Tenant improvements and leasing costsgenerally fluctuate in any given period depending on factors such as the type and condition of the property, the term of the lease, the type of the lease, theinvolvement 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.For properties with our stabilized portfolio, excluding our development properties, we believe we could spend approximately $25.0 to $50.0 million incapital improvements, tenant improvements and leasing costs in 2015, in addition to the approximately $87.5 million of lease and contractual commitmentsincluded in our capital commitments table above. The amount we ultimately spend will depend on leasing activity during 2015.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, 2014 on a per square foot basis. Year Ended December 31, 2014 2013 2012Office Properties:(1) Capital Expenditures: Capital expenditures per square foot$0.84 $0.73 $0.78Tenant Improvement and Leasing Costs (2) Replacement tenant square feet (3)741,573 850,295 607,118Tenant improvements per square foot commenced$39.06 $39.24 $31.75Leasing commissions per square foot commenced$11.42 $12.25 $11.22Total per square foot$50.48 $51.48 $42.97Renewal tenant square feet1,333,231 1,188,308 629,664Tenant improvements per square foot commenced$14.23 $16.90 $9.63Leasing commissions per square foot commenced$9.71 $10.32 $7.91Total per square foot$23.94 $27.22 $17.53Total per square foot per year$5.81 $5.97 $5.30Average remaining lease term (in years)5.8 6.3 5.7________________________(1)Excludes development properties.(2)Includes only tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation tenants.(3)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 increased moderately in 2014. As all of our properties are well-maintained and do not require significant capitalimprovements, and based upon 2015 budgeted projects, we currently anticipate future capital expenditure levels to be consistent with or slightly abovehistorical levels.Distribution RequirementsFor a discussion of our dividend and distribution requirements, see “Liquidity and Capital Resources of the Company —Distribution Requirements.”77Other Potential Future Liquidity UsesWe remain a disciplined buyer of development opportunities and 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 andprofessional services. We expect that any material acquisitions or development activities will be funded with borrowings under the unsecured revolvingcredit facility, the public or private issuance of debt or equity securities, the disposition of assets under our capital recycling program or through theassumption 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, thetype of the lease, the involvement of external leasing agents, and overall market conditions. Capital expenditures may fluctuate in any given period subjectto the nature, extent, and timing of improvements required to maintain 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 unsecured revolving credit facility, issuance ofpublic and private equity securities, unsecured debt and fixed-rate secured mortgage financing, and proceeds from the disposition of selective assets throughour capital recycling program. However, our ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted byvarious factors, including the state of economic conditions, the state of the credit and equity markets, significant tenant defaults, a decline in the demand foroffice properties, a decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of future borrowings. These eventscould result in the following:•Decreases in our cash flows from operations, which could create further dependence on the unsecured 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.78Debt CovenantsThe unsecured revolving credit facility, unsecured term loan facility, unsecured term loan, unsecured senior notes and certain other secured debtarrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Key existing financial covenantsand their covenant levels include:Unsecured Credit Facility, Unsecured Term Loan Facility and Unsecured Term Loan (as defined in the applicableCredit Agreements): Covenant Level Actual Performanceas of December 31, 2014Total debt to total asset value less than 60% 32%Fixed charge coverage ratio greater than 1.5x 2.6xUnsecured debt ratio greater than 1.67x 2.83xUnencumbered asset pool debt service coverage greater than 1.75x 3.59x Unsecured Senior Notes due 2015, 2018, 2020, 2023 and 2029(as defined in the applicable Indentures): Total debt to total asset value less than 60% 40%Interest coverage greater than 1.5x 5.1xSecured debt to total asset value less than 40% 9%Unencumbered asset pool value to unsecured debt greater than 150% 262%The Operating Partnership was in compliance with all its debt covenants as of December 31, 2014. 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, 2014 ascompared to the year ended December 31, 2013 is as follows: Year Ended December 31, 2014 2013 DollarChange PercentageChange ($ in thousands)Net cash provided by operating activities$245,253 $240,576 $4,677 1.9 %Net cash used in investing activities(501,436) (506,520) 5,084 (1.0)%Net cash provided by financing activities244,587 284,621 (40,034) (14.1)%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, completed developmentprojects and related financing activities, and other general and administrative costs. Our net cash provided by operating activities increased by $4.7 million,or 1.9%, for the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily as a result of an increase in cash Net OperatingIncome generated from our Same Store, Acquisition, and Stabilized Development and Redevelopment Portfolios. See additional information under thecaption “—Results of Operations.”79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 $5.1 million, or 1.0%, for the year ended December 31, 2014 compared to the year endedDecember 31, 2013, primarily as a result of proceeds received from the disposition of 17 operating properties and one undeveloped land parcel during 2014,partially offset by an increase in cash paid for acquisitions and expenditures at our operating properties, development and redevelopment properties andundeveloped land as compared to the prior year.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 $40.0 million, or 14.1%, for the year ended December 31, 2014compared to the year ended December 31, 2013 primarily due to a decrease in the issuance of equity in 2014 compared to the prior year period and therepayment of our 4.25% Exchangeable Notes offset by an increase in proceeds received from the issuance of unsecured debt.Off-Balance Sheet ArrangementsAs of December 31, 2014 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements, or obligations,including contingent obligations.80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 ofdeferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Our calculationof FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenantimprovement 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 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,it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly,our FFO may not be comparable to all other REITs.Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets 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 therequired 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 andamortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which aresignificant economic costs and could materially impact our results from operations.The following table presents our FFO for the years ended December 31, 2014, 2013, 2012, 2011 and 2010: Year ended December 31, 2014 2013 2012 2011 2010 (in thousands)Net income available to common stockholders$166,969 $30,630 $249,826 $50,819 $4,512Adjustments: Net income attributable to noncontrolling common units of the OperatingPartnership3,589 685 6,187 1,474 178Depreciation and amortization of real estate assets202,108 199,558 168,687 135,467 102,898Net gain on dispositions of discontinued operations(121,922) (12,252) (259,245) (51,587) (949)Funds From Operations (1)$250,744 $218,621 $165,455 $136,173 $106,639_______________________(1)Includes amortization of deferred revenue related to tenant-funded tenant improvements of $11.0 million, $10.7 million, $9.1 million, $9.3 million and $9.7 million for the yearsended December 31, 2014, 2013, 2012, 2011 and 2010, respectively. Reported amounts are attributable to common stockholders and common unitholders.81The following table presents our weighted average shares of common stock and common units outstanding for the years ended December 31, 2014, 2013,2012, 2011 and 2010: Year Ended December 31, 2014 2013 2012 2011 2010Weighted average shares of common stock outstanding83,090,235 77,343,853 69,639,623 56,717,121 49,497,487Weighted average common units outstanding1,804,263 1,822,407 1,763,635 1,720,323 1,723,131Effect of participating securities – nonvested shares and restricted stockunits1,228,807 1,224,208 1,127,534 924,747 812,865Total basic weighted average shares / units outstanding86,123,305 80,390,468 72,530,792 59,362,191 52,033,483Effect of dilutive securities – Exchangeable Notes, stock options andcontingently issuable shares1,877,485 1,765,025 1,123,482 187,134 15,708Total diluted weighted average shares / units outstanding88,000,790 82,155,493 73,654,274 59,549,325 52,049,191InflationThe 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 PronouncementsFor a discussion of new accounting pronouncements see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidatedfinancial statements included in this report.82ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe primary market risk we face is interest rate risk. We seek to mitigate this risk by following established risk management policies and procedures.These policies include maintaining prudent amounts of debt, including a greater amount of fixed-rate debt as compared to variable-rate debt in our portfolio,and may include the periodic use of derivative instruments. As of December 31, 2014 and 2013, we did not have any interest-rate sensitive derivative assetsor liabilities. Information about our changes in interest rate risk exposures from December 31, 2013 to December 31, 2014 is incorporated herein by referencefrom “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, 2014, approximately 13.4% of our total outstanding debt of $2.5 billion was subject to variable interest rates. The remaining 86.6%bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. In general, interest ratefluctuations applied to our variable-rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuations applied to our fixed-ratedebt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated and need to be refinanced.However, interest rate fluctuations will impact the fair value of the fixed-rate debt instruments.We generally determine the fair value of our secured debt, unsecured revolving credit facility, unsecured term loan facility and unsecured term loan byperforming discounted cash flow analyses using an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates formaturities that correspond to the maturities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. We calculate the market rate of our unsecured revolving credit facility and unsecured term loan facility by obtaining the period-end LIBOR rate and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreads 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 each of our publicly traded unsecured senior notes based on their quoted tradingprice at the end of the reporting period. See Note 16 “Fair Value Measurements and Disclosures” in the consolidated financial statements included in thisreport for additional information on the fair value of our financial assets and liabilities as of December 31, 2014 and December 31, 2013.As of December 31, 2014, the total outstanding balance of our variable-rate debt was comprised of borrowings on our unsecured revolving credit facilityof $140.0 million and borrowings on our unsecured term loan facility and unsecured term loan of $189.0 million, which were indexed to LIBOR plus a spreadof 1.250% (weighted average interest rate of 1.41%) and 1.40% (weighted average interest rate of 1.56%), respectively. As of December 31, 2013, the totaloutstanding balance of our variable-rate debt was comprised of borrowings on our unsecured revolving credit facility of $45.0 million and borrowings on ourunsecured term loan facility of $150.0 million, which were indexed to LIBOR plus a spread of 1.450% (weighted average interest rate of 1.62%) and 1.750%(weighted average interest rate of 1.92%), respectively. Assuming no changes in the outstanding balance of our existing variable-rate debt as ofDecember 31, 2014, a 100 basis point increase in the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, byapproximately $3.3 million. Comparatively, if interest rates were 100 basis points higher as of December 31, 2013, our projected annual interest expense,before the effect of capitalization, would have been $2.0 million higher.The total carrying value of our fixed-rate debt was approximately $2.1 billion and $2.0 billion as of December 31, 2014 and 2013, respectively. The totalestimated fair value of our fixed-rate debt was approximately $2.2 billion and $2.1 billion as of December 31, 2014 and 2013, respectively. For sensitivitypurposes, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately $104.4 million, or4.7%, as of December 31, 2014. Comparatively, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-ratedebt of approximately $85.1 million, or 4.0%, as of December 31, 2013.83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.84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-benefitrelationship of possible controls and procedures.As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, 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, 2014, 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 changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal control overfinancial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, ourinternal 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 ourassets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on theconsolidated financial statements.Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financialreporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The Company has used the criteriaset forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assessour internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operatedeffectively as of December 31, 2014.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.85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, 2014, based on criteriaestablished in Internal Control – Integrated Framework (2013) 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 ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the 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 aswe considered 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 accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, 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 ofchanges in 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, 2014, based onthe criteria established in Internal Control – Integrated Framework (2013) 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, 2014, of the Company and our report dated February 10, 2015,expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 201586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, 2014, 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 changes that occurred during the fourth quarter of the most recent year covered by this report in the Operating Partnership’s internalcontrol over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely tomaterially 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 providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withGAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessaryto permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance withauthorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,or disposition of assets 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 hasused the criteria set forth in the Internal Control – Integrated Framework (2013) 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, 2014.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.87REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Partners ofKilroy Realty, L.P.Los Angeles, CaliforniaWe have audited the internal control over financial reporting of Kilroy Realty L.P. (the “Operating Partnership”) as of December 31, 2014, based oncriteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.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 aswe considered 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 accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, 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 ofchanges in 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 31,2014, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedules as of and for the year ended December 31, 2014, of the Operating Partnership and our report dated February10, 2015, expressed an unqualified opinion on those financial statements and financial statement schedules./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 201588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 2015.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 2015.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe 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 2015.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 2015.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 2015.89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 - 2Consolidated Balance Sheets as of December 31, 2014 and 2013 – Kilroy Realty CorporationF - 3Consolidated Statements of Operations for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty CorporationF - 4Consolidated Statements of Equity for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty CorporationF - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty CorporationF - 6Report of Independent Registered Public Accounting Firm – Kilroy Realty, L.P.F - 8Consolidated Balance Sheets as of December 31, 2014 and 2013 – Kilroy Realty, L.P.F - 9Consolidated Statements of Operations for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty, L.P.F - 10Consolidated Statements of Capital for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty, L.P.F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2014, 2013 and 2012 – Kilroy Realty, L.P.F - 12Notes to Consolidated Financial StatementsF - 14Schedule II – Valuation and Qualifying AccountsF - 62Schedule III – Real Estate and Accumulated DepreciationF - 63All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because theinformation required is included in the financial statements and notes thereto.(3) 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 tothe General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18,2010)3.(i)4 Articles Supplementary designating Kilroy Realty Corporation’s 6.375% Series H Cumulative Redeemable Preferred Stock(previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10,2012)3.(ii).1 Third 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 11, 2014)3.(ii).2 Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated August 15, 2012, as amended(previously filed by Kilroy Realty Corporation on Form 10-Q for the quarter ended June 30, 2014)90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 theRegistration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))4.5 Registration Rights Agreement, dated 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 October 6, 2000 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K forthe year ended December 31, 2000)4.7 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)4.8 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)4.9 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)4.10 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)4.11 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)4.12 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of related guarantee (previouslyfiled by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8−K as filed with the Securities and ExchangeCommission on November 4, 2010)4.13 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 filedby Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on July 6, 2011)4.14 Registration Rights Agreement, dated July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)4.15 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 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 14, 2013)91ExhibitNumber Description4.16 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 theRegistration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)4.17 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)4.18 Officers’ Certificate pursuant to Sections 102, 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 “4.25% Senior Notes due 2029,” including the form of 4.25% Senior Notes due 2029 and the form of related guarantee(previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities andExchange Commission on August 6, 2014)4.19 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percentof the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agreesto furnish copies of these agreements to the Commission upon request10.1 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 KilroyLong Beach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2to 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 ofLong Beach for Kilroy Long Beach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Amendment No. 2 to Form S-11 (No. 333-15553))10.5* Second Amendment to Lease Agreement, dated April 28, 1997, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase I10.6* Third Amendment to Lease Agreement, dated June 20, 2002, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase I10.7 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))10.8 First 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 II (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Form S-11 (No. 333-15553))10.9* Second Amendment to Lease Agreement, dated April 28, 1997, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase II10.10 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))10.11 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))10.12 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 RegistrationStatement on Form S-11 (No. 333-15553))92ExhibitNumber Description10.13 Third Amendment to Lease Agreement, dated October 10, 1994, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-11 (No. 333-15553))10.14* Fourth Amendment to Lease Agreement, dated June 20, 2002, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III10.15 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previously filed by KilroyRealty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.16 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach(previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553)) 10.17† 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))10.18 License Agreement by and among the Registrant and the other persons named therein (previously filed by Kilroy Realty Corporationas an exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553))10.19 Contribution Agreement, dated October 21, 1997, by and between Kilroy Realty, L.P., Kilroy Realty Corporation, The Allen Groupand the Allens (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on November 21, 1997)10.20 Amendment to the Contribution Agreement, dated October 14, 1998, by and between Kilroy Realty, L.P., Kilroy Realty Corporation,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)10.21† Form of Restricted Stock Award Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed withthe Securities and Exchange Commission on February 8, 2007)10.22† Kilroy Realty Corporation 2007 Deferred Compensation Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form10-Q for the quarter ended June 30, 2007)10.23† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1,2007 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.24† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. 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) 10.25† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.26† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth 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) 10.27† Kilroy Realty Corporation Stock Award Deferral Program (previously filed by Kilroy Realty Corporation as an exhibit to Form 8-Kas filed with the Securities and Exchange Commission on January 2, 2008)10.28† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (previously filed by KilroyRealty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.29† 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)93ExhibitNumber Description10.30 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(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.31 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)10.32 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)10.33 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)10.34 Unsecured Indemnity Agreement, dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy RealtyCorporation and Kilroy Realty, L.P. as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on January 13,2011)10.35† 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)10.36† 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)10.37† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filedby Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)10.38 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)10.39 First Amendment to Term Loan Agreement, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibiton Form 10-K for the year ended December 31, 2012)10.40 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)10.41 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)10.42 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)10.43 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)10.44 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)10.45 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)10.46 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)94ExhibitNumber Description10.47† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken (previously filedby Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended March 31, 2013)10.48† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C.Hawken effective as of January 1, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on April 5, 2013)10.49† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporationand Jeffrey 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)10.50† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporationand John 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)10.51† 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)10.52† 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)10.53† Form of Performance-Vest Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)10.54† Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended March 31, 2014)10.55† Form of Restricted Stock Unit Agreement for Non-Employee Members of the Board of Directors (previously filed by Kilroy RealtyCorporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)10.56† Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securitiesand Exchange Commission on May 23, 2014)10.57 Amended and Restated Revolving Credit Agreement, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as anexhibit on Form 10-Q for the quarter ended June 30, 2014)10.58 Amended and Restated Guaranty, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2014)10.59 Term Loan Agreement, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for thequarter ended September 30, 2014)10.60 Guaranty, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter endedSeptember 30, 2014)10.61 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and RBC Capital Markets, LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onDecember 12, 2014)10.62 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jefferies LLC (previouslyfiled by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December12, 2014)10.63 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and KeyBanc Capital MarketsInc. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon December 12, 2014)10.64 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and BNP Paribas SecuritiesCorp. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on December 12, 2014)10.65 Sales Agreement, dated December 12, 2014, 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 onDecember 12, 2014)10.66 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays Capital Inc.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onDecember 12, 2014)95ExhibitNumber Description12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to CombinedFixed Charges 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, 2014,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 orSection 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.96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 10, 2015. KILROY REALTY CORPORATION By /s/ Heidi R. Roth Heidi R. RothExecutive 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 constitute JohnB. Kilroy, Jr., Jeffrey C. Hawken, Tyler H. Rose and Heidi R. Roth, and each of them singly, our true and lawful attorneys with full power to them, and each ofthem singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K,and generally to do all such things in our names and in our capacities as officers and directors to enable Kilroy 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 behalfof the 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 ExecutiveOfficer)February 10, 2015John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and ChiefFinancial Officer (Principal FinancialOfficer)February 10, 2015Tyler H. Rose /s/ Heidi R. Roth Executive Vice President, Chief AccountingOfficer and Controller (PrincipalAccounting Officer)February 10, 2015Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 10, 2015Edward F. Brennan, Ph.D. /s/ Scott S. Ingraham DirectorFebruary 10, 2015Scott S. Ingraham /s/ Gary R. Stevenson DirectorFebruary 10, 2015Gary R. Stevenson /s/ Peter B. Stoneberg DirectorFebruary 10, 2015Peter B. Stoneberg 97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 10, 2015. KILROY REALTY, L.P. By /s/ Heidi R. Roth Heidi R. RothExecutive 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 and onbehalf 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 them singly, ourtrue 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, the Form 10-Kfiled 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 officers and directorsto enable Kilroy Realty Corporation, as sole general partner and on behalf of Kilroy Realty, L.P., to comply with the provisions of the Securities ExchangeAct of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may besigned by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalfof the registrant and in the capacities and on the dates indicated.Name TitleDate /s/ John B. Kilroy, Jr. Chairman of the Board, President and ChiefExecutive Officer (Principal ExecutiveOfficer)February 10, 2015John B. Kilroy, Jr. /s/ Tyler H. Rose Executive Vice President and ChiefFinancial Officer (Principal FinancialOfficer)February 10, 2015Tyler H. Rose /s/ Heidi R. Roth Executive Vice President, Chief AccountingOfficer and Controller (PrincipalAccounting Officer)February 10, 2015Heidi R. Roth /s/ Edward F. Brennan, Ph.D. DirectorFebruary 10, 2015Edward F. Brennan, Ph.D. /s/ Scott S. Ingraham DirectorFebruary 10, 2015Scott S. Ingraham /s/ Gary R. Stevenson DirectorFebruary 10, 2015Gary R. Stevenson /s/ Peter B. Stoneberg DirectorFebruary 10, 2015Peter B. Stoneberg 98KILROY REALTY CORPORATION AND KILROY REALTY, L.P.CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014 AND 2013AND FOR THE THREE YEARS ENDED DECEMBER 31, 2014TABLE OF CONTENTS PageFINANCIAL STATEMENTS OF KILROY REALTY CORPORATION: Report of Independent Registered Public Accounting FirmF - 2Consolidated Balance Sheets as of December 31, 2014 and 2013F - 3Consolidated Statements of Operations for the Years ended December 31, 2014, 2013 and 2012F - 4Consolidated Statements of Equity for the Years ended December 31, 2014, 2013 and 2012F - 5Consolidated Statements of Cash Flows for the Years ended December 31, 2014, 2013 and 2012F - 6FINANCIAL STATEMENTS OF KILROY REALTY, L.P.: Report of Independent Registered Public Accounting FirmF - 8Consolidated Balance Sheets as of December 31, 2014 and 2013F - 9Consolidated Statements of Operations for the Years ended December 31, 2014, 2013 and 2012F - 10Consolidated Statements of Capital for the Years ended December 31, 2014, 2013 and 2012F - 11Consolidated Statements of Cash Flows for the Years ended December 31, 2014, 2013 and 2012F - 12 Notes to Consolidated Financial Statements for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 14Schedule II – Valuation and Qualifying Accounts for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 62Schedule III – Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P.F - 63F - 1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofKilroy Realty CorporationLos Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty Corporation and subsidiaries (the “Company”) as ofDecember 31, 2014 and 2013, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period endedDecember 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financialstatement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements andfinancial 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, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on the criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2015, expressed an unqualified opinion on theCompany’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2015F - 2KILROY REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2014 December 31, 2013ASSETS REAL ESTATE ASSETS (Notes 3 and 18): Land and improvements$877,633 $657,491Buildings and improvements4,059,639 3,590,699Undeveloped land and construction in progress1,120,660 1,016,757Total real estate held for investment6,057,932 5,264,947Accumulated depreciation and amortization(947,664) (818,957)Total real estate held for investment, net ($211,755 and $234,532 of VIE, Note 2)5,110,268 4,445,990REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 18)8,211 213,100CASH AND CASH EQUIVALENTS23,781 35,377RESTRICTED CASH (Note 18)75,185 49,780MARKETABLE SECURITIES (Notes 13 and 16)11,971 10,008CURRENT RECEIVABLES, NET (Note 5)7,229 10,743DEFERRED RENT RECEIVABLES, NET (Note 5)156,416 127,123DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4)201,926 186,622DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,374 16,502PREPAID EXPENSES AND OTHER ASSETS, NET20,375 15,783TOTAL ASSETS$5,633,736 $5,111,028LIABILITIES AND EQUITY LIABILITIES: Secured debt (Notes 3, 6, 7 and 16)$546,292 $560,434Exchangeable senior notes, net (Notes 6, 7 and 16)— 168,372Unsecured debt, net (Notes 6, 7 and 16)1,783,121 1,431,132Unsecured line of credit (Notes 6, 7 and 16)140,000 45,000Accounts payable, accrued expenses and other liabilities (Note 15)225,830 198,467Accrued distributions (Note 10)32,899 31,490Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)132,239 101,286Rents received in advance and tenant security deposits49,363 44,240Liabilities and deferred revenue of real estate assets held for sale (Note 18)56 14,447Total liabilities2,909,800 2,594,868COMMITMENTS 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,86,259,684 and 82,153,944 shares issued and outstanding, respectively863 822Additional paid-in capital2,635,900 2,478,975Distributions in excess of earnings(162,964) (210,896)Total stockholders’ equity2,666,210 2,461,312Noncontrolling Interests: Common units of the Operating Partnership51,864 49,963Noncontrolling interest in consolidated subsidiary (Notes 2, 3, and 9)5,862 4,885Total noncontrolling interests57,726 54,848Total equity2,723,936 2,516,160TOTAL LIABILITIES AND EQUITY$5,633,736 $5,111,028See 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, 2014 2013 2012REVENUES: Rental income$466,328 $411,899 $342,164Tenant reimbursements46,717 38,047 29,667Other property income (Notes 15 and 17)8,680 7,165 1,487Total revenues521,725 457,111 373,318EXPENSES: Property expenses100,514 94,115 73,998Real estate taxes45,197 39,417 31,562Provision for bad debts58 396 153Ground leases (Note 4 and 15)3,075 3,504 3,168General and administrative expenses46,152 39,660 36,188Acquisition-related expenses1,479 1,962 4,937Depreciation and amortization (Notes 2 and 4)202,417 188,887 150,521Total expenses398,892 367,941 300,527OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)561 1,635 848Interest expense (Note 7)(67,571) (75,870) (79,114)Total other (expenses) income(67,010) (74,235) (78,266)INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND55,823 14,935 (5,475)Gain on sale of land (Note 18)3,490 — —INCOME (LOSS) FROM CONTINUING OPERATIONS59,313 14,935 (5,475)DISCONTINUED OPERATIONS (Note 18) Income from discontinued operations2,573 17,378 23,331Net gain on dispositions of discontinued operations121,922 12,252 259,245Total income from discontinued operations124,495 29,630 282,576NET INCOME183,808 44,565 277,101Net income attributable to noncontrolling common units of the Operating Partnership(3,589) (685) (6,187)NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION180,219 43,880 270,914PREFERRED DISTRIBUTIONS AND DIVIDENDS: Preferred dividends (Note 10)(13,250) (13,250) (10,567)Distributions to noncontrolling cumulative redeemable preferred units of theOperating Partnership (Note 9)— — (3,541)Original issuance costs of redeemed preferred stock and preferred units (Notes 9 and 10)— — (6,980)Total preferred distributions and dividends(13,250) (13,250) (21,088)NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$166,969 $30,630 $249,826Income (loss) from continuing operations available to common stockholders per share of common stock – basic (Note 19)$0.52 $0.00 $(0.40)Income (loss) from continuing operations available to common stockholders per share of common stock – diluted (Note 19)$0.51 $0.00 $(0.40)Net income available to common stockholders per share – basic (Note 19)$1.99 $0.37 $3.56Net income available to common stockholders per share – diluted (Note 19)$1.95 $0.37 $3.56Weighted average shares of common stock outstanding – basic (Note 19)83,090,235 77,343,853 69,639,623Weighted average shares of common stock outstanding – diluted (Note 19)84,967,720 77,343,853 69,639,623See 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 Interests TotalEquityNumber ofShares CommonStock AdditionalPaid-inCapital Distributionsin Excess ofEarnings BALANCE AT DECEMBER 31, 2011$121,582 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 operating propertyacquisition 5,604 5,604Exchange of common units of the Operating Partnership 10,000 231 231 (231) —Adjustment for noncontrolling interest in the Operating Partnership (3,460) (3,460) 3,460 —Preferred dividends and distributions (14,108) (14,108) (14,108)Dividends declared per share of common stock and common unit ($1.40 pershare/unit) (101,911) (101,911) (2,482) (104,393)BALANCE AT 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 7,215,838 72 349,879 349,951 349,951Issuance of share-based compensation awards 1,448 1,448 1,448Noncash amortization of share-based compensation 9,563 9,563 9,563Repurchase of common stock and restricted stock units (42,896) (2,521) (2,521) (2,521)Settlement of restricted stock units for shares of common stock 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 Operating Partnership (5,977) (5,977) 5,977 —Contribution by noncontrolling interest in consolidated subsidiary 4,885 4,885Preferred dividends and distributions (13,250) (13,250) (13,250)Dividends declared per share of common stock and common unit ($1.40 pershare/unit) (111,991) (111,991) (2,552) (114,543)BALANCE AS OF DECEMBER 31, 2013192,411 82,153,944 822 2,478,975 (210,896) 2,461,312 54,848 2,516,160Net income 180,219 180,219 3,589 183,808Issuance of common stock (Note 10) 1,950,599 20 123,840 123,860 123,860Issuance of share-based compensation awards (Note 12) 1,692 1,692 1,692Noncash amortization of share-based compensation (Note 12) 14,471 14,471 14,471Exercise of stock options (Note 12) 495,000 5 21,087 21,092 21,092Repurchase of common stock, stock options and restricted stock units (Note12) (58,045) (3,533) (3,533) (3,533)Settlement of restricted stock units for shares of common stock ( Note 12) 141,205 (1) (1) (1)Common shares issued in connection with settlement of 4.25% ExchangeableSenior Notes (Note 7) 2,091,323 21 202 223 223Common shares received in connection with capped call option transactions(Note 7) (515,342) (5) 5 — —Exchange of common units of the Operating Partnership 1,000 28 28 (28) —Adjustment for noncontrolling interest in the Operating Partnership (Note 2) (866) (866) 866 —Contribution by noncontrolling interest in consolidated subsidiary (Note 2) 977 977Preferred dividends (13,250) (13,250) (13,250)Dividends declared per share of common stock and common unit ($1.40 pershare/unit) (119,037) (119,037) (2,526) (121,563)BALANCE AS OF DECEMBER 31, 2014$192,411 86,259,684 $863 $2,635,900 $(162,964) $2,666,210 $57,726 $2,723,936See accompanying notes to consolidated financial statements.F - 5KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2014 2013 2012CASH FLOWS FROM OPERATING ACTIVITIES: Net income$183,808 $44,565 $277,101Adjustments to reconcile net income to net cash provided by operating activities (including discontinuedoperations): Depreciation and amortization of buildings and improvements and leasing costs202,108 199,558 168,687Increase (decrease) in provision for bad debts58 396 (42)Depreciation of furniture, fixtures and equipment2,370 1,929 1,213Noncash amortization of share-based compensation awards (Note 12)12,095 8,616 7,670Noncash amortization of deferred financing costs and debt discounts and premiums4,315 5,315 8,433Noncash amortization of net below market rents (Note 4)(8,328) (7,777) (6,699)Net gain on dispositions of discontinued operations (Note 18)(121,922) (12,252) (259,245)Gain on sale of land (Note 18)(3,490) — —Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(10,979) (10,713) (9,136)Straight-line rents(31,782) (24,135) (21,530)Net change in other operating assets367 (4,615) (1,297)Net change in other operating liabilities16,633 40,137 17,320Insurance proceeds received for property damage and other, net— (448) (1,751)Net cash provided by operating activities245,253240,576 180,724CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(204,546) (202,682) (454,841)Expenditures for acquisitions of development and redevelopment properties (Note 3)(147,182) (102,769) (333,942)Expenditures for operating properties(132,080) (129,873) (86,377)Expenditures for development and redevelopment properties and undeveloped land(417,784) (320,141) (83,310)Net proceeds received from dispositions of operating properties and land (Note 18)427,544 21,178 263,572Insurance proceeds received for property damage— 448 1,751(Increase) decrease in acquisition-related deposits(1,983) (2,596) 5,000(Increase) decrease in restricted cash (Note 18)(25,405) 229,915 (18,359)Net cash used in investing activities(501,436) (506,520) (706,506)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock (Note 10)102,229 349,951 672,102Borrowings on unsecured line of credit505,000 55,000 704,000Repayments on unsecured line of credit(410,000) (195,000) (701,000)Proceeds from the issuance of unsecured debt (Note 7)395,528 299,901 150,000Repayments of exchangeable senior notes (Note 7)(172,500) — (148,000)Principal payments on secured debt(9,845) (93,688) (106,262)Borrowings on unsecured debt (Note 7)39,000 — —Repayments of unsecured debt (Note 7)(83,000) — —Net proceeds from issuance of Series G and Series H preferred stock— — 192,411Redemption of Series E and Series F preferred stock— — (126,500)Redemption of Series A preferred units— — (75,000)Proceeds from the issuance of secured debt— — 97,000Financing costs(8,648) (4,384) (7,963)Repurchase of common stock and restricted stock units(3,533) (2,520) (1,661)Proceeds from exercise of stock options21,092 128 129Contributions from noncontrolling interests in consolidated subsidiary977 — —Dividends and distributions paid to common stockholders and common unitholders(118,463) (111,517) (97,386)Dividends and distributions paid to preferred stockholders and preferred unitholders(13,250) (13,250) (14,165)Net cash provided by financing activities244,587 284,621 537,705Net (decrease) increase in cash and cash equivalents(11,596) 18,677 11,923Cash and cash equivalents, beginning of year35,377 16,700 4,777Cash and cash equivalents, end of year$23,781 $35,377 $16,700F - 6KILROY REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)(in thousands) Year Ended December 31, 2014 2013 2012SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $44,385, $32,742, and $17,657 as of December 31, 2014, 2013 and 2012, respectively$58,944 $65,157 $71,633NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$77,091 $73,482 $54,198Tenant improvements funded directly by tenants$42,906 $7,633 $17,719Assumption of secured debt in connection with property acquisitions (Notes 3 and 7)$— $95,496 $221,032Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 3)$14,917 $1,811 $37,535Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 3)$— $4,885 $—NONCASH FINANCING TRANSACTIONS: Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 10)$31,243 $29,378 $26,863Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Note 10)$1,656 $1,694 $1,694Grant date fair value of share-based compensation awards (Note 12)$20,739 $10,721 $31,396Issuance of common shares in connection with a development property acquisition (Notes 3 and 10)$21,631 $— $—Issuance of common units in the Operating Partnership in connection with an operating property acquisition (Note 3)$— $— $5,604Exchange of common units of the Operating Partnership into shares of the Company’s common stock (Note 10)$28 $450 $231See accompanying notes to consolidated financial statements.F - 7REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Partners ofKilroy Realty, L.P.Los Angeles, CaliforniaWe have audited the accompanying consolidated balance sheets of Kilroy Realty, L.P. and subsidiaries (the “Operating Partnership”) as ofDecember 31, 2014 and 2013, and the related consolidated statements of operations, capital, and cash flows for each of the three years in the period endedDecember 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financialstatement schedules are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these financialstatements 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 Operating Partnership as ofDecember 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on the criteria established in Internal Control – Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2015, expressed an unqualified opinion onthe Operating Partnership’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2015F - 8KILROY REALTY, L.P.CONSOLIDATED BALANCE SHEETS(in thousands, except unit data) December 31, 2014 December 31, 2013ASSETS REAL ESTATE ASSETS (Notes 3 and 18): Land and improvements$877,633 $657,491Buildings and improvements4,059,639 3,590,699Undeveloped land and construction in progress1,120,660 1,016,757Total real estate held for investment6,057,932 5,264,947Accumulated depreciation and amortization(947,664) (818,957)Total real estate held for investment, net ($211,755 and $234,532 of VIE, Note 2)5,110,268 4,445,990 REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 18)8,211 213,100CASH AND CASH EQUIVALENTS23,781 35,377RESTRICTED CASH (Note 18)75,185 49,780MARKETABLE SECURITIES (Notes 13 and 16)11,971 10,008CURRENT RECEIVABLES, NET (Note 5)7,229 10,743DEFERRED RENT RECEIVABLES, NET (Note 5)156,416 127,123DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 4)201,926 186,622DEFERRED FINANCING COSTS, NET (Notes 2 and 7)18,374 16,502PREPAID EXPENSES AND OTHER ASSETS, NET20,375 15,783TOTAL ASSETS$5,633,736 $5,111,028LIABILITIES AND CAPITAL LIABILITIES: Secured debt (Notes 3, 7 and 16)$546,292 $560,434Exchangeable senior notes, net (Notes 7 and 16)— 168,372Unsecured debt, net (Notes 7 and 16)1,783,121 1,431,132Unsecured line of credit (Notes 7 and 16)140,000 45,000Accounts payable, accrued expenses and other liabilities (Note 15)225,830 198,467Accrued distributions (Note 11)32,899 31,490Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 4 and 8)132,239 101,286Rents received in advance and tenant security deposits49,363 44,240Liabilities and deferred revenue of real estate assets held for sale (Note 18)56 14,447Total liabilities2,909,800 2,594,868COMMITMENTS 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, 86,259,684 and 82,153,944 held by the general partner and 1,804,200 and 1,805,200 held by common limited partners issued and outstanding, respectively2,521,900 2,315,361Total Partners’ Capital2,714,311 2,507,772Noncontrolling interests in consolidated subsidiaries (Notes 2, 3, and 9)9,625 8,388Total capital2,723,936 2,516,160TOTAL LIABILITIES AND CAPITAL$5,633,736 $5,111,028See 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, 2014 2013 2012REVENUES: Rental income$466,328 $411,899 $342,164Tenant reimbursements46,717 38,047 29,667Other property income (Notes 15 and 17)8,680 7,165 1,487Total revenues521,725 457,111 373,318EXPENSES: Property expenses100,514 94,115 73,998Real estate taxes45,197 39,417 31,562Provision for bad debts58 396 153Ground leases (Notes 4 and 15)3,075 3,504 3,168General and administrative expenses46,152 39,660 36,188Acquisition-related expenses1,479 1,962 4,937Depreciation and amortization (Notes 2 and 4)202,417 188,887 150,521Total expenses398,892 367,941 300,527OTHER (EXPENSES) INCOME: Interest income and other net investment gains (Note 16)561 1,635 848Interest expense (Note 7)(67,571) (75,870) (79,114)Total other (expenses) income(67,010) (74,235) (78,266)INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF LAND55,823 14,935 (5,475)Gain on sale of land (Note 18)3,490 — —INCOME (LOSS) FROM CONTINUING OPERATIONS59,313 14,935 (5,475)DISCONTINUED OPERATIONS (Note 18) Income from discontinued operations2,573 17,378 23,331Net gain on dispositions of discontinued operations121,922 12,252 259,245Total income from discontinued operations124,495 29,630 282,576NET INCOME183,808 44,565 277,101Net income attributable to noncontrolling interests in consolidated subsidiaries(260) (224) (638)NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.183,548 44,341 276,463Preferred distributions (Note 11)(13,250) (13,250) (14,108)Original issuance costs of redeemed preferred units (Notes 9 and 11)— — (6,980)Total preferred distributions(13,250) (13,250) (21,088)NET INCOME AVAILABLE TO COMMON UNITHOLDERS$170,298 $31,091 $255,375Income (loss) from continuing operations available to common unitholders per unit – basic (Note 20)$0.52 $0.00 $(0.40)Income (loss) from continuing operations available to common unitholders per unit – diluted (Note 20)$0.51 $0.00 $(0.40)Net income available to common unitholders per unit – basic (Note 20)$1.99 $0.37 $3.56Net income available to common unitholders per unit – diluted (Note 20)$1.94 $0.37 $3.56Weighted average common units outstanding – basic (Note 20)84,894,498 79,166,260 71,403,258Weighted average common units outstanding – diluted (Note 20)86,771,983 79,166,260 71,403,258See accompanying notes to consolidated financial statements.F - 10KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CAPITAL(in thousands, except unit and per unit data) Partners’ Capital Total Partners’Capital Noncontrolling Interestsin ConsolidatedSubsidiaries PreferredUnits Number ofCommon Units Common Units Total CapitalBALANCE AS OF DECEMBER 31, 2011$121,582 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 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 units 16,024,618 672,102 672,102 672,102Issuance of common units in connection with an operating propertyacquisition 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 7,210,838 349,951 349,951 349,951Issuance of share-based compensation awards 1,448 1,448 1,448Noncash amortization of share-based compensation 9,563 9,563 9,563Repurchase of common units and restricted stock units (42,896) (2,521) (2,521) (2,521)Settlement of restricted stock units 37,245 1 1 1Exercise of stock options 473 128 128 128Contribution by noncontrolling interest in consolidated subsidiary 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, 2013192,411 83,959,144 2,315,361 2,507,772 8,388 2,516,160Net income 183,548 183,548 260 183,808Issuance of common units (Note 11) 1,950,599 123,860 123,860 123,860Issuance of share-based compensation awards (Note 12) 1,692 1,692 1,692Noncash amortization of share-based compensation(Note 12) 14,471 14,471 14,471Exercise of stock options (Note 12) 495,000 21,092 21,092 21,092Repurchase of common units and restricted stock units (Note 12) (58,045) (3,533) (3,533) (3,533)Settlement of restricted stock units (Note 12) 141,205 (1) (1) (1)Common shares issued in connection with settlement of 4.25% ExchangeableSenior Notes (Note 7) 2,091,323 223 223 223Common shares received in connection with capped call option transactions(Note 7) (515,342) — — —Contribution by noncontrolling interest in consolidated subsidiary (Note 2) 977 977Preferred distributions (13,250) (13,250) (13,250)Distributions declared per common unit ($1.40 per unit) (121,563) (121,563) (121,563)BALANCE AS OF DECEMBER 31, 2014$192,411 88,063,884 $2,521,900 $2,714,311 $9,625 $2,723,936See accompanying notes to consolidated financial statements.F - 11KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2014 2013 2012CASH FLOWS FROM OPERATING ACTIVITIES: Net income$183,808 $44,565 $277,101Adjustments to reconcile net income to net cash provided by operating activities (including discontinuedoperations): Depreciation and amortization of buildings and improvements and leasing costs202,108 199,558 168,687Increase (decrease) in provision for bad debts58 396 (42)Depreciation of furniture, fixtures and equipment2,370 1,929 1,213Noncash amortization of share-based compensation awards (Note 12)12,095 8,616 7,670Noncash amortization of deferred financing costs and debt discounts and premiums4,315 5,315 8,433Noncash amortization of net below market rents (Note 4)(8,328) (7,777) (6,699)Net gain on dispositions of discontinued operations (Note 18)(121,922) (12,252) (259,245)Gain on sale of land (Note 18)(3,490) — —Noncash amortization of deferred revenue related to tenant-funded tenant improvements (Note 8)(10,979) (10,713) (9,136)Straight-line rents(31,782) (24,135) (21,530)Net change in other operating assets367 (4,615) (1,297)Net change in other operating liabilities16,633 40,137 17,320Insurance proceeds received for property damage and other, net— (448) (1,751)Net cash provided by operating activities245,253 240,576 180,724CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for acquisitions of operating properties, net of cash acquired (Note 3)(204,546) (202,682) (454,841)Expenditures for acquisitions of development and redevelopment properties (Note 3)(147,182) (102,769) (333,942)Expenditures for operating properties(132,080) (129,873) (86,377)Expenditures for development and redevelopment properties and undeveloped land(417,784) (320,141) (83,310)Net proceeds received from dispositions of operating properties (Note 18)427,544 21,178 263,572Insurance proceeds received for property damage— 448 1,751(Increase) decrease in acquisition-related deposits(1,983) (2,596) 5,000(Increase) decrease in restricted cash (Note 18)(25,405) 229,915 (18,359)Net cash used in investing activities(501,436) (506,520) (706,506)CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common units (Note 11)102,229 349,951 672,102Borrowings on unsecured line of credit505,000 55,000 704,000Repayments on unsecured line of credit(410,000) (195,000) (701,000)Proceeds from the issuance of unsecured debt (Note 7)395,528 299,901 150,000Repayments of exchangeable senior notes (Note 7)(172,500) — (148,000)Principal payments on secured debt(9,845) (93,688) (106,262)Borrowings on unsecured debt (Note 7)39,000 — —Repayments of unsecured debt (Note 7)(83,000) — —Net proceeds from issuance of Series G and Series H preferred units— — 192,411Redemption of Series E and Series F preferred units— — (126,500)Redemption of Series A preferred units— — (75,000)Proceeds from the issuance of secured debt— — 97,000Financing costs(8,648) (4,384) (7,963)Repurchase of common units and restricted stock units(3,533) (2,520) (1,661)Proceeds from exercise of stock options21,092 128 129Contributions from noncontrolling interests in consolidated subsidiary977 — —Distributions paid to common unitholders(118,463) (111,517) (97,386)Distributions paid to preferred unitholders(13,250) (13,250) (14,165)Net cash provided by financing activities244,587 284,621 537,705Net (decrease) increase in cash and cash equivalents(11,596) 18,677 11,923Cash and cash equivalents, beginning of year35,377 16,700 4,777Cash and cash equivalents, end of year$23,781 $35,377 $16,700F - 12KILROY REALTY, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)(in thousands) Year Ended December 31, 2014 2013 2012SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest, net of capitalized interest of $44,385, $32,742, and $17,657 as ofDecember 31, 2014, 2013 and 2012, respectively$58,944 $65,157 $71,633NONCASH INVESTING TRANSACTIONS: Accrual for expenditures for operating properties and development and redevelopment properties$77,091 $73,482 $54,198Tenant improvements funded directly by tenants$42,906 $7,633 $17,719Assumption of secured debt in connection with property acquisition (Notes 3 and 7)$— $95,496 $221,032Assumption of other assets and liabilities in connection with operating and development property acquisitions, net(Note 3)$14,917 $1,811 $37,535Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 3)$— $4,885 $—NONCASH FINANCING TRANSACTIONS: Accrual of distributions payable to common unitholders (Note 11)$31,243 $29,378 $26,863Accrual of distributions payable to preferred unitholders (Note 11)$1,656 $1,694 $1,694Grant date fair value of share-based compensation awards (Note 12)$20,739 $10,721 $31,396Issuance of common units in connection with a development property acquisition (Notes 3 and 11)$21,631 $— $—Issuance of common units in connection with an operating property acquisition (Note 3)$— $— $5,604See 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, 20141.Organization and OwnershipKilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office submarkets along theWest Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles,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 generally conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or thecontext indicates otherwise, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and itsconsolidated subsidiaries and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of ourbusiness, 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, 2014: Number ofBuildings RentableSquare Feet(unaudited) Number ofTenants Percentage OccupiedStabilized Office Properties111 14,096,617 526 94.4%Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently under construction orcommitted for construction, “lease-up” properties, undeveloped land, and real estate assets held for sale. We define redevelopment properties as thoseproperties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, theintended result of which is a higher economic return on the property. As of December 31, 2014, we had no redevelopment projects. We define “lease-up”properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of majorconstruction activities. There were no operating properties in “lease-up” as of December 31, 2014. As of December 31, 2014, we had one land parcel held forsale. During the year ended December 31, 2014, we stabilized a redevelopment project in San Francisco, California, a development project consisting of threeoffice buildings encompassing 587,429 square feet and a development project consisting of two office buildings encompassing 340,913 square feet, both inthe San Francisco Bay Area, California. As a result, these projects are now included in our stabilized portfolio as of December 31, 2014.As of December 31, 2014, the following properties were excluded from our stabilized portfolio: Number ofProperties/Projects Estimated RentableSquare Feet (unaudited) (1)Development projects under construction6 1,732,000_______________(1)Estimated rentable square feet upon completion.Our stabilized portfolio also excludes our future development pipeline, which is comprised of nine potential development sites, representingapproximately 104 gross acres of undeveloped land.As of December 31, 2014, all of our properties and development projects were owned and all of our business was conducted in the state of California withthe exception of thirteen office properties located in the state of Washington. All of our properties and development projects are 100% owned, excluding adevelopment project owned by RedwoodF - 14KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)City Partners, LLC (“Redwood LLC”), a consolidated subsidiary (see Note 2 “Basis of Presentation and Significant Accounting Policies” and Note 3“Acquisitions” for additional information) and certain properties held at qualified intermediaries for potential future transactions that are intended to qualifyas like-kind exchanges pursuant to Section 1031 of the Code (“Section 1031 Exchanges”) to defer taxable gains on dispositions for federal and state incometax purposes, which have been consolidated for financial reporting purposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” foradditional information). As of December 31, 2014, the Company owned a 98.0% common general partnership interest in the Operating Partnership. The remaining 2.0% commonlimited partnership interest in the Operating Partnership as of December 31, 2014 was owned by non-affiliated investors and certain of our executive officersand directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, thenumber of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all thecommon units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partnershave certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the“Partnership Agreement” (see Note 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 generally conductsubstantially all of our development activities. With the exception of the Operating Partnership and Redwood LLC, 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, theOperating Partnership, the Finance Partnership, KSLLC, Redwood LLC and all of our wholly owned and controlled subsidiaries. The consolidated financialstatements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the FinancePartnership, KSLLC, Redwood LLC and all wholly owned and controlled subsidiaries of the Operating Partnership. All intercompany balances andtransactions have been eliminated in the consolidated financial statements.Certain amounts in the consolidated statements of operations for prior periods have been reclassified to reflect the activity of discontinued operations.Partially Owned Entities and Variable Interest EntitiesAt December 31, 2014, the consolidated financial statements of the Company and the Operating Partnership included two variable interest entities(“VIEs”), in which we were deemed to be the primary beneficiary. One VIE, Redwood LLC, was established in the second quarter of 2013 in connection withan undeveloped land acquisition (see Note 3 “Acquisitions” for additional information regarding the Redwood City, California acquisition). The other VIEwas established during the fourth quarter of 2014 to facilitate potential future Section 1031 Exchanges to defer taxable gains on dispositions for federal andstate income tax purposes. The impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests byapproximately $219.6 million (of which $211.8 million related to real estate held for investment on our consolidated balance sheet), approximately$23.4 million and approximately $5.9 million, respectively, as of December 31, 2014. During January 2015, the Company successfully completed theSection 1031 Exchange and the related VIE was terminated. As a result, $59.2 million of our restricted cash balance at December 31, 2014, which related toprior period disposition proceeds that were set aside to facilitate the Section 1031 Exchanges, was released from escrow.F - 15KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)At 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 Redwood LLC and the remaining three were established during the third and fourth quarter of2013 to facilitate potential Section 1031 Exchanges. During the three months ended March 31, 2014, these three Section 1031 Exchanges were successfullycompleted and the three VIEs, excluding Redwood LLC, were terminated. As a result, $32.2 million of our restricted cash balance at December 31, 2013,which related to prior period disposition proceeds that were set aside to facilitate the Section 1031 Exchanges, was released from escrow. The impact ofconsolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests by approximately $251.8 million (of which$234.5 million related to real estate held for investment on our consolidated balance sheet), approximately $12.1 million and approximately $4.9 million,respectively, as of December 31, 2013.Our accounting policy is to consolidate entities in which we have a controlling financial interest and significant decision making control over theentity's operations. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate theaccounts of that entity, we consider factors such as ownership interest, board representation, management representation, size of our investment (includingloans), authority to control decisions, and contractual and substantive participating rights of the members. In addition to evaluating control rights, weconsolidate entities in which the other members have 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 the holders of the equity investment at riskdo 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 tothe VIE.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 ourshare of net income or loss and cash contributions and distributions each period. The Company did not have any equity method investments atDecember 31, 2014 or December 31, 2013.Significant Accounting PoliciesAcquisitionsWe record the acquired tangible and intangible assets and assumed liabilities of acquisitions of operating properties and development andredevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The acquiredassets and assumed liabilities for an acquisition generally include but are not limited to (i) land and improvements, buildings and improvements,undeveloped land and construction in progress and (ii) identified tangible and intangible assets and liabilities associated with in-place leases, includingtenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenantrelationships, if any. Any debt assumed and equity (including common units of the Operating Partnership) issued in connection with a property acquisition isrecorded at fair value on the date 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 usinga market 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) our estimate 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-F - 16KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewaloptions, if applicable, for below-market operating leases. Our below-market operating leases generally do not include fixed rate or below-market renewaloptions. The amounts recorded for above-market operating leases are included in deferred leasing costs and acquisition-related intangible assets, net on thebalance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amountsrecorded for below-market operating leases are included in deferred revenue and acquisition-related intangible liabilities, net on the balance sheet and areamortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed raterenewal options, if applicable.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 costsand acquisition-related intangible assets, net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remainingterm of the 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 thesubsequent acquisition of the fee interest in land and improvements underlying our properties at the purchase price paid and capitalize the associatedacquisition costs. During the years ended December 31, 2014, 2013 and 2012 we capitalized $4.5 million, $2.3 million and $0.7 million, respectively, inacquisition costs associated with the development acquisitions.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 chargedto expense 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 futurecash flow 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 isless than the net carrying value of the property. Our impairment loss calculation compares the net carrying amount of the property to the property’s estimatedfair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We would recognize animpairment loss 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 valueof 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 bedepreciated (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 taxesand insurance.•For development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognition commences, which is uponsubstantial completion of tenant improvements.F - 17KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)•For development and redevelopment properties that are not pre-leased, we may not immediately build out the tenant improvements. Therefore wecease capitalization when revenue recognition commences upon substantial completion of the tenant improvements, but in any event, no later thanone year after the cessation of major construction activities. We also cease capitalization on a development or redevelopment property whenactivities necessary to prepare the property for its intended use have been suspended.•For development or redevelopment properties with multiple tenants and staged leasing, we cease capitalization and begin depreciation on theportion of the development or redevelopment property for which revenue recognition has commenced.Once major construction activity has ceased and the development or redevelopment property is in the lease-up phase, the costs capitalized toconstruction in progress are transferred to land and improvements, buildings and improvements, and deferred leasing costs and acquisition-related intangibleassets, net on our consolidated balance sheets as the historical cost of the property.Depreciation and Amortization of Buildings and ImprovementsThe cost of buildings and improvements and tenant improvements are depreciated using the straight-line method of accounting 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, 2014, 2013, and 2012 was $153.8 million, $145.3 million and $125.9 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. Real Estate Assets Held for Sale, Discontinued Operations, and Land DispositionsA real estate asset is classified as held for sale when certain criteria are met, including but not limited to the availability of the asset for immediate sale,the existence of an active program to locate a buyer and the probable sale or transfer of the asset within one year. If such criteria are met, we present theapplicable assets and liabilities related to the real estate asset held for sale, if material, separately on the balance sheet and we would cease to recorddepreciation and amortization expense. Real estate assets held for sale are reported at the lower of their carrying value or their estimated fair value less theestimated costs to sell. As of December 31, 2014, we had one undeveloped land parcel classified as held for sale. As of December 31, 2013, we had 12operating properties classified as held for sale.The 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 throughthe date of the applicable disposition. The net gains (losses) on disposition of operating properties are reported in the consolidated statements of operationsas discontinued operations in the period the properties are sold. In determining whether the revenues, expenses, and net gains (losses) on dispositions ofoperating properties are reported as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing,or management of the sold property. If we were to determine that we had any significant continuing involvement, the revenues, expenses and net gain (loss)on dispositions of the operating property would not be recorded in discontinued operations.The net gains (losses) on dispositions of non-depreciable real estate property, including land, are reported in the consolidated statements of operations asgains (losses) on sale of land within continuing operations in the period the land is sold.F - 18KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 theCompany owns or the tenant owns the tenant improvements. When we conclude that the Company is the owner of tenant improvements, rental revenuerecognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certaininstances, when we conclude that the Company is not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins when thetenant takes possession of or controls the space.When we conclude that the Company is the owner of tenant improvements, we record the cost to construct the tenant improvements, including costs paidfor or reimbursed 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 andamortized as a reduction to rental income on a straight-line basis over the term of the lease.Tenant ReimbursementsReimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, arerecognized as revenue in the period the recoverable costs are incurred. Tenant reimbursements are recognized and recorded on a gross basis, as we aregenerally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier, and havecredit 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 andrealized. Other property income also includes miscellaneous income from tenants, such as fees related to the restoration of leased premises to their originalcondition and fees for late rental payments.Allowances for Uncollectible Tenant and Deferred Rent ReceivablesWe carry our current and deferred rent receivables net of allowances for uncollectible amounts. Our determination of the adequacy of these allowances isbased primarily upon evaluations of individual receivables, current economic conditions, historical loss experience, and other relevant factors. Theallowances are 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.F - 19KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 2007Deferred Compensation Plan (the “Deferred Compensation Plan”) (see Note 13 “Employee Benefit Plans” for additional information). The DeferredCompensation Plan assets are held in a limited rabbi trust and invested in various mutual and money market funds. As a result, the marketable securities aretreated as trading securities for financial reporting purposes and are adjusted to fair value at the end of each accounting period, with the corresponding gainsand losses recorded in interest income and other net investment gains.At the time eligible management employees (“Participants”) defer compensation or earn mandatory Company contributions, or if we were to make adiscretionary contribution, we record compensation cost and a corresponding deferred compensation plan liability, which is included in accounts payable,accrued expenses, and other liabilities on our consolidated balance sheets. This liability is adjusted to fair value at the end of each accounting period basedon the 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. Fully amortized deferred financingcosts are written off when the corresponding financing is repaid. As of December 31, 2014 and 2013, deferred financing costs were reported net ofaccumulated amortization of $12.2 million and $13.2 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 tointerest expense from the date of issuance or acquisition through the contractual maturity date of the related debt. Our secured debt is presented includingunamortized premiums of $10.3 million and $14.6 million as of December 31, 2014 and 2013, respectively. Our unsecured senior notes are presented net ofunamortized discounts of $5.9 million and $1.9 million, as of December 31, 2014 and 2013, respectively.F - 20KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 separatelyaccounted for 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 ratethat reflects the issuer’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 isreported as a discount on the exchangeable debt that is accreted as additional interest expense from the issuance date through the contractual maturity dateusing the effective interest method. A portion of this additional interest expense is capitalized to the development and redevelopment balances qualifying forinterest capitalization 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 theexchangeable debt and the fair value of the liability component at the issuance date. The equity component is included in additional paid-in-capital, net ofissuance costs, on our consolidated balance sheets. We allocate issuance costs for exchangeable debt between the liability and the equity components basedon their relative values.Our exchangeable debt instruments matured in November 2014. As of December 31, 2014, we had no outstanding exchangeable debt instruments (seeNote 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information).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, Redwood LLC, formed during 2013(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 shareof the 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 thecommon units contain such a provision, we evaluated the accounting guidance and determined that the common units qualify for equity presentation in theCompany’s consolidated financial statements (see Note 9 “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 duringthe reported period. The noncontrolling interest ownership percentage is determined by dividing the number of noncontrolling common units by the totalnumber of common units outstanding. The issuance or redemption of additional shares of common stock or common units results in changes to thenoncontrolling interest percentage as well as the total net assets of the Company. As a result, all equity transactions result in an allocation between equityand the noncontrolling interest in the Company’s consolidated balance sheets and statements of equity to account for the changes in the noncontrollinginterest ownership percentage as well as the change in total net assets of the Company.F - 21KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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, 2014 and 2013.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 only be redeemed 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 an equivalentnumber of shares of the Company’s 6.875% Series G Cumulative Redeemable Preferred Stock and shares of the Company’s 6.375% Series H CumulativeRedeemable Preferred Stock publicly issued and outstanding.Common Partnership Interests on the Operating Partnership’s Consolidated Balance SheetsThe common units held by the Company and the noncontrolling common units held by the common limited partners are both presented in thepermanent equity section of the Operating Partnership’s consolidated balance sheets in partners’ capital. The redemption rights of the noncontrollingcommon units permit us to settle the redemption obligation in either cash or shares of the Company’s common stock at our option (see Note 9“Noncontrolling Interests on the Company’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 Redwood LLC (see Note 3 “Acquisitions” for additional information). The 1.0% general partnership interest in the FinancePartnership noncontrolling interest is presented in the permanent equity section of the Operating Partnership’s consolidated balance sheets given that theseinterests are not convertible or redeemable into any other ownership interest of the Company or the Operating Partnership.Equity OfferingsUnderwriting commissions and offering costs incurred in connection with common equity offerings and our at-the-market stock offering program (seeNote 10 “Stockholders’ Equity of the Company”) are reflected as a reduction of additional paid-in capital. Issuance costs incurred in connection withpreferred equity 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 or unitsof our intent to redeem such shares or units.The net proceeds from any equity offering of the Company are generally contributed to the Operating Partnership in exchange for a number of commonor preferred units equivalent to the number of shares of common or preferred stock issued and are reflected in the Operating Partnership’s consolidatedfinancial statements as an increase in partners’ capital.F - 22KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Share-based Incentive Compensation AccountingCompensation cost for all share-based awards, including options, requires measurement at estimated fair value on the grant date. Compensation cost isrecognized over the service vesting period, which represents the requisite service period, on a straight-line basis. The grant date fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The grant date fair value of stock option grants iscalculated using the Black-Scholes valuation model. Equity awards settled in cash are valued at the fair value of our common stock on the period end datethrough the settlement date. Equity awards settled in cash are remeasured at each reporting period and are recognized as a liability in the consolidatedbalance 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 datethe Executive Compensation Committee authorizes the award and adopts any relevant performance measures.For programs with performance-based measures, the total estimated compensation cost is based on our most recent estimate of the probable achievementof the pre-established specific corporate performance measures. These estimates are based on our latest internal forecasts for each performance measure. Forprograms with market measures, the total estimated compensation cost is based on the fair value of the award at the grant 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 employees to satisfy minimum statutory tax-withholding requirements related to shares that vested during the period.For share based awards granted by the Company, the Operating Partnership issues a number of common units equal to the 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, afterpreferred distributions and the allocation of income to participating securities, by the weighted-average number of shares of common stock outstanding forthe period. Diluted net income (loss) available to common stockholders per share is computed by dividing net income (loss) available for commonstockholders, after preferred distributions and the allocation of income to participating securities, by the sum of the weighted-average number of shares ofcommon stock outstanding for the period plus the assumed exercise of all dilutive securities. The impact of the outstanding common units is considered inthe calculation of diluted net income (loss) available to common stockholders per share. The common units are not reflected in the diluted net income (loss)available to common stockholders per share calculation because the exchange of common units into common stock is on a one for one basis, and thecommon units are allocated net income on a per share basis equal to the common stock (see Note 19 “Net Income Available to Common Stockholders PerShare 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 vested dividendequivalents issued to holders of RSUs) containing nonforfeitable rights to dividends or dividend equivalents are accounted for as participating securities andincluded in the computation of basic and diluted net income (loss) available to common stockholders per share pursuant to the two-class method. Thedilutive effect of stock options are reflected in the weighted average diluted outstanding shares calculation by application of the treasury stock method. Forthe period in which they were outstanding, the dilutive effect of the exchangeable debt instruments was reflected in the weighted average diluted outstandingshares calculation when the average quoted trading price of the Company’s common stock on the NYSE for the periods exchangeable was above theexchangeable debt exchange prices. The dilutive effect of the outstanding nonvested shares of common stock (“nonvested shares”) and RSUs that have notyet been granted but are contingently issuable under the share-based compensation programs is reflected in the weighted average diluted shares calculationby application of the treasury stock method at the beginning of the quarterly period in which all necessary conditions have been satisfied.F - 23KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Basic and Diluted Net Income (Loss) Available to Common Unitholders per UnitBasic net income (loss) available to common unitholders per unit is computed by dividing net income (loss) available to common unitholders, afterpreferred distributions and the allocation of income to participating securities, by the weighted-average number of vested common units outstanding for theperiod. Diluted net income (loss) available to common unitholders per unit is computed by dividing net income (loss) available to common unitholders, afterpreferred distributions and the allocation of income to participating securities, by the sum of the weighted-average number of common units outstanding forthe period plus the assumed exercise of all dilutive securities.During the periods exchangeable debt instruments were outstanding, the dilutive effect of the exchangeable debt instruments was reflected in the samemanner as noted above for net income (loss) available to common stockholders per share. The dilutive effect of stock options, outstanding nonvested shares,RSUs, and awards containing nonforfeitable rights to dividend equivalents are reflected in diluted net income (loss) available to common unitholders perunit 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, "Fair Value Measurements and Disclosures," to our consolidated financialstatements. The only financial assets recorded at fair value on a recurring basis in our consolidated financial statements are our marketable securities. Weelected not to apply the fair value option for any of our eligible financial instruments or other items.We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fairvalue measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independentsources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use of observable market data when available. The following isthe fair value hierarchy:•Level 1 – quoted prices for identical instruments in active markets;•Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active andmodel-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 andExchangeable Notes.We generally determine the fair value of our secured debt, unsecured debt, and unsecured line of credit by performing discounted cash flow analysesusing an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturitiesof our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreadstake into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured,and the loan-to-value ratio of the debt to the collateral. These calculations are significantly affected by the assumptions used, including the discount rate,credit spreads and estimates of future cash flow. We calculate the market rate of our unsecured line of credit, unsecured term loan facility, and unsecured termloan by obtaining the period-end London Interbank Offered Rate (“LIBOR”) rate and then adding an appropriate credit spread based on our credit ratings,and the amended terms of our unsecured line of credit, unsecured term loan facility, and unsecured term loan agreement. We determine the fair value of theliability component of our Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate based upon spreads forour publicly traded debt. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end ofthe reporting period, if such prices are available.F - 24KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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. Fordistributions with respect to taxable years ended on or before December 31, 2011, Internal Revenue Service (“IRS”) guidance allows REITs to satisfy up to90% of this requirement through the distribution of shares of common stock if certain conditions are met. We generally will not be subject to federal incometaxes if we distribute 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 tofederal income taxes (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and we may not be able to qualifyas a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income andproperty and to federal income taxes and excise taxes on our undistributed taxable income. We believe that we have met all of the REIT distribution andtechnical requirements for the years ended December 31, 2014, 2013 and 2012, and we were not subject to any federal income taxes (see Note 21 “TaxTreatment of Distributions” for additional information). We intend to continue to adhere to these requirements and maintain the Company’s REIT status.Accordingly, no provision for income taxes has been made in the accompanying financial statements.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, 2014, 2013 and 2012 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 challengedby tax 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 taxableincome, the Company has historically had significant return of capital to its stockholders. In order for us to be required to record any unrecognized taxbenefits or additional 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 audit under state and federal income tax law andconcluded that our return of capital would not be materially affected for any of the years still subject to audit. As of December 31, 2014, the years still subjectto audit are 2010 through 2013 under the California state income tax law and 2011 through 2013 under the federal income tax law. We concluded that wedid not have any unrecognized tax benefits or any additional tax liabilities as of December 31, 2014 and 2013.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 andexpenses during the reported periods. Actual results could differ from those estimates.SegmentWe currently operate in one operating segment, our office properties segment.F - 25KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Concentration of Credit RiskAll of our properties and development and redevelopment projects are owned and all of our business is currently conducted in the state of California withthe exception of the ownership and operation of thirteen office properties located in the state of Washington. The ability of tenants to honor the terms of theirleases is dependent upon the economic, regulatory, and social factors affecting the communities in which our tenants operate.As of December 31, 2014, our 15 largest tenants represented approximately 35.3% 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, 2014 and 2013, we had cash accounts in excess of FDIC insured limits.New Accounting PronouncementsOn January 9, 2015 the Financial Accounting Standards Board (“FASB”) issued final guidance on its initiative of simplifying income statementpresentation by the eliminating the concept of extraordinary items (Accounting Standards Update (“ASU”) No. 2015-01). Under the guidance an entity willno longer be able to segregate an extraordinary item from the results of operations, separately present an extraordinary item on the income statement, ordisclose income taxes or earnings-per-share data applicable to an extraordinary item. The ASU is effective for all entities for reporting periods (includinginterim periods) beginning after December 15, 2015, and early adoption is permitted. The Company will adopt the guidance effective January 1, 2016 andthe guidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.On June 19, 2014, the FASB issued their final standard to amend the accounting guidance for stock compensation tied to performance targets (ASUNo. 2014-12). The issue is the result of a consensus of the FASB Emerging Issues Task Force (Issue No. 13-D). The standard requires that a performance targetthat could be achieved after the requisite service period be treated as a performance condition, and as a result, this type of performance condition may delayexpense recognition until achievement of the performance target is probable. The ASU is effective for all entities for reporting periods (including interimperiods) beginning after December 15, 2015, and early adoption is permitted. The Company will adopt the guidance effective January 1, 2016 and theguidance is not anticipated to have a material impact on our consolidated financial statements or notes to our consolidated financial statements.On May 28, 2014, the FASB issued their final standard on revenue from contracts with customers. The guidance specifically notes that lease contractswith customers are a scope exception. The standard (ASU No. 2014-09) outlines a single comprehensive model for entities to use in accounting for revenuesarising from contracts with customers. The ASU is effective for annual reporting periods (including interim periods), beginning after December 15, 2016, andearly adoption is not permitted. The Company will adopt the guidance effective January 1, 2017 and is currently assessing the impact on our consolidatedfinancial statements and notes to our consolidated financial statements.On April 10, 2014, the FASB issued final guidance to change the criteria for reporting discontinued operations while enhancing disclosures in this area(ASU No. 2014-08). Under the new guidance, only disposals representing a strategic shift, such as a major line of business, a major geographical area or amajor equity investment, should be presented as discontinued operations. The guidance will be applied prospectively to new disposals and newclassifications of disposal groups as held for sale after the effective date. The guidance is effective for annual financial statements with fiscal years beginningon or after December 15, 2014 with early adoption permitted for disposals or classifications as held for sale which have not been reported in financialstatements previously issued or available for issuance. The Company adopted the guidance effective January 1, 2015 and the guidance is not expected tohave a material impact to our consolidated net income or our statement of financial position.F - 26KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)3.AcquisitionsOperating PropertiesDuring the years ended December 31, 2014 and 2013, we acquired the nine 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 and the Company's at-the-market stockoffering program (see Note 10 “Stockholders’ Equity of the Company”), borrowings under the unsecured line of credit (see Note 7 “Secured and UnsecuredDebt of the Operating Partnership”), disposition proceeds (see Note 18 “Discontinued Operations”), the assumption of existing debt and/or the issuance ofcommon units of the Operating Partnership.Property Date of Acquisition Number ofBuildings Rentable SquareFeet (unaudited) Occupancy as of December31, 2014 (unaudited) Purchase Price(in millions) (1)2014 Acquisitions 401 Terry Ave. N., Seattle, WA March 13, 2014 1 140,605 100.0% $106.11310, 1315, 1320-1324, 1325-1327 Chesapeake Terrace,Sunnyvale, CA (2) November 5, 2014 4 266,982 86.0% 100.5Total (3) 5 407,587 $206.6 2013 Acquisitions 320 Westlake Ave. N. and 321 Terry Ave. N., Seattle, WA (4)(5) January 16, 2013 2 320,398 100.0% $170.012780 and 12790 El Camino Real, San Diego, CA (6) September 19, 2013 2 218,940 100.0% 126.4Total (7) 4 539,338 $296.4________________________(1)Excludes acquisition-related costs and non-lease related accrued liabilities assumed. Includes assumed unpaid leasing commissions and tenant improvements.(2)As of December 31, 2014, these properties, together the "Chesapeake Commons" project, were temporarily being held in a separate VIE to facilitate potential Section 1031Exchanges (see Note 2 "Basis of Presentation and Significant Accounting Policies"). During January 2015, the Company closed out the Section 1031 Exchange related to this VIE.(3)The results of operations for the properties acquired during 2014 contributed $7.7 million and $2.8 million to revenues and net income from continuing operations, respectively,for the year ended December 31, 2014.(4)We acquired these properties through a special purpose entity wholly owned by the Finance Partnership.(5)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” for additional information).(6)As of December 31, 2013, these properties, together the "Heights of Del Mar" project, were temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges(see Note 2 "Basis of Presentation and Significant Accounting Policies"). The $126.4 million purchase price includes $9.4 million for 4.2 acres of undeveloped land the Companyacquired in connection with this acquisition.(7)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.F - 27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 our2014 and 2013 acquisitions:AcquisitionsTotal 2014Acquisitions (1)Total 2013Acquisitions (1) (in thousands)Assets Land and improvements$81,430$53,790Buildings and improvements (2)114,876218,211Undeveloped land and construction in progress (3)—9,360Deferred leasing costs and acquisition-related intangible assets (4)17,25930,789Total assets acquired213,565312,150Liabilities Deferred revenue and acquisition-related intangible liabilities (5)6,9904,190Secured debt, net (6)—95,496Accounts payable, accrued expenses and other liabilities2,029422Total liabilities assumed9,019100,108Net assets and liabilities acquired (7)$204,546$212,042_______________(1)The purchase price of the two acquisitions completed during the year ended December 31, 2014, and the two acquisitions completed during the year ended December 31, 2013were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of December 31, 2014 and December 31, 2013, respectively.(2)Represents buildings, building improvements and tenant improvements.(3)In connection with one of the 2013 acquisitions, we acquired undeveloped land of approximately 4.2 acres that was added to the Company's future development pipeline uponacquisition.(4)Represents in-place leases (approximately $12.3 million with a weighted average amortization period of 7.0 years) and leasing commissions (approximately $4.9 million with aweighted average amortization period of 7.0 years) for the year ended December 31, 2014. Represents in-place leases (approximately $19.6 million with a weighted averageamortization 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) for the year ended December 31, 2013.(5)Represents below-market leases (approximately $7.0 million and $4.2 million with a weighted average amortization period of 6.1 years and 7.7 years) for the years endedDecember 31, 2014 and December 31, 2013, respectively.(6)Represents the mortgage loan, which includes an unamortized premium balance of approximately $11.6 million at the date of acquisition, assumed in connection with theproperties acquired in January 2013 (see Note 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information).(7)Reflects the purchase price net of assumed secured debt and other lease-related obligations.Development and Redevelopment Project SitesDuring the year ended December 31, 2014, we acquired the following undeveloped land sites listed below from unrelated third parties. The acquisitionswere funded with proceeds from the Company’s at-the-market stock offering program (see Note 10 “Stockholders’ Equity of the Company” for additionalinformation), borrowings under the unsecured line of credit (see Note 7 “Secured and Unsecured Debt of the Operating Partnership” for additionalinformation), disposition proceeds (see Note 18 “Discontinued Operations” for additional information), and issuance of common stock.Project Date ofAcquisition Type Purchase Price(in millions)The Exchange on 16th, San Francisco, CA (1) May 23, 2014 Development $95.0Flower Mart, San Francisco, CA (2) October 23, 2014, December19, 2014 Development 71.0Total $166.0_______________(1)In connection with this acquisition, we also assumed $2.3 million in accrued liabilities, which are not included in the purchase price above. As of December 31, 2014, thepurchase price and assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accruedexpenses and other liabilities on our consolidated balance sheets.(2)In the fourth quarter of 2014, the Company closed on two adjacent land sites for a total purchase price of $71.0 million and approximately $13.4 million in transaction costs andaccrued liabilities, net (see Note 15 “Commitments and Contingencies” for additional information on a portion of accrued liabilities for this transaction). The acquisitions, whichwere completed through the execution of two merger transactions,F - 28KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)were partially funded through the issuance of 351,476 shares of the Company’s common stock valued at approximately $21.6 million and the remainder was paid in cash.During the year ended December 31, 2013, we acquired the following land site and land previously subject to a ground lease listed below from unrelatedthird parties. The acquisitions were funded with proceeds from the Company’s at-the-market stock offering program (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”), and disposition proceeds(see Note 18 “Discontinued Operations”).Project Date ofAcquisition Type Purchase Price(in millions)Academy Project, Hollywood, CA (1) November 15, 2013 Development $45.0360 Third Street, San Francisco, CA (2) October 29, 2013 Land 27.5Total $72.5_______________(1)In connection with this acquisition, we also assumed $0.7 million in accrued liabilities, which are not included in the purchase price above. As of December 31, 2014 and 2013,the project is included in our future development pipeline and, as a result, the underlying assets were included as undeveloped land and construction in progress in ourconsolidated financial statements.(2)In November 2012, we exercised an option to purchase the land underlying the ground leases at this wholly owned property. This transaction closed in October 2013 and as ofDecember 31, 2014 and 2013, the land was included as land and improvements in our consolidated financial statements.Additionally, on June 27, 2013, the Company entered into an agreement with an unaffiliated third party and formed Redwood LLC, a new consolidatedsubsidiary. In connection with this transaction, the Company acquired a 0.35 acre land site, completing the first phase of the land assemblage for its plans todevelop an approximate 300,000 square foot office project (the “Crossing/900” project) in Redwood City, California. In October 2013, the Companyacquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for this 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 dates (in thousands): Phase I Phase II TotalAssets 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.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, 2014 and 2013: December 31, 2014 December 31, 2013 (in thousands)Deferred Leasing Costs and Acquisition-related Intangible Assets, net: Deferred leasing costs$216,102 $178,720Accumulated amortization(74,904) (63,246)Deferred leasing costs, net141,198 115,474Above-market operating leases20,734 27,635Accumulated amortization(13,952) (14,283)Above-market operating leases, net6,782 13,352In-place leases97,250 100,318Accumulated amortization(43,773) (42,999)In-place leases, net53,477 57,319Below-market ground lease obligation490 490Accumulated amortization(21) (13)Below-market ground lease obligation, net469 477Total deferred leasing costs and acquisition-related intangible assets, net$201,926 $186,622Acquisition-related Intangible Liabilities, net: (1) Below-market operating leases$68,051 $69,385Accumulated amortization(30,620) (25,706)Below-market operating leases, net37,431 43,679Above-market ground lease obligation6,320 6,320Accumulated amortization(324) (223)Above-market ground lease obligation, net5,996 6,097Total acquisition-related intangible liabilities, net$43,427 $49,776_______________(1)Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.The following table sets forth amortization related to deferred leasing costs and acquisition-related intangible liabilities, including amounts attributableto discontinued operations, for years ended December 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in thousands)Deferred leasing costs (1)$27,555 $25,902 $20,804Above-market operating leases (2)5,303 5,664 5,695In-place leases (1)21,628 29,363 21,976Below-market ground lease obligation (3)8 8 205Below-market operating leases (4)(13,238) (13,441) (12,393)Above-market ground lease obligation (5)(101) (101) (85)Total$41,155 $47,395 $36,202_______________(1)The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periodspresented.(2)The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.(3)The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periodspresented.(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 periodspresented.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, 2014 for future periods:YearDeferred LeasingCosts Above-MarketOperating Leases (1) In-Place Leases Below-Market GroundLease Obligation (2) Below-MarketOperating Leases (3) Above-MarketGround LeaseObligation (4) (in thousands)2015$27,848 $2,530 $13,896 $8 $(9,886) $(101)201625,051 1,503 10,922 8 (8,403) (101)201722,128 1,241 9,281 8 (7,337) (101)201818,580 831 6,373 8 (5,735) (101)201914,227 643 4,714 8 (3,597) (101)Thereafter33,364 34 8,291 429 (2,473) (5,491)Total$141,198 $6,782 $53,477 $469 $(37,431) $(5,996)_______________(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 ofoperations.(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 consolidatedstatements 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 ofoperations.(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 consolidatedstatements 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, 2014 and 2013: December 31, 2014 December 31, 2013 (in thousands)Current receivables (1)$9,228 $12,866Allowance for uncollectible tenant receivables (1)(1,999) (2,123)Current receivables, net (1)$7,229 $10,743______________(1)Excludes current receivables, net related to real estate held for sale.Deferred Rent Receivables, netDeferred rent receivables, net consisted of the following as of December 31, 2014 and 2013: December 31, 2014 December 31, 2013 (in thousands)Deferred rent receivables$158,405 $129,198Allowance for deferred rent receivables(1,989) (2,075)Deferred rent receivables, net$156,416 $127,1236. 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.F - 31KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The Company generally guarantees all the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the$150.0 million unsecured term loan facility, the $39.0 million unsecured term loan, the 5.00% unsecured senior notes due 2015, the 4.80% unsecured seniornotes due 2018, the 6.625% unsecured senior notes due 2020, the 3.80% unsecured senior notes due in 2023, and the 4.25% unsecured senior notes due in2029. As of December 31, 2014 and 2013, the Operating Partnership had $1.9 billion and $1.6 billion, respectively, outstanding in total under theseunsecured debt obligations.In addition, although the remaining $0.5 billion of the Operating Partnership’s debt as of December 31, 2014, and $0.6 billion as of December 31, 2013is secured and non-recourse to the Company, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy,fraud, misapplication of payments and environmental liabilities.Debt Covenants and RestrictionsOne of the covenants contained within the unsecured revolving credit facility, the unsecured term loan facility, and the unsecured term loan as discussedfurther below in Note 7 prohibits the Company from paying dividends in excess of 95% of funds from operations (“FFO”).7. Secured and Unsecured Debt of the Operating PartnershipSecured DebtThe following table sets forth the composition of our secured debt as of December 31, 2014 and 2013: Annual Stated InterestRate (1) GAAPEffective Rate (1)(2) Maturity Date December 31,Type of Debt 2014 (3) 2013 (3) (in thousands)Mortgage note payable4.27% 4.27% February 2018 $130,767 $133,117Mortgage note payable4.48% 4.48% July 2027 97,000 97,000Mortgage note payable (4)6.05% 3.50% June 2019 89,242 92,502Mortgage note payable6.51% 6.51% February 2017 66,647 67,663Mortgage note payable5.23% 3.50% January 2016 52,793 54,570Mortgage note payable5.57% 3.25% February 2016 40,258 41,654Mortgage note payable5.09% 3.50% August 2015 34,311 34,845Mortgage note payable4.94% 4.00% April 2015 26,285 27,641Mortgage note payable7.15% 7.15% May 2017 6,568 8,972OtherVarious Various Various 2,421 2,470Total $546,292 $560,434______________(1)All interest rates presented are fixed-rate interest rates.(2)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuancecosts.(3)Amounts reported include the amounts of unamortized debt premiums of $10.3 million and $14.6 million as of December 31, 2014 and 2013, respectively.(4)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 loan requiresmonthly principal and interest payments based on a 6.4 year amortization period. As of December 31, 2014 and 2013, the mortgage loan had unamortized debt premiums of $8.0million and $9.9 million, respectively.The Operating Partnership’s secured debt was collateralized by 31 and 21 operating properties as of December 31, 2014 and 2013, respectively, with acombined net book value of approximately $1.6 billion and $1.0 billion as of December 31, 2014 and 2013, respectively.Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customarysecured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.F - 32KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)As of December 31, 2014, nine of the Operating Partnership’s ten secured loans contained restrictions that would require the payment of prepaymentpenalties for the acceleration of outstanding debt. The mortgage notes payable are secured by deeds of trust on certain of our properties and the assignment ofcertain rents and leases associated with those properties.4.25% Exchangeable Senior NotesThe table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the“4.25% Exchangeable Notes”) as of December 31, 2014 and 2013. The Company repaid the 4.25% Exchangeable Notes in November 2014 upon maturity.4.25% Exchangeable NotesDecember 31, 2014 2013 (in thousands)Principal amount$— $172,500Unamortized discount— (4,128)Net carrying amount of liability component$— $168,372Carrying 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 was 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 raterepresents our conventional debt borrowing rate at the date of issuance.(3)The exchange rate, exchange price, and the number of shares to be delivered upon conversation were subject to adjustment under certain circumstances including increases in ourcommon dividends as of December 31, 2013.Prior to their maturity on November 15, 2014, the 4.25% Exchangeable Notes were exchangeable for shares of the Company's common stock only uponoccurrence of certain events as follows: (i) during any calendar quarter, if the closing sale price per share of the common stock of the Company was more than130% of the exchange price per share of the Company's common stock for at least 20 trading days in a specified period, (ii) during the five consecutivetrading-day period following any five consecutive trading days in which the trading price per $1,000 principal amount of the Exchangeable Notes was lessthan 98% of the product of the closing sale price per share of the Company's common stock multiplied by the applicable exchange rate, (iii) if theExchangeable Notes had been called for redemption, (iv) upon the occurrence of specified corporate transactions, (v) if the Company's common stock ceasedto be listed or approved for quotation for 30 consecutive trading days, or (vi) on or after August 15, 2014. At any time prior to August 15, 2014, the OperatingPartnership may have irrevocably elected, in its sole discretion without the consent of the holders of the 4.25% Exchangeable Notes, to settle all of the futureexchange obligations of the 4.25% Exchangeable Notes in shares of common stock. Any shares of common stock delivered for settlement were based on adaily exchange value calculated on a proportionate basis for each day of a 30 day trading-day observation period.Upon exchange of the 4.25% Exchangeable Notes, the holders received (i) cash up to the principal amount of the 4.25% Exchangeable Notes and (ii) tothe extent the exchange value exceeded the principal amount of the 4.25% Exchangeable Notes, shares of the Company’s common stock.In connection with the offerings of the 4.25% Exchangeable Notes, the Company entered into capped call option transactions (“capped calls”) tomitigate the dilutive impact of the potential conversion of the 4.25% Exchangeable Notes. The capped calls, as amended, were separate transactions enteredinto by us with the relevant financial institutions, were not part of the terms of the 4.25% Exchangeable Notes, and did not affect the holders’ rights under the4.25% Exchangeable Notes. The strike prices of the capped calls, which were subject to customary anti-dilution adjustments, corresponded to the exchangeprices of the applicable 4.25% Exchangeable Notes. The capped calls mitigated the dilutive impact to the Company of the potential exchange of all of the4.25% Exchangeable Notes into shares of commonF - 33KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)stock. The capped calls for the 4.25% Exchangeable Notes were terminated when the notes were repaid in November 2014. As of December 31, 2013, thereferenced shares of common stock under this transaction was 4,800,796 shares and the exchange price, including effect of capped calls was $42.81. Theinitial costs of capped calls were recorded as a reduction to additional paid-in capital.In the third quarter of 2014, we settled early exchanges of the 4.25% Exchangeable Notes with an aggregate principal amount of $37.0 million. For theexchange settlements, the Company paid the noteholders a total of $37.0 million in cash for the principal amount and issued to the noteholders a total of431,270 shares of our common stock for the excess exchange value. As a result of the exchanges, the Company exercised the equivalent proportionateamount of its capped call options and, in connection received 111,206 shares of our common stock from the counterparties. This reduced the shares ofcommon stock issued in connection with the exchanges to 320,064 shares.In November 2014, we repaid the remaining balance of the outstanding 4.25% Exchangeable Notes with an aggregate principal balance of $135.5million. For the repayment settlement, the Company paid the noteholders a total of $135.5 million in cash for the principal amount and issued to thenoteholders a total of 1,660,053 shares of our common stock for the excess exchange value. As a result of the exchanges, the Company exercised theequivalent proportionate amount of its capped call options and received 404,136 shares of our common stock from the counterparties thereby reducing theshares of common stock issued upon maturity to 1,255,917 shares. This reduced the shares of common stock issued in connection with the exchanges to1,575,981 shares.For the 2014 period preceding maturity of the 4.25% Exchangeable Notes on November 15, 2014, and during the year ended December 31, 2013, the pershare 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, aspresented in the table below. Period Ended November 15,2014(1) Year Ended December 31,2013Per share average trading price of the Company's common stock$60.04 $52.12(1) Represents the maturity date of the 4.25% Exchangeable Notes.During the year ended December 31, 2013, the closing sales price per share of the common stock of the Company was more than 130% of the exchangeprice per share of the Company's common stock for at least 20 trading days in the specified period. As a result, the 4.25% Exchangeable Notes werechangeable at the exchange rate stated above. No noteholders exchanged any of the 4.25% Exchangeable Notes in 2013.The approximate fair value of the shares exchangeable at December 31, 2013 using the per share average trading price of $52.12, would have been asfollows Year Ended December 31, 2013 Approximate fair value of shares upon conversion $247,000Principal amount of the 4.25% Exchangeable Notes 172,500Approximate fair value in excess amount of principal amount $74,500See Note 18 “Net Income Available to Common Stockholders Per Share of the Company” and Note 19 “Net Income Available to Common UnitholdersPer Unit of the Operating Partnership” for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculationsfor the periods presented.Interest Expense for the 4.25% Exchangeable NotesThe unamortized discount on the 4.25% Exchangeable Notes, due in November 2014 and repaid upon maturity, and the 3.25% Exchangeable Notes, duein April 2012 and repaid upon maturity (together the “Exchangeable Notes”), were accreted as additional interest expense from the date of issuance throughthe maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the Exchangeable Notes,F - 34KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)in each case based on the respective effective interest rates, before the effect of capitalized interest, for the years ended December 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in thousands)Contractual interest payments (1)$5,608 $7,331 $8,721Amortization of discount (1)3,769 4,427 5,052Interest expense attributable to the Exchangeable Notes (1)$9,377 $11,758 $13,773_______________(1)The Company repaid the 3.25% Exchangeable Notes in April 2012. Interest payments and discount amortization for the years ended December 31, 2014 and 2013 were solelyattributable to the 4.25% Exchangeable Notes.Unsecured Senior NotesIn July 2014, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. Theoutstanding balance of the unsecured senior notes is included in unsecured debt, net of issuance discount of $4.3 million, on our consolidated balance sheets.The unsecured senior notes, which are scheduled to mature on August 15, 2029, require semi-annual interest payments each February and August based on astated annual interest rate of 4.250%. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowingsunder the Operating Partnership’s unsecured revolving credit facility.The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as ofDecember 31, 2014 and 2013: Principal Amountas of December 31, Issuance date Maturity date Statedcoupon rate Effective interest rate (1) 2014 2013 (in thousands)4.250% Unsecured Senior Notes (2)July 2014 August 2029 4.250% 4.350% $400,000 $—Unamortized discount (4,348) —Net carrying amount $395,652 $— 3.800% Unsecured Senior Notes (3)January 2013 January 2023 3.800% 3.804% $300,000 $300,000Unamortized discount (79) (90)Net carrying amount $299,921 $299,910 4.800% Unsecured Senior Notes (4)July 2011 July 2018 4.800% 4.827% $325,000 $325,000Unamortized discount (265) (339)Net carrying amount $324,735 $324,661 6.625% Unsecured Senior Notes (5)May 2010 June 2020 6.625% 6.743% $250,000 $250,000Unamortized discount (1,154) (1,367)Net carrying amount $248,846 $248,633 5.000% Unsecured Senior Notes (6)November 2010 November 2015 5.000% 5.014% $325,000 $325,000Unamortized discount (33) (73)Net carrying amount $324,967 $324,927________________________(1)This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuancecosts.(2)Interest on the 4.250% unsecured senior notes is payable semi-annually in arrears on February 15th and August 15th of each year.(3)Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(4)Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year.(5)Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year.(6)Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year.In August 2014, upon maturity, we repaid our outstanding Series B unsecured senior notes which had an aggregate principal balance of $83.0 millionand effective interest rate of 6.45% as of December 31, 2013.F - 35KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Unsecured Revolving Credit Facility and Unsecured Term Loan FacilityIn the second quarter of 2014, the Company amended the terms of our unsecured revolving credit facility and the Company’s $150.0 million unsecuredterm loan facility. The amendment increased the size of the Company’s unsecured line of credit to $600.0 million, extended the maturity to July 2019 onboth the unsecured revolving credit facility and unsecured term loan facility, reduced the annual interest rate on the unsecured revolving credit facility toLIBOR plus 1.250% and reduced the annual interest rate on the unsecured term loan facility to LIBOR plus 1.40%. The amendment did not affect theoutstanding borrowings under the credit facility.The following table summarizes the balance and terms of our unsecured revolving credit facility as of December 31, 2014 and December 31, 2013: December 31, 2014 December 31, 2013 (in thousands)Outstanding borrowings$140,000 $45,000Remaining borrowing capacity460,000 455,000Total borrowing capacity (1)$600,000 $500,000Interest rate (2)(3)1.41% 1.62%Facility fee-annual rate (4)0.250% 0.300%Maturity dateJuly 2019 April 2017_______________(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $311.0 million under an accordionfeature under the terms of the unsecured revolving credit facility and unsecured term loan facility.(2)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.250% as of December 31, 2014.(3)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of December 31, 2013.(4)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. Asof December 31, 2014, $5.9 million of deferred financing costs remains to be amortized through the amended maturity date of our unsecured revolving credit facility.The Company intends to borrow amounts under the unsecured revolving credit facility from time to time for general corporate purposes, to fundpotential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.The following table summarizes the balance and terms of our term loan facility, which is included in our unsecured debt, as of December 31, 2014 andDecember 31, 2013: December 31, 2014 December 31, 2013 (in thousands)Outstanding borrowings$150,000 $150,000Interest rate (1)(2)1.56% 1.92%Maturity dateJuly 2019 March 2016_______________(1)Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.40% as of December 31, 2014.(2)Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.75% as of December 31, 2013.Additionally, in October 2014, the Company drew down on a $39.0 million unsecured term loan with an annual interest rate of LIBOR plus 1.40% thatmatures in July 2019.F - 36KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Debt Covenants and RestrictionsThe unsecured revolving credit facility, the unsecured term loan facility, the unsecured term loan, the unsecured senior notes, and certain other secureddebt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictivefinancial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and aminimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the fullprincipal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as ofDecember 31, 2014 and 2013.Debt MaturitiesThe following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as ofDecember 31, 2014:Year(in thousands)2015$395,103201699,431201771,7482018451,7282019405,369Thereafter1,041,643Total (1)$2,465,022________________________ (1)Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $4.4 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, netof capitalized interest, for the years ended December 31, 2014, 2013 and 2012. The interest expense capitalized was recorded as a cost of development andredevelopment, and increased the carrying value of undeveloped land and construction in progress. Year Ended December 31, 2014 2013 2012 (in thousands)Gross interest expense$114,661 $111,238 $98,906Capitalized interest(47,090) (35,368) (19,792)Interest expense$67,571 $75,870 $79,1148.Deferred Revenue and Acquisition Related Liabilities, netDeferred revenue and acquisition-related liabilities, net consists of the following at December 31, 2014 and 2013: December 31, 2014 2013 (in thousands)Deferred revenue related to tenant-funded tenant improvements (1)$85,757 $48,341Other deferred revenue3,055 3,169Acquisition-related intangible liabilities, net (2)43,427 49,776Total$132,239 $101,286________________________(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 Note 4 “Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net” foradditional information.F - 37KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Deferred Revenue Related to Tenant-funded Tenant ImprovementsDuring the years ended December 31, 2014, 2013, and 2012, $11.0 million, $10.7 million and $9.1 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, 2014 for the next five years and thereafter:Year Ending(in thousands)2015$12,402201611,955201710,80220189,17720197,780Thereafter33,641Total$85,7579. Noncontrolling Interests on the Company’s Consolidated Financial StatementsCommon Units of the Operating PartnershipThe Company owned a 98.0% and 97.8% common general partnership interest in the Operating Partnership as of December 31, 2014 and 2013,respectively. The remaining 2.0% and 2.2% common limited partnership interest as of December 31, 2014 and 2013, respectively, was owned by non-affiliateinvestors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,804,200 and 1,805,200 common unitsoutstanding held by these investors, executive officers and directors as of December 31, 2014 and 2013, 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 commonunit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $0.01 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 $126.8 million and $90.8 million as of December 31, 2014 and December 31, 2013, 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 aliquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.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 $5.9 million and $4.9 million at December 31, 2014 and December 31, 2013, respectively.F - 38KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)2012 Redemption of 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 CompanyCommon StockIssuance of Common StockIn October 2014, the Company issued 351,476 shares of the its common stock valued at approximately $21.6 million to partially fund a developmentacquisition (see Note 3 “Acquisitions” for additional information).In 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 tofund acquisitions, repay borrowings under the unsecured 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 tofund acquisitions, repay borrowings under the unsecured 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 tofund acquisitions, repay borrowings under the unsecured revolving credit facility, and for general corporate purposes.At-The-Market Stock Offering ProgramsUnder our at-the-market stock offering programs, which commenced in July 2011 and December 2014, we may offer and sell shares of our common stockfrom time to time in “at-the-market” offerings. During the year ended December 31, 2014, the Company completed it's existing at-the-market stock offeringprogram (the “July 2011 At-The-Market Program”) under which we sold an aggregate of $200.0 million in gross sales of shares, and in December 2014commenced a new at-the-market stock offering program (the “December 2014 At-The-Market Program”) under which we may offer to sell shares of ourcommon stock with an aggregate gross sales price of up $300.0 million.The following table sets forth information regarding sales of our common stock under our at-the-market offering programs for the years endedDecember 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in millions, except share data)Shares of common stock sold during the period1,599,123 1,040,838 787,118Aggregate gross proceeds$104.7 $55.3 $37.0Aggregate net proceeds after sales agent compensation$103.1 $54.4 $36.3F - 39KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The proceeds from sales were used to fund acquisitions, development expenditures and general corporate purposes including repayment of borrowingsunder the unsecured revolving credit facility. During the year ended December 31, 2014, under the July 2011 At-The-Market Program, we sold 1,457,623shares of common stock and completed the program. Since commencement of the December 2014 At-The-Market Program, as of December 31, 2014, we sold141,500 shares of common stock and approximately $290.0 million remains available to be sold under this program. Actual future sales will depend upon avariety 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 the December 2014 At-The-Market 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, 2014, 2013 or 2012.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, 2014 and 2013: December 31, 2014 2013 (in thousands)Dividends and Distributions payable to: Common stockholders$30,191 $28,754Noncontrolling common unitholders of the Operating Partnership631 632RSU holders (1)421 405Total accrued dividends and distribution to common stockholders and noncontrolling unitholders31,243 29,791Preferred stockholders1,656 1,699Total accrued dividends and distributions$32,899 $31,490______________________(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 additionalinformation). December 31, 2014 2013Outstanding Shares and Units: Common stock (1)86,259,684 82,153,944Noncontrolling common units1,804,200 1,805,200RSUs (2)1,248,352 1,158,407Series 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 247,089 and 143,022 market measure-based RSUs since not all the necessary performance conditions have been metas of December 31, 2014 and 2013, respectively.2012 Redemption of 7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred StockOn April 16, 2012, the Company redeemed all 1,610,000 outstanding shares of its 7.80% Series E Preferred Stock and all 3,450,000 outstanding shares ofits 7.50% Series F Preferred Stock. As a result, for the year ended December 31, 2012, we recognized a non-recurring noncash charge of $4.9 million as areduction to net income available to common stockholders for the original issuance costs related to the Redeemed Preferred Stock.F - 40KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)11.Preferred and Common Units of the Operating PartnershipCommon UnitsIssuance of Common UnitsIn October 2014, the Company issued 351,476 shares of its common stock to partially fund $21.6 million of a development acquisition (see Note 10“Stockholders’ Equity of the Company” for additional information). The development acquisition property was contributed by the Company to theOperation Partnership in exchange for 351,476 common units.In September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock (see Note 10 “Stockholders’Equity of the Company” for additional information). The net offering proceeds of approximately $295.9 million were contributed by the Company to theOperating 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 (see Note 10 “Stockholders’ Equity ofthe Company” for additional information). The net offering proceeds of approximately $253.8 million were contributed by the Company to the OperatingPartnership 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 (see Note 3 “Acquisitions” for additionalinformation). Each unit was valued 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 (see Note 10 “Stockholders’ Equityof the Company” for additional information). The net offering proceeds of approximately $382.1 million were contributed by the Company to the OperatingPartnership in exchange for 9,487,500 common units.At-The-Market Stock Offering ProgramDuring the years ended December 31, 2014, 2013 and 2012, the Company utilized its at-the-market stock offering programs to issue shares of commonstock (see Note 10 “Stockholders’ Equity of the Company” for additional information). The net offering proceeds and property acquired using net offeringproceeds were contributed by the Company to the Operating Partnership in exchange for common units for the years ended December 31, 2014, 2013 and2012 are as follows: Year Ended December 31, 2014 2013 2012 (in millions, except share and per share data)Shares of common stock contributed by the Company1,599,123 1,040,838 787,118Common units exchanged for share of common stock by the Company1,599,123 1,040,838 787,118Aggregate gross proceeds$104.7 $55.3 $37.0Aggregate net proceeds after sales agent compensation$103.1 $54.4 $36.3F - 41KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Common 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, 2014 December 31, 2013Company owned common units in the Operating Partnership86,259,684 82,153,944Company owned general partnership interest98.0% 97.8%Noncontrolling common units of the Operating Partnership1,804,200 1,805,200Ownership interest of noncontrolling interest2.0% 2.2%For a further discussion of the noncontrolling common units during the years ended December 31, 2014 and 2013, 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, 2014 and 2013: December 31, 2014 December 31, 2013 (in thousands)Distributions payable to: General partner$30,191 $28,754Common limited partners631 632RSU holders (1)421 405Total accrued distributions to common unitholders31,243 29,791Preferred unitholders1,656 1,699Total accrued distributions$32,899 $31,490______________________(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 additionalinformation). December 31, 2014 December 31, 2013Outstanding Units: Common units held by the general partner86,259,684 82,153,944Common units held by the limited partners1,804,200 1,805,200RSUs (1)1,248,352 1,158,407Series G Preferred units4,000,000 4,000,000Series H Preferred units4,000,000 4,000,000______________________(1)Does not include the 247,089 and 143,022 market measure-based RSUs since not all the necessary performance conditions have been met as of December 31, 2014 and 2013,respectively.2012 Redemption of 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 and all3,450,000 outstanding units of its 7.50% Series F Cumulative Redeemable Preferred Units. As a result, for the year ended December 31, 2012, we recognizeda non-recurring noncash charge of $4.9 million as a reduction to net income available to common stockholders for the original issuance costs related to theRedeemed Preferred Units.F - 42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, 2014, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the“2006 Plan”). As of March 31, 2014, no shares were available for new award grants under the 2006 Plan. At our annual meeting of stockholders, on May 22,2014, stockholders approved an amendment and restatement of the 2006 Plan, which included an increase in the maximum number of shares that may beissued or awarded under the 2006 Plan to 7,120,000 shares. As of December 31, 2014, 681,626 shares were available for grant under the 2006 Plan.The Executive Compensation Committee, which is comprised of two 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, restricted stock units (“RSUs”), profit interest units, performance bonusawards, performance-based awards and other incentive awards to eligible individuals. For each award granted under our share-based incentive compensationprograms, the Operating Partnership simultaneously issues to the Company a number of common units equal to the number of shares of common stockultimately paid by the Company in respect of such awards.All of our outstanding share-based awards issued prior to 2007 were issued under the 1997 Stock Option and Incentive Plan (the “1997 Plan”), which wasterminated by our board of directors in September 2006. Any awards that were outstanding upon the termination of the 1997 Plan continued in effect inaccordance with the terms of such plan and the applicable award agreement following termination of the 1997 Plan.Stock Award Deferral ProgramWe have a Stock Award Deferral Program (the “RSU Program”) under the 2006 Plan. Under the RSU Program, participants may defer receipt of awards ofnonvested shares that may be granted by electing to receive an equivalent number of RSUs in lieu of such 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 RSUs at the time dividends arepaid equal to the value of the dividend earned on the shares underlying the participant’s RSUs. The dividend equivalents earned vest based on termsspecified under the related RSU award agreement. Shares issued upon settlement of vested RSUs including RSUs paid on dividend equivalents are distributedin a single lump sum distribution upon the earlier of (1) the date specified by the participant when the election is made or (2) occurrence of certain otherevents 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.Prior to 2014, the Executive Compensation Committee awarded annual long-term equity awards based primarily on the prior year’s performance, however,starting in January 2014, such annual awards have been granted as an incentive for the year in which the awards were granted and subsequent years.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 and all other executive officers (the “Executive Officers”) as part of their annual and long-term incentive compensation. The share-based awards are generally issued in the first quarter after the end of our prior fiscal year. The share-based awards generally have a service vesting period,which has historically ranged from one to five years, depending on the type of award.F - 43KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)2014 Share-Based Compensation GrantsOn January 29, 2014 (the “2014 RSU Grant Date”), the Executive Compensation Committee of the Company’s Board of Directors awarded 236,604RSUs to certain officers of the Company under the 2006 Plan, which included 119,098 RSUs that are subject to time-based, market and performance-basedvesting requirements (each a “2014 Performance-Based RSU” and collectively, the “2014 Performance-Based RSU Grant”) and 117,506 RSUs that are subjectto time-based vesting requirements (each a “2014 Time-Based RSU” and collectively, the “2014 Time-Based RSU Grant”). As of the 2014 RSU Grant Date,an insufficient number of shares were available under the 2006 Plan to settle these RSUs in stock and the RSUs were subject to liability accounting. Asdiscussed above, on May 22, 2014 we received stockholder approval for an increase in the maximum number of shares that may be issued or awarded underthe 2006 Plan, which resulted in a sufficient number of shares available for issuance to cover settlement of these RSU awards. As a result, as of May 22, 2014we reclassified these awards as equity awards and re-measured the fair value of the awards as of that date.2014 Performance-Based RSU GrantThe 2014 Performance-Based RSUs are scheduled to vest at the end of a three-year period based upon the achievement of pre-defined FFO per sharegoals (the “performance condition”) for the year ended December 31, 2014 and upon the average annual relative total stockholder return versus the SNL USREIT Office Index (the “market condition”) for the three-year period ending December 31, 2016. The 2014 Performance-Based RSUs are also subject to athree-year service vesting provision and will cliff vest at the end of the three-year period, subject to the Executive Compensation Committee's determinationthat the performance conditions and market conditions have been achieved. The number of 2014 Performance-Based RSUs ultimately earned, and thereforethe compensation costs for these awards, can fluctuate from the 119,098 RSUs granted based upon the levels of achievement for both the FFO per share andrelative total stockholder return metrics. During the 2014 performance period, the estimate of the number of RSUs earned were evaluated quarterly based onour forecasted level of achievement of the FFO per share hurdle. As of December 31, 2014, the FFO per share hurdle performance condition was achieved at1.5x target. As a result, the number of RSUs earned was adjusted to 178,650 RSUs to reflect the achievement of this metric.Each 2014 Performance-Based RSU represents the right to receive one share of our common stock in the future, subject to, and as modified by, theCompany's level of achievement of the market condition. As of March 31, 2014, we recorded compensation expense for the award based upon the fair valueat period end of $63.44, as we had an insufficient number of shares available for issuance under the 2006 Plan at that time. As discussed above, uponstockholder approval of the amended 2006 Plan on May 22, 2014, we were required to re-measure the fair value of the 2014 Performance-Based RSU Grantand record compensation expense based on the fair value at that date for the cumulative portion of the performance period that had elapsed. The total fairvalue of the 2014 Performance-Based RSU Grant was $7.7 million at May 22, 2014 and was calculated using a Monte Carlo simulation pricing model basedon the assumptions in the table below. The determination of the fair value of the 2014 Performance-Based RSU Grant takes into consideration the likelihoodof achievement of both the performance condition and the market condition discussed above. For the year ended December 31, 2014, we recordedcompensation expense based upon the $65.03 fair value per share at May 22, 2014 multiplied by the 178,650 RSUs banked at December 31, 2014.Compensation expense for the 2014 Performance-Based RSU Grant will be recorded on a straight-line basis over the three-year period. The following tablesummarizes the assumptions utilized in the Monte Carlo simulation pricing model: Fair Value AssumptionsFair value per share at May 22, 2014$65.03Expected share price volatility24.00%Risk-free interest rate0.61%Remaining expected life2.6The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately five years asthat is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate two and a half year remainingperformance period of the RSUs and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of commonstock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect atF - 44KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)May 22, 2014. The expected dividend yield is estimated by examining the average of the historical dividend yield levels over the remaining 2.6 year term ofthe RSUs and our current annualized dividend yield as of May 22, 2014. The expected life of the RSUs is equal to the remaining 2.6 year vesting period atMay 22, 2014.2014 Time-Based RSU GrantThe 2014 Time-Based RSUs are scheduled to vest in four equal installments beginning on January 5, 2015 through January 5, 2018. Compensationexpense for the 2014 Time-Based RSUs will be recognized on a straight-line basis over the four-year continued service vesting period. Each 2014 Time-Based RSUs represents the right to receive one share of our common stock in the future, subject to continued employment through the applicable vestingdate. As of March 31, 2014, we recorded compensation expense for the award based upon the fair value at period end of $51.64, because at that time aninsufficient number of shares were available for issuance under the 2006 Plan. As discussed above, upon stockholder approval of the amended 2006 Plan onMay 22, 2014, we were required to re-measure the fair value of the 2014 Time-Based RSU Grant and record compensation expense based on the fair value atthat date, for the cumulative portion of the performance period that had elapsed. The total fair value was $7.1 million, which was based on the $60.16 closingshare price of the Company’s common stock on the NYSE on May 22, 2014.2013 Share-Based Compensation GrantsOn 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 and werebased on the achievement of the Company's relative total shareholder return and/or FFO performance measured during the period beginning on January 1,2013 and ending on December 31, 2013. As of December 31, 2013, the Company had achieved the relative total shareholder return market metrics and FFOper share performance metrics, and the RSUs are now only subject to time-based vesting requirements. The Company’s closing stock price on the date ofmodification was $53.05. The compensation expense related to the modified RSUs will be recognized using the accelerated attribution expense methodthrough 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 $53.05 closingshare 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-linebasis 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 goalsmeasured annually or, if neither of the shareholder return hurdles are achieved for an applicable year during the performance period, those RSUs will remaineligible to vest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal. The grant date fair value ofthese market measure-based RSUs was $0.4 million and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the tablebelow. The grant date fair value is allocated among each of the six annual vesting tranches for these market measure-based RSUs and compensation expensewill be recognized 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 tobe most 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.F - 45KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) April 2013 Market-Measure based RSUGrantGrant date fair value per share$44.55Expected share price volatility27.00%Risk-free interest rate0.90%Dividend yield3.60%Expected life6 yearsKey Employee Share-Based Compensation ProgramThe Executive Compensation Committee has historically awarded nonvested shares or nonvested RSUs to other key employees on an annual basis aspart of their long-term incentive compensation. The share-based awards are generally issued in the first quarter, and the individual share awards generally vestin equal annual installments over the applicable service vesting period, which has historically ranged from two to five years.Non-Employee Board Members Share-Based Compensation ProgramThe Board of Directors awards nonvested shares or nonvested RSUs to non-employee board members on an annual basis as part of such board members’annual compensation and to newly elected non-employee board members in accordance with our board of directors compensation program. The share-basedawards are generally issued in the second quarter, and the individual share awards vest in equal annual installments over the applicable service vestingperiod, which will be one year.Summary of Market-Measure Based RSUsA summary of our market-measure based RSU activity from January 1, 2014 through December 31, 2014 is presented below: Nonvested RSUs Vested RSUs Total RSUs Amount Weighted-AverageFair ValuePer Share (1) Outstanding at January 1, 2014143,022 $46.47 — 143,022Granted (2)183,365 64.86 — 183,365Vested (3)(16,338) 41.53 16,338 —Settled (4) (16,338) (16,338)Transferred to time-based restricted stock units (5)(31,455) 53.05 — (31,455)Transferred to restricted stock (6)(31,505) 53.05 — (31,505)Outstanding as of December 31, 2014247,089 $58.77 — 247,089_______________(1)Represents the grant-date fair value for all awards excluding the 2014 Performance-Based RSU Grant. As discussed above, the 2014 Performance-Based RSU Grant was re-measured upon stockholder approval of the amended 2006 Plan on May 22, 2014.(2)Includes dividend equivalents issued in accordance with the award agreements.(3)Includes dividend equivalents vested in accordance with the award agreements.(4)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 theterms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs, at the current quoted closing shareprice of the Company’s common stock to satisfy tax obligations.(5)On January 29, 2014, the market-measure requirements related to the RSU awards granted in 2013 were met, and as a result, the shares were transferred to time-based restrictedstock units since at that point the awards became subject to only time-based vesting requirements pursuant to the award agreements.(6)On January 29, 2014, the market-measure requirements related to the RSU award were met and, as a result, the RSUs were transferred to restricted stock based on the employee’sdistribution election and remain subject to time-based vesting requirements pursuant to the award agreement.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, 2014, 2013 and 2012 is presented below: RSUs Granted RSUs VestedYears ended December 31,Non-VestedRSUs Granted Weighted-AverageFair ValuePer Share (1) Vested RSUs Total Vest-Date Fair Value(in thousands)2014183,365 $64.86 (16,338) $1,09220139,542 44.55 (16,338) 8112012103,239 41.20 (14,748) 695_______________(1)Represents the grant-date fair value for all awards excluding the 2014 Performance-Based RSU Grant. As discussed above, the 2014 Performance-Based RSU Grant was re-measured upon stockholder approval of the amended 2006 Plan on May 22, 2014.Summary of Time-Based RSUsA summary of our time-based RSU activity from January 1, 2014 through December 31, 2014 is presented below: Nonvested RSUs Vested RSUs Total RSUs Amount Weighted Average FairValuePer Share (1) Outstanding at January 1, 2014301,660 $44.74 856,747 1,158,407Granted (2)155,016 59.89 — 155,016Vested (3)(4)(116,447) 47.64 116,447 —Settled (61,242) (61,242)Canceled (5) (3,992) (3,992)Transferred from market-measure based (6)31,455 53.05 31,455Transferred to restricted stock (7)(30,687) 48.88 (605) (31,292)Outstanding as of December 31, 2014340,997 $51.04 907,355 1,248,352_______________(1)Represents the grant-date fair value for all awards excluding the 2014 Time-Based RSU Grant. As discussed above, the 2014 Time-Based RSU Grant was re-measured uponstockholder approval of the amended 2006 Plan on May 22, 2014.(2)Includes dividend equivalents issued in accordance with the award agreements.(3)Includes dividend equivalents vested in accordance with the award agreements.(4)Represents vested RSUs that were settled in shares of the Company’s common stock. Total shares settled include 5,694 shares that were tendered in accordance with the terms ofthe 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs at the current quoted closing share price of theCompany’s common stock to satisfy tax obligations.(5)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 the issuance or vesting of RSUs in accordance with the terms of the 2006 Plan.(6)On January 29, 2014, the market-measure requirements related to the RSU awards granted in 2013 were met. As of December 31, 2014 the awards are only subject to time-basedvesting requirements.(7)During January 2014, RSUs were transferred to restricted stock based on the elected distribution date.A summary of our time-based RSU activity for the years ended December 31, 2014, 2013 and 2012 is presented below: RSUs Granted RSUs VestedYear ended December 31,Non-VestedRSUs Issued Weighted-Average GrantDateFair ValuePer Share Vested RSUs Total Vest-Date Fair Value(1)(in thousands)2014155,016 $59.89 (116,447) $6,6752013173,758 49.45 (89,873) 4,4952012204,829 44.34 (73,688) 3,118_______________(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, 2014 through December 31, 2014 is presented below: Non-VestedRestricted Stock Weighted-AverageGrant DateFair ValuePer ShareOutstanding at January 1, 201447,950 $41.71Granted (1)213 51.35Vested (2)(3)(25,899) 45.56Transferred from market-measure and time-based RSUs62,797 50.97Outstanding as of December 31, 201485,061 $47.05_______________(1)Includes dividend equivalents issued in accordance with the award agreements.(2)Includes dividend equivalents vested in accordance with the award agreements.(3)The total shares vested include 11,020 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements relatedto the restricted shares that have vested. We accept 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, 2014, 2013 and 2012 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)2014213 $51.35 (25,899) $1,3232013— — (47,291) 2,290201262,137 41.84 (50,862) 2,110_______________(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 oursenior management team, including our Executive Officers, to purchase an aggregate 1,550,000 shares of the Company’s common stock (the “February 2012”grant) at an exercise price per share equal to $42.61, the closing price of the Company’s common stock on the grant date. The options will vest ratably inannual installments over a five year period, subject to continued employment through the applicable vesting date. The term of each option is ten years fromthe date of the 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 observedF - 48KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 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 ofthe vesting term and the contractual term. During the year ended December 31, 2014, 304,000 stock options vested with a total fair value of $2.8 million.During the year ended December 31, 2013, 308,000 stock options vested with a total fair value of $2.8 million. No stock options related to the February 2012grant vested during the year ended December 31, 2012.A summary of our stock option activity related the February 2012 grant through December 31, 2014 is presented below: Number of Options Exercise Price Intrinsic Value(in millions) (1)Outstanding at December 31, 20131,525,000 $42.61 $11.5Exercised(495,000) 42.61 9.6Forfeited(22,000) 42.61 0.4Outstanding at December 31, 2014 (2)1,008,000 $42.61 $26.7 Options exercisable at December 31, 2014 (3)114,000 $3.0_______________(1)The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of an option.(2)As of December 31, 2014, the average remaining life of stock options outstanding was 7.2 years(3)As of December 31, 2014, the average remaining life of stock options exercisable was approximately 7.2 years.In accordance with the provisions of the 2006 Plan, we allow shares of our common stock to be withheld to satisfy the payment of exercise price and/orminimum statutory tax withholding obligations due upon the exercise of stock options. The value of the shares withheld is calculated based on the closingmarket price of our common stock on the NYSE on the exercise date. During the year ended December 31, 2014, 23,664 shares were withheld on stock optionexercises with an aggregate value of $1.5 million. The number of shares withheld for taxes during the years ended December 31, 2013 and 2012 wereimmaterial to the consolidated financial statements.Share-Based Compensation Cost Recorded During the PeriodThe total compensation cost for all share-based compensation programs was $14.5 million, $9.6 million and $8.5 million for the years endedDecember 31, 2014, 2013 and 2012, respectively. Of the total share-based compensation costs, $2.3 million, $0.9 million and $0.9 million was capitalized aspart of real estate assets for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, there was approximately$30.3 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 2.5 years. The remaining compensation cost related to these nonvested incentive awards hadbeen recognized in periods prior to December 31, 2014. The $30.3 million of unrecognized compensation costs does not reflect the future compensation costrelated to share-based awards that were granted subsequent to December 31, 2014.F - 49KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 inthe 401(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 to60% of their 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, 2014,2013, and 2012, we contributed $1.0 million, $0.9 million and $0.7 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 theircompensation, including up to 70% of their salaries and up to 100% of their director fees and bonuses, as applicable. In addition, employee participants willreceive mandatory Company contributions to their Deferred Compensation Plan accounts equal to 10% of their gross monthly salaries, without regard towhether such employees elect to defer salary or bonus compensation under the Deferred Compensation Plan. Our board of directors may, but has noobligation to, approve additional discretionary contributions by the Company to Participant accounts. We hold the Deferred Compensation Plan assets in alimited rabbi trust, which is 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, 2014 and2013. Our liability of $11.9 million and $9.9 million under the Deferred Compensation Plan was fully funded as of December 31, 2014 and 2013,respectively.14.Future Minimum RentWe have operating leases with tenants that expire at various dates through 2037 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, 2014 for future periods is summarized as follows:Year Ending(in thousands)2015$428,3022016447,1632017414,3972018367,7452019306,878Thereafter1,217,370Total$3,181,85515.Commitments and ContingenciesGeneralAs of December 31, 2014, we had commitments of approximately $552.5 million, excluding our ground lease commitments, for contracts and executedleases directly related to our operating and development properties.F - 50KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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, 2014 for five years and thereafter is as follows:Year Ending(in thousands)2015$3,12020163,12020173,12020183,12020193,120Thereafter154,358Total (1)(2)(3)(4)$169,958________________________(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 rentcredits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million orannual lease rental obligation in effect as of December 31, 2014.(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 subjectto increases every five years based on 50% of the average annual percentage rent for the previous five years. Currently, gross income does not exceed the threshold requiring usto pay percentage rent. The contractual obligations for that ground lease included above assume the annual lease rental obligation in effect as of December 31, 2014.(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 tomaximum increases annually. The contractual obligations included above assume the annual lease rental obligation in effect as of December 31, 2014.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 ourconsolidated statements of operations in 2013.F - 51KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 all of our properties, both acquisition and existing properties, for the presence of hazardous or toxic substances. As ofDecember 31, 2014, we had accrued environmental remediation liabilities of approximately $15.5 million recorded on our consolidated balance sheets inconnection with certain of our recent development acquisitions and related development activities. The accrued environmental remediation liabilitiesrepresent the costs we estimate we will incur when we commence development at various development acquisition sites. These estimates, which wedeveloped with the assistance of a third party expert, consist primarily of the removal of contaminated soil and other related costs since we are required todispose of any existing contaminated soil when we develop new office properties at these sites.We record estimated environmental remediation obligations for acquisitions at the acquisition date when we are aware of such costs and when such costsare probable and reasonably estimable. Costs incurred in connection with development related environmental remediation liabilities are recorded as anincrease to the cost of the development project. These accruals are adjusted as an increase or decrease to the development project costs and as an increase ordecrease to the accrued environmental remediation liability if we obtain further information or circumstances change. The environmental remediationobligations recorded at December 31, 2014 were not discounted to their present value since we expect to complete the remediation activities in the next 1-5years in connection with development activities at the various sites. It is possible that we could incur additional environmental remediation costs inconnection with these recent development acquisitions. However, given we are in the very early stages of development, possible additional environmentalcosts are not reasonably estimable at this time. Other than the accrued environmental liabilities recorded in connection with certain of our recent development acquisitions and related developmentactivities, we are not aware of any unasserted claims and assessments with respect to an environmental liability that we believe would require additionaldisclosure or the recording of an additional 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, 2014 and 2013: Fair Value (Level 1) (1) 2014 2013Description(in thousands)Marketable securities (2)$11,971 $10,008_______________(1)Fair value calculated using Level 1 inputs based on quoted prices in active markets for identical securities.(2)The marketable securities are held in a limited rabbi trust.We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gainsin the consolidated statements of operations. We also adjust the related DeferredF - 52KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Compensation Plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant,which results in a corresponding increase or decrease to compensation cost for the period.The following table sets forth the net gain on marketable securities recorded during the years ended December 31, 2014, 2013 and 2012: December 31, 2014 2013 2012Description(in thousands)Net gain on marketable securities$397 $1,489 $723Financial 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, 2014 and 2013: December 31, 2014 2013 Carrying Value Fair Value Carrying Value Fair Value (in thousands)Liabilities Secured debt (1)$546,292 $559,483 $560,434 $568,760Exchangeable senior notes, net (1)(2)— — 168,372 178,190Unsecured debt, net (3)1,783,121 1,858,492 1,431,132 1,523,052Unsecured line of credit (1)140,000 140,051 45,000 45,012_______________(1)Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.(2)During the year ended December 31, 2014, we repaid the 4.25% Exchangeable Notes. As of December 31, 2014, there were no exchangeable debt instruments (see Note 7“Secured and Unsecured Debt of the Operating Partnership” for additional information).(3)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 Iinstruments was $1,269.4 million and $1,322.2 million, respectively, as of December 31, 2014. The carrying value and fair value of the Level I instruments atDecember 31, 2013, was $873.5 million and $929.3 million, respectively. The carrying value and fair value of the Level II instruments was $513.7 million and $536.3 million,respectively, as of December 31, 2014. The carrying value and fair value of the Level II instruments at December 31, 2013, was $557.7 million and $593.7 million, respectively.F - 53KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)17. Other Significant EventsIn January 2014, a tenant at one of our San Diego, California operating properties exercised an early lease termination clause as permitted under theterms of their lease. As a result, the lease which encompasses approximately 79,000 rentable square feet and was scheduled to expire in February 2020,terminated during the year ended December 31, 2014. The total lease termination fee of $5.7 million was recorded as other property income on a straight linebasis through the early lease termination date. The Company received the cash payment of the lease termination fee of $5.7 million in September 2014.During the year ended December 31, 2014, the Company also recognized approximately $1.3 million as a reduction to rental income due to the acceleratedamortization of the deferred rent receivable and above market lease for this tenant.18.Discontinued Operations and Land Held for SaleOperating Property DispositionsThe following table summarizes the properties sold during the years ended December 31, 2014, 2013 and 2012:Location Property Type Month of Disposition Number ofBuildings RentableSquare Feet (unaudited) Sales Price(in millions) (1)2014 Dispositions San Diego Properties, San Diego, CA (2) Office January 12 1,049,035 $294.79785 & 9791 Towne Centre Drive, San Diego, CA Office June 2 126,000 29.5111 Pacifica, Irvine, CA Office September 1 67,496 15.14040 Civic Center Drive, San Rafael, CA Office October 1 130,237 34.9999 Town & Country Road, Orange, CA Office December 1 98,551 25.3Total 2014 dispositions 17 1,471,319 $399.5 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 (3) 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__________________(1)Represents gross sales price before the impact of broker commissions and closing costs.(2)The San Diego Properties included the following: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive,and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.(3)The industrial portfolio was sold in two tranches in November and December 2012 to two separate third party buyers.F - 54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 year ended December 31, 2014, discontinued operations includes the income and net gain on all the properties sold in 2014, except for theoperations deemed immaterial related to a June 2014 office property disposition. For the years ended December 31, 2013 and 2012, discontinued operationsincluded the results of all properties sold in 2014, 2013 and 2012 and classified as held for sale at December 31, 2013. The following table summarizes therevenue and expense components that comprise income from discontinued operations for the years ended December 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in thousands)Revenues: Rental income$7,206 $31,984 $49,689Tenant reimbursements278 3,546 6,544Other property income13 5,178 1,923Total revenues7,497 40,708 58,156Expenses: Property expenses2,171 7,207 9,945Real estate taxes692 3,523 5,696Provision for bad debts— — (195)Depreciation and amortization2,061 12,600 19,379Total expenses4,924 23,330 34,825Income from discontinued operations before net gain on dispositions of discontinued operations2,573 17,378 23,331Net gain on dispositions of discontinued operations121,922 12,252 259,245Total income from discontinued operations$124,495 $29,630 $282,576Real Estate Held for SaleAs of December 31, 2014, the Company had one land parcel located at 17150 Von Karman in Irvine, California, classified as held for sale. In January2015, the Company completed this sale for a gross sales price of $26.0 million (see Note 24 “Subsequent Events” for additional information). The land parceldid not meet the criteria for classification as discontinued operations as of December 31, 2014 because it did not have any significant operations prior todisposal.F - 55KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Land DispositionDuring the year ended December 31, 2014, the Company sold a land parcel located at 10850 Via Frontera in the Rancho Bernardo submarket of SanDiego, California for a gross sales price of $33.1 million, resulting in a gain on sale of $3.5 million. The gain on sale is included on our consolidatedstatements of operations as gain on sale of land within continuing operations.Restricted Cash Related to DispositionsAs of December 31, 2014 and 2013, approximately $59.2 million and $32.2 million, respectively, of net proceeds related to the land and office propertydispositions during the years ended December 31, 2014 and 2013, were temporarily being held at qualified intermediaries, at our direction, for the purpose offacilitating Section 1031 Exchanges. The cash proceeds are included in restricted cash on the consolidated balance sheets at December 31, 2014 and 2013. InJanuary 2015 and February 2014, we successfully completed Section 1031 Exchanges and the $59.2 million and $32.2 million of cash proceeds comprisingthe balances as of December 31, 2014 and 2013, respectively, were released from the qualified intermediary.F - 56KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)19.Net Income Available to Common Stockholders Per Share of the CompanyThe following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net incomeavailable to common stockholders for the years ended December 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in thousands, except unit and per unit amounts)Numerator: Income (loss) from continuing operations$59,313 $14,935 $(5,475)(Income) loss from continuing operations attributable to noncontrolling common units of the OperatingPartnership(966) (36) 656Preferred distributions and dividends(13,250) (13,250) (21,088)Allocation to participating securities (1)(1,699) (1,689) (1,602)Numerator for basic and diluted income (loss) from continuing operations available to common stockholders43,398 (40) (27,509)Income from discontinued operations124,495 29,630 282,576Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership(2,623) (649) (6,843)Numerator for basic and diluted net income available to common stockholders$165,270 $28,941 $248,224Denominator: Basic weighted average vested shares outstanding83,090,235 77,343,853 69,639,623Effect of dilutive securities – contingently issuable shares and stock options1,877,485 — —Diluted weighted average vested shares and common stock equivalents outstanding84,967,720 77,343,853 69,639,623Basic earnings per share: Income (loss) from continuing operations available to common stockholders per share$0.52 $0.00 $(0.40)Income from discontinued operations per share of common stock1.47 0.37 3.96Net income available to common stockholders per share$1.99 $0.37 $3.56Diluted earnings per share: Income (loss) from continuing operations available to common stockholders per share$0.51 $0.00 $(0.40)Income from discontinued operations per share of common stock1.44 0.37 3.96Net income available to common stockholders per share$1.95 $0.37 $3.56________________________ (1)Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.For the year ended December 31, 2014, contingently issuable shares were considered in our diluted earnings per share calculation because we reportedincome from continuing operations attributable to common stockholders in the respective periods and the effect was dilutive. For the years endedDecember 31, 2013 and 2012, contingently issuable shares were not considered in our diluted earnings per share calculation because we reported losses fromcontinuing operations attributable to common stockholders in the respective periods and the effect was anti dilutive. Contingently issuable shares consist ofstock options and the impact of the 4.25% Exchangeable Notes prior to their maturity and settlement in November 2014.The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of December 31, 2014because they are not considered contingently issuable until all the necessary performance conditions have been met. The impact of our nonvested marketmeasure-based RSUs were not included in dilutive securities as of December 31, 2013 because they were not considered contingently issuable shares as notall the necessary performance conditions were met.See Note 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information regarding the 4.25% Exchangeable Notes and Note 12“Share-Based Compensation” for additional information regarding the stock options and other share-based compensation.F - 57KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)20.Net Income Available to Common Unitholders Per Unit of the Operating PartnershipThe following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for netincome available to common unitholders for the years ended December 31, 2014, 2013 and 2012: Year Ended December 31, 2014 2013 2012 (in thousands, except unit and per unit amounts)Numerator: Income (loss) from continuing operations$59,313 $14,935 $(5,475)Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries(247) (225) (176)Preferred distributions(13,250) (13,250) (21,088)Allocation to participating securities (1)(1,699) (1,689) (1,602)Numerator for basic and diluted income (loss) from continuing operations available to common unitholders44,117 (229) (28,341)Income from discontinued operations124,495 29,630 282,576(Income) loss from discontinued operations attributable to noncontrolling interests in consolidated subsidiaries(13) 1 (462)Numerator for basic and diluted net income available to common unitholders$168,599 $29,402 $253,773Denominator: Basic weighted average vested units outstanding84,894,498 79,166,260 71,403,258Effect of dilutive securities - contingently issuable shares and stock options1,877,485 — —Diluted weighted average vested units and common unit equivalents outstanding86,771,983 79,166,260 71,403,258Basic earnings per unit: Income (loss) from continuing operations available to common unitholders per unit$0.52 $0.00 $(0.40)Income from discontinued operations per common unit1.47 0.37 3.96Net income available to common unitholders per unit$1.99 $0.37 $3.56Diluted earnings per unit: Income (loss) from continuing operations available to common unitholders per unit$0.51 $0.00 $(0.40)Income from discontinued operations per common unit1.43 0.37 3.96Net income available to common unitholders per unit$1.94 $0.37 $3.56________________________ (1)Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.For the year ended December 31, 2014, contingently issuable shares were considered in our diluted earnings per share calculation because we reportedincome from continuing operations attributable to common unitholders in the respective periods and the effect was dilutive. For the years endedDecember 31, 2013 and 2012, contingently issuable shares were not considered in our diluted earnings per share calculation because we reported losses fromcontinuing operations attributable to common unitholders in the respective periods and the effect was anti dilutive. Contingently issuable shares consist ofstock options and the impact of the 4.25% Exchangeable Notes prior to their maturity and settlement in November 2014.The 2014 Performance-Based RSUs and our other nonvested market measure-based RSUs are not included in dilutive securities as of December 31, 2014because they are not considered contingently issuable until all the necessary performance conditions have been met. The impact of our nonvested marketmeasure-based RSUs were not included in dilutive securities as of December 31, 2013 because they were not considered contingently issuable shares as notall the necessary performance conditions were met.See Note 7 “Secured and Unsecured Debt of the Operating Partnership” for additional information regarding the 4.25% Exchangeable Notes and Note 12“Share-Based Compensation” for additional information regarding the stock options and other share-based compensation.F - 58KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)21.Tax Treatment of DistributionsThe following table reconciles the dividends declared per share of common stock to the dividends paid per share of common stock during the yearsended December 31, 2014, 2013 and 2012 as follows: Year Ended December 31,Dividends2014 2013 2012Dividends 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, 2014, 2013 and 2012 asidentified in the table above was as follows: Year Ended December 31,Shares of Common Stock2014 2013 2012Ordinary income$0.998 71.29% $0.756 54.00% $0.577 41.21%Qualified dividend0.002 0.14 0.003 0.21 — —Return of capital0.398 28.43 0.620 44.29 0.823 58.79Capital gains (1)0.002 0.14 — — — —Unrecaptured section 1250 gains— — 0.021 1.5 — — $1.400 100.00% $1.400 100.00% $1.400 100.00%_________________(1)Capital gains are comprised entirely of 20% rate gains for 2014 and 2013 and 15% rate gains for 2012.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, 2014, 2013, and 2012 was as follows: Year Ended December 31, Preferred Shares2014 2013 2012Ordinary income$1.711 99.54% $1.668 97.03% $1.089 100.00%Qualified dividend0.003 0.17 0.006 0.35 — —Capital gains (1)0.005 0.29 — — — —Unrecaptured section 1250 gains— — 0.045 2.62 — — $1.719 100.00% $1.719 100.00% $1.089 100.00%__________________(1)Capital gains are comprised entirely of 20% rate gains for 2014 and 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, 2014, 2013, and 2012 was as follows: Year Ended December 31,Preferred Shares2014 2013 2012Ordinary income$1.587 99.56% $1.546 96.99% $0.398 100.00%Qualified dividend0.003 0.19 0.006 0.38 — —Capital gains (1)0.004 0.25 — — — —Unrecaptured section 1250 gains— — 0.042 2.63 — — $1.594 100.00% $1.594 100.00% $0.398 100.00%__________________(1)Capital gains are comprised entirely of 20% rate gains for 2014 and 2013 and 15% rate gains for 2012.F - 59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 year ended December 31, 2012 is seen in the table below.Preferred SharesYear Ended December 31, 2012Ordinary income$0.818 100.00%Capital gains (1)— —Unrecaptured section 1250 gains— — $0.818 100.00%__________________(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 year ended December 31, 2012 is seen in the table below.Preferred SharesYear Ended December 31, 2012Ordinary income$0.786 100.00%Capital gains (1)— —Unrecaptured section 1250 gains— — $0.786 100.00%_________________(1)Capital gains are comprised entirely of 15% rate gains.22.Quarterly Financial Information of the Company (Unaudited)Summarized quarterly financial data for the years ended December 31, 2014 and 2013 was as follows: 2014 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$123,758 $127,178 $129,024 $141,765Income from continuing operations (2)10,874 15,854 13,168 19,417Income from discontinued operations (2)91,058 15,289 6,135 12,013Net income101,932 31,143 19,303 31,430Net income attributable to Kilroy Realty Corporation99,845 30,540 18,982 30,852Preferred dividends and distributions(3,313) (3,312) (3,313) (3,312)Net income available to common stockholders96,532 27,228 15,669 27,540Net income available to common stockholders per share – basic1.17 0.33 0.18 0.32Net income available to common stockholders per share – diluted1.14 0.32 0.18 0.32 2013 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per share amounts)Revenues from continuing operations (2)$109,107 $115,855 $113,545 $118,604(Loss) income from continuing operations (2)(225) 6,942 3,180 5,038Income from discontinued operations (2)2,613 3,161 5,847 18,009Net income2,388 10,103 9,027 23,047Net income attributable to Kilroy Realty Corporation2,410 9,946 8,896 22,628Preferred dividends and distributions(3,313) (3,313) (3,312) (3,312)Net (loss) income available to common stockholders(903) 6,633 5,584 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____________________(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 thequarterly net income (loss) available to common stockholders per share does not equal the annual number reported on the consolidated statements of operations due to theCompany's public offerings of common stock and its at-the-market stock offering programs that occurred during the years ended December 31, 2014 and 2013.(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 18“Discontinued Operations” for additional information).F - 60KILROY REALTY CORPORATION AND KILROY REALTY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)23.Quarterly Financial Information of the Operating Partnership (Unaudited)Summarized quarterly financial data for the years ended December 31, 2014 and 2013 was as follows: 2014 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$123,758 $127,178 $129,024 $141,765Income from continuing operations (2)10,874 15,854 13,168 19,417Income from discontinued operations (2)91,058 15,289 6,135 12,013Net income101,932 31,143 19,303 31,430Net income attributable to the Operating Partnership101,867 31,066 19,244 31,371Preferred distributions(3,313) (3,312) (3,313) (3,312)Net income available to common unitholders98,554 27,754 15,931 28,059Net income available to common unitholders per unit – basic1.17 0.33 0.18 0.32Net income available to common unitholders per unit – diluted1.14 0.32 0.18 0.31 2013 Quarter Ended (1) March 31, June 30, September 30, December 31, (in thousands, except per unit amounts)Revenues from continuing operations (2)$109,107 $115,855 $113,545 $118,604(Loss) income from continuing operations (2)(225) 6,942 3,180 5,038Income from discontinued operations (2)2,613 3,161 5,847 18,009Net 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 (loss) income available to common unitholders(994) 6,728 5,668 19,689Net (loss) income available to common unitholders per unit – basic(0.02) 0.08 0.07 0.23Net (loss) income available to common unitholders per unit – diluted(0.02) 0.08 0.07 0.23___________________(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 thequarterly net income (loss) available to common unitholders per unit does not equal the annual number reported on the consolidated statements of operations due to the impact ofthe Company's public offerings of common stock and its at-the-market stock offering programs that occurred during the years ended December 31, 2014 and 2013.(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 18“Discontinued Operations”).24.Subsequent EventsOn January 14, 2015, aggregate dividends, distributions and dividend equivalents of $31.3 million were paid to common stockholders, commonunitholders and RSU holders of record on December 31, 2014.At December 31, 2014, the Company had one land parcel located at 17150 Von Karman in Irvine, California that was classified as held for sale. OnJanuary 15, 2015, the Company completed this transaction for a gross sales price of $26.0 million.On January 27, 2015, the Executive Compensation Committee granted 212,468 RSUs to Executive Officers and other key employees under the 2006Plan. 127,657 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 both time-based and performance-based RSUs is expected to be recognized over a period of threeyears.F - 61KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2014, 2013 and 2012(in thousands) Balance atBeginningof Period Charged toCosts andExpenses (1) Recoveries(Deductions) Balanceat Endof Period (2)Allowance for Uncollectible Tenant Receivables for the year endedDecember 31, 2014 – Allowance for uncollectible tenant receivables$2,134 $58 $(193) $1,9992013 – Allowance for uncollectible tenant receivables2,581 396 (843) 2,1342012 – Allowance for uncollectible tenant receivables2,590 (42) 33 2,581Allowance for Unbilled Deferred Rent for the year endedDecember 31, 2014 – Allowance for deferred rent$2,075 $— $(86) $1,9892013 – Allowance for deferred rent2,607 — (532) 2,0752012 – Allowance for deferred rent3,406 — (799) 2,607_______________(1)Includes amounts reported in Discontinued Operations (see Note 18 “Discontinued Operations”).(2) For the year ended December 31, 2013, includes amounts reported for properties classified as held for sale (see Note 18 "Discontinued Operations").F - 62KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2014 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 $6,568(5)$50 $2,346 $495 $50 $2,841 $2,891 $1,471 35 2001(C)11,78923975 Park Sorrento, Calabasas,CA (5)765 17,720 6,348 765 24,068 24,833 12,794 35 2002(C)104,79724025 Park Sorrento, Calabasas,CA (5)845 15,896 4,755 845 20,651 21,496 11,620 35 2000(C)108,6712829 Townsgate Rd., ThousandOaks, CA 5,248 8,001 7,025 5,248 15,026 20,274 8,938 35 1997(A)81,0672240 E. Imperial Highway, ElSegundo, CA 1,044 11,763 29,362 1,047 41,122 42,169 20,421 35 1983(C)122,8702250 E. Imperial Highway, ElSegundo, CA 2,579 29,062 34,713 2,547 63,807 66,354 44,738 35 1983(C)298,7282260 E. Imperial Highway, ElSegundo, CA 2,51828,37036,381 2,547 64,722 67,269 5,081 35 1983(C)298,728909 N. Sepulveda Blvd., ElSegundo, CA 66,647(6)3,577 34,042 42,397 3,577 76,439 80,016 26,481 35 2005(C)241,607999 N. Sepulveda Blvd., ElSegundo, CA (6)1,407 34,326 11,857 1,407 46,183 47,590 16,648 35 2003(C)128,5926255 W. Sunset Blvd., LosAngeles, CA 51,877(8)18,111 60,320 27,831 18,111 88,151 106,262 8,173 35 2012(A)324,6173750 Kilroy Airport Way, LongBeach, CA — 1,941 10,455 — 12,396 12,396 8,938 35 1989(C)10,4573760 Kilroy Airport Way, LongBeach, CA — 17,467 9,396 — 26,863 26,863 20,924 35 1989(C)165,2783780 Kilroy Airport Way, LongBeach, CA — 22,319 15,763 — 38,082 38,082 31,437 35 1989(C)219,8223800 Kilroy Airport Way, LongBeach, CA — 19,408 16,899 — 36,307 36,307 19,320 35 2000(C)192,4763840 Kilroy Airport Way, LongBeach, CA — 13,586 9,236 — 22,822 22,822 12,535 35 1999(C)136,0263880 Kilroy Airport Way, LongBeach, CA — 9,704 7,310 — 17,014 17,014 1,114 35 1997(A)96,0353900 Kilroy Airport Way, LongBeach, CA — 12,615 9,055 — 21,670 21,670 12,880 35 1997(A)126,840Kilroy Airport Center, Phase IV,Long Beach, CA(4) — — 4,997 — 4,997 4,997 4,980 35 —12100 W. Olympic Blvd.,Los Angeles, CA 352 45,611 15,867 9,633 52,197 61,830 19,393 35 2003(C)150,16712200 W. Olympic Blvd.,Los Angeles, CA 4,329 35,488 16,135 3,977 51,975 55,952 29,665 35 2000(C)150,11712233 W. Olympic Blvd.,Los Angeles, CA 39,339(7)22,100 53,170 1,243 22,100 54,413 76,513 3,894 35 2012(A)151,02912312 W. Olympic Blvd.,Los Angeles, CA 3,325 12,202 9,008 3,399 21,136 24,535 6,398 35 1997(A)76,6441633 26th St., Santa Monica, CA 2,080 6,672 2,955 2,040 9,667 11,707 5,629 35 1997(A)44,9152100/2110 Colorado Ave., SantaMonica, CA 97,000(9)5,474 26,087 13,187 5,476 39,272 44,748 17,314 35 1997(A)102,8643130 Wilshire Blvd., SantaMonica, CA 8,921 6,579 11,440 9,188 17,752 26,940 11,313 35 1997(A)88,339501 Santa Monica Blvd., SantaMonica, CA 4,547 12,044 7,194 4,552 19,233 23,785 11,011 35 1998(A)73,1152211 Michelson, Irvine, CA (9)9,319 82,836 2,682 9,319 85,518 94,837 14,316 35 2010(A)271,55612225 El Camino Real, Del Mar,CA 1,700 9,633 2,969 1,660 12,642 14,302 6,382 35 1998(A)58,40112235 El Camino Real, Del Mar,CA 1,507 8,543 4,659 1,554 13,155 14,709 7,645 35 1998(A)54,67312340 El Camino Real, Del Mar,CA (6)4,201 13,896 7,587 4,201 21,483 25,684 8,170 35 2002(C)87,37412390 El Camino Real, Del Mar,CA (6)3,453 11,981 1,344 3,453 13,325 16,778 7,558 35 2000(C)72,33212348 High Bluff Dr., Del Mar,CA 1,629 3,096 4,395 1,629 7,491 9,120 4,882 35 1999(C)38,80612400 High Bluff Dr., Del Mar,CA 15,167 40,497 12,107 15,167 52,604 67,771 19,934 35 2004(C)209,2203579 Valley Centre Dr., Del Mar,CA 2,167 6,897 7,257 2,858 13,463 16,321 7,063 35 1999(C)50,677F - 63KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2014 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)3611 Valley Centre Dr., Del Mar,CA $4,184 $19,352 $18,063 $5,259 $36,340 $41,599 $17,821 35 2000(C)130,3493661 Valley Centre Dr., Del Mar,CA 4,038 21,144 12,408 4,725 32,865 37,590 15,318 35 2001(C)129,7823721 Valley Centre Dr., Del Mar,CA 4,297 18,967 12,783 4,253 31,794 36,047 9,901 35 2003(C)114,7803811 Valley Centre Dr., Del Mar,CA 3,452 16,152 20,077 4,457 35,224 39,681 16,343 35 2000(C)112,0677525 Torrey Santa Fe, 56 Corridor,CA 2,348 28,035 4,061 2,348 32,096 34,444 8,882 35 2007(C)103,9797535 Torrey Santa Fe, 56 Corridor,CA 2,950 33,808 5,991 2,949 39,800 42,749 11,407 35 2007(C)130,2437545 Torrey Santa Fe, 56 Corridor,CA 2,950 33,708 8,118 2,950 41,826 44,776 12,868 35 2007(C)130,3547555 Torrey Santa Fe, 56 Corridor,CA 2,287 24,916 3,714 2,287 28,630 30,917 7,909 35 2007(C)101,23612780 El Camino Real, Del Mar, CA 18,398 54,954 1,096 18,398 56,050 74,448 2,738 35 2013(A)140,59112790 El Camino Real, Del Mar, CA 10,252 21,236 611 10,252 21,847 32,099 1,080 35 2013(A)78,34913280 Evening Creek Dr. South, I-15 Corridor, CA 3,701 8,398 3,970 3,701 12,368 16,069 2,712 35 2008(C)41,19613290 Evening Creek Dr. South, I-15 Corridor, CA 5,229 11,871 5,919 5,229 17,790 23,019 2,583 35 2008(C)61,18013480 Evening Creek Dr. North, I-15 Corridor, CA 7,997 — 48,020 7,997 48,020 56,017 11,409 35 2008(C)149,81713500 Evening Creek Dr. North, I-15 Corridor, CA 7,581 35,903 8,201 7,580 44,105 51,685 14,251 35 2004(A)147,53313520 Evening Creek Dr. North, I-15 Corridor, CA 7,581 35,903 9,541 7,580 45,445 53,025 15,711 35 2004(A)141,1282355 Northside Dr., Mission Valley,CA 4,066 8,332 1,194 3,344 10,248 13,592 2,276 35 2010(A)53,6102365 Northside Dr., Mission Valley,CA 7,359 15,257 1,711 6,015 18,312 24,327 3,662 35 2010(A)96,4362375 Northside Dr., Mission Valley,CA 3,947 8,146 2,083 3,213 10,963 14,176 2,119 35 2010(A)51,5162385 Northside Dr., Mission Valley,CA 2,752 14,513 5,081 5,552 16,794 22,346 3,522 35 2010(A)89,0232305 Historic Decatur Rd., PointLoma, CA 5,240 22,220 1,035 5,240 23,255 28,495 4,086 35 2010(A)103,9004921 Directors Place, Sorrento Mesa,CA 3,792 11,091 4,845 3,792 15,936 19,728 3,353 35 2008(C)56,1364939 Directors Place, Sorrento Mesa,CA 2,225 12,698 4,359 2,198 17,084 19,282 8,324 35 2002(C)60,6624955 Directors Place, Sorrento Mesa,CA 2,521 14,122 3,697 3,179 17,161 20,340 12,205 35 2000(C)76,24610770 Wateridge Circle, SorrentoMesa, CA 4,560 26,671 236 4,560 26,907 31,467 7,055 35 2011(A)174,3106260 Sequence Dr., Sorrento Mesa,CA 3,206 9,803 11,377 3,212 21,174 24,386 6,794 35 1997(A)130,5366290 Sequence Dr., Sorrento Mesa,CA 2,403 7,349 6,944 2,407 14,289 16,696 7,935 35 1997(A)90,0006310 Sequence Dr., Sorrento Mesa,CA 2,940 4,946 329 2,941 5,274 8,215 3,060 35 2000(C)62,4156340 Sequence Dr., Sorrento Mesa,CA 2,434 7,302 9,965 2,465 17,236 19,701 9,571 35 1998(A)66,4006350 Sequence Dr., Sorrento Mesa,CA 4,941 14,824 2,629 4,922 17,472 22,394 6,940 35 1998(A)132,60010390 Pacific Center Ct., SorrentoMesa, CA 3,267 5,779 7,501 3,267 13,280 16,547 5,352 35 2002(C)68,40010394 Pacific Center Ct., SorrentoMesa, CA 2,696 7,134 (780) 1,672 7,378 9,050 3,788 35 1998(A)59,63010398 Pacific Center Ct., SorrentoMesa, CA 1,947 5,152 1,316 1,222 7,193 8,415 3,524 35 1998(A)43,64510421 Pacific Center Ct., SorrentoMesa, CA 2,926 7,979 21,865 2,926 29,844 32,770 14,998 35 1998(A)75,89910445 Pacific Center Ct., SorrentoMesa, CA 2,247 5,945 1,832 1,809 8,215 10,024 3,750 35 1998(A)48,70910455 Pacific Center Ct., SorrentoMesa, CA 4,044 10,701 (2,250) 3,780 8,715 12,495 4,250 35 1998(A)90,000F - 64KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2014 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)5717 Pacific Center Blvd.,Sorrento Mesa, CA $2,693 $6,280 $4,220 $2,693 $10,500 $13,193 $3,325 35 2001(C)67,9954690 Executive Dr., UniversityTowne Centre, CA (6)1,623 7,926 2,604 1,623 10,530 12,153 5,688 35 1999(A)47,2126200 Greenwich Dr., GovernorPark, CA 1,583 5,235 7,458 1,762 12,514 14,276 5,115 35 1999(C)73,5076220 Greenwich Dr., GovernorPark, CA 3,213 10,628 18,927 3,386 29,382 32,768 9,991 35 1997(A)141,2144100 Bohannon Dr., Menlo Park,CA 4,835 15,526 381 4,835 15,907 20,742 1,572 35 2012(A)47,3794200 Bohannon Dr., Menlo Park,CA 4,798 15,406 1,856 4,798 17,262 22,060 1,572 35 2012(A)45,4514300 Bohannon Dr., Menlo Park,CA 6,527 20,958 2,760 6,527 23,718 30,245 2,601 35 2012(A)63,0794400 Bohannon Dr., Menlo Park,CA 4,798 15,406 1,818 4,798 17,224 22,022 1,823 35 2012(A)48,1464500 Bohannon Dr., Menlo Park,CA 6,527 20,957 1,568 6,527 22,525 29,052 2,256 35 2012(A)63,0784600 Bohannon Dr., Menlo Park,CA 4,798 15,406 1,922 4,798 17,328 22,126 1,459 35 2012(A)48,1474700 Bohannon Dr., Menlo Park,CA 6,527 20,958 1,344 6,527 22,302 28,829 2,190 35 2012(A)63,078331 Fairchild Drive, CA 18,396 17,712 7,883 18,396 25,595 43,991 1,075 35 2013(C)87,147680 E. Middlefield Road,Mountain View, CA 34,605 — 54,311 34,605 54,311 88,916 291 35 2014(C)170,090690 E. Middlefield Road,Mountain View, CA 34,755 — 58,036 34,755 58,036 92,791 292 35 2014(C)170,823303 Second St., San Francisco,CA 130,767(10)63,550 154,153 29,808 63,550 183,961 247,511 33,520 35 2010(A)740,047100 First St., San Francisco, CA 49,150 131,238 21,180 49,150 152,418 201,568 25,401 35 2010(A)466,490250 Brannan St., San Francisco,CA 7,630 22,770 4,322 7,630 27,092 34,722 4,747 35 2011(A)95,008201 Third St., San Francisco, CA 19,260 84,018 21,473 19,260 105,491 124,751 18,065 35 2011(A)344,551301 Brannan St., San Francisco,CA 5,910 22,450 1,785 5,910 24,235 30,145 3,135 35 2011(A)74,430360 Third St., San Francisco, CA — 88,235 108,122 28,504 167,853 196,357 10,834 35 2011(A)429,9961310 Chesapeake Terrace,Sunnyvale, CA 16,700 11,020 — 16,700 11,020 27,720 82 35 2014(A)76,2441315 Chesapeake Terrace,Sunnyvale, CA 12,260 7,930 — 12,260 7,930 20,190 76 35 2014(A)55,6351320-1324 Chesapeake Terrace,Sunnyvale, CA 17,360 10,720 — 17,360 10,720 28,080 62 35 2014(A)79,7201325-1327 Chesapeake Terrace,Sunnyvale, CA 12,610 8,160 — 12,610 8,160 20,770 79 35 2014(A)55,383505 Mathilda Ave., Sunnyvale,CA 37,843 1,163 53,030 37,872 54,164 92,036 492 35 2014(C)212,322555 Mathilda Ave., Sunnyvale,CA 37,843 1,163 53,026 37,872 54,160 92,032 492 35 2014(C)212,322605 Mathilda Ave., Sunnyvale,CA 29,014 891 69,887 29,036 70,756 99,792 1,068 35 2014(C)162,785599 N. Mathilda Ave.,Sunnyvale, CA 13,538 12,559 59 13,538 12,618 26,156 1,181 35 2012(A)75,810601 108th Ave., Bellevue, WA — 214,095 21,988 — 236,083 236,083 32,892 35 2011(A)488,47010900 NE 4th St., Bellevue, WA 25,080 150,877 19,537 25,080 170,414 195,494 16,265 35 2012(A)416,75510220 NE Points Dr., Kirkland,WA 26,205(11)2,554 12,080 634 2,554 12,714 15,268 1,825 35 2011(A)49,85110230 NE Points Dr., Kirkland,WA (11)5,071 24,694 2,497 5,070 27,192 32,262 3,948 35 2011(A)98,98210210 NE Points Dr., Kirkland,WA (11)4,336 24,187 1,552 4,336 25,739 30,075 3,769 35 2011(A)84,6413933 Lake WA Blvd. NE,Kirkland, WA (11)2,380 15,114 2,705 2,380 17,819 20,199 2,517 35 2011(A)46,450837 N. 34th St., Lake Union, WA — 37,404 604 — 38,008 38,008 3,965 35 2012(A)111,580701 N. 34th St., Lake Union, WA 34,000(13)— 48,027 1,601 — 49,628 49,628 5,370 35 2012(A)138,995F - 65KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2014 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)801 N. 34th St., LakeUnion, WA (13)— 58,537 1,166 — 59,703 59,703 5,690 35 2012(A)169,412320 Westlake AvenueNorth, WA 81,198(12)14,710 82,018 1,114 14,710 83,132 97,842 5,392 35 2013(A)184,643321 Terry AvenueNorth, Lake Union,WA (12)10,430 60,003 182 10,430 60,185 70,615 4,124 35 2013(A)135,75515050 N.E. 36th St.,Redmond, WA 9,260 34,650 197 9,260 34,847 44,107 4,644 35 2010(A)122,103401 Terry AvenueNorth, Lake Union,WA 22,500 77,046 — 22,500 77,046 99,546 2,222 35 2014(A)140,605TOTAL OPERATINGPROPERTIES $533,601 $837,840 $2,866,029 $1,233,403 $877,633 $4,059,639 $4,937,272 $947,664 14,096,617Undeveloped landand construction inprogress $2,421(14)$560,146 $4,370 $556,144 $560,146 $560,514 $1,120,660 — —TOTAL ALLPROPERTIES $536,022(15)$1,397,986 $2,870,399 $1,789,547 $1,437,779 $4,620,153 $6,057,932 $947,664 14,096,617 __________________________(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 aredepreciated over the shorter of the lease term or useful life, generally ranging from one to 20 years.(2)Represents our date of construction or acquisition, or our predecessor, the Kilroy Group.(3)Includes square footage from our stabilized portfolio.(4)These costs represent infrastructure costs incurred in 1989. During the third quarter of 2009, we exercised our option to terminate the ground lease at Kilroy Airport Center, PhaseIV in Long Beach, California. We had previously leased this land, which is adjacent to our Office Properties at Kilroy Airport Center, Long Beach, for potential futuredevelopment opportunities.(5)These properties secure a $6.6 million mortgage note.(6)These properties secure a $66.6 million mortgage note.(7)This property secures a $39.3 million mortgage note.(8)This property secures a $51.9 million mortgage note.(9)These properties secure a $97.0 million mortgage note.(10)This property secures a $130.8 million mortgage note.(11)These properties secure a $26.2 million mortgage note.(12)These properties secure a $81.2 million mortgage note.(13)These properties secure a $34.0 million mortgage note.(14)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 undevelopedland parcels. The Bonds are secured by property tax payments.(15)Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $10.3 million as of December 31, 2014.F - 66KILROY REALTY CORPORATION AND KILROY REALTY, L.P.SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – (Continued)December 31, 2014The aggregate gross cost of property included above for federal income tax purposes approximated $5.2 billion as of December 31, 2014.The following table reconciles the historical cost of total real estate held for investment from January 1, 2012 to December 31, 2014: Year Ended December 31, 2014 2013 2012 (in thousands)Total real estate held for investment, beginning of year$5,264,947 $4,757,394 $3,798,690Additions during period: Acquisitions340,296 384,650 1,023,384Improvements, etc. 588,166 452,331 207,345Total additions during period928,462 836,981 1,230,729Deductions during period: Cost of real estate sold(113,416) (56,993) (264,533)Properties held for sale(14,700) (259,251) —Other(7,361) (13,184) (7,492)Total deductions during period(135,477) (329,428) (272,025)Total real estate held for investment, end of year$6,057,932 $5,264,947 $4,757,394The following table reconciles the accumulated depreciation from January 1, 2012 to December 31, 2014: Year Ended December 31, 2014 2013 2012 (in thousands)Accumulated depreciation, beginning of year$818,957 $756,515 $742,503Additions during period: Depreciation of real estate153,841 145,325 125,906Total additions during period153,841 145,325 125,906Deductions during period: Write-offs due to sale(18,111) (17,144) (109,797)Properties held for sale(7,007) (63,110) —Other(16) (2,629) (2,097)Total deductions during period(25,134) (82,883) (111,894)Accumulated depreciation, end of year$947,664 $818,957 $756,515F - 67EXHIBIT INDEX ExhibitNumber Description3.(i)1 Kilroy Realty Corporation Articles of Restatement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for thequarter ended June 30, 2012)3.(i)2 Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form forRegistration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)3.(i)3 Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit tothe General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18,2010)3.(i)4 Articles Supplementary designating Kilroy Realty Corporation’s 6.375% Series H Cumulative Redeemable Preferred Stock(previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10,2012)3.(ii).1 Third 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 11, 2014)3.(ii).2 Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated August 15, 2012, as amended(previously filed by Kilroy Realty Corporation on Form 10-Q for the quarter ended June 30, 2014)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 theRegistration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))4.5 Registration Rights Agreement, dated 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 October 6, 2000 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K forthe year ended December 31, 2000)4.7 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)4.8 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)4.9 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)4.10 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)4.11 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)4.12 Indenture, dated November 3, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. BankNational Association, as trustee, including the form of 5.000% Senior Notes due 2015 and the form of related guarantee (previouslyfiled by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8−K as filed with the Securities and ExchangeCommission on November 4, 2010)4.13 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 filedby Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on July 6, 2011)4.14 Registration Rights Agreement, dated July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2012)4.15 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 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 14, 2013)4.16 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 theRegistration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)4.17 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)4.18 Officers’ Certificate pursuant to Sections 102, 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 “4.25% Senior Notes due 2029,” including the form of 4.25% Senior Notes due 2029 and the form of related guarantee(previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities andExchange Commission on August 6, 2014)4.19 The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percentof the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agreesto furnish copies of these agreements to the Commission upon request10.1 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 KilroyLong Beach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 2to 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 ofLong Beach for Kilroy Long Beach Phase I (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Amendment No. 2 to Form S-11 (No. 333-15553))10.5* Second Amendment to Lease Agreement, dated April 28, 1997, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase I10.6* Third Amendment to Lease Agreement, dated June 20, 2002, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase I10.7 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))10.8 First 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 II (previously filed by Kilroy Realty Corporation as an exhibit to the RegistrationStatement on Form S-11 (No. 333-15553))10.9* Second Amendment to Lease Agreement, dated April 28, 1997, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase II10.10 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))10.11 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))10.12 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 RegistrationStatement on Form S-11 (No. 333-15553))10.13 Third Amendment to Lease Agreement, dated October 10, 1994, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement onForm S-11 (No. 333-15553))10.14* Fourth Amendment to Lease Agreement, dated June 20, 2002, by and between Kilroy Long Beach Associates and the City of LongBeach for Kilroy Long Beach Phase III10.15 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach (previously filed by KilroyRealty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553))10.16 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach(previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Form S-11 (No. 333-15553)) 10.17† 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))10.18 License Agreement by and among the Registrant and the other persons named therein (previously filed by Kilroy Realty Corporationas an exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553))10.19 Contribution Agreement, dated October 21, 1997, by and between Kilroy Realty, L.P., Kilroy Realty Corporation, The Allen Groupand the Allens (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on November 21, 1997)10.20 Amendment to the Contribution Agreement, dated October 14, 1998, by and between Kilroy Realty, L.P., Kilroy Realty Corporation,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)10.21† Form of Restricted Stock Award Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed withthe Securities and Exchange Commission on February 8, 2007)10.22† Kilroy Realty Corporation 2007 Deferred Compensation Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form10-Q for the quarter ended June 30, 2007)10.23† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1,2007 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.24† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. 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) 10.25† Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2007) 10.26† Amendment No. 1 to Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth 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) 10.27† Kilroy Realty Corporation Stock Award Deferral Program (previously filed by Kilroy Realty Corporation as an exhibit to Form 8-Kas filed with the Securities and Exchange Commission on January 2, 2008)10.28† Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (previously filed by KilroyRealty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.29† 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)10.30 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(previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)10.31 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)10.32 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)10.33 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)10.34 Unsecured Indemnity Agreement, dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy RealtyCorporation and Kilroy Realty, L.P. as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on January 13,2011)10.35† 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)10.36† 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)10.37† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filedby Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)10.38 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)10.39 First Amendment to Term Loan Agreement, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibiton Form 10-K for the year ended December 31, 2012)10.40 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)10.41 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)10.42 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)10.43 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)10.44 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)10.45 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)10.46 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)10.47† Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken (previously filedby Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 10-Q for the quarter ended March 31, 2013)10.48† Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C.Hawken effective as of January 1, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with theSecurities and Exchange Commission on April 5, 2013)10.49† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporationand Jeffrey 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)10.50† Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporationand John 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)10.51† 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)10.52† 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)10.53† Form of Performance-Vest Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)10.54† Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarterended March 31, 2014)10.55† Form of Restricted Stock Unit Agreement for Non-Employee Members of the Board of Directors (previously filed by Kilroy RealtyCorporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)10.56† Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securitiesand Exchange Commission on May 23, 2014)10.57 Amended and Restated Revolving Credit Agreement, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as anexhibit on Form 10-Q for the quarter ended June 30, 2014)10.58 Amended and Restated Guaranty, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q forthe quarter ended June 30, 2014)10.59 Term Loan Agreement, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for thequarter ended September 30, 2014)10.60 Guaranty, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter endedSeptember 30, 2014)10.61 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and RBC Capital Markets, LLC(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onDecember 12, 2014)10.62 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jefferies LLC (previouslyfiled by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December12, 2014)10.63 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and KeyBanc Capital MarketsInc. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commissionon December 12, 2014)10.64 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and BNP Paribas SecuritiesCorp. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and ExchangeCommission on December 12, 2014)10.65 Sales Agreement, dated December 12, 2014, 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 onDecember 12, 2014)10.66 Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays Capital Inc.(previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission onDecember 12, 2014)12.1* Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to CombinedFixed Charges 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, 2014,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 Section18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.Exhibit 10.5SECOND AMENDMENT TO LEASE AGREEMENTFor “Parcels 1 and 2, Parcel Map. 16960”(January 24, 1989)The following SECOND AMENDMENT TO LEASE OF JANUARY 24, 1989 ENTITLED “LEASE AGREEMENT, PARCELS 1 AND 2” (the“Subdivided Lease” herein) is made and entered into in duplicate as of the 28th day of April, 1997, pursuant to a minute order adopted by the City Councilof the City of Long Beach on the 15th day of April, 1997, by and between CITY OF LONG BEACH, a Municipal Corporation, hereinafter referred to as“LANDLORD,” and KILROY REALTY, L.P., a Delaware Limited Partnership (“Kilroy Realty, L.P.”), successor-in-interest to KILROY LONG BEACHASSOCIATES, a California Limited Partnership (“KLBA”), hereinafter referred to as “DEVELOPER.”WHEREAS, on July 17, 1985, a Lease (the “All-Inclusive Lease” herein) was entered into between the Landlord and Developer demisingapproximately 37 acres to Developer near the Long Beach Municipal Airport (the “Property”); andWHEREAS, on July 22, 1988, a Parcel Map No. 16960, in Book 208, Pgs. 92 through 100 of Parcel Maps was recorded in the Office of the CountyRecorder of Los Angeles County, State of California. This Parcel Map included the real property demised by the All- Inclusive Lease and its amendments;and other real property (Parcel 8); andWHEREAS, on January 24, 1989, pursuant to Section 7.6 of the All‑Inclusive Lease, Developer and Landlord entered into an instrument entitled“Lease Agreement, Parcels 1 and 2” (the-1-“Subdivided Lease”) demising only Parcels 1 and 2 of Parcel Map No. 16960, thereby enabling Developer to separately develop and improve said Parcels 1and 2; andWHEREAS, the Subdivided Lease was previously amended by an instrument entitled “First Amendment to Lease Agreement,” dated December 28,1990; andWHEREAS, on July 21, 1993, the interest of Developer in the Subdivided Lease was assigned by KLBA to THE NORTHWESTERN MUTUAL LIFEINSURANCE COMPANY (“NML”), by that certain Assignment of Developer’s interest as Lessee in Ground Lease, dated as of July 21, 1993, and recorded asInstrument No. 93-1422619 in the Office of the Los Angeles County Recorder; andWHEREAS, on January 31, 1997, Kilroy Realty, L.P. succeeded to the interest of Developer in the Subdivided Lease as a result of an assignment byNML to Kilroy Realty, L.P., which was approved by City of Long Beach on January 31, 1997, by that certain Assignment and Assumption of Lessee’s interestin Ground Lease, dated as of January 31, 1997, and recorded as Instrument No. 97- 174352 in the Office of the Los Angeles County Recorder; andWHEREAS, the parties hereto now desire to amend the Subdivided Lease in order to recognize and clarify certain issues arising out of a Landlord’sEstoppel Certificate executed by Landlord in April 1997.NOW, THEREFORE, the Subdivided Lease between the parties hereto is hereby amended as follows:1.Paragraph 4.22 of the Subdivided Lease is hereby amended in its entirety to read as follows:-2-4.22 Self Liquidating Mortgage. The Leasehold Mortgage shall be a self liquidating mortgage, to be paid over a period not longer thanelapses up to three (3) years prior to the end of the term of this Lease, or any option term if such option has been exercised. Landlord acknowledges thatDeveloper and Morgan Guaranty Trust Company of New York, a New York Banking Corporation, are negotiating the terms of a certain mortgage loan, theproceeds of which will be used for general corporate purposes (the “Loan”); that the Loan is a term loan maturing two (2) years following the date of theclosing thereof and that the mortgage securing the Loan (the “Mortgage”) is therefore not a self-liquidating mortgage. Nevertheless, and notwithstanding thefirst sentence of this Section 4.22, Landlord agrees that the Mortgage shall qualify as a recognized “Leasehold Mortgage” (as defined in the Lease) andLandlord and Developer and Leasehold Mortgagee are and shall have all the respective rights and obligations of Landlord, Developer and LeaseholdMortgagee as set forth in Section 4 of the Lease.2. Paragraph 6.2.8 is hereby added to the Subdivided Lease to read in its entirety as follows:6.2.8 Payment of Insurance Proceeds. Notwithstanding any Subdivided Lease provision to the contrary, including but not limited toSection 6.2.2, Landlord agrees that in case of damage or destruction of the Premises or any improvements thereon, any insurance proceeds will be directlypaid to Leasehold Mortgagee and Landlord for the purposes of reconstruction, replacement and repair of any damaged improvements. Any insuranceproceeds in-3-excess of such restoration, rebuilding and/or repair costs shall be held and used by the Leasehold Mortgagee in accordance with the Mortgage. Landlord shallrelease the entire sum of the insurance proceeds to Leasehold Mortgagee if Leasehold Mortgagee agrees in writing to commence such reconstruction,replacement and repair within six (6) months after such damage or destruction. If Leasehold Mortgagee shall fail to commence such reconstruction,replacement and repair within said six (6) month period, Leasehold Mortgagee shall deliver the entire sum of the insurance proceeds so that Landlord maycomplete the reconstruction, replacement and repair. In the event the proceeds of insurance exceed the cost of such reconstruction, replacement and repair,the excess shall be paid to Leasehold Mortgagee.3. Except as herein and previously amended by the First Amendment, the Subdivided Lease is ratified, affirmed and approved.IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed in duplicate with all the formalities requiredby law and the respective dates set forth opposite their signatures. CITY OF LONG BEACH, A Municipal CorporationDate: April 29, 1997 EXECUTED PURSUANT “LANDLORD” TO SECTION 301 OF THE CITY CHARTER.-4-Date: April 29, 1997KILROY REALTY, L.P., A Delaware limited partnership By:KILROY REALTYCORPORATION,A Maryland CorporationGeneral Partner By:/s/ Jeffrey C. Hawken Title:Executive Vice President "DEVELOPER" The foregoing SECOND AMENDMENT TO LEASE is hereby approved as to form this 28th day of April, 1997. JOHN R. CALHOUN, City Attorney By:/s/ Everett L. Glenn Deputy -5-The foregoing SECOND AMENDMENT TO LEASE is hereby approved as to form and contents by Mortgagee. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/ Jenny Y. Lee Title:Jenny Y. Lee Vice President -6-Exhibit 10.6THIRD AMENDMENT TO LEASE AGREEMENTPARCELS 1 AND 2, PARCEL MAP NO. 16960(January 24, 1989)THIS THIRD AMENDMENT TO LEASE AGREEMENT OF JANUARY 24, 1989 ENTITLED “LEASE AGREEMENT PARCELS 1 AND 2” (“ThirdAmendment”) is entered into this 20th day of June, 2002, pursuant to Ordinance No. C-7795 adopted by the City Council of the City of Long Beach on the2nd day of April, 2002 (“Ordinance”), by and between the CITY OF LONG BEACH, a municipal corporation (“Landlord”) and KILROY REALTY, L.P., aDelaware limited partnership (“Kilroy Realty, L.P.”), successor-in-interest to KILROY LONG BEACH ASSOCIATES, a California limited partnership(“KLBA”), hereinafter referred to as “Developer”.RECITALSA. On July 17, 1985, a lease was entered into between Landlord and Developer (“All-Inclusive Lease”), which demised to Developerapproximately thirty-seven (37) acres near the Long Beach Municipal Airport.B. On July 22, 1988, Parcel Map No. 16960 was recorded in Book 208, Pages 92-100 of Parcel Maps in the Office of the County Recorder, LosAngeles County, State of California.C. On January 24, 1989, pursuant to section 7.6 of the All-Inclusive Lease, Developer and Landlord entered into an instrument entitled “LeaseAgreement Parcels 1 and 2” (“Lease”) demising only parcels 1 and 2 of Parcel Map No. 16960, thereby enabling Developer to separately develop andimprove said parcels 1 and 2; and1D. On December 28, 1990, the Lease was amended by an instrument entitled “First Amendment to Lease Agreement.”E. On July 21, 1993, the interest of Developer in the Lease was assigned by KLBA to THE NORTHWESTERN MUTUAL LIFE INSURANCECOMPANY (“NML”) by that certain Assignment of Developer’s Interest as Lessee in Ground Lease, dated as of July 21, 1993, and recorded as Instrument No.93-1422619 in the Office of the Los Angeles County Recorder.F. On January 31, 1997, Kilroy Realty, L.P. succeeded to the interest of Developer in the Lease as a result of an assignment by NML to KilroyRealty, L.P., which was approved by City of Long Beach on January 31, 1997, by that certain Assignment and Assumption of Lessee’s interest in GroundLease, dated as of January 31, 1997, and recorded as Instrument No. 97- 174352 in the Office of the Los Angeles County Recorder.G. On April 28, 1997, the Lease was amended by an instrument entitled “Second Amendment to Lease Agreement.” T h e Lease, the FirstAmendment to Lease Agreement, Assignment of Developer’s Interest as Lessee in Ground Lease, Assignment and Assumption of Lessee’s Interest as Lessee inGround Lease, and the Second Amendment to Lease Agreement are hereinafter referred to as the “Subdivided Lease”.H. The parties now desire to further amend the Subdivided Lease.NOW THEREFORE the Subdivided Lease is hereby amended as follows:1. Subsection 3.2.1 of the Subdivided Lease is amended in its entirety to read as follows:23.2.1 Adjustment Dates. In order to adjust the annual Ground Rent for parcels 1 and 2, the fair market land value of each parcel and theprevailing rate of return shall be determined as of January 1, 1998 and January 1, 2001 and every five (5) years thereafter for parcel 1 and July 1,1997 and January 1, 2001 for parcel 2 and every five (5) years thereafter. The Ground Rent shall be adjusted accordingly on the first day of eachsixth year. Said dates of adjustment of Ground Rent shall be referred to for convenience as “adjustment dates.”2. Subsection 3.2.4 of the Subdivided Lease is amended in its entirety to read as follows:3.2.4 Maximum Rent Adjustment. The adjustment, if any, in Ground Rent for parcels upon which one or more buildings have beenconstructed at the time of any adjustment date shall be limited as set forth below:3.2.4.1 Allocation to Parcels. At the time of execution of the Lease, the Ground Rent shall be allocated between the parcelswithin the Premises in the manner set out in subsection 3.1.2. The percentage of rent attributable to each parcel shall remain in effect during the termof the Subdivided Lease unless parcel areas change.3.2.4.2 Base Period. The Base Period for a parcel shall be the first twelve (12) calendar month period after the point in time wheneighty percent (80%) of the rentable space on the particular parcel is first leased. The Base Period for Parcel 1 is hereby established to be the twelve(12) month period from 8/1/88 to 7/31/89; and the Base3Period for Parcel 2 is hereby established to be the twelve 2 (12) month period from 6/1/88 to 5/31/89.3.2.4.3 Comparison Year Period. The Comparison Year Period for a parcel shall be the twelve (12) month period immediatelyprior to the applicable Ground Rent adjustment date.3.2.4.4 Weighted Average Sublease Monthly Rental Rate. For each parcel, the Weighted Average Sublease Monthly Rental Ratefor each applicable Base Period or Comparison Year Period shall be determined as follows.a. Each of the subleases in existence during a particular Base Period or Comparison Year Period shall be categorized as a full service grosslease. To the extent that any of the sublease agreements are other than a full service gross lease, the base monthly rent under such sublease shall beconverted to an equivalent full service gross lease by increasing such base monthly rent by the amount of expenses paid directly by the subtenantthat normally would be paid by the landlord under a full service gross lease during the first year of occupancy. The base rent paid under a full servicegross sublease or other type of lease in which the base rent is converted as provided herein is defined as the “base rent”. If during a particular BasePeriod or Comparison Year Period there is a sublease(s), other than a full service gross lease, Developer shall, within sixty (60) days after Landlord’swritten request, which request may only occur after the expiration of the first nine (9) months of a Comparison4Year Period, deliver to Landlord information identifying expense items and the amounts thereof which have been paid by a subtenant under suchsublease and have been added to the base monthly rental thereunder to convert such sublease to an equivalent full service gross lease. In addition,such information shall also include the amount of any excess tenant improvement amortizations or other similar concessions or considerations thatDeveloper has received and excluded from base rent.b. For each sublease on a particular parcel, the total base rent stabilized to exclude excess tenant improvement amortization or othersimilar concessions or considerations, due to and to be received by Developer over the entire term of such sublease (said term shall specificallyexclude any unexercised option periods and said base rent shall only include fixed rental increases) shall be computed and then divided by therentable square footage of said sublease space, and the result shall then in turn be divided by the total number of months of said sublease term. Theresulting amount shall be deemed to be the Average Sublease Monthly Rental Rate for that particular sublease. Each such amount shall then beweighted by multiplying it by the quotient resulting from dividing the sublease’s total rentable square footage by the total rentable square footageunder sublease resulting in the Weighted Average Sublease Monthly Rental Rate for each sublease. The sum of all such amounts shall be the TotalWeighted Average Sublease Monthly Rental Rate.53.2.4.5 Sublease Rental Percentage Change. The Sublease Rental Percentage Change for each parcel shall be determined bycalculating the average percentage change of the Total Weighted Average Sublease Monthly Rental Rates between the Base Period and theapplicable Comparison Year Period. Said average percentage change calculation shall be performed as follows:a. The Base Period Total Weighted Average Sublease Monthly Rental Rate shall be subtracted from the Comparison Year Period TotalWeighted Average Sublease Monthly Rental Rate, and then dividing that result by the Base Period Total Weighted Average Sublease MonthlyRental Rate.3.2.4.6 Adjusted Ground Rent. The “Adjusted Ground Rent” for each parcel at any given adjustment date shall be the lesser ofthe Adjusted Fair Market Rental Value for such parcel as determined in subsection 3.2.2 above or the initial Ground Rent for such parcel plus theproduct of the Sublease Rental Percentage Change determined in 3.2.4.5 above times the initial Ground Rent for such parcel.3.2.4.7 Sale or Assignment of Leasehold Interest. Should the Developer sell, assign or otherwise transfer its leasehold interest toan owner-user such that sublease rental is not paid to Developer, the fair market sublease rental for such building, using the criteria and methods setout in subsection 3.2.2, shall become the basis for calculating the maximum rental adjustment using the process described in subsection 3.2.4.5above.63.2.4.8 ARBITRATION OF DISPUTE. ANY DISPUTE BETWEEN LANDLORD AND DEVELOPER CONCERNING THECONVERSION OF A SUBLEASE TO AN EQUIVALENT FULL SERVICE GROSS LEASE, OR THE EXCLUSION OF EXCESS TENANTIMPROVEMENT AMORTIZATIONS OR OTHER SIMILAR CONCESSIONS OR CONSIDERATIONS, AS DESCRIBED IN SUBSECTION 3.2.4.4aABOVE, SHALL BE DECIDED BY NEUTRAL BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICANARBITRATION ASSOCIATION, RATHER THAN BY COURT ACTION. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S)MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE FILING OF A JUDICIAL ACTION TO ENABLE THERECORDING OF A NOTICE OF PENDING ACTION, FOR ORDER OF ATTACHMENT, RECEIVERSHIP, INJUNCTION, OR ACTION, FORORDER OF ATTACHMENT, RECEIVERSHIP, INJUNCTION, OR OTHER PROVISIONAL REMEDIES SHALL NOT CONSTITUTE A WAIVER OFTHE OTHER PROVISIONAL REMEDIES AND SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT TO ARBITRATE UNDER THISPROVISION. ANY ELECTION BY A PARTY TO ARBITRATE ANY DISPUTE OR CLAIM THAT MAY BE ARBITRATED PURSUANT TO THISAGREEMENT SHALL BE MADE BY SENDING WRITTEN NOTICE TO THE OTHER PARTY PRIOR TO THE EARLIER OF: (I) THE TIMEWHEN AN ACTION WITH RESPECT THERETO WOULD BE BARRED BY CALIFORNIA LAW; OR (II) IF AN ACTION HAS BEEN BROUGHTWITH RESPECT THERETO, SIX MONTHS AFTER SERVICE OF SUCH ACTION UPON THE PARTY ELECTING TO ARBITRATE (OR, IF THEPARTY DESIRING TO ELECT TO ARBITRATE FILED THE ACTION, SIX MONTHS AFTER THE FILING OF THE ACTION).WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF WRITTEN NOTICE FROM A PARTY SUBMITTING ANY DISPUTETO ARBITRATION PURSUANT TO THIS SUBSECTION, LANDLORD AND7DEVELOPER SHALL APPOINT A DISINTERESTED PERSON AS ARBITRATOR (THE “ARBITRATOR”) AS FOLLOWS: THE PARTIES SHALLREQUEST THE LOS ANGELES SUPERIOR COURT TO CHOOSE AN ARBITRATOR PURSUANT TO SECTION 1281.6 OF THE CALIFORNIACODE OF CIVIL PROCEDURE.THE ARBITRATOR SHALL ESTABLISH A TIME AND PLACE IN THE COUNTY OF LOS ANGELES FOR HEARING THEMATTER TO BE ARBITRATED, SUCH HEARING TO BE NOT LATER THAN THIRTY (30) DAYS AFTER THE APPOINTMENT OF THEARBITRATOR. THE HEARING PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATIONRULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR SHALL DETERMINE THE CONTROVERSY AND EXECUTEAND ACKNOWLEDGE HIS OR HER AWARD WITHIN THIRTY (30) DAYS AFTER HEARING THE MATTER. THE ARBITRATOR SHALL BEONLY AUTHORIZED TO (X) DETERMINE THOSE EXPENSE ITEMS AND THE AMOUNT THEREOF WHICH SHOULD BE ADDED TO THEBASE MONTHLY RENT PAYABLE UNDER A SUBLEASE, OTHER THAN A FULL SERVICE GROSS LEASE, TO CONVERT SUCH SUBLEASETO AN EQUIVALENT FULL SERVICE GROSS LEASE AND (Y) THE AMOUNT OF ANY EXCESS TENANT IMPROVEMENTSAMORTIZATIONS OR OTHER SIMILAR CONCESSIONS OR CONSIDERATIONS THAT DEVELOPER HAS RECEIVED AND EXCLUDEDFROM BASE RENT. THE DECISION OF THE ARBITRATOR SHALL BE DELIVERED TO EACH PARTY TO THE ARBITRATION IN WRITING,AND SHALL BE FINAL AND BINDING UPON ALL PARTIES. THE PARTIES EACH SHALL HAVE THE RIGHT TO REASONABLE DISCOVERYPURSUANT TO THE PROVISIONS OF SECTION 1283.05 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE DURING THE PROCEEDINGS.JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTIONTHEREOF. THE ARBITRATOR SHALL DETERMINE IN WHAT PROPORTION THE PARTIES SHALL BEAR THE COST8OF THE ARBITRATION, INCLUDING AN AWARD OF REASONABLE ATTORNEY’S FEES.NOTICE: BY INITIALING THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDEDIN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOUARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING INTHE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARESPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTERAGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OFCIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THEFOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’PROVISION TO NEUTRAL ARBITRATION.INITIALS:/s/ GM INITIALS:/s/ AMW /s/ JCH LANDLORD DEVELOPER3. Section 3.4. of the Subdivided Lease is amended in its entirety to read as follows:3.4. Adjustments to Ground Rent During Option Term. At the commencement of each option term, and at the end of each five (5) years ofeach option term, the Ground Rent shall be determined as provided in subsection 3.2.2., but with no adjustment thereto as is provided in subsections93.2.2.1. and 3.2.4. The fair market land value shall be converted into an annual Ground Rent obligation based on the rate of return then current in themarket for parcels which are currently and fairly appraised.4. Section 3.5. of the Subdivided Lease is deleted in its entirety.5. The parties agree that the Predevelopment and Infrastructure Costs as determined under subsection 3.8. are Two Million Seven Hundred Ninety-two Thousand Three Hundred Seventy Dollars ($2,792,370).6. The execution of this Third Amendment by Developer and Landlord shall constitute Developer’s exercise of each of the five (5) options toextend the Subdivided Lease term as set forth in section 2.1.2 and shall constitute Landlord’s approval and granting of each such Subdivided Lease termextension resulting in an extension of the Subdivided Lease term to and including July 16, 2084. The parties further agree that Landlord, in connection withthe adoption of the Ordinance and execution of this Third Amendment, has reviewed the Subdivided Lease terms and provisions pursuant to Section 37380(b) (1) of the Government Code and Ordinance No. C-7370, and determined that the terms and provisions of the Subdivided Lease as amended herein fullycomply with Section 37380 (b) (1) of the Government Code and Ordinance No. C-7370 including without limitation the terms and provisions for periodicreviews by Landlord which reviews take into consideration the then current market conditions.107. In consideration of Landlord’s approval of Developer’s exercise of each of the five (5) options and the extension of the Subdivided Lease term toand including July 16, 2084, Developer within three (3) days of execution of this Third Amendment shall pay Landlord a Ground Lease extension feepayment in the amount of Three Hundred Thirty-four Thousand Two Hundred Eight Dollars ($334, 208).8. All notices, demands and communications to Developer shall be addressed to Kilroy Realty, L.P., a Delaware Limited Partnership, Attention:Legal Department, 2250 East Imperial Highway, Suite 1200, El Segundo, California 90245.9. Except as stated in this Third Amendment, the Subdivided Lease shall remain unmodified and in full force and effect.IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly executed with all the formalities required by law as of the date firstabove written.11June 14, 2002KILROY REALTY, L.P., a Delaware limited partnership By: KILROY REALTY CORPORATION,a Maryland corporation, General Partner By:/s/ Jeffrey C. Hawken Name: Jeffrey C. Hawken Title: Executive Vice President, Chief Operating Officer By: /s/ Ann Marie Whitney Name: Ann Marie Whitney Title: Senior Vice President & Controller DEVELOPER CITY OF LONG BEACH, a municipal corporationJune 20, 2002By: /s/ Gerald R. MillerASSISTANT City Manager CITYEXECUTED PURSUANT TO SECTION301 OF THE CITY CHARTER.12The foregoing Third Amendment to Lease Agreement is hereby approved as to form this 18th day of June, 2002. ROBERT E. SHANNON, CITY ATTORNEY By:/s/ Everett L. Glenn Everett L. Glenn, Deputy13141516Exhibit 10.9SECOND AMENDMENT TO LEASE AGREEMENTFor “Parcels 5 and 6, Parcel Map 16960”(December 30, 1988)The following SECOND AMENDMENT TO LEASE OF DECEMBER 30, 1988 ENTITLED “LEASE AGREEMENT, PARCELS 5 AND 6” (the“Subdivided Lease” herein) is made and entered into in duplicate as of the 28th day of April, 1997, pursuant to a minute order adopted by the City Councilof the City of Long Beach on the 15th day of April, 1997, by and between CITY OF LONG BEACH, a Municipal Corporation, hereinafter referred to as“LANDLORD,” and KILROY REALTY, L.P., a Delaware Limited Partnership (“Kilroy Realty, L.P.”), successor-in-interest to KILROY LONG BEACHASSOCIATES, a California Limited Partnership (“KLBA”), hereinafter referred to as “DEVELOPER.”WHEREAS, on July 17, 1985, a Lease (the “All-Inclusive Lease” herein) was entered into between the Landlord and Developer demisingapproximately 37 acres to Developer near the Long Beach Municipal Airport (the “Property”); andWHEREAS, on July 22, 1988, a Parcel Map No. 16960, in Book 208, Pgs. 92 through 100 of Parcel Maps was recorded in the Office of the CountyRecorder of Los Angeles County, State of California. This Parcel Map included the real property demised by the All- Inclusive Lease and its amendments;and other real property (Parcel 8); andWHEREAS, on January 24, 1989, pursuant to Section 7.6 of the All‑Inclusive Lease, Developer and Landlord entered into an instrument entitled“Lease Agreement, Parcels 5 and 6” (the-1-“Subdivided Lease”) demising only Parcels 5 and 6 of Parcel Map No. 16960, thereby enabling Developer to separately develop and improve said Parcels 5and 6; andWHEREAS, the Subdivided Lease was previously amended by an instrument entitled “First Amendment to Lease Agreement,” dated December 28,1990; andWHEREAS, on January 31, 1997, Kilroy Realty, L.P. succeeded to the interest of Developer in the Subdivided Lease as a result of an assignment byKLBA to Kilroy Realty, L.P., which was approved by City of Long Beach on January 31, 1997, by that certain Assignment and Assumption of Lessee’sinterest in Ground Lease, dated as of January 30, 1997, and recorded as Instrument No. 97-172761 in the Office of the Los Angeles county Recorder; andWHEREAS, the parties hereto now desire to amend the Subdivided Lease in order to recognize and clarify certain issues arising out of a Landlord’sEstoppel Certificate executed by Landlord in April 1997.NOW, THEREFORE, the Subdivided Lease between the parties hereto is hereby amended as follows:1.Paragraph 4.22 of the Subdivided Lease is hereby amended in its entirety to read as follows:4.22 Self Liquidating Mortgage. The Leasehold Mortgage shall be a self liquidating mortgage, to be paid over a period not longer than elapses upto three (3) years prior to the end of the term of this Lease, or any option term if such option has been exercised. Landlord acknowledges that Developer andMorgan-2-Guaranty Trust Company of New York, a New York Banking Corporation, are negotiating the terms of a certain mortgage loan, the proceeds of which will beused for general corporate purposes (the “Loan”); that the Loan is a term loan maturing two (2) years following the date of the closing thereof and that themortgage securing the Loan (the “Mortgage”) is therefore not a self-liquidating mortgage. Nevertheless, and notwithstanding the first sentence of this Section4.22, Landlord agrees that the Mortgage shall qualify as a recognized “Leasehold Mortgage” (as defined in the Lease) and Landlord and Developer andLeasehold Mortgagee are and shall have all of the respective rights and obligations of Landlord, Developer and Leasehold Mortgagee as set forth in Section4 of the Lease.2. Paragraph 6.2.8 is hereby added to the Subdivided Lease to read in its entirety as follows:6.2.8 Payment of Insurance Proceeds. Notwithstanding any Subdivided Lease provision to the contrary, including-but not limited toSection 6.2.2, Landlord agrees that in case of damage or destruction of the Premises or any improvements thereon, any insurance proceeds will be directlypaid to Leasehold Mortgagee and Landlord for the purposes of reconstruction, replacement and repair of any damaged improvements. Any insuranceproceeds in excess of such restoration, rebuilding and/or repair costs shall be held and used by the Leasehold Mortgagee in accordance with the Mortgage.Landlord shall release the entire sum of the insurance proceeds to Leasehold Mortgagee if Leasehold Mortgagee agrees in writing to commence suchreconstruction, replacement and repair-3-within six (6) months after such damage or destruction. If Leasehold Mortgagee shall fail to commence such reconstruction, replacement and repair withinsaid six (6) month period, Leasehold Mortgagee shall deliver the entire sum of the insurance proceeds so that Landlord may complete the reconstruction,replacement and repair. In the event the proceeds of insurance exceed the cost of such reconstruction, replacement and repair, the excess shall be paid toLeasehold Mortgagee.3. Except as herein and previously amended by the First Amendment, the Subdivided Lease is ratified, affirmed and approved.IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed in duplicate with all the formalities requiredby law and the respective dates set forth opposite their signatures. CITY OF LONG BEACH, A Municipal Corporation Date: April 29, 1997 EXECUTED PURSUANT “LANDLORD” TO SECTION 301 OF THE CITY CHARTER. Date: April 29, 1997KILROY REALTY, L.P., A Delaware Limited Partnership By:KILROY REALTY CORPORATION, A Maryland Corporation General Partner By:/s/ Jeffrey C. Hawken Title:Executive Vice President “DEVELOPER” -4-The foregoing SECOND AMENDMENT TO LEASE is hereby approved as to form this 28th day of April, 1997. JOHN R. CALHOUN, City Attorney By:/s/ Everett L. Glenn Deputy -5-Exhibit 10.14FOURTH AMENDMENT TO LEASE AGREEMENTPARCELS 3, 4 AND 8 PARCEL MAP NO. 16960(July 17, 1985)THIS FOURTH AMENDMENT TO LEASE AGREEMENT OF JULY 17, 1985 (“Fourth Amendment”) is entered into this 20th day ofJune, 2002, pursuant to Ordinance No. C-7795 adopted by the City Counsel of the City of Long Beach on the 2nd day of April 2002 (“Ordinance”), by andbetween the CITY OF LONG BEACH, a municipal corporation (“Landlord”) and KILROY REALTY, L.P., a Delaware limited partnership (“Kilroy Realty,L.P.”), successor-in-interest to KILROY LONG BEACH ASSOCIATES, a California limited partnership (“KLBA”), hereinafter referred to as “Developer”.RECITALSA.On July 17, 1985, a lease was entered into between Landlord and Developer (“Lease”), which demised to Developer the RealProperty described in Exhibit A to the Lease.B. On July 22, 1988, Parcel Map No. 16960 was recorded in Book 208, Pages 92-100 of Parcel Maps in the Office of the County Recorder,Los Angeles County, State of California.C. On January 24, 1989, the Lease was amended and subdivided by a First Amendment to Lease in accordance with Subsection 7.6 of theLease in order to establish three (3 separate ground leases between Landlord and Developer, as follows:Parcels 1 and 2 - Phase 1 of the development of Parcel Map No. 169601Parcels 5 and 6 – Phase 2 of the development of Parcel Map No. 16960Parcels 3, 4 and 8 - Phase 3 of the development of Parcel Map No. 16960D. On December 29, 1990, the Lease for Parcels 3, 4 and 8 was further amended by a Second Amendment to Lease Agreement in order torecognize and clarify certain issues arising out of a development agreement entered into between the parties in September 1990.E. On October 10, 1994, the Lease for Parcels 3, 4 and 8 was further amended by a Third Amendment to Lease to provide for payment ofpast due rental and adjustments to rental payable by Developer.F. On January 30, 1997, the Lease for Parcels 3, 4, and 8 was assigned by KLBA, to KILROY REALTY, L.P. by an instrument entitled“Assignment and Assumption of Ground Lessee’s Interest in Ground Lease and Grant Deed.” The Lease, the First Amendment to Lease, Second Amendmentto Lease, Third Amendment, Assignment and Assumption of Ground Lessee’s Interest in Ground Lease and the Grant Deed to Lease, are hereinaftercollectively referred to as the “Lease.”G. The parties now desire to further amend the Lease.NOW THEREFORE the Lease is hereby amended as follows:1. Subsection 3.2.1 of the Lease is amended in its entirety to read as follows:3.2.1 Adjustment Dates. In order to adjust the annual Ground Rent for parcels 3, 4, and 8, the fair market land value of each parcel and theprevailing rate of return shall be determined as of January 1, 2001, and every five (5)2years thereafter. The Ground Rent shall be adjusted accordingly on the first day of each sixth year. Said dates of adjustment of Ground Rent shall bereferred to for convenience as “adjustment dates.”2. Subsection 3.2.4 of the Lease is amended in its entirety to read as follows:3.2.4 Maximum Rent Adjustment. The adjustment, if any, in Ground Rent for parcels upon which one or more buildings have beenconstructed at the time of any adjustment date shall be limited as set forth below:3.2.4.1 Allocation to Parcels. At the time of execution of the Lease, the Ground Rent shall be allocated between the parcelswithin the Premises in the manner set out in subsection 3.1.2. The percentage of rent attributable to each parcel shall remain in effect during the termof the Lease unless parcel areas change.3.2.4.2 Base Period. The Base Period for a parcel shall be the first twelve (12) calendar month period after the point in time wheneighty percent (80%) of the rentable space on the particular parcel is first leased. The Base Period for parcel 3 is hereby established to be the twelve(12) month period from 10/1/99 to 9/30/00; and the Base Period for parcel 4 is hereby established to be the twelve (12) month period from 8/1/00 to7/31/01.3.2.4.3 Comparison Year Period. The Comparison Year Period for a parcel shall be the twelve (12) month period immediatelyprior to the applicable Ground Rent adjustment date.33.2.4.4 Weighted Average Sublease Monthly Rental Rate. For each parcel, the Weighted Average Sublease Monthly Rental Ratefor each applicable Base Period or Comparison Year Period shall be determined as follows:a. Each of the subleases in existence during a particular Base Period or Comparison Year Period shall be categorized as a full service grosslease. To the extent that any of the sublease agreements are other than a full service gross lease, the base monthly rent under such sublease shall beconverted to an equivalent full service gross lease by increasing such base monthly rent by the amount of expenses paid directly by the subtenantthat normally would be paid by the landlord under a full service gross lease during the first year of occupancy. The base rent paid under a full servicegross sublease or other type of lease in which the base rent is converted as provided herein is defined as the “base rent”. If during a particular BasePeriod or Comparison Year Period there is a sublease(s), other than a full service gross lease, Developer shall, within sixty ( 60) days after Landlord’swritten request, which request may only occur after the expiration of the first nine (9) months of a Comparison Year Period, deliver to Landlordinformation identifying expense items and the amounts thereof which have been paid by a subtenant under such sublease and have been added tothe base monthly rental thereunder to convert such sublease to an equivalent full service gross lease. In addition, such information shall also includethe amount of any excess tenant improvement amortizations or other similar4concessions or considerations that Developer has received and excluded from base rent.b. For each sublease on a particular parcel, the total base rent stabilized to exclude excess tenant improvement amortization or othersimilar concessions or considerations, due to and to be received by Developer over the entire term of such sublease (said term shall specificallyexclude any unexercised option periods and said base rent shall only include fixed rental increases) shall be computed and then divided by therentable square footage of said sublease space, and the result shall then in turn be divided by the total number of months of said sublease term. Theresulting amount shall be deemed to be the Average Sublease Monthly Rental Rate for that particular sublease. Each such amount shall then beweighted by multiplying it by the quotient resulting from dividing the sublease’s total rentable square footage by the total rentable square footageunder sublease resulting in the Weighted Average Sublease Monthly Rental Rate for each sublease. The sum of all such amounts shall be the TotalWeighted Average Sublease Monthly Rental Rate.3.2.4.5 Sublease Rental Percentage Change. The Sublease Rental Percentage Change for each parcel shall be determined bycalculating the average percentage change of the Total Weighted Average Sublease Monthly Rental Rates between the Base Period and theapplicable Comparison Year Period. Said average percentage change calculation shall be performed as follows:5a. The Base Period Total Weighted Average Sublease Monthly Rental Rate shall be subtracted from the Comparison Year Period TotalWeighted Average Sublease Monthly Rental Rate, and then dividing that result by the Base Period Total Weighted Average Sublease MonthlyRental Rate.3.2.4.6 Adjusted Ground Rent. The “Adjusted Ground Rent” for each parcel at any given adjustment date shall be the lesser ofthe Adjusted Fair Market Rental Value for such parcel as determined in subsection 3.2.2 above or the initial Ground Rent for such parcel plus theproduct of the Sublease Rental Percentage Change determined in 3.2.4.5 above times the initial Ground Rent for such parcel.3.2.4.7 Sale or Assignment of Leasehold Interest. Should the Developer sell, assign or otherwise transfer its leasehold interest toan owner-user such that sublease rental is not paid to Developer, the fair market sublease rental for such building, using the criteria and methods setout in subsection 3.2.2, shall become the basis for calculating the maximum rental adjustment using the process described in subsection 3.2.4.5above.3.2.4.8 ARBITRATION OF DISPUTE. ANY DISPUTE BETWEEN LANDLORD AND DEVELOPER CONCERNING THECONVERSION OF A SUBLEASE TO AN EQUIVALENT FULL SERVICE GROSS LEASE, OR THE EXCLUSION OF EXCESS TENANTIMPROVEMENT AMORTIZATIONS OR OTHER SIMILAR CONCESSIONS OR CONSIDERATIONS, AS DESCRIBED IN SUBSECTION 3.2.4.4aABOVE, SHALL BE DECIDED BY NEUTRAL BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICANARBITRATION ASSOCIATION, RATHER THAN BY COURT6ACTION. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVINGJURISDICTION THEREOF. THE FILING OF A JUDICIAL ACTION TO ENABLE THE RECORDING OF A NOTICE OF PENDING ACTION, FORORDER OF ATTACHMENT, RECEIVERSHIP, INJUNCTION, OR ACTION, FOR ORDER OF ATTACHMENT, RECEIVERSHIP, INJUNCTION, OROTHER PROVISIONAL REMEDIES SHALL NOT CONSTITUTE A WAIVER OF THE OTHER PROVISIONAL REMEDIES AND SHALL NOTCONSTITUTE A WAIVER OF THE RIGHT TO ARBITRATE UNDER THIS PROVISION. ANY ELECTION BY A PARTY TO ARBITRATE ANYDISPUTE OR CLAIM THAT MAY BE ARBITRATED PURSUANT TO THIS AGREEMENT SHALL BE MADE BY SENDING WRITTEN NOTICETO THE OTHER PARTY PRIOR TO THE EARLIER OF: (I) THE TIME WHEN AN ACTION WITH RESPECT THERETO WOULD BE BARRED BYCALIFORNIA LAW; OR (II) IF AN ACTION HAS BEEN BROUGHT WITH RESPECT THERETO, SIX MONTHS AFTER SERVICE OF SUCHACTION UPON THE PARTY ELECTING TO ARBITRATE (OR, IF THE PARTY DESIRING TO ELECT TO ARBITRATE FILED THE ACTION, SIXMONTHS AFTER THE FILING OF THE ACTION) .WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF WRITTEN NOTICE FROM A PARTY SUBMITTING ANY DISPUTE TOARBITRATION PURSUANT TO THIS SUBSECTION, LANDLORD AND DEVELOPER SHALL APPOINT A DISINTERESTED PERSON ASARBITRATOR (THE “ARBITRATOR”) AS FOLLOWS: THE PARTIES SHALL REQUEST THE LOS ANGELES SUPERIOR COURT TO CHOOSEAN ARBITRATOR PURSUANT TO SECTION 1281.6 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THE ARBITRATOR SHALLESTABLISH A TIME AND PLACE IN THE COUNTY OF LOS ANGELES FOR HEARING THE MATTER TO BE ARBITRATED, SUCH HEARINGTO BE NOT LATER THAN THIRTY (30) DAYS AFTER THE APPOINTMENT OF THE ARBITRATOR. THE HEARING PROCEEDINGS SHALLBE CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.THE ARBITRATOR SHALL DETERMINE THE CONTROVERSY AND EXECUTE AND ACKNOWLEDGE HIS OR HER AWARD WITHINTHIRTY (30)7DAYS AFTER HEARING THE MATTER. THE ARBITRATOR SHALL BE ONLY AUTHORIZED TO (X) DETERMINE THOSE EXPENSE ITEMSAND THE AMOUNT THEREOF WHICH SHOULD BE ADDED TO THE BASE MONTHLY RENT PAYABLE UNDER A SUBLEASE, OTHERTHAN A FULL SERVICE GROSS LEASE, TO CONVERT SUCH SUBLEASE TO AN EQUIVALENT FULL SERVICE GROSS LEASE AND (Y) THEAMOUNT OF ANY EXCESS TENANT IMPROVEMENTS AMORTIZATIONS OR OTHER SIMILAR CONCESSIONS OR CONSIDERATIONSTHAT DEVELOPER HAS RECEIVED AND EXCLUDED FROM BASE RENT. THE DECISION OF THE ARBITRATOR SHALL BE DELIVEREDTO EACH PARTY TO THE ARBITRATION IN WRITING, AND SHALL BE FINAL AND BINDING UPON ALL PARTIES. THE PARTIES EACHSHALL HAVE THE RIGHT TO REASONABLE DISCOVERY PURSUANT TO THE PROVISIONS OF SECTION 1283.05 OF THE CALIFORNIACODE OF CIVIL PROCEDURE DURING THE PROCEEDINGS. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BEENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE ARBITRATOR SHALL DETERMINE IN WHAT PROPORTION THEPARTIES SHALL BEAR THE COST OF THE ARBITRATION, INCLUDING AN AWARD OF REASONABLE ATTORNEY’S FEES.NOTICE: BY INITIALING THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERSINCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIALAW AND YOU ARE GIVING8UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACEBELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLYINCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THISPROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING ANDAGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION TONEUTRAL ARBITRATION.INITIALS: INITIALS:/s/ AMW /s/ JCH LANDLORD DEVELOPER3. Section 3.4. of the Lease is amended in its entirety to read as follows:3.4 Adjustments to Ground Rent During Option Term. At the commencement of each option term, and at the end of each five ( 5) years ofeach option term, the Ground Rent shall be determined as provided in subsection 3.2.2., but with no adjustment thereto as is provided in subsections3.2.2.1 . and 3.2.4. The fair market land value shall be converted into an annual Ground Rent obligation based on the rate of return then current inthe market for parcels which are currently and fairly appraised.4. Section 3.5. of the Lease is deleted in its entirety.5. The parties agree that the Predevelopment and Infrastructure Costs as determined under subsection 3.8. are9Three Million Thirty-five Thousand Five Hundred Ninety-three Dollars ($3,035,593).6. The execution of this Fourth Amendment by Developer and Landlord shall constitute Developer’s exercise of each of the five (5)options to extend the Lease term as set forth in section 2.1.2 and shall constitute Landlord’s approval and granting of each such Lease term extensionresulting in an extension of the Lease term to and including July 16, 2084. The parties further agree that Landlord, in connection with the adoption of theOrdinance and execution of this Fourth Amendment, has reviewed the Lease terms and provisions pursuant to Section 37380(b) (1) of the Government Codeand Ordinance No. C-7370, and determined that the terms and provisions of the Lease as amended herein fully comply with Section 37380(b) (1) of theGovernment Code and Ordinance No. C-7370 including without limitation the terms and provisions for periodic reviews by Landlord which reviews takeinto consideration the then current market conditions.7. In consideration of Landlord’s approval of Developer’s exercise of each of the five (5) options and the extension of the Lease term toand including July 16, 2084, Developer within three (3) days of execution of this Fourth Amendment shall pay Landlord a Ground Lease extension feepayment in the amount of Three Hundred Sixty-three Thousand Three Hundred Eighteen Dollars ($363,318).8. All notices, demands and communications to Developer shall be addressed to Kilroy Realty, L.P., a Delaware Limited Partnership,Attention: Legal Department, 2250 East Imperial Highway, Suite 1200, El Segundo, California 90245.109. The purported Lease Agreement dated January 24, 1989, executed by Landlord and KLBA relating to parcels 3, 4 and 8 substantiallyduplicates the Lease and is therefore ab initio void and of no force and effect.10. Except as stated in this Fourth Amendment, the Lease shall remain unmodified and in full force and effect.IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly executed with all the formalities required by law as of thedate first above written.June 14, 2002KILROY REALTY, L.P., a Delaware limited partnership By: KILROY REALTY CORPORATION,a Maryland corporation, General Partner By: /s/ Jeffrey C. Hawken Name: Jeffrey C. Hawken Title: Executive Vice President, Chief Operating Officer By: /s/ Ann Marie Whitney Name: Ann Marie Whitney Title: Senior Vice President and Controller DEVELOPER CITY OF LONG BEACH, a municipal corporationJune 20, 2002 CITYEXECUTED PURSUANT TO SECTION 301 OF THE CITYCHARTER.11The foregoing Fourth Amendment to Lease Agreement is hereby approved as to form this 18th day of June, 2002. ROBERT E. SHANNON, CITY ATTORNEY By:/s/ Everett L. Glenn Everett L. Glenn, Deputy 12131415Exhibit 12.1KILROY REALTY CORPORATIONStatement of Computation of Ratio of Earnings to Fixed Charges andConsolidated Ratio of Earnings to Combined Fixed Charges and Preferred Dividends(in thousands, except ratios) Year Ended December 31, 2014 2013 2012 2011 2010Earnings: Income (loss) from continuing operations $59,313 $14,935 $(5,475) $(16,664) $(7,369)Plus Fixed Charges: Interest expense (including amortization of loan costs) 67,571 75,870 79,114 85,785 55,082Capitalized interest and loan costs 47,090 35,368 19,792 9,130 10,015Estimate of interest within rental expense 4,270 4,073 3,475 1,481 997Distributions on Cumulative Redeemable Preferred units — — 3,541 5,588 5,588Fixed Charges 118,931 115,311 105,922 101,984 71,682Plus: Amortization of capitalized interest (1) 7,001 5,823 5,318 4,622 4,348Less: Capitalized interest and loan costs (47,090) (35,368) (19,792) (9,130) (10,015)Less: Distributions on Cumulative Redeemable Preferred units — — (3,541) (5,588) (5,588)Earnings 138,155 100,701 82,432 75,224 53,058 Combined Fixed Charges and Preferred Dividends: Fixed Charges (from above) 118,931 115,311 105,922 101,984 71,682Preferred Dividends 13,250 13,250 10,567 9,608 9,608Combined Fixed Charges and Preferred Dividends $132,181 $128,561 $116,489 $111,592 $81,290Consolidated ratio of earnings to fixed charges 1.16x 0.87x 0.78x 0.74x 0.74xConsolidated ratio of earnings to combined fixed charges and preferreddividends 1.05x 0.78x 0.71x 0.67x 0.65x(Surplus) Deficiency $(5,974) $27,860 $34,057 $36,368 $28,232________________________(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 costsand loan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations 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, 2014 2013 2012 2011 2010Earnings: Income (loss) from continuing operations $59,313 $14,935 $(5,475) $(16,664) $(7,369)Plus Fixed Charges: Interest expense (including amortization of loan costs) 67,571 75,870 79,114 85,785 55,082Capitalized interest and loan costs 47,090 35,368 19,792 9,130 10,015Estimate of interest within rental expense 4,270 4,073 3,475 1,481 997Fixed Charges 118,931 115,311 102,381 96,396 66,094Plus: Amortization of capitalized interest (1) 7,001 5,823 5,318 4,622 4,348Less: Capitalized interest and loan costs (47,090) (35,368) (19,792) (9,130) (10,015)Earnings $138,155 $100,701 $82,432 $75,224 $53,058 Ratio of earnings to fixed charges 1.16x 0.87x 0.81x 0.78x 0.80x________________________(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 costsand loan costs capitalized since 1997.We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. Earnings consist of income from continuing operations 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 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 DelawareKR Academy, LLC DelawareKR 401 Terry, LLC DelawareKR Mission Bay, LLC DelawareKR Flower Mart, LLC DelawareKR SFFGA, LLC DelawareKR Chesapeake, LLC DelawareKR CFM, Inc. California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 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 DelawareKR Academy, LLC DelawareKR 401 Terry, LLC DelawareKR Mission Bay, LLC DelawareKR Flower Mart, LLC DelawareKR SFFGA, LLC DelawareKR Chesapeake, 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, 333-167452, and 333-201990 on Forms S-8 of our reports dated February 10, 2015, relating to the financial statements andfinancial statement schedules of Kilroy Realty Corporation and the effectiveness of Kilroy Realty Corporation's internal control over financial reporting,appearing in this Annual Report on Form 10-K of Kilroy Realty Corporation for the year ended December 31, 2014./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2015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 10, 2015, relating tothe financial 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, 2014./s/ DELOITTE & TOUCHE LLPLos Angeles, CaliforniaFebruary 10, 2015Exhibit 31.1Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, John B. Kilroy, Jr., certify that:1.I have reviewed this annual report on Form 10-K of Kilroy Realty Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose 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 10, 2015Exhibit 31.2Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Tyler H. Rose, certify that:1.I have reviewed this annual report on Form 10-K of Kilroy Realty Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose 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 10, 2015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 annual report on Form 10-K of Kilroy Realty, L.P.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose 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 10, 2015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 annual report on Form 10-K of Kilroy Realty, L.P.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose 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 10, 2015Exhibit 32.1Certification of Chief Executive OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the“Company”) hereby certifies, to his knowledge, that:(i)the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2014 (the “Report”) fully complies withthe requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ John B. Kilroy, Jr. John B. Kilroy, Jr.President and Chief Executive Officer Date:February 10, 2015The 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 Companyand furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2Certification of Chief Financial OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the“Company”) hereby certifies, to his knowledge, that:(i)the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2014 (the “Report”) fully complies withthe requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial Officer Date:February 10, 2015The 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 Companyand furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.3Certification of Chief Executive OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, thesole general partner of Kilroy Realty, L.P. (the “Operating Partnership”), hereby certifies, to his knowledge, that:(i)the accompanying Annual Report on Form 10-K of the Operating Partnership for the year ended December 31, 2014 (the “Report”) fullycomplies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theOperating Partnership./s/ John B. Kilroy, Jr.John B. Kilroy, Jr.President and Chief Executive OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date:February 10, 2015The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosuredocument, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of1933, as amended, or the Securities Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general incorporationlanguage contained in such filing. The signed original of this written statement required by Section 906 has been provided to the Operating Partnership andwill be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.4Certification of Chief Financial OfficerPursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation, thesole general partner of Kilroy Realty, L.P. (the "Operating Partnership"), hereby certifies, to his knowledge, that:(i)the accompanying Annual Report on Form 10-K of the Operating Partnership for the year ended December 31, 2014 (the “Report”) fullycomplies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theOperating Partnership./s/ Tyler H. RoseTyler H. RoseExecutive Vice President andChief Financial OfficerKilroy Realty Corporation, sole general partner ofKilroy Realty, L.P. Date:February 10, 2015The 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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