10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 1-12675

KILROY REALTY CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	95-4598246
(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)

(310) 481-8400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 26, 2007, 32,706,444 shares of common stock, par value $.01 per share, were outstanding.

KILROY REALTY CORPORATION

QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007

TABLE OF CONTENTS

		Page
	PART I—FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (unaudited)	3
	Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006	4
	Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2007	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006	6
	Notes to Consolidated Financial Statements	8
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
Item 4.	CONTROLS AND PROCEDURES	49
	PART II—OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	50
Item 1A.	RISK FACTORS	50
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50
Item 3.	DEFAULTS UPON SENIOR SECURITIES	50
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	50
Item 5.	OTHER INFORMATION	50
Item 6.	EXHIBITS	53
SIGNATURES		56

Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our” or the “Company” mean Kilroy Realty Corporation, including our consolidated subsidiaries.

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

	June 30, 2007			December 31, 2006
ASSETS
REAL ESTATE ASSETS:
Land and improvements	$	293,059		$	293,059
Buildings and improvements		1,500,777			1,484,051
Undeveloped land and construction in progress		453,211			263,651
Total real estate held for investment		2,247,047			2,040,761
Accumulated depreciation and amortization		(472,302	)		(443,807	)
Total real estate held for investment, net		1,774,745			1,596,954
Properties held for sale, net					4,512
Total real estate assets, net		1,774,745			1,601,466
CASH AND CASH EQUIVALENTS		11,134			11,948
RESTRICTED CASH		619			494
FUNDS HELD AT QUALIFIED INTERMEDIARY FOR SECTION 1031 EXCHANGE					43,794
CURRENT RECEIVABLES, NET		4,715			5,890
DEFERRED RENT RECEIVABLES, NET		62,515			61,929
NOTES RECEIVABLE		11,034			11,096
DEFERRED LEASING COSTS AND ACQUISITION RELATED INTANGIBLES, NET		46,381			49,019
DEFERRED FINANCING COSTS, NET		9,702			5,100
PREPAID EXPENSES AND OTHER ASSETS, NET		6,840			8,616
TOTAL ASSETS	$	1,927,685		$	1,799,352
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Secured debt (Note 4)	$	400,617		$	459,198
Exchangeable senior notes, net (Note 4)		455,630
Unsecured senior notes		144,000			144,000
Unsecured line of credit (Note 4)		18,000			276,000
Accounts payable, accrued expenses and other liabilities		61,497			67,729
Accrued distributions		20,610			19,610
Deferred revenue and acquisition related liabilities (Note 5)		52,026			25,353
Rents received in advance and tenant security deposits		17,521			19,900
Total liabilities		1,169,901			1,011,790
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTERESTS (Note 6):
7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership		73,638			73,638
Common units of the Operating Partnership		36,398			39,628
Total minority interests		110,036			113,266
STOCKHOLDERS’ EQUITY (Note 7):
Preferred stock, $.01 par value, 30,000,000 shares authorized:
7.45% Series A cumulative redeemable preferred stock, $.01 par value, 1,500,000 shares authorized, none issued and outstanding
Series B junior participating preferred stock, $.01 par value, 400,000 shares authorized, none issued and outstanding
9.25% Series D cumulative redeemable preferred stock, $.01 par value, 900,000 shares authorized, none issued and outstanding
7.80% Series E cumulative redeemable preferred stock, $.01 par value, 1,610,000 shares authorized, issued and outstanding		38,425			38,425
7.50% Series F cumulative redeemable preferred stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding		83,157			83,157
Common stock, $.01 par value, 150,000,000 shares authorized, 32,707,444 and 32,398,881 shares issued and outstanding, respectively		327			324
Additional paid-in capital (Note 4)		651,659			671,484
Distributions in excess of earnings		(125,820	)		(119,094	)
Total stockholders’ equity		647,748			674,296
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,927,685		$	1,799,352

See accompanying notes to consolidated financial statements.

3

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
REVENUES:
Rental income	$	56,454		$	56,171		$	112,769		$	111,769
Tenant reimbursements		6,225			6,241			12,784			11,726
Other property income (Note 10)		1,951			195			3,058			1,132
Total revenues		64,630			62,607			128,611			124,627
EXPENSES:
Property expenses		11,440			10,764			22,298			20,768
Real estate taxes		4,861			4,696			9,599			9,430
Provision for bad debts		(26	)		56			(199	)		567
Ground leases		502			474			1,018			993
General and administrative expenses		9,460			4,714			18,508			9,649
Interest expense (Note 4)		8,072			11,208			17,728			23,179
Depreciation and amortization		17,745			17,666			34,982			35,046
Total expenses		52,054			49,578			103,934			99,632
OTHER INCOME AND EXPENSE:
Interest income		371			231			990			483
Net settlement receipts on interest rate swaps					254						448
Loss on derivative instruments					(179	)					(255	)
Total other income		371			306			990			676
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS		12,947			13,335			25,667			25,671
MINORITY INTERESTS:
Distributions on Cumulative Redeemable Preferred units		(1,397	)		(1,397	)		(2,794	)		(2,794	)
Minority interest in earnings of Operating Partnership attributable to continuing operations		(609	)		(750	)		(1,187	)		(1,554	)
Total minority interests		(2,006	)		(2,147	)		(3,981	)		(4,348	)
INCOME FROM CONTINUING OPERATIONS		10,941			11,188			21,686			21,323
DISCONTINUED OPERATIONS (Note 12):
Revenues from discontinued operations					10,843			98			12,303
Expenses from discontinued operations					(847	)		(20	)		(1,567	)
Net gain on dispositions of discontinued operations		4,848						13,474			5,655
Minority interest in earnings of Operating Partnership attributable to discontinued operations		(297	)		(807	)		(862	)		(1,408	)
Total income from discontinued operations		4,551			9,189			12,690			14,983
NET INCOME		15,492			20,377			34,376			36,306
PREFERRED DIVIDENDS		(2,402	)		(2,402	)		(4,804	)		(4,804	)
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS	$	13,090		$	17,975		$	29,572		$	31,502
Income from continuing operations per common share—basic (Note 14)	$	0.26		$	0.28		$	0.52		$	0.55
Income from continuing operations per common share—diluted (Note 14)	$	0.26		$	0.28		$	0.52		$	0.54
Net income per common share—basic (Note 14)	$	0.40		$	0.58		$	0.91		$	1.04
Net income per common share—diluted (Note 14)	$	0.40		$	0.58		$	0.91		$	1.04
Weighted average shares outstanding—basic (Note 14)		32,371,183			31,048,657			32,359,999			30,248,817
Weighted average shares outstanding—diluted (Note 14)		32,486,171			31,171,757			32,485,566			30,394,032
Dividends declared per common share	$	0.555		$	0.530		$	1.110		$	1.060

See accompanying notes to consolidated financial statements.

4

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share and per share data)

	Preferred Stock		Common Stock				Additional Paid-in Capital			Distributions in Excess of Earnings			Total
			Number of Shares		Common Stock
BALANCE AT DECEMBER 31, 2006	$	121,582	32,398,881		$	324	$	671,484		$	(119,094	)	$	674,296
Net income											34,376			34,376
Grant of nonvested shares of common stock (Note 7)			269,323			2		2,968						2,970
Exchange of common units of the Operating Partnership (Note 6)			70,755			1		1,836						1,837
Non-cash amortization of nonvested share grants								6,106						6,106
Repurchase of common stock (Note 7)			(31,515	)				(2,631	)					(2,631	)
Cost of capped call options on common stock (Note 4)								(29,050	)					(29,050	)
Adjustment for minority interest (Note 1)								946						946
Preferred dividends											(4,804	)		(4,804	)
Dividends declared per common share ($1.11 per share)											(36,298	)		(36,298	)
BALANCE AT JUNE 30, 2007	$	121,582	32,707,444		$	327	$	651,659		$	(125,820	)	$	647,748

See accompanying notes to consolidated financial statements.

5

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Six Months Ended June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	34,376		$	36,306
Adjustments to reconcile net income to net cash provided by (used in) operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs		34,551			35,607
(Decrease) increase in provision for uncollectible tenant receivables		(199	)		343
Increase in provision for uncollectible deferred rent receivables					241
Distributions on cumulative redeemable preferred units		2,794			2,794
Minority interests in earnings of Operating Partnership		2,049			2,962
Depreciation of furniture, fixtures and equipment		431			394
Non-cash amortization of nonvested stock		7,387			1,588
Non-cash amortization of deferred financing costs		1,176			604
Amortization of above/below market rents, net		(691	)		(655	)
Net gain on dispositions of operating properties		(13,474	)		(5,655	)
Amortization of deferred revenue related to tenant improvements (Note 5)		(1,453	)		(1,132	)
Loss on derivative instruments					255
Non-cash gain on lease termination					(2,334	)
Net settlement receipts on interest rate swaps					(448	)
Other					(14	)
Changes in assets and liabilities:
Current receivables		1,374			1,465
Deferred rent receivables		(1,326	)		(3,878	)
Deferred leasing costs and acquisition related intangibles		(968	)		(607	)
Prepaid expenses and other assets		(1,663	)		(2,777	)
Accounts payable, accrued expenses and other liabilities		4,181			(74,769	)
Rents received in advance and tenant security deposits		417			3,331
Deferred revenue and acquisition related liabilities		5,655			4,688
Net cash provided by (used in) operating activities		74,617			(1,691	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for operating properties		(19,834	)		(18,920	)
Expenditures for development, redevelopment projects and undeveloped land		(109,134	)		(48,407	)
Acquisition of redevelopment property and undeveloped land (Note 2)		(68,970	)
Proceeds received from 1031 exchange completion (Note 2)		43,794
Net proceeds received from dispositions of operating properties (Note 3)		14,473			15,563
Proceeds from termination of profit participation agreement (Note 12)		4,848
Decrease (increase) in escrow deposits		3,000			(2,000	)
(Increase) decrease in restricted cash		(125	)		89
Net cash settlement receipts on interest rate swaps					432
Collections of principal on the note receivable		62			58
Net cash used in investing activities		(131,886	)		(53,185	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of exchangeable senior notes, net of discount (Note 4)		455,400
Cost of capped call options on common stock (Note 4)		(29,050	)
Net repayments on unsecured line of credit		(258,000	)		(23,000	)
Net proceeds from issuance of common stock					136,110
Principal payments on secured debt		(58,581	)		(7,720	)
Repurchase of common stock (Note 7)		(2,631	)		(2,891	)
Financing costs		(5,289	)		(2,114	)
Proceeds from exercise of stock options					760
Dividends and distributions paid to common stockholders and common unitholders		(37,796	)		(33,969	)
Dividends and distributions paid to preferred stockholders and preferred unitholders		(7,598	)		(7,598	)
Net cash provided by financing activities		56,455			59,578
Net (decrease) increase in cash and cash equivalents		(814	)		4,702
Cash and cash equivalents, beginning of period		11,948			3,881
Cash and cash equivalents, end of period	$	11,134		$	8,583

6

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(unaudited, in thousands)

	Six Months Ended June 30,
	2007		2006
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest of $9,191 and $4,313 at June 30, 2007 and 2006, respectively	$	13,801	$	22,811
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Tenant improvements funded directly by tenants to third-parties (Note 5)	$	23,210
Accrual for expenditures for operating properties, development and redevelopment projects	$	14,908	$	5,325
Accrual of dividends and distributions payable to common stockholders and common unitholders	$	19,400	$	18,400
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders	$	1,909	$	1,909
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$	1,837	$	28,888
Accrued costs for issuance of exchangeable senior notes (Note 4)	$	760
Non-cash increase in real estate assets in connection with a lease termination			$	2,334

See accompanying notes to consolidated financial statements.

7

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended June 30, 2007 and 2006

(unaudited)

1.    Organization and Basis of Presentation

Organization

Kilroy Realty Corporation (the “Company”) owns, operates and develops office and industrial real estate, primarily in Southern California. The Company operates as a self-administered real estate investment trust (“REIT”). As of June 30, 2007, the Company’s stabilized portfolio of operating properties consisted of 84 office buildings (the “Office Properties”) and 43 industrial buildings (the “Industrial Properties”), which encompassed an aggregate of approximately 7.8 million and 3.9 million rentable square feet, respectively, and was 92.7% occupied. The Company’s stabilized portfolio of operating properties consists of all of the Office Properties and the Industrial Properties and excludes development and redevelopment properties currently under construction and “lease-up” properties.

The Company defines “lease-up” properties as properties recently developed or redeveloped by the Company that have not yet reached 95% occupancy and are within one year following substantial completion. Lease-up properties are reclassified to land and improvements and building and improvements from construction in progress on the consolidated balance sheets upon building shell completion. As of June 30, 2007, the Company did not have any properties in the lease-up phase. As of June 30, 2007, the Company had five development projects comprised of eight buildings under construction, which when completed are expected to encompass an aggregate of approximately 1,128,000 rentable square feet. These development projects are all located in San Diego County. As of June 30, 2007, the Company had two redevelopment projects comprised of three buildings under construction, which encompass an aggregate of approximately 212,000 rentable square feet. One of the redevelopment projects is located in San Diego County and the other is located in Los Angeles County.

The Company owns its interests in all of the Office Properties and the Industrial Properties through Kilroy Realty, L.P. (the “Operating Partnership”) and Kilroy Realty Finance Partnership, L.P. (the “Finance Partnership”) and conducts substantially all of its operations through the Operating Partnership. The Company owned a 93.5% general partnership interest in the Operating Partnership as of June 30, 2007. Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% limited partnership interest in the Finance Partnership. The Company conducts substantially all of its development activities through Kilroy Services, LLC (“KSLLC”), which is a wholly-owned subsidiary of the Operating Partnership. Unless otherwise indicated, all references to the Company include the Operating Partnership, the Finance Partnership, KSLLC and all wholly-owned subsidiaries of the Company. With the exception of the Operating Partnership, all of the Company’s subsidiaries are wholly-owned.

Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, KSLLC and all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company also consolidates all variable interest entities (“VIEs”) in which it is deemed to be the primary beneficiary in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, Consolidation of Variable Interest Entities. The Company had no VIEs at June 30, 2007 or December 31, 2006.

8

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net income after preferred distributions and preferred dividends is allocated to the common limited partnership units not held by the Company (“Minority Interest of the Operating Partnership”) based on their ownership percentage of the Operating Partnership. The common limited partner ownership percentage is determined by dividing the number of common units held by the Minority Interest of the Operating Partnership by the total common units outstanding. The issuance or redemption of additional shares of common stock or common units results in changes to the Minority Interest of the Operating Partnership percentage as well as the total net assets of the Company. As a result, all equity transactions result in an allocation between stockholders’ equity and the minority interest held by common unitholders of the Operating Partnership in the accompanying consolidated balance sheets to account for the change in the Minority Interest of the Operating Partnership ownership percentage as well as the change in total net assets of the Company.

The accompanying interim financial statements have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 increases the relevancy and comparability of financial reporting by clarifying the way companies account for uncertainty in measuring income taxes. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 only allows a favorable tax position to be included in the calculation of tax liabilities and expenses if a company concludes that it is more likely than not that its adopted tax position will prevail if challenged by tax authorities. FIN 48 also provides guidance on the accounting for and recording of interest and penalties on uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007, and the adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements. See Note 13, “Uncertain Tax Positions,” for further information on the Company’s adoption of FIN 48.

In October 2006, the FASB issued FASB Staff Position No. FAS 123(R)-5, Amendment of FASB Staff Position FAS 123(R)-1, (“FSP FAS 123(R)-5”) to address whether a change to an equity instrument in connection with an equity restructuring should be considered a modification for the purpose of applying FASB Staff Position No. FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FAS Statement No. 123(R) (“FSP FAS 123(R)-1”). FSP FAS 123(R)-1 states that financial instruments issued to employees in exchange for past or future services are subject to the provisions of Statement of Financial Accounting Standards 123(R) unless the terms of the award are modified when the holder is no longer an employee. In FSP FAS 123(R)-5, the FASB staff concluded that changes to the terms of an award that are made solely due to an equity restructuring are not considered modifications as described in FSP FAS 123(R)-1 unless the fair value of the award increases, anti-dilution

9

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

provisions are added, or holders of the same class of equity instruments are treated unequally. FSP FAS 123(R)-5 is effective for the first reporting period beginning after October 10, 2006. The adoption of FSP FAS 123(R)-5 did not have a material impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and provides for expanded disclosure about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. This guidance was issued to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact that the adoption of SFAS 157 will have on the Company’s consolidated financial position, results of operations and cash flows but currently does not believe it will have a material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year after November 15, 2007. Management is currently evaluating the impact that the adoption of SFAS 159 will have on the Company’s consolidated financial position, results of operations and cash flows but currently does not believe it will have a material impact on the Company’s consolidated financial statements.

2.    Acquisitions

Acquisition of Properties

During the six months ended June 30, 2007, the Company acquired the following property. The property is currently being redeveloped and is included in construction in progress on the balance sheet as of June 30, 2007:

Project Name/Submarket/City	Property Type	Month of Acquisition	Number of Buildings	Rentable Square Feet	Purchase Price (in millions)
Sabre Springs Corporate Center I-15 Corridor San Diego, CA(1)	Office	January	2	104,500	$	24.7

(1) Acquisition also includes approximately 5.6 acres of undeveloped land.

Acquisitions of Undeveloped Land

During the six months ended June 30, 2007, the Company acquired the following parcels of undeveloped land:

Project Name /Submarket/ City	Month of Acquisition	Gross Acreage	Purchase Price (in millions)
Santa Fe Summit Phase III 56 Corridor San Diego, CA	January	10.5	$	28.0
Carlsbad Oaks Carlsbad Carlsbad, CA	February	32.0	$	15.8
Total		42.5	$	43.8

10

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Each of the acquired properties was purchased from an unaffiliated third party and was funded with borrowings under the Company’s Credit Facility (defined in Note 4) and/or the funds held at qualified intermediary for Section 1031 exchange.

3.    Disposition

During the six months ended June 30, 2007, the Company sold the following properties, which were classified as held for sale as of December 31, 2006, to an unaffiliated third party:

Location	Property Type	Month of Disposition	Number of Buildings	Rentable Square Feet	Sales Price(1) (in millions)
181 and 185 S. Douglas Street El Segundo, CA	Office	January	2	61,545
2270 El Segundo Boulevard El Segundo, CA	Industrial	January	1	6,362
Total			3	67,907	$	14.8

(1) The Company sold these properties in a portfolio transaction in January 2007. The sales price shown represents the sales price for the entire transaction.

For the six months ended June 30, 2007, the Company recorded a net gain of approximately $8.6 million in connection with the disposition noted above. The income and the net gain on disposition of these properties have been included in discontinued operations for the six months ended June 30, 2007 and for the three and six months ended June 30, 2006 (see Note 12).

4.    Unsecured and Secured Debt

Exchangeable Senior Notes

On April 2, 2007, the Operating Partnership issued $400 million in aggregate principal amount of 3.25% Exchangeable Senior Notes due 2012 (the “Exchangeable Notes”), and on April 11, 2007, the Operating Partnership issued an additional $60 million of 3.25% Exchangeable Senior Notes due 2012 (the “Additional Notes,” and together with the Exchangeable Notes, the “Notes”) in connection with the exercise by the initial purchasers of their over-allotment option. The Notes pay interest in cash semi-annually in arrears on April 15^th and October 15^th of each year, beginning on October 15, 2007, and mature on April 15, 2012. The initial discount at issuance of $4.6 million is being amortized into interest expense over the term of the Notes in a manner that approximates the effective interest method. The carrying value of the Notes at June 30, 2007 reflects an unamortized discount amount of $4.4 million.

The Notes can be exchanged for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events as follows: (i) during any calendar quarter beginning after June 30, 2007 if the closing sale price per share of the common stock of the Company is more than 130% of the exchange price per share of Company common stock for at least 20 trading days in a specified period, (ii) during the five consecutive trading-day period following any five consecutive trading days in which the trading price per $1,000 principal amount of the Notes was less than 98% of the product of the closing sale price per share of Company common stock multiplied by the applicable exchange rate, (iii) if the Notes have been called for redemption, (iv) upon the occurrence of specified corporate transactions, (v) if the Company common stock ceases to be listed or approved for quotation for 30 consecutive trading days, or (vi) on or after November 15, 2011.

The Notes have an initial exchange rate of 11.3580 common shares per $1,000 principal amount of the Notes, which is equivalent to an exchange price of $88.04 per common share and a conversion premium of approximately 20.0% based on a price of $73.37 per share of the Company’s common stock on March 27, 2007.

11

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The initial exchange rate is subject to adjustment under certain circumstances including increases in our common dividends. Upon exchange, the holders of the Notes will receive (i) cash up to the principal amount of the Notes and (ii) to the extent the exchange value exceeds the principal amount of the Notes, shares of our common stock. At any time prior to November 15, 2011, the Operating Partnership may irrevocably elect, in its sole discretion without the consent of the holders of the Notes, to settle all of the future exchange obligations of the Notes in shares of common stock. Any shares of common stock delivered for settlement will be based on a daily exchange value calculated on a proportionate basis for each day of a 50 trading-day observation period.

The Notes are unsecured obligations that rank equally with all other unsecured indebtedness and are effectively subordinated in right of payment to all of our secured indebtedness (to the extent of the collateral securing such indebtedness) and to all liabilities. The terms of the Notes are governed by an indenture, dated as of April 2, 2007, by and among the Operating Partnership, as issuer, the Company, as guarantor and U.S. Bank National Association, as trustee. The indenture does not contain any financial or operating covenants.

On March 27, 2007, in connection with the offering of the Exchangeable Notes, the Operating Partnership also entered into capped call option transactions with JPMorgan Chase Bank, National Association, Bank of America, N.A. and Lehman Brothers Inc. On April 4, 2007, in connection with the offering of the Additional Notes, the Operating Partnership also entered into amendments to the capped call option transactions originally entered into on March 27, 2007. The capped call option transactions, as amended, are separate transactions entered into by the Company with the relevant financial institutions, are not part of the terms of the Notes, and will not affect the holders’ rights under the Notes. Holders of the Notes will not have any rights with respect to the capped call option transactions. The capped call option transactions, as amended, will cover, subject to customary anti-dilution adjustments, 5,224,708 shares of the Company’s common stock at a strike price of $88.04, which corresponds to the initial exchange price of the Notes. The economic impact of these capped call option transactions is to mitigate the dilutive impact on the Company as if the conversion price were increased from $88.04 to $102.72 per common share, which represents an increase from the 20% premium to a 40% premium based on the March 27, 2007 closing price of $73.37 per common share.

The capped call option transactions are expected to generally reduce the potential dilution upon exchange of the Notes in the event the market value per share of the Company’s common stock, as measured under the terms of the call option transactions on the relevant settlement date, is greater than the strike price of the call option transaction. If, however, the market value per share of the Company’s common stock exceeds $102.72 per common share then the dilution mitigation under the capped call option transactions will be capped, which means there would be dilution from exchange of the Notes to the extent that the market value per share of our common stock exceeds $102.72. The capped call option transactions will terminate upon the earlier of the maturity date of the related Notes or the first day all the related Notes are no longer outstanding due to exchange. The cost of the capped call option transactions was approximately $29.0 million and was recorded as a reduction of additional paid in capital in stockholders equity on the Company’s consolidated balance sheet.

Unsecured Line of Credit and Secured Debt

In April 2007, the Operating Partnership used $397.5 million of the $421.8 million net proceeds received from the Notes, after the effect of underwriters fees, discounts and payment for the capped call transaction, to pay down the $331.0 million principal balance of the unsecured line of credit (the “Credit Facility”), to pay down the principal balance on one fixed-rate secured loan of $35.5 million contractually scheduled to mature in July 2008, and to repay the principal balance of one variable-rate secured loan of $31.0 million that was contractually scheduled to mature in January 2009. The $35.5 million loan that was paid down was subsequently amended into a $35.5 million secured line of credit that bears interest at an annual rate of LIBOR plus 0.75% (6.07% at June 30, 2007) and matures in April 2010. As of June 30, 2007, the Company had borrowings of $35.5 million outstanding under this line of credit.

12

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2007, the Company had borrowings of $18.0 million outstanding under the Credit Facility and availability of approximately $532.0 million. The Credit Facility bears interest at an annual rate between LIBOR plus 0.85% and LIBOR plus 1.35%, depending upon the Company’s leverage ratio at the time of borrowing (6.17% at June 30, 2007). The Credit Facility matures in April 2010, with an option to extend the maturity for one year. The fee for unused funds under the Credit Facility ranges from an annual rate of 0.15% to 0.20% depending on the Company’s leverage ratio. The Company expects to use the Credit Facility to finance development and redevelopment expenditures, to fund potential acquisitions and for other general corporate uses.

Debt Covenants and Restrictions

The Credit Facility, the unsecured senior notes and certain other secured debt arrangements contain covenants and restrictions requiring the Company to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total assets, a maximum ratio of total secured debt to total assets, a fixed charge coverage ratio, a minimum consolidated tangible net worth and a limit of development activities to total assets. Noncompliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and payable. The Company was in compliance with all of its debt covenants at June 30, 2007.

Capitalized Interest and Loan Fees

The following table sets forth the Company’s gross interest expense and loan cost amortization from continuing operations net of capitalized interest and loan cost amortization for the three and six months ended June 30, 2007 and 2006. The interest and loan costs are capitalized as a cost of development and increase the carrying value of undeveloped land and construction in progress.

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
Gross interest expense and loan cost amortization	$	13,166		$	13,606		$	27,580		$	27,638
Less: capitalized interest and loan cost amortization		(5,094	)		(2,398	)		(9,852	)		(4,459	)
Net interest expense	$	8,072		$	11,208		$	17,728		$	23,179

5.    Deferred Revenue and Acquisition Related Liabilities

Deferred revenue and acquisition related liabilities, consisted of the following at June 30, 2007 and December 31, 2006:

	June 30, 2007		December 31, 2006
	(in thousands)
Deferred revenue related to tenant-funded tenant improvements	$	47,420	$	19,125
Acquisition related liabilities—below-market leases		2,955		3,871
Other deferred revenue		1,651		2,357
Total	$	52,026	$	25,353

13

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company records the cost of certain tenant improvements paid for or reimbursed by tenants as capital assets when management concludes that the Company is the owner of such tenant improvements for accounting purposes. For these tenant improvements the Company records the amount funded or reimbursed by tenants as deferred revenue, which is amortized as additional rental income over the term of the related lease.

During the six months ended June 30, 2007, the Company recorded an additional $29.8 million of deferred revenue related to tenant-funded tenant improvements. This amount primarily represents the cost of the tenant improvements paid for, or reimbursed by, the tenant at certain of the Company’s in process development and redevelopment projects. The deferred revenue related to these tenant-funded tenant improvements will be amortized as additional rental income over the term of the related lease beginning upon the substantial completion of the respective development and redevelopment projects.

During the three months ended June 30, 2007 and 2006, $0.8 million and $0.6 million, respectively, of deferred revenue related to tenant-funded tenant improvements was amortized and recognized as rental income. During the six months ended June 30, 2007 and 2006, $1.5 million and $1.1 million, respectively, of deferred revenue related to tenant-funded tenant improvements was amortized and recognized as rental income.

Following is the estimated amortization of deferred revenue related to tenant-funded tenant improvements at June 30, 2007 for the next five years:

Year	(in thousands)
Remaining 2007	$	2,511
2008		5,268
2009		5,050
2010		4,813
2011		4,494
2012		4,201
Thereafter		21,083
Total	$	47,420

6.    Minority Interests

Minority interests represent the common and preferred limited partnership interests in the Operating Partnership. The Company owned a 93.5%, 93.3% and 92.4% common general partnership interest in the Operating Partnership as of June 30, 2007, December 31, 2006 and June 30, 2006, respectively. The remaining 6.5%, 6.7% and 7.6% common limited partnership interest as of June 30, 2007, December 31, 2006 and June 30, 2006, respectively, was owned by certain of the Company’s executive officers and directors, certain of their affiliates, and other outside investors in the form of common limited partnership units. The common limited partnership units are redeemable at the option of the unitholders. Upon receipt of the notice of redemption, the Company may elect, subject to certain limitations, to exchange the common limited partnership units for shares of the Company’s common stock on a one-for-one basis or redeem the units for cash in an amount equal to the fair market value at the time of redemption, as provided in the partnership agreement.

The decrease in the common limited partnership interests was primarily due to the number of common limited partnership units of the Operating Partnership that were redeemed for shares of the Company’s common stock since June 30, 2006. From June 30, 2006 to June 30, 2007, 377,857 common limited partnership units of the Operating Partnership were redeemed for shares of the Company’s common stock on a one-for-one basis, which included 70,755 common limited partnership units redeemed for shares of the Company’s common stock

14

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

on a one-for-one basis during the six months ended June 30, 2007. Neither the Company nor the Operating Partnership received any proceeds from the issuance of the common stock in exchange for common limited partnership units.

7.    Stockholders’ Equity and Employee Share-Based Incentive Plans

Share-Based Incentive Plan

The Company establishes incentive award plans for the purpose of attracting and retaining officers, key employees and non-employee board members. The Company’s Board of Directors adopted the Kilroy Realty 2006 Incentive Award Plan (the “2006 Plan”), which became effective upon approval by the Company’s stockholders at the May 18, 2006 annual meeting of stockholders. The 2006 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted shares (“nonvested shares”), stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, profits interest units, performance bonus awards, performance-based awards and other incentive awards to eligible individuals. Subject to certain adjustments set forth in the 2006 Plan, the maximum number of shares that may be issued or awarded under the 2006 Plan is 1,535,000 shares of common stock of the Company. These shares were registered under a Registration Statement filed with the SEC on Form S-8 in June 2006. At June 30, 2007, there were 1,265,677 shares available to be granted under the 2006 Plan.

The Executive Compensation Committee, currently comprised of four independent directors, historically has granted nonvested shares of common stock to employees and non-employee board members on an annual basis under different programs. The share awards are valued based on the quoted closing share price of the Company’s common stock on the New York Stock Exchange (“NYSE”) on the grant date. Dividends are paid on all outstanding shares whether vested or nonvested and are not returnable to the Company if the underlying shares ultimately do not vest.

Total compensation cost that has been expensed for all share-based compensation programs was $3.9 million and $0.8 million for the three months ended June 30, 2007 and 2006, respectively, and $7.4 million and $1.6 million for the six months ended June 30, 2007 and 2006, respectively. Share-based compensation cost capitalized as part of real estate assets was $0.2 million and $0.1 million for the three months ended June 30, 2007 and 2006, respectively, and $0.4 million and $0.2 million for the six months June 30, 2007 and 2006, respectively.

Executive Officer Share-Based Compensation Programs

In February 2007, the Executive Compensation Committee awarded to the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (“the Executive Officers”) the following nonvested shares: 165,730 nonvested shares of common stock under the 2006 Annual Incentive Award Program and 38,629 nonvested shares of common stock under the 2006 Annual Long-Term Incentive Program. The total compensation cost to be recorded over the requisite service periods for the nonvested shares was calculated based on the quoted closing share price of the Company’s common stock on the NYSE of $88.28 on the grant date of February 7, 2007. Of the 165,730 shares awarded under the 2006 Annual Incentive Award Program, 65,464 vest on December 31, 2007, 50,133 vest on December 31, 2008, and 50,133 vest on December 31, 2009. Of the 38,629 shares awarded under the 2006 Annual Long-Term Incentive Program, 19,315 vest on December 31, 2007 and 19,314 vest on December 31, 2008. Compensation expense recognized for these programs was $2.4 million and $0.1 million for the three months ended June 30, 2007 and 2006, respectively, and $4.8 million and $0.1 million for the six months ended June 30, 2007 and 2006, respectively.

15

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In February 2007, the Executive Compensation Committee approved the 2007 Annual Long-Term Incentive Program, which will allow for the Executive Officers to receive bonus compensation in the event certain specified corporate performance measures are achieved. Individual awards under this program will be made under the 2006 Plan, and it is anticipated that such awards will be paid in nonvested shares, or if available, and at the employee’s option, in other equity-based instruments that, subject to vesting and other conditions, may become exchangeable on a one-for-one basis for shares of the Company’s common stock or cash, at the election of the Company. The Company anticipates that any nonvested shares or other equity-based instruments earned under this program will be issued during the first quarter of 2008. The Company recognizes compensation cost for this program over the requisite service period, which began in February 2007 upon authorization of the program and will end at the completion of the respective service vesting periods. Compensation cost is recorded using the accelerated expense attribution method over the requisite service period. During the program performance period, the Company estimates the total value of the potential future award based on management’s estimate of the probable achievement of the pre-established target levels for specific corporate performance measures for the year ending December 31, 2007 and then records the associated compensation cost for the period based on the portion of the requisite service period that has elapsed through the end of the reporting period. Individual awards earned under the 2007 Annual Long-Term Incentive Program will vest 50% on December 31, 2008 and 50% on December 31, 2009. Vesting is based on continued employment through the applicable vesting dates. For the three and six months ended June 30, 2007, the Company recognized approximately $0.6 million and $1.0 million, respectively, of estimated compensation expense for this program.

In February 2007, the Executive Compensation Committee approved the 2007 Long-Term Targeted Performance Incentive Program, which is comprised of two separate programs: the Development Performance Program (the “DPP”) and the Total Annual Shareholder Return Program (the “TASRP”). Performance is measured independently for each of these programs. With respect to the DPP, the incentive award to be earned will be based on the achievement of certain specified development completion and leasing targets. Performance is measured independently for the development completion and development leasing targets. If the development completion and leasing targets are individually not achieved, no award will be earned under that component of the DPP. Individual awards earned under the DPP will be made under the 2006 Plan and will be paid in shares of vested and unrestricted common stock of the Company or, if available, and at the employee’s option, other equity-based instruments, as there is no additional service vesting period under this program. During the performance period, the Company records compensation expense for the DPP at the end of each reporting period by evaluating the likelihood of achieving the specified targets and estimating the timeframe in which the targets could potentially be achieved and then recording compensation expense based upon the applicable portion of the estimated performance period that has elapsed through the end of the period. As a result, there may be volatility in the Company’s recorded compensation expense for the DPP based on changes in the likelihood of the specified targets being achieved and/or based on changes in the timeframe in which the targets may be achieved.

The incentive award to be earned for the TASRP will be based on absolute total shareholder return and relative total shareholder return targets for the year ending December 31, 2007. Performance is measured independently for the absolute and relative total shareholder return targets. If the absolute and relative shareholder return targets are individually not achieved, no award will be earned under that component of the TASRP. Individual awards earned under the TASRP will be made under the 2006 Plan, and such awards will be paid in nonvested shares or, if available, and at the employee’s option, in other equity-based instruments. The Company anticipates that any nonvested shares or other equity-based instruments earned will be issued during the first quarter of 2008. The Company recognizes compensation cost for this program over the requisite service period, which began in February 2007 upon authorization of the program and will end at the completion of the respective service vesting periods. Compensation cost is recorded using the accelerated expense attribution method over the requisite service period. During the performance period, the Company records compensation

16

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

expense for the TASRP based on the estimated fair value of the TASRP at the end of each period. As a result, there may be volatility to the Company’s recorded compensation expense for the TASRP during the performance period due to volatility in the Company’s common stock and the related impact on the fair value calculation at the end of each reporting period. After the performance period, if the specific targets are achieved, the compensation expense is recorded over the service vesting period using the accelerated expense attribution method. Individual awards earned under the TASRP will vest 50% on December 31, 2008 and 50% on December 31, 2009 based on continued employment through the applicable vesting dates.

For the three and six months ended June 30, 2007, the Company recognized approximately $0.5 million and $0.7 million, respectively, of estimated compensation expense for the DPP and the TASRP.

Key Employee Share-Based Compensation Program

In February 2007, the Executive Compensation Committee granted an aggregate of 56,074 nonvested shares of common stock to certain key employees for the 2006 performance period. The total compensation cost for the nonvested share grants was calculated based on the quoted closing share price of the Company’s common stock on the NYSE of $88.28 on the grant date of February 7, 2007. These shares vest in equal annual installments over a five-year period. The Company recognizes compensation cost for these awards over the service vesting periods, which represent the requisite service periods, using the straight-line attribution expense method. For the three and six months ended June 30, 2007, the Company recognized approximately $0.2 million and $0.4 million, respectively, of compensation costs for these awards.

Non-employee Board Member Share-Based Compensation Program

The Executive Compensation Committee awards nonvested shares of common stock to non-employee board members on an annual basis as part of the board members’ annual compensation in accordance with the Company’s Board of Directors compensation program, as approved by the Board of Directors in March 2007. The Company recognizes compensation cost for these fixed awards over the service vesting period, which represents the requisite service periods, using the straight-line attribution expense method.

In May 2007, the Executive Compensation Committee granted an aggregate of 6,890 nonvested shares of common stock to non-employee board members under this program. The total compensation cost for the nonvested share grants was calculated based on the quoted closing share price of the Company’s common stock on the NYSE of $72.60 on the grant date of May 15, 2007. These shares vest in equal annual installments over a two-year period.

In June 2007, the Executive Compensation Committee granted 1,000 nonvested shares of common stock to each of the Company’s two newly elected board members, representing their initial equity awards. The nonvested shares were granted in accordance with the Company’s Board of Directors compensation program. The compensation cost for the nonvested share grants was calculated based on the quoted closing share price of the Company’s common stock on the NYSE of $71.11 on the grant date of June 21, 2007 and $69.96 on the grant date of June 25, 2007. The grant date for each new board member was the date such board member was elected to the Board of Directors. These shares vest in equal annual installments over a four-year period. In July 2007, one of the newly elected board members resigned from the Board of Directors, and the Company elected to exercise its right to repurchase at the par value of $.01 per share his initial equity award of 1,000 nonvested shares of common stock.

17

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Nonvested Share Summary

A summary of the Company’s nonvested shares as of January 1, 2007 and changes during the six months ended June 30, 2007 is presented below. All nonvested shares are subject only to service vesting conditions:

	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2007	146,952		$	56.49
Granted	269,323		$	87.75
Vested	(81,187	)	$	53.43
Forfeited	—			—
Nonvested at June 30, 2007	335,088		$	82.36

As of June 30, 2007, there was $17.9 million of total unrecognized compensation cost related to nonvested shares granted under share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.6 years. The $17.9 million of unrecognized compensation cost does not reflect the potential future compensation cost related to the share-based incentive compensation programs approved in February 2007 for the Executive Officers since any nonvested shares earned under these programs will not be granted until 2008 or later. The compensation cost that will be recorded in future periods related to any nonvested shares granted under these programs will be based on the Company’s ultimate achievement of the pre-established target levels for specific corporate performance measures outlined in each of the programs. During the six months ended June 30, 2007 and 2006, 269,323 nonvested shares were granted at a weighted-average grant-date fair value of $87.75 per share, and 87,067 nonvested shares were granted at a weighted average grant date fair value of $67.69 per share, respectively. The total fair value of shares that vested during both the six months ended June 30, 2007 and 2006 was $6.7 million, which was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the applicable date of vesting.

During the six months ended June 30, 2007, the Company accepted the return, at the then-applicable current per share quoted market price on the NYSE, of 31,515 shares of its common stock in accordance with the provisions of its incentive stock plan to satisfy minimum statutory tax-withholding requirements related to shares that vested during the period. These shares are included in the vested shares line item in the table above.

Stock Options Summary

A summary of the Company’s stock options as of January 1, 2007 and changes during the six months ended June 30, 2007 is presented below. The Company has not issued stock options since 2002, and all stock options were fully vested as of December 31, 2005.

The Company’s stock option activity for the six months ended June 30, 2007 is summarized as follows:

	Number of Options		Weighted Average Exercise Price
Outstanding at January 1, 2007	47,000		$	24.33
Granted	—
Exercised	—			—
Cancelled	(20,000	)		23.00
Outstanding at June 30, 2007	27,000		$	25.32

18

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At June 30, 2007, the outstanding options had a weighted average remaining contractual life of 3.6 years. The stock options vested at 33 ¹/3% per year over three years beginning on the first anniversary date of the grant and are exercisable at the market value on the date of the grant. The term of each option is ten years from the date of the grant. The Company has a policy of issuing new shares to satisfy share option exercises.

8.    Commitments and Contingencies

Other Contingencies—In October 2005, one of the Company’s Industrial Properties sustained damage due to a fire sprinkler rupture. As a result of the damage, the Company recorded a casualty loss of approximately $0.4 million during the fourth quarter of 2005 to write off the carrying value of the damaged components. At December 31, 2005, the Company had received approximately $0.2 million of reimbursements from the Company’s insurance carrier and accrued an additional $0.2 million receivable from the insurance carrier since the Company expected to be fully reimbursed for this loss. In December 2006, the Company received a progress payment of approximately $0.8 million from the insurance carrier. Approximately $0.5 million, representing the portion of the proceeds that exceed the carrying value of the damaged components, has been deferred since the final settlement has not been reached and contingencies still existed as of June 30, 2007. The Company expects to record this amount as a gain when the final insurance settlement is received from the insurance carrier and all contingencies have been resolved in accordance with FASB Interpretation No. 30, Accounting for Involuntary Conversions of Nonmonetary Assets to Monetary Assets. The Company currently anticipates the contingencies to be resolved in the third quarter of 2007.

9.    Deferred Compensation Plan

In June 2007, the Company adopted the Kilroy Realty Corporation 2007 Deferred Compensation Plan (the “Plan”), under which directors and certain management employees may defer receipt of their compensation, including up to 70% of their salaries and up to 100% of their director fees and bonuses, as applicable. Eligible management employees (“Participants”) will receive monthly Company contributions to their Plan accounts equal to 10% of their respective gross monthly salaries, without regard to whether such employees elect to defer salary or bonus compensation under the Plan. The Company’s Board of Directors may, but has no obligation to, approve additional discretionary contributions by the Company to Participant accounts. Upon the adoption of the Plan, the Company’s Board of Directors approved a discretionary contribution of approximately $192,000, which was accrued as of June 30, 2007.

The Company will hold the Plan assets in a limited (“rabbi”) trust, subject to the claims of the Company’s creditors in the event of the Company’s bankruptcy or insolvency. The Company will record a liability and the corresponding compensation cost for Plan deferrals at the time the Participants earn the compensation or at the time the Company obligates itself to make a contribution. This liability will be adjusted to reflect fair value at the end of each accounting period based on the performance of the benchmark funds selected by each Participant, and the impact of the recording the liability to fair value will be recorded as an increase or decrease to compensation cost. Assets held by the rabbi trust will be classified as trading securities and reported as marketable securities on the Company’s consolidated balance sheet. These marketable securities will be adjusted to fair value at the end of each accounting period, with the corresponding gains and losses recorded in other income.

10.    Other Property Income

In January 2007, the Company recognized $1.1 million of other property income related to the early termination of a lease at an Office Property in San Diego, California, which encompassed approximately 40,200 rentable square feet.

19

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In April 2007, the Company recognized $1.7 million of other property income related to the early termination of a lease at an Office Property in San Diego, California, which encompassed approximately 49,000 rentable square feet.

11.    Segment Disclosure

The Company’s reportable segments consist of the two types of commercial real estate properties for which the Company’s chief operating decision-makers internally evaluate operating performance and financial results: the Office Properties and the Industrial Properties. The Company also has certain corporate-level activities including legal, accounting, finance, and management information systems, which are not considered separate operating segments.

The Company evaluates the performance of its segments based upon operating revenues (rental income, tenant reimbursements and other property income) less property and related expenses (property expenses, real estate taxes, ground leases and provisions for bad debts) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and corporate general and administrative expenses (“Net Operating Income”). There is no intersegment activity.

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
Office Properties:
Operating revenues(1)	$	57,027		$	54,077		$	113,353		$	107,577
Property and related expenses		15,287			14,519			29,939			28,900
Net Operating Income		41,740			39,558			83,414			78,677
Industrial Properties:
Operating revenues(1)		7,603			8,530			15,258			17,050
Property and related expenses		1,490			1,471			2,777			2,858
Net Operating Income		6,113			7,059			12,481			14,192
Total Reportable Segments:
Operating revenues(1)		64,630			62,607			128,611			124,627
Property and related expenses		16,777			15,990			32,716			31,758
Net Operating Income		47,853			46,617			95,895			92,869
Reconciliation to Consolidated Net Income Available for Common Stockholders:
Total Net Operating Income for reportable segments		47,853			46,617			95,895			92,869
Unallocated other income:
Total other income		371			306			990			676
Other unallocated expenses:
General and administrative expenses		9,460			4,714			18,508			9,649
Interest expense		8,072			11,208			17,728			23,179
Depreciation and amortization		17,745			17,666			34,982			35,046
Income from continuing operations before minority interests		12,947			13,335			25,667			25,671
Minority interests attributable to continuing operations		(2,006	)		(2,147	)		(3,981	)		(4,348	)
Income from discontinued operations		4,551			9,189			12,690			14,983
Net income		15,492			20,377			34,376			36,306
Preferred dividends		(2,402	)		(2,402	)		(4,804	)		(4,804	)
Net income available for common stockholders	$	13,090		$	17,975		$	29,572		$	31,502

(1) All operating revenues are comprised of amounts received from third-party tenants.

20

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12.    Discontinued Operations

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (“SFAS 144”), the income and the net gain on dispositions of operating properties are reflected in the consolidated statements of operations as discontinued operations for all periods presented. The following table summarizes the components that comprise income from discontinued operations for the three and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands)
REVENUES:
Rental income	$			$	962		$	95		$	2,285
Tenant reimbursements					115			3			252
Other property income					9,766						9,766
Total revenues					10,843			98			12,303
EXPENSES:
Property expenses					149			15			326
Real estate taxes					70			5			178
Provision for bad debts											17
Interest expense(1)											90
Depreciation and amortization					628						956
Total expenses					847			20			1,567
Net gain on dispositions of discontinued operations		4,848						13,474			5,655
Minority interest in earnings of Operating Partnership attributable to discontinued operations		(297	)		(807	)		(862	)		(1,408	)
Total income from discontinued operations	$	4,551		$	9,189		$	12,690		$	14,983

(1) In connection with the disposition of the building sold in 2006, the Company repaid approximately $1.3 million in principal of a mortgage loan secured by the property. The related interest was allocated to discontinued operations.

Net gain on dispositions of discontinued operations for the three and six months ended June 30, 2007 includes a $4.8 million payment received to terminate a profit participation agreement that was entered into in connection with a property disposition in 2005. When the property disposition occurred in 2005, the Company entered into an agreement with the buyer under which the Company had the right to participate in certain future operating and sale profits of the property above specified thresholds without any risk of loss or continuing involvement to the Company. The Company recorded the initial gain on the disposition of this property in 2005 at the time of sale.

13.    Uncertain Tax Positions

The Company adopted FIN 48 effective January 1, 2007. In accordance with the requirements of FIN 48, the Company evaluated all tax years still subject to potential audit under state and federal income tax law in reaching its accounting conclusions.

Since the Company’s initial public offering in 1997, the Company has qualified and intends to continue to qualify as a REIT under federal income tax law. As a result of its REIT status, the Company is able to claim a

21

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

dividends paid deduction on its tax return to deduct the full amount of common and preferred dividends paid to stockholders when computing its annual taxable income, which results in the Company’s taxable income being passed through to its stockholders. Since this dividends paid deduction has historically far exceeded the Company’s taxable income, the Company has historically had significant return of capital to its stockholders. In order for the Company to be required to record any unrecognized tax benefits or additional tax liabilities in accordance with FIN 48, any adjustment for potential uncertain tax positions would need to exceed the return of capital.

The Company evaluated the potential impact of identified uncertain tax positions and concluded that its return of capital would not be materially affected for any of the years still subject to potential audit under state and federal income tax law. As a result, the Company concluded it did not have any unrecognized tax benefits or any additional tax liabilities after applying FIN 48 as of the January 1, 2007 adoption date or as of June 30, 2007. The adoption of FIN 48 therefore had no impact to the Company’s consolidated financial statements.

22

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14.    Earnings Per Share

Basic earnings per share is computed by dividing net income available for common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income available for common stockholders by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities. The Company does not consider common limited partnership units of the Operating Partnership to be dilutive securities since the exchange of common limited partnership units into common stock is on a one-for-one basis and would not have any effect on diluted earnings per share. The following table reconciles the numerator and denominator of the basic and diluted per-share computations for net income available for common stockholders for the three and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	10,941		$	11,188		$	21,686		$	21,323
Preferred dividends		(2,402	)		(2,402	)		(4,804	)		(4,804	)
Income from continuing operations available for common stockholders		8,539			8,786			16,882			16,519
Discontinued operations		4,551			9,189			12,690			14,983
Net income available for common stockholders—numerator for basic and diluted earnings per share	$	13,090		$	17,975		$	29,572		$	31,502
Denominator:
Basic weighted average shares outstanding		32,371,183			31,048,657			32,359,999			30,248,817
Effect of dilutive securities—nonvested shares and stock options		114,988			123,100			125,567			145,215
Diluted weighted average shares and common share equivalents outstanding		32,486,171			31,171,757			32,485,566			30,394,032
Basic earnings per share:
Income from continuing operations available for common stockholders	$	0.26		$	0.28		$	0.52		$	0.55
Discontinued operations		0.14			0.30			0.39			0.49
Net income available for common stockholders	$	0.40		$	0.58		$	0.91		$	1.04
Diluted earnings per share:
Income from continuing operations available for common stockholders	$	0.26		$	0.28		$	0.52		$	0.54
Discontinued operations		0.14			0.30			0.39			0.50
Net income available for common stockholders	$	0.40		$	0.58		$	0.91		$	1.04

23

KILROY REALTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At June 30, 2007, there were 56,074 nonvested shares excluded from the computation of diluted earnings per share because they were antidilutive. At June 30, 2006, Company employees and directors held no options to purchase shares of the Company’s common stock or nonvested shares that were antidilutive to the diluted earnings per share computation.

15.    Subsequent Events

On July 18, 2007, aggregate dividends and distributions of $19.4 million were made to common stockholders and common unitholders of record on June 29, 2007.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Some of the information presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, project development timing and investment amounts. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include the timing and strength of regional economic growth, the strength of commercial and industrial real estate markets, market conditions affecting tenants, competitive market conditions, fluctuations in availability and cost of construction materials resulting from the effects of increased worldwide demand, increased labor costs, future interest rate levels, and capital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information. For a discussion of important risks related to our business, and an investment in our securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see “Item 1A—Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2006 and the discussion under the captions “—Factors That May Influence Future Results of Operations” and “—Liquidity and Capital Resources—Factors That May Influence Future Sources of Capital and Liquidity” below. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

Overview and Background

We own, operate, and develop office and industrial real estate, primarily in Southern California. We operate as a self-administered real estate investment trust, or REIT. We own our interests in all of our properties through Kilroy Realty, L.P., or the Operating Partnership, and Kilroy Realty Finance Partnership, L.P., or the Finance Partnership, and conduct substantially all of our operations through the Operating Partnership. We owned a 93.5%, 93.3%, and 92.4% general partnership interest in the Operating Partnership as of June 30, 2007, December 31, 2006, and June 30, 2006, respectively. We conduct substantially all of our development activities through Kilroy Services, LLC, a wholly-owned subsidiary of the Operating Partnership.

Factors That May Influence Future Results of Operations

Rental income.    The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affect our rental income in future periods.

Rental rates.    The increase in rental rates on a GAAP basis was 17.2% and 25.2% for leases commencing during the three and six months ended June 30, 2007, respectively. On a cash basis, the increase in rental rates was 3.9% and 8.6% for leases commencing during the three and six months ended June 30, 2007, respectively. The change in rental rate on a cash basis is calculated as the change between the initial stated rent for a new or renewed lease and the ending stated rent for the expiring lease for the same space, whereas the change in rental rate on a GAAP basis compares the average rents over the term of the lease for each lease. Both calculations exclude leases for which the space was vacant longer than one year, month-to-month leases and leases at development and redevelopment buildings. We believe that at June 30, 2007, the average cash rental rates for our properties were approximately 10% below the current average quoted market rates, although individual properties within any particular submarket presently may be leased either above, below or at the current quoted

25

market rates within that submarket. We cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current quoted market rates.

Scheduled lease expirations.    In addition to the 850,400 square feet, or 7.3%, of currently available space in our stabilized portfolio, leases representing approximately 4.2% and 13.5% of the leased square footage of our stabilized portfolio are scheduled to expire during the remainder of 2007 and in 2008, respectively. The leases scheduled to expire during the remainder of 2007 and the leases scheduled to expire in 2008 represent approximately 0.9 million square feet of office space, or 8.5%, of our total annualized base rent, and 1.0 million square feet of industrial space, or 3.4%, of our total annualized base rent, respectively. We believe that the average cash rental rates for leases scheduled to expire during the remainder of 2007 and in 2008 are approximately 15% to 20% and 5% to 10%, respectively, below the current average quoted market rates, although individual properties within any particular submarket presently may be leased either above, below or at the current quoted market rates within that submarket. Our ability to re-lease available space depends upon the market conditions in the specific submarkets in which our properties are located.

Submarket Information

Los Angeles County.    Market conditions continued to improve in the overall Los Angeles County region in 2007, based on third-party reports of positive net absorption and decreased levels of direct vacancy. Our Los Angeles stabilized office portfolio of 2.9 million rentable square feet was 93.8% occupied with approximately 180,500 vacant rentable square feet as of June 30, 2007 as compared to 92.8% occupied with approximately 209,600 vacant rentable square feet as of December 31, 2006. Included in our Los Angeles office portfolio is a two-building office complex in El Segundo, encompassing approximately 369,500 rentable square feet, which was 80% occupied as of June 30, 2007. As of the date of this report, we had executed leases or letters of intent for approximately 89% of the total project rentable square feet. As of June 30, 2007, leases representing an aggregate of approximately 27,200 and 140,500 rentable square feet are scheduled to expire during the remainder of 2007 and in 2008, respectively, in this region. The aggregate rentable square feet scheduled to expire during the remainder of 2007 and in 2008 represents approximately 6.0% of the total occupied rentable square feet in this submarket at June 30, 2007.

San Diego County.    San Diego County’s real estate fundamentals remain sound based on third-party reports of positive absorption, increased rental rates and continued tenant demand. We continue our development and redevelopment of office projects in this market and seek economically attractive development opportunities in this region. See additional information regarding our development projects under the caption “—Development and redevelopment programs.” Our San Diego stabilized office portfolio was 93.9% occupied at June 30, 2007, compared to 98.6% occupied at December 31, 2006. The decrease primarily relates to one office building, encompassing approximately 93,000 rentable square feet, that was vacated in April 2007. The building has been re-leased to Cardinal Health, Inc. (“Cardinal Health”), and the new lease is expected to commence during the third quarter of 2007. See additional information regarding the Cardinal Health lease under the caption “—Development and redevelopment programs.” As of June 30, 2007, leases representing an aggregate of approximately 314,100 and 261,900 rentable square feet are scheduled to expire during the remainder of 2007 and in 2008, respectively, in this region. The aggregate rentable square feet scheduled to expire during the remainder of 2007 and in 2008 represents approximately 16.3% of the total occupied rentable square feet in this region at June 30, 2007.

Given the geographic concentration of our development program in San Diego County, our operating results may be affected by (i) the city of San Diego’s current financial difficulties and ongoing investigations with respect to the city’s finances, (ii) the city of San Diego’s General Plan and Land Use update, (iii) the city of San Diego’s zoning ordinance updates, and (iv) recent storm water runoff regulations and other pending ordinances currently under consideration by the city, county and state water agencies. Any of these factors may affect San Diego County’s ability to finance capital projects and may impact real estate development, entitlements, costs of development and market conditions in this important submarket. As of the date of this report, we have not experienced any material adverse effects arising from these factors.

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Orange County.    As of June 30, 2007, our Orange County stabilized industrial portfolio was 90.5% occupied with approximately 349,000 vacant rentable square feet as compared to 95.6% occupied with approximately 163,500 vacant rentable square feet as of December 31, 2006. The decrease in occupancy is primarily due to two buildings, encompassing approximately 191,600 rentable square feet, that were each leased to single tenants. These leases expired during the first quarter of 2007. We are currently in active discussions with prospective tenants for both of the buildings. Also included in our Orange County industrial portfolio is one vacant building encompassing approximately 157,500 rentable square feet. We are in the process of re-entitling this property for residential use and, if successful, will evaluate the strategic options for the property, including the potential disposition of the asset. As of June 30, 2007, leases representing an aggregate of approximately 68,200 and 1,008,700 rentable square feet were scheduled to expire during the remainder of 2007 and in 2008, respectively, in this region. The aggregate rentable square feet scheduled to expire during the remainder of 2007 and in 2008 represents approximately 30.5% of the total occupied rentable square feet in this region at June 30, 2007 and 4.0% of our annualized base rental revenues.

Sublease space.    Of our leased space at June 30, 2007, approximately 536,500 rentable square feet, or 4.6%, of the square footage in our stabilized portfolio, was available for sublease, as compared to 516,700 rentable square feet, or 4.4%, at December 31, 2006. Of the 4.6% of available sublease space in our stabilized portfolio at June 30, 2007, approximately 1.4% was vacant space and the remaining 3.2% was still occupied by the tenant. Approximately 42%, 38% and 20% of the available sublease space as of June 30, 2007 is located in the San Diego County, Orange County and Los Angeles County submarkets, respectively. Of the approximately 536,500 rentable square feet available for sublease at June 30, 2007, there are no scheduled lease expirations during the remainder of 2007. Three leases representing approximately 76,900 rentable square feet are scheduled to expire in 2008.

Negative trends or other unforeseeable events that impair our ability to renew or re-lease space and our ability to maintain or increase rental rates in our submarkets could have an adverse effect on our future financial condition, results of operations and cash flows.

Recent information regarding significant tenants

The Boeing Company.    As of June 30, 2007, our largest tenant based on its percentage of our total annualized base rental revenues, The Boeing Company (“Boeing”), leased an aggregate of approximately 676,000 rentable square feet under four separate leases, representing 4.2% of our total annualized base rental revenues at June 30, 2007. Boeing has one lease in El Segundo, California, encompassing approximately 286,000 rentable square feet, which is scheduled to expire in July 2010. Boeing has another lease in Seattle, Washington, encompassing 211,000 rentable square feet, which is scheduled to expire in December 2010. The remaining two leases for approximately 113,000 and 66,000 rentable square feet are scheduled to expire in March 2009 and October 2010, respectively.

Intuit Inc.    As of June 30, 2007, Intuit Inc. (“Intuit”), our fourth largest tenant based on its percentage of our total annualized base rental revenues, leased an aggregate of approximately 302,500 rentable square feet of office space throughout our Southern California portfolios under four separate leases, representing approximately 2.8% of our total annualized base rental revenues at June 30, 2007. We are completing development of approximately 465,600 rentable square feet of additional office space, comprising the entirety of a four-building office complex, in the 56 Corridor submarket in San Diego County (the “56 Corridor”) that has been pre-leased to Intuit under a ten-year lease agreement. Intuit began occupying two of the four buildings, encompassing approximately 205,200 rentable square feet, in July 2007 and is expected to begin occupying the remaining two buildings, encompassing approximately 260,400 rentable square feet, in August 2007, at which time Intuit is projected to become our largest tenant based on its percentage of our total annualized base rental revenues. See additional information regarding our development projects under the caption “—Development and redevelopment programs.”

Of the space currently occupied by Intuit, one of the leases encompasses approximately 212,200 rentable square feet, of which approximately 141,200 rentable square feet is scheduled to expire in August 2007 and the

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remaining 71,000 rentable square feet is scheduled to expire in August 2009. The remaining three leases encompass an aggregate of approximately 90,300 rentable square feet. All three of these leases are scheduled to expire in July 2014.

Development and redevelopment programs.    We believe that a significant portion of our potential growth over the next several years will continue to come from our development pipeline. We have continued to aggressively seek and obtain development opportunities throughout Southern California and specifically in our core markets, such as the San Diego County region. We have made significant progress in expanding our development program through targeted acquisitions of properties and undeveloped land and new lease transactions.

In the first quarter of 2007, we acquired two parcels of undeveloped land encompassing approximately 42.5 gross acres in two separate transactions. These parcels are located in San Diego County in the 56 Corridor and Carlsbad submarkets (see Note 2 to our consolidated financial statements for additional information regarding these acquisitions). These strategic acquisitions increase the total gross site acreage of our future development pipeline to 97.9 acres, with which we believe we will have the potential to develop over two million rentable square feet of office space at a total investment of between $700 million and $1 billion over the next three to five years.

As of June 30, 2007, we had five development projects under construction, consisting of eight buildings, which when complete are expected to encompass an aggregate of approximately 1,128,000 rentable square feet. One of the projects currently being developed is the previously discussed four-building office complex in the 56 Corridor submarket of San Diego County, which has been leased to Intuit. We began construction on two of the four buildings in the fourth quarter of 2005, and construction on the remaining two buildings commenced in the first quarter of 2006. The project, which will encompass an aggregate of approximately 465,600 rentable square feet, is expected to be completed in phases during the third quarter of 2007. Intuit began occupying two of the four buildings encompassing approximately 205,200 rentable square feet in July 2007 and is expected to begin occupying the remaining two buildings encompassing approximately 260,400 rentable square feet in August 2007. Our total estimated investment in this project is approximately $145 million.

We are also developing a three-story office building encompassing approximately 318,000 rentable square feet under a lease agreement with Cardinal Health. We began construction on the building, which is located in the Sorrento Mesa submarket of San Diego County, in September 2006. Our total estimated investment in this project is approximately $75 million. Cardinal Health began occupying the building in July 2007. Upon occupancy of this building, Cardinal Health became one of our top five tenants based on its percentage of our total annualized base rental revenues. The lease agreement with Cardinal Health also includes an existing building encompassing approximately 93,000 rentable square feet located adjacent to the development site. Cardinal Health is expected to begin occupying this building in October 2007.

We are also developing an office property in the I-15 Corridor submarket of San Diego County (the “I-15 Corridor”) encompassing an aggregate of approximately 142,700 rentable square feet of space. The project is located adjacent to our existing two-building office complex, which was 79.1% occupied at June 30, 2007. Development is expected to be completed in the fourth quarter of 2007. The project has a total estimated investment of approximately $65 million. As of June 30, 2007, the project had not been pre-leased.

We are also in the process of developing a six-story office building encompassing approximately 146,200 rentable square feet at our Innovation Corporate Center in the I-15 Corridor. A lease agreement for this property was executed in July 2006 with Scripps Health, our seventh largest tenant as of June 30, 2007. We commenced construction on the project in September 2006 and expect to complete development of this building in the third quarter of 2008. The lease is also expected to commence in the third quarter of 2008. Our total estimated investment in this project is approximately $51 million.

We are also developing an office property in the Sorrento Mesa submarket of San Diego County encompassing an aggregate of approximately 55,500 rentable square feet. Development is expected to be

28

completed in the fourth quarter of 2007. Our total estimated investment in this project is approximately $22 million. As of June 30, 2007, the project had not been pre-leased.

We believe that another source of potential growth over the next several years is redevelopment opportunities within our existing portfolio. Redevelopment efforts can achieve similar returns to new development with reduced entitlement risk and shorter construction periods. Depending on market conditions, we will continue to pursue future redevelopment opportunities in our strategic submarkets where there is limited land available for development.

In the first quarter of 2007, we acquired an office project comprised of 5.6 acres of land and two existing office buildings, encompassing an aggregate of approximately 104,500 rentable square feet. The project is located in the I-15 Corridor. We acquired this project as a current redevelopment and potential future development opportunity. Upon acquisition in the first quarter of 2007, we began redevelopment of the vacant buildings, which were previously occupied by the owner. Our total estimated investment for the redevelopment is approximately $35 million, of which $25 million represents the acquisition cost of the project. As of June 30, 2007, we had incurred $1 million of redevelopment costs. See Note 2 to our consolidated financial statements for additional information regarding this acquisition.

We are also currently redeveloping approximately 107,000 rentable square feet of an office property in El Segundo, California that was occupied by Boeing and its predecessors for highly specialized use for over 20 years. The ground floor of the building, which encompasses approximately 15,700 rentable square feet of space, is not being redeveloped and is still reflected in our stabilized portfolio. Our total estimated investment for this redevelopment project is approximately $21 million, of which $5 million represents the net depreciated carrying value of the building allocated to the project at the commencement of redevelopment. As of June 30, 2007, we had incurred $12 million of redevelopment costs. The DIRECTV Group, Inc. has leased 77% of this space. The lease commenced in July 2007.

We have a proactive planning process by which we continually evaluate the size, timing, costs and scope of our development and redevelopment programs and, as necessary, scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets. However, we may be unable to lease committed development or redevelopment properties at expected rental rates or within projected timeframes or complete projects on schedule or within budgeted amounts, which could adversely affect our financial condition, results of operations and cash flows.

Rising Construction Costs.    As a result of increased worldwide demand, the availability of construction materials has become more limited, and the cost of such materials has increased significantly. The cost of skilled labor has also increased. A continued increase in the cost of construction materials, driven primarily by the volatility of the prices of underlying raw materials such as oil, cement and steel, and labor costs could adversely affect our expenditures for development and redevelopment costs and, consequently, our financial condition, results of operations and cash flows.

Incentive Compensation.    Our Executive Compensation Committee, which is comprised entirely of independent directors of the Company, determines compensation, including equity and cash incentive programs, for our Executive Officers. The programs approved by the Executive Compensation Committee have historically provided for equity and cash compensation to be earned by our Executive Officers based on certain performance measures, including financial, operating and development targets. In the first quarter of 2007, our Executive Compensation Committee approved the 2007 Annual Bonus Program, the 2007 Annual Long-Term Incentive Program, and the 2007 Long-Term Targeted Performance Incentive Program for executive management that will allow for executive management to receive bonus compensation for achieving certain specified corporate performance measures that are based on annualized shareholder returns on an absolute and a relative basis as well as certain other financial, operating and development targets. The provisions of these programs were previously reported on Form 8-K filed with the SEC on February 8, 2007. For further information regarding these

29

programs, see Note 7 to our consolidated financial statements. As a result of the structure of these programs, and other programs that the Executive Compensation Committee may adopt in the future, accrued incentive compensation and compensation expense for these programs will be affected by our operating and development performance, financial results, the performance of our common stock and market conditions. Consequently we cannot predict the amounts that will be recorded in future periods related to compensation programs.

Share-Based Compensation.    Historically, the Executive Compensation Committee has made annual grants of nonvested stock to employees and non-employee board members under our stock-based employee option and incentive compensation programs. As of June 30, 2007, there was $17.9 million of total unrecognized compensation cost related to nonvested shares granted under these programs. That cost is expected to be recognized over a weighted-average period of 1.6 years. For further information regarding these programs, see Note 7 to our consolidated financial statements.

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Results of Operations

As of June 30, 2007, our stabilized portfolio was comprised of 84 Office Properties, encompassing an aggregate of approximately 7.8 million rentable square feet, and 43 Industrial Properties, encompassing an aggregate of approximately 3.9 million rentable square feet. Our stabilized portfolio of operating properties consists of all our properties, and excludes properties recently developed or redeveloped by us that have not yet reached 95% occupancy and are within one year following substantial completion, or lease-up properties, and projects currently under construction.

As of June 30, 2007, Office Properties and Industrial Properties represented approximately 87.7% and 12.3%, respectively, of our annualized base rent. For the three months ended June 30, 2007, average occupancy in our stabilized portfolio was 92.8%, compared to 95.9% for the three months ended June 30, 2006. For the six months ended June 30, 2007, average occupancy in our stabilized portfolio was 93.5% compared to 95.2% for the six months ended June 30, 2006. As of June 30, 2007, we had approximately 850,400 square feet of vacant space in our stabilized portfolio, compared to approximately 324,600 square feet as of June 30, 2006.

The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from June 30, 2006 to June 30, 2007. Rentable square footage in our portfolio of stabilized properties decreased by an aggregate of approximately 0.6 million rentable square feet, or 4.6%, to 11.7 million rentable square feet at June 30, 2007, as a result of the following activity.

	Office Properties				Industrial Properties				Total
	Number of Buildings		Rentable Square Feet		Number of Buildings		Rentable Square Feet		Number of Buildings		Rentable Square Feet
Total at June 30, 2006	85		7,847,224		46		4,422,953		131		12,270,177
Properties added from the Development Portfolio	1		77,015						1		77,015
Properties transferred to the Redevelopment Portfolio					(1	)	(303,000	)	(1	)	(303,000	)
Dispositions(1)	(2	)	(88,745	)	(2	)	(251,162	)	(4	)	(339,907	)
Remeasurement			(454	)			1,178				724
Total at June 30, 2007	84		7,835,040		43		3,869,969		127		11,705,009

(1) In accordance with SFAS 144, the operating results and gains or losses on property sales of real estate assets sold are included in discontinued operations in the consolidated statements of operations.

Management internally evaluates the operating performance and financial results of our portfolio based on Net Operating Income for the following segments of commercial real estate property: Office Properties and Industrial Properties. The Net Operating Income segment information presented within this Management’s Discussion and Analysis consists of the same Net Operating Income segment information disclosed in Note 11 to our consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information.

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Comparison of the Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006

The following table reconciles our Net Operating Income by segment to our net income available for common stockholders for the three months ended June 30, 2007 and 2006.

	Three Months Ended June 30,						Dollar Change			Percentage Change
	2007			2006
				($ in thousands)
Net Operating Income:
Office Properties	$	41,740		$	39,558		$	2,182		5.5	%
Industrial Properties		6,113			7,059			(946	)	(13.4	)
Total portfolio		47,853			46,617			1,236		2.7
Reconciliation to Net Income Available for Common Stockholders:
Net Operating Income for reportable segments		47,853			46,617			1,236		2.7
Other expenses:
General and administrative expenses		9,460			4,714			4,746		100.7
Interest expense		8,072			11,208			(3,136	)	(28.0	)
Depreciation and amortization		17,745			17,666			79		0.4
Other income		371			306			65		21.2
Income from continuing operations before minority interests		12,947			13,335			(388	)	(2.9	)
Minority interests attributable to continuing operations		(2,006	)		(2,147	)		141		(6.6	)
Income from discontinued operations		4,551			9,189			(4,638	)	(50.5	)
Net income		15,492			20,377			(4,885	)	(24.0	)
Preferred dividends		(2,402	)		(2,402	)		—		0.0
Net income available for common stockholders	$	13,090		$	17,975		$	(4,885	)	(27.2	)%

32

Rental Operations

We evaluate the operations of our portfolio based on operating property type. The following tables compare the Net Operating Income for Office Properties and for Industrial Properties for the three months ended June 30, 2007 and 2006.

Office Properties

	Total Office Portfolio										Core Office Portfolio(1)
	2007			2006		Dollar Change			Percentage Change		2007			2006		Dollar Change			Percentage Change
	($ in thousands)
Operating revenues:
Rental income	$	49,731		$	48,588	$	1,143		2.4	%	$	49,067		$	48,304	$	763		1.6	%
Tenant reimbursements		5,396			5,296		100		1.9			5,298			5,169		129		2.5
Other property income		1,900			193		1,707		884.5			1,900			193		1,707		884.5
Total		57,027			54,077		2,950		5.5			56,265			53,666		2,599		4.8
Property and related expenses:
Property expenses		10,683			10,063		620		6.2			10,572			9,698		874		9.0
Real estate taxes		4,195			3,959		236		6.0			4,138			3,910		228		5.8
Provision for bad debts		(93	)		23		(116	)	(504.3	)		(93	)		23		(116	)	(504.3	)
Ground leases		502			474		28		5.9			502			474		28		5.9
Total		15,287			14,519		768		5.3			15,119			14,105		1,014		7.2
Net Operating Income	$	41,740		$	39,558	$	2,182		5.5	%	$	41,146		$	39,561	$	1,585		4.0	%

(1) Office Properties owned and stabilized at January 1, 2006 and still owned and stabilized at June 30, 2007.

Total revenues from Office Properties increased $3.0 million, or 5.5%, to $57.0 million for the three months ended June 30, 2007, compared to $54.0 million for the three months ended June 30, 2006. Rental income from Office Properties increased $1.1 million, or 2.4%, to $49.7 million for the three months ended June 30, 2007, compared to $48.6 million for the three months ended June 30, 2006. Rental income generated by the Core Office Portfolio increased $0.8 million, or 1.6%, for the three months ended June 30, 2007, compared to the three months ended June 30, 2006. The increase in rental income from the Core Office Portfolio is due to an increase in occupancy at two buildings in our Los Angeles office portfolio and an increase in rental rates within our total office portfolio. The remaining $0.3 million increase in rental income was attributable to an increase in rental income of $0.5 million generated by the office development property that was added to the stabilized portfolio in the fourth quarter of 2006 (the “2006 Office Development Property”), offset by a $0.2 million decrease in rental income generated by the property which was taken out of service and moved from our stabilized portfolio to the redevelopment portfolio in 2006 (the “2006 Office Redevelopment Property”).

Tenant reimbursements from Office Properties increased $0.1 million, or 1.9%, to $5.4 million for the three months ended June 30, 2007, compared to $5.3 million for the three months ended June 30, 2006. This increase was generated by the Core Office Portfolio due to an increase in occupancy at two buildings in our Los Angeles office portfolio, as mentioned above.

Other property income from Office Properties increased $1.7 million, or 884.5%, to $1.9 million for the three months ended June 30, 2007, compared to $0.2 million for the three months ended June 30, 2006. Other property income for the three months ended June 30, 2007 included $1.7 million related to the early termination of a lease at an office property in San Diego, California (see Note 10 to our consolidated financial statements for additional information). Other property income for the three months ended June 30, 2006 consisted of lease termination fees and other miscellaneous income within the Core Office Portfolio.

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Total expenses from Office Properties increased $0.8 million, or 5.3%, to $15.3 million for the three months ended June 30, 2007, compared to $14.5 million for the three months ended June 30, 2006. Property expenses from Office Properties increased $0.6 million, or 6.2%, to $10.7 million for the three months ended June 30, 2007, compared to $10.1 million for the three months ended June 30, 2006. An increase of $0.9 million, or 9.0%, was generated by the Core Office Portfolio. This increase was primarily attributable to an increase in repairs and maintenance expenditures, an increase in property management, janitorial and other contract services related to the increase in occupancy in the Los Angeles portfolio and an increase in electricity rates. A decrease of $0.3 million in property expenses was attributable to the 2006 Office Redevelopment Property taken out of service.

Real estate taxes from Office Properties increased $0.2 million, or 6.0%, for the three months ended June 30, 2007 as compared to the same period in 2006 which was attributable to an increase in real estate taxes for the Core Office Portfolio. The provision for bad debts from Office Properties decreased $0.1 million, or 504.3%, for the three months ended June 30, 2007, compared to the three months ended June 30, 2006. This decrease was due to an overall improvement in collections and our accounts receivable aging. We evaluate our reserve levels on a quarterly basis. Ground lease expense from Office Properties remained consistent for the three months ended June 30, 2007 compared to the three months ended June 30, 2006.

Net Operating Income from Office Properties increased $2.2 million, or 5.5%, to $41.7 million for the three months ended June 30, 2007, compared to $39.5 million for the three months ended June 30, 2006. Of this increase, $1.6 million was generated by the Core Office Portfolio. The remaining increase of $0.6 million was comprised of a $0.5 million increase generated by the 2006 Office Development Property and a $0.1 million increase generated by the 2006 Office Redevelopment Property.

Industrial Properties

	Total Industrial Portfolio									Core Industrial Portfolio(1)
	2007		2006		Dollar Change			Percentage Change		2007		2006		Dollar Change			Percentage Change
	($ in thousands)
Operating revenues:
Rental income	$	6,723	$	7,583	$	(860	)	(11.3	)%	$	6,723	$	7,230	$	(507	)	(7.0	)%
Tenant reimbursements		829		945		(116	)	(12.3	)		857		861		(4	)	(0.5	)
Other property income		51		2		49		2,450.0			51		2		49		2,450.0
Total		7,603		8,530		(927	)	(10.9	)		7,631		8,093		(462	)	5.7
Property and related expenses:
Property expenses		757		701		56		8.0			757		693		64		9.2
Real estate taxes		666		737		(71	)	(9.6	)		666		653		13		2.0
Provision for bad debts		67		33		34		103.0			67		33		34		103.0
Total		1,490		1,471		19		1.3			1,490		1,379		111		8.0
Net Operating Income	$	6,113	$	7,059	$	(946	)	(13.4	)%	$	6,141	$	6,714	$	(573	)	(8.5	)%

(1) Industrial Properties owned and stabilized at January 1, 2006 and still owned and stabilized at June 30, 2007.

Total revenues from Industrial Properties decreased $0.9 million, or 10.9%, to $7.6 million for the three months ended June 30, 2007, compared to $8.5 million for the three months ended June 30, 2006. Rental income from Industrial Properties decreased $0.9 million, or 11.3%, to $6.7 million for the three months ended June 30, 2007, compared to $7.6 million for the three months ended June 30, 2006. Rental income generated by the Core Industrial Portfolio decreased $0.5 million, or 7.0%, for the three months ended June 30, 2007, compared to the same period in 2006. The decrease was primarily the result of decreased occupancy in the Orange County industrial portfolio due to three vacant buildings encompassing approximately 349,000 rentable square feet. We are in the process of re-entitling one of the properties, which encompasses approximately 157,500 rentable square feet, for residential use and, if successful, will evaluate the strategic options for this property, including

34

the potential disposition of this asset. Average occupancy in the Core Industrial Portfolio decreased 8.8% to 91.0% for the three months ended June 30, 2007, compared to 99.8% for the three months ended June 30, 2006. The remaining decrease in rental income of $0.4 million is attributable to one industrial building that was moved from our stabilized portfolio to the redevelopment portfolio during 2006 (the “2006 Industrial Redevelopment Property”).

Tenant reimbursements from Industrial Properties decreased $0.1 million, or 12.3%, to $0.8 million for the three months ended June 30, 2007, compared to $0.9 million for the three months ended June 30, 2006. The decrease in tenant reimbursements was primarily attributable to the 2006 Industrial Redevelopment Property that was moved from our stabilized portfolio to the redevelopment portfolio in 2006.

Total expenses from Industrial Properties remained consistent at approximately $1.5 million during the three months ended June 30, 2007, compared to the same period in 2006. Property expenses from Industrial Properties increased $0.1 million, or 8.0%, to $0.8 million for the three months ended June 30, 2007, compared to $0.7 million for the three months ended June 30, 2006, which was attributable to fixed operating costs for the three vacant buildings in the Core Industrial Portfolio mentioned above. Real estate taxes decreased $0.1 million, or 9.6%, for the three months ended June 30, 2007, compared to the three months ended June 30, 2006.

Net Operating Income from Industrial Properties decreased $0.9 million, or 13.4%, to $6.1 million for the three months ended June 30, 2007, compared to $7.0 million for the three months ended June 30, 2006. Of this decrease, $0.6 million was attributable to the Core Industrial Portfolio primarily due to a decrease in occupancy in this portfolio as mentioned above. The remaining decrease of $0.3 million was attributable to the 2006 Industrial Redevelopment Property.

Non-Property Related Income and Expenses

General and administrative expenses increased $4.8 million, or 100.7%, to $9.5 million for the three months ended June 30, 2007, as compared to $4.7 million for the three months ended June 30, 2006. Of this $4.8 million increase, $4.1 million was due to an increase in accrued incentive compensation, primarily as a result of the timing of the approval of the 2006 executive compensation programs. We began to accrue compensation expense associated with the 2006 Annual Long-Term Incentive Program and 2006 Annual Bonus Exceptional Performance Program in September 2006. The increase in accrued compensation expense is also attributable to the 2007 executive compensation programs, which were approved in February 2007. For further information regarding incentive compensation programs, see Note 7 to our consolidated financial statements. The remaining increase in general and administrative expenses was due primarily to an increase in compliance and reporting costs related to being a public company and other compensation related expenses.

Interest expense decreased $3.1 million, or 28.0%, to $8.1 million for the three months ended June 30, 2007, compared to $11.2 million for the three months ended June 30, 2006. Gross interest and loan fee expense, before the effect of capitalized interest and loan fees, decreased $0.4 million, or 3.2%, to $13.2 million for the three months ended June 30, 2007 compared to $13.6 million for the three months ended June 30, 2006. This decrease is mainly attributable to a decrease in our weighted-average interest rate during the three months ended June 30, 2007 as compared to the same period in 2006. The decrease in the weighted-average interest rate was primarily attributable to the repayment of higher interest bearing debt using the proceeds from the issuance of the Notes in April 2007 (see Note 4 to our consolidated financial statements for a complete discussion of the Notes). Our weighted-average interest rate including loan fees was 5.3% for the three months ended June 30, 2007 as compared to 6.3% for the three months ended June 30, 2006. This decrease was partially offset by an increase in our average debt balance during the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. Total capitalized interest and loan fees increased $2.7 million, or 112.4%, to $5.1 million for the three months ended June 30, 2007, as compared to $2.4 million for the three months ended June 30, 2006 due to higher average qualifying development expenditures during the three months ended June 30, 2007 as compared to the three months ended June 30, 2006.

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Depreciation and amortization expense increased $0.1 million, or 0.4%, to $17.7 million for the three months ended June 30, 2007, compared to $17.6 million for the three months ended June 30, 2006. Depreciation for the Core Office and Core Industrial Portfolios and the 2006 Office Development Property increased $0.3 million and $0.2 million, respectively. These increases were offset by a $0.4 million decrease attributable to the transfer of both the 2006 Office Redevelopment Property and the 2006 Industrial Redevelopment Property from our stabilized portfolio to our redevelopment portfolio during 2006.

Total other income increased approximately $0.1 million, or 21.2%, to $0.4 million for the three months ended June 30, 2007, compared to $0.3 million for the three months ended June 30, 2006.

Comparison of the Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006

The following table reconciles our Net Operating Income by segment to our net income available for common stockholders for the six months ended June 30, 2007 and 2006.

	Six Months Ended June 30,						Dollar Change			Percentage Change
	2007			2006
	($ in thousands)
Net Operating Income:
Office Properties	$	83,414		$	78,677		$	4,737		6.0	%
Industrial Properties		12,481			14,192			(1,711	)	(12.1	)
Total portfolio		95,895			92,869			3,026		3.3
Reconciliation to Net Income Available for Common Stockholders:
Net Operating Income for reportable segments		95,895			92,869			3,026		3.3
Other expenses:
General and administrative expenses		18,508			9,649			8,859		91.8
Interest expense		17,728			23,179			(5,451	)	(23.5	)
Depreciation and amortization		34,982			35,046			(64	)	(0.2	)
Other income		990			676			314		46.4
Income from continuing operations before minority interests		25,667			25,671			(4	)	0.0
Minority interests attributable to continuing operations		(3,981	)		(4,348	)		367		(8.4	)
Income from discontinued operations		12,690			14,983			(2,293	)	(15.3	)
Net income		34,376			36,306			(1,930	)	(5.3	)
Preferred dividends		(4,804	)		(4,804	)		—		0.0
Net income available for common stockholders	$	29,572		$	31,502		$	(1,930	)	(6.1	)%

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Rental Operations

We evaluate the operations of our portfolio based on operating property type. The following tables compare the Net Operating Income for Office Properties and for Industrial Properties for the six months ended June 30, 2007 and 2006.

Office Properties

	Total Office Portfolio										Core Office Portfolio(1)
	2007			2006		Dollar Change			Percentage Change		2007			2006		Dollar Change			Percentage Change
	(in thousands)
Operating revenues:
Rental income	$	99,280		$	96,683	$	2,597		2.7	%	$	97,965		$	95,813	$	2,152		2.2	%
Tenant reimbursements		11,072			9,779		1,293		13.2			10,882			9,382		1,500		16.0
Other property income		3,001			1,115		1,886		169.1			3,001			1,115		1,886		169.1
Total		113,353			107,577		5,776		5.4			111,848			106,310		5,538		5.2
Property and related expenses:
Property expenses		20,875			19,468		1,407		7.2			20,734			18,865		1,869		9.9
Real estate taxes		8,267			7,956		311		3.9			8,160			7,857		303		3.9
Provision for bad debts		(221	)		483		(704	)	(145.8	)		(221	)		483		(704	)	(145.8	)
Ground leases		1,018			993		25		2.5			1,018			993		25		2.5
Total		29,939			28,900		1,039		3.6			29,691			28,198		1,493		5.3
Net Operating Income	$	83,414		$	78,677	$	4,737		6.0	%	$	82,157		$	78,112	$	4,045		5.2	%

(1) Office Properties owned and stabilized at January 1, 2006 and still owned and stabilized at June 30, 2007.

Total revenues from Office Properties increased $5.8 million, or 5.4%, to $113.4 million for the six months ended June 30, 2007, compared to $107.6 million for the six months ended June 30, 2006. Rental income from Office Properties increased $2.6 million, or 2.7%, to $99.3 million for the six months ended June 30, 2007, compared to $96.7 million for the six months ended June 30, 2006. Rental income generated by the Core Office Portfolio increased $2.2 million, or 2.2%, for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. The increase in rental income from the Core Office Portfolio is primarily the result of increased occupancy. Average occupancy in the Core Office Portfolio increased 1.2% to 94.5% for the six months ended June 30, 2007 compared to 93.3% for the same period in 2006. The remaining $0.4 million increase in total office portfolio rental income was attributable to a $1.0 million increase in rental income generated by the 2006 Office Development Property offset by a $0.6 million decrease due to the 2006 Office Redevelopment Property taken out of service in June 2006.

Tenant reimbursements from Office Properties increased $1.3 million, or 13.2%, to $11.1 million for the six months ended June 30, 2007 compared to $9.8 million for the six months ended June 30, 2006. An increase of $1.5 million was generated by the Core Office Portfolio due to an increase in occupancy in this portfolio, as mentioned above, and the corresponding increase in reimbursable expenses. This increase was partially offset by a decrease of $0.2 million attributable to a decrease of $0.4 million attributable to the 2006 Office Redevelopment Property taken out of service offset by an increase of $0.2 million generated by the 2006 Development Property.

Other property income from Office Properties increased $1.9 million, or 169.1%, to $3.0 million for the six months ended June 30, 2007 compared to $1.1 million for the six months ended June 30, 2006. Other property income for the six months ended June 30, 2007 included $2.8 million in lease termination fees from two early lease terminations at two of our Office Properties in San Diego (see Note 10 to our consolidated financial statements for additional information). Other property income for the six months ended June 30, 2006 included a $0.7 million lease termination fee from a former tenant in one of our San Diego properties.

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Total expenses from Office Properties increased $1.0 million, or 3.6%, to $29.9 million for the six months ended June 30, 2007 compared to $28.9 million for the six months ended June 30, 2006. Property expenses from Office Properties increased $1.4 million, or 7.2%, to $20.9 million for the six months ended June 30, 2007 compared to $19.5 million for the six months ended June 30, 2006. An increase of $1.9 million, or 9.9%, was generated by the Core Office Portfolio. This increase was primarily attributable to an increase in property management, janitorial and other contract services expenses related to an increase in occupancy and an increase in electricity. This increase was partially offset by a decrease of $0.5 million attributable to the 2006 Office Redevelopment Property, which was taken out of service in 2006.

Real estate taxes from Office Properties increased $0.3 million, or 3.9%, for the six months ended June 30, 2007 as compared to the same period in 2006, which was attributable to an increase in real estate taxes for the Core Office Portfolio.

The provision for bad debts from Office Properties decreased $0.7 million, or 145.8%, for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. The decrease is primarily due to a general improvement in our accounts receivable aging and our historical loss experience. We evaluate our reserve levels on a quarterly basis. Ground lease expenses from Office Properties remained consistent for the six months ended June 30, 2007 compared to the six months ended June 30, 2006.

Net Operating Income from Office Properties increased $4.7 million, or 6.0%, to $83.4 million for the six months ended June 30, 2007 compared to $78.7 million for the six months ended June 30, 2006. Of this increase, $4.1 million was generated by the Core Office Portfolio. The remaining increase of $0.6 million was attributable to an increase of $1.1 million generated by the 2006 Office Development Property, offset by a decrease of $0.5 million attributable to the 2006 Office Redevelopment Property.

Industrial Properties

	Total Industrial Portfolio									Core Industrial Portfolio(1)
	2007		2006		Dollar Change			Percentage Change		2007		2006		Dollar Change			Percentage Change
	($ in thousands)
Operating revenues:
Rental income	$	13,489	$	15,086	$	(1,597	)	(10.6	)%	$	13,489	$	14,373	$	(884	)	(6.2	)%
Tenant reimbursements		1,712		1,947		(235	)	(12.1	)		1,712		1,689		23		1.4
Other property income		57		17		40		235.3			57		17		40		235.3
Total		15,258		17,050		(1,792	)	(10.5	)		15,258		16,079		(821	)	(5.1	)
Property and related expenses:
Property expenses		1,423		1,300		123		9.5			1,443		1,274		169		13.3
Real estate taxes		1,332		1,474		(142	)	(9.6	)		1,332		1,305		27		2.1
Provision for bad debts		22		84		(62	)	(73.8	)		22		84		(62	)	(73.8	)
Total		2,777		2,858		(81	)	(2.8	)		2,797		2,663		134		5.0
Net Operating Income	$	12,481	$	14,192	$	(1,711	)	(12.1	)%	$	12,461	$	13,416	$	(955	)	(7.1	)%

(1) Industrial Properties owned and stabilized at January 1, 2006 and still owned and stabilized at June 30, 2007.

Total revenues from Industrial Properties decreased $1.8 million, or 10.5%, to $15.3 million for the six months ended June 30, 2007 compared to $17.1 million for the six months ended June 30, 2006. Rental income from Industrial Properties decreased $1.6 million, or 10.6%, to $13.5 million for the six months ended June 30, 2007 compared to $15.1 million for the six months ended June 30, 2006. Rental income generated by the Core Industrial Portfolio decreased $0.9 million, or 6.2%, for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. The decrease was primarily the result of decreased occupancy in the Orange County industrial portfolio due to three vacant buildings encompassing approximately 349,000 rentable square

38

feet. We are in the process of re-entitling one of the properties which encompasses approximately 157,500 rentable square feet, for residential use and, if successful, will evaluate the strategic options for this property, including the potential disposition of this asset. Average occupancy in the Core Industrial Portfolio decreased 8.1% to 91.4% for the six months ended June 30, 2007 as compared to 99.5% for the six months ended June 30, 2006. The remaining $0.7 million decrease from Industrial Properties was attributable to the 2006 Industrial Redevelopment Property which was taken out of service in 2006.

Tenant reimbursements from Industrial Properties decreased $0.2 million, or 12.1%, to $1.7 million for the six months ended June 30, 2007 compared to $1.9 million for the six months ended June 30, 2006. The decrease in tenant reimbursements was primarily attributable to the 2006 Industrial Redevelopment Property that was reclassified from our stabilized portfolio to the redevelopment portfolio during 2006 and the vacancy at the three properties in the Core Industrial Portfolio noted above partially offset by increased tenant reimbursements from the remaining properties in the Core Industrial Portfolio.

Total expenses from Industrial Properties decreased $0.1 million, or 2.8%, to $2.8 million for the six months ended June 30, 2007 compared to $2.9 million for the six months ended June 30, 2006. Property expenses from Industrial Properties increased $0.1 million, or 9.5%, to $1.4 million for the six months ended June 30, 2007 compared to the $1.3 million for the six months ended June 30, 2006. Real estate taxes decreased $0.1 million, or 9.6%, for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. The provision for bad debts decreased by $0.1 million for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. We evaluate our reserve levels on a quarterly basis.

Net Operating Income from Industrial Properties decreased $1.7 million, or 12.1%, to $12.5 million for the six months ended June 30, 2007 compared to $14.2 million for the six months ended June 30, 2006. Of this decrease, $1.0 million was attributable to the Core Industrial Portfolio primarily due to a decrease in occupancy in this portfolio as mentioned above. The remaining decrease of $0.7 million was attributable to the 2006 Industrial Redevelopment Property.

Non-Property Related Income and Expenses

General and administrative expenses increased $8.9 million, or 91.8%, to $18.5 million for the six months ended June 30, 2007 compared to $9.6 million for the six months ended June 30, 2006. The increase is primarily due to a $7.3 million increase in accrued incentive compensation, primarily as a result of the timing of the approval of the 2006 executive compensation programs. We began to accrue compensation expense associated with the 2006 Annual Long-Term Incentive Program and 2006 Annual Bonus Exceptional Performance Program in September 2006. The increase in accrued compensation expense is also attributable to the 2007 executive compensation programs, which were approved in February 2007. For further information regarding incentive compensation programs, see Note 7 to our consolidated financial statements. The remaining increase in general and administrative expenses was due primarily to an increase in compliance and reporting costs related to being a public company and payroll related expenses.

Interest expense decreased $5.5 million, or 23.5%, to $17.7 million for the six months ended June 30, 2007 compared to $23.2 million for the six months ended June 30, 2006. Gross interest and loan fee expense, before the effect of capitalized interest and loan fees remained consistent at $27.6 million for the six months ended June 30, 2007 and June 30, 2006. Our weighted-average interest rate including loan fees decreased to 5.8% for the three months ended June 30, 2007 as compared to 6.2% for the three months ended June 30, 2006 as a result of the repayment of higher interest bearing debt using the proceeds from the issuance of the Notes in April 2007. The impact of this decrease to gross interest and loan fee expense was fully offset by the effect of our higher average debt balance during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. Total capitalized interest and loan fees increased $5.4 million, or 120.9%, to $9.9 million for the six months ended June 30, 2007, as compared to $4.5 million for the six months ended June 30, 2006 primarily due to higher average qualifying development expenditures during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006.

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Depreciation and amortization expense decreased $0.1 million, or 0.2%, to $34.9 million for the six months ended June 30, 2007 compared to $35.0 million for the six months ended June 30, 2006. This decrease is mainly attributable to a $0.9 million decrease in depreciation resulting from reclassifying the 2006 Office Redevelopment Property and the 2006 Industrial Redevelopment Property from the stabilized portfolio to the redevelopment portfolio partially offset by increased depreciation in the Core Office and Core Industrial Portfolios and 2006 Office Development Property of $0.5 million and $0.3 million, respectively.

Total other income increased approximately $0.3 million, or 46.4%, to $1.0 million for the six months ended June 30, 2007 compared to $0.7 million for the six months ended June 30, 2006. The increase in other income was due to a $0.5 million increase in interest income, which was primarily attributable to interest earned on the funds held at a qualified intermediary for a Section 1031 exchange in the first quarter of 2007. The increase was partially offset by a $0.2 million decrease in other income from our derivative instruments that expired in December 2006.

Building and Lease Information

The following tables set forth certain information regarding our Office Properties and Industrial Properties at June 30, 2007:

Occupancy by Segment Type

Region	Number of Buildings	Total Square Feet	Occupancy
Office Properties:
Los Angeles County	24	2,898,396	93.8	%
Orange County	5	277,340	97.4
San Diego County	47	3,780,344	93.9
Other	8	878,960	90.5
	84	7,835,040	93.6
Industrial Properties:
Los Angeles County	1	192,053	100.0
Orange County	42	3,677,916	90.5
	43	3,869,969	91.0
Total portfolio	127	11,705,009	92.7	%

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Lease Expirations by Segment Type

Year of Lease Expiration	Number of Expiring Leases	Total Square Footage of Expiring Leases(1)	Percentage of Total Leased Square Feet Represented by Expiring Leases		Annual Base Rent Under Expiring Leases (in thousands)(2)
Office Properties:
Remaining 2007(3)	24	380,311	5.3	%	$	6,586
2008	62	512,274	7.1			11,436
2009	79	1,278,819	17.7			29,617
2010	72	1,199,171	16.6			30,700
2011	60	776,904	10.7			14,254
2012	30	428,676	5.9			12,627
Total Office	327	4,576,155	63.3			105,220
Industrial Properties:
Remaining 2007(3)	2	64,303	1.9			549
2008	13	928,713	26.9			6,612
2009	14	731,502	21.2			4,609
2010	13	356,075	10.3			2,795
2011	10	408,402	11.8			3,156
2012	8	389,369	11.3			2,479
Total Industrial	60	2,878,364	83.4			20,200
Total	387	7,454,519	69.7	%	$	125,420

(1) Excludes space leased under month-to-month leases and vacant space at June 30, 2007.

(2) Reflects annualized contractual base rent calculated on a straight-line basis.

(3) Represents leases expiring during the remainder of 2007 for which renewals have not been executed.

Leasing Activity by Segment Type

	Number of Leases(1)		Rentable Square Feet(1)		Changes in Rents(2)		Changes in Cash Rents(3)		Retention Rates(4)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
For the three months ended June 30, 2007:
Office Properties	11	10	72,164	131,256	17.0	%	3.6	%	43.8	%	57
Industrial Properties	3	4	75,576	156,980	17.8		4.8		88.7		55
Total portfolio	14	14	147,740	288,236	17.2	%	3.9	%	60.5	%	56

Leasing Activity by Segment Type

	Number of Leases(1)		Rentable Square Feet(1)		Changes in Rents(2)		Changes in Cash Rents(3)		Retention Rates(4)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
For the six months ended June 30, 2007:
Office Properties	18	18	166,198	287,675	26.7	%	9.1	%	45.4	%	104
Industrial Properties	4	8	81,576	211,690	19.8		6.5		50.0		53
Total portfolio	22	26	247,774	499,365	25.2	%	8.6	%	47.3	%	84

(1) Represents leasing activity for leases commencing during the period shown, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.

(2) Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year.

(3) Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year.

(4) Calculated as the percentage of space either renewed or expanded into by existing tenants at lease expiration.

41

Development and Redevelopment

The following tables set forth certain information regarding our in-process and committed office development and redevelopment projects as of June 30, 2007. See further discussion regarding our projected development and redevelopment trends under the caption “Factors That May Influence Future Results of Operations—Development and redevelopment programs.”

Development Projects

Project Name / Submarket / City	Estimated Completion Date	Estimated Stabilization Date(1)	Square Feet Upon Completion	Total Estimated Investment(2)(3)		Total Costs as of June 30, 2007(3)(4)		Percent Leased as of June 30, 2007
				($ in millions)
Projects Under Construction
Santa Fe Summit—Phase I(5) 56 Corridor San Diego, CA	3rd Qtr 2007	3rd Qtr 2007	465,600	$	145.2	$	138.0	100	%
Pacific Corporate Center(6) Sorrento Mesa San Diego, CA	3rd Qtr 2007	3rd Qtr 2007	318,000		75.1		62.4	100	%
Kilroy Sabre Springs—Phase III I-15 Corridor San Diego, CA	4th Qtr 2007	4th Qtr 2008	142,726		65.4		25.9	0	%
ICC–15004 Innovation Drive I-15 Corridor San Diego, CA	3rd Qtr 2008	3rd Qtr 2008	146,156		51.1		17.5	100	%
Sorrento Gateway-Lot 3 Sorrento Mesa San Diego, CA	4th Qtr 2007	4th Qtr 2008	55,500		21.8		12.1	0	%
Total Projects Under Construction			1,127,982	$	358.6	$	255.9	82	%

(1) Based on management’s estimation of the earlier of stabilized occupancy (95.0%) or one year from the date of substantial completion.

(2) Represents total projected development costs at June 30, 2007.

(3) Amounts exclude tenant-funded tenant improvements.

(4) Represents cash paid and costs incurred as of June 30, 2007.

(5) Construction on two of the four buildings commenced in the fourth quarter of 2005. Construction on the remaining two buildings commenced in the first quarter of 2006. Intuit began occupying two of the four buildings, encompassing approximately 205,200 rentable square feet, in July 2007 and is expected to begin occupying the remaining two buildings, encompassing approximately 260,400 rentable square feet, in August 2007.

(6) Cardinal Health began occupying the building in July 2007.

Redevelopment Projects

Project Name / Submarket / City	Pre- and Post- Redevelop- ment Type	Estimated Completion Date	Estimated Stabilization Date(1)	Square Feet Upon Completion	Existing Invest- ment(2)		Estimated Redevelop- ment Costs(3)		Total Estimated Investment(4)		Total Costs as of June 30, 2007(4)(5)		Percent Leased as of June 30, 2007
					($ in millions)
Projects Under Construction
2240 E. Imperial Highway(6) Kilroy Airport Center El Segundo, CA	Lab to Office	3rd Qtr 2007	3rd Qtr 2008	107,041	$	5.0	$	15.5	$	20.5	$	17.1	77	%
Sabre Springs Corporate Center I-15 Corridor San Diego, CA	Office	3rd Qtr 2007	3rd Qtr 2008	104,500		24.7		9.9		34.6		26.0	0	%
Total Projects Under Construction				211,541	$	29.7	$	25.4	$	55.1	$	43.1	39	%

(1) Based on management’s estimation of the earlier of stabilized occupancy (95.0%) or one year from the date of substantial completion.

(2) Represents the depreciated carrying value at the commencement of redevelopment for the space being redeveloped.

(3) Represents total projected redevelopment costs at June 30, 2007.

(4) Amounts exclude tenant-funded tenant improvements.

(5) Represents cash paid and costs incurred as of June 30, 2007, including the existing investment at commencement of redevelopment. See footnote (2) above.

(6) The DIRECTV Group, Inc. has leased 77% of this space. The lease commenced in July 2007.

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Liquidity and Capital Resources

Current Sources of Capital and Liquidity

We seek to create and maintain a capital structure that allows for financial flexibility and diversification of capital resources. Our primary source of liquidity to fund distributions, debt service, leasing costs and capital expenditures is net cash from operations. We believe that we will have sufficient capital resources to satisfy our liquidity needs over the next twelve-month period. Our primary sources of liquidity to fund development and redevelopment costs, potential undeveloped land and property acquisitions, temporary working capital and unanticipated cash needs are our $550 million Credit Facility, proceeds received from our disposition program, construction loans and the public or private issuance of debt or equity securities. As of June 30, 2007, our total debt as a percentage of total market capitalization was 27.6%, and our total debt plus preferred equity as a percentage of total market capitalization was 33.1%.

In April 2007, we issued $460 million in aggregate principal amount of Notes (see Note 4 to our consolidated financial statements for a complete discussion of the Notes). We used a portion of the net proceeds received from the Notes to pay down the $331 million balance of the Credit Facility and to repay one variable rate secured loan of $31 million that was originally scheduled to mature in January 2009. Additionally, we repaid two fixed-rate secured loans totaling $21 million that were contractually scheduled to mature in August 2007. As a result of these transactions, the availability under the Credit Facility increased to $532 million at June 30, 2007, and our total weighted average interest rate decreased to 5.1%.

As of June 30, 2007, we had borrowings of $18 million outstanding under the Credit Facility. The Credit Facility bears interest at an annual rate between LIBOR plus 0.85% and LIBOR plus 1.35%, depending upon our leverage ratio at the time of borrowing (6.17% at June 30, 2007). We expect to use the Credit Facility to finance development and redevelopment expenditures, to fund potential acquisitions and for other general corporate uses.

Factors That May Influence Future Sources of Capital and Liquidity

Our Credit Facility, unsecured senior notes and certain other secured debt agreements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive covenants include a maximum ratio of total debt to total assets, a maximum ratio of total secured debt to total assets, a fixed charge coverage ratio, a minimum consolidated tangible net worth and a limit of development activities to total assets. Non-compliance with one or more of the covenants or restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and payable. We were in compliance with all our debt covenants at June 30, 2007.

The composition of our aggregate debt balances at June 30, 2007 and December 31, 2006 was as follows:

	Percentage of Total Debt				Weighted Average Interest Rate
	June 30, 2007		December 31, 2006		June 30, 2007		December 31, 2006
Secured vs. unsecured:
Secured	39.2	%	52.2	%	5.9	%	6.0	%
Unsecured	60.8		47.8		4.0		6.2
Fixed-rate vs. variable-rate:
Fixed-rate	94.8		61.0		4.7		6.0
Variable-rate	5.2	%	39.0	%	6.1		6.2
Total debt					4.7		6.1
Total debt including loan fees					5.1	%	6.3	%

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Following is our total market capitalization at June 30, 2007:

	Shares/Units at June 30, 2007	Aggregate Principal Amount or $ Value Equivalent		% of Total Market Capitalization
		(in thousands)
Debt:
Secured debt		$	400,617	10.8	%
Exchangeable senior notes			460,000	12.4
Unsecured senior notes			144,000	3.9
Credit facility			18,000	0.5
Total debt			1,022,617	27.6
Equity:
7.450% Series A cumulative redeemable preferred units(1)	1,500,000		75,000	2.1
7.800% Series E cumulative redeemable preferred stock(2)	1,610,000		40,250	1.1
7.500% Series F cumulative redeemable preferred stock(2)	3,450,000		86,250	2.3
Common units outstanding(3)	2,247,774		159,232	4.3
Common shares outstanding(3)	32,707,444		2,316,995	62.6
Total equity			2,677,727	72.4
Total Market Capitalization		$	3,700,344	100.0	%

(1) Value based on $50.00 per share liquidation preference.

(2) Value based on $25.00 per share liquidation preference.

(3) Value based on the closing price per share of our common stock of $70.84 at June 29, 2007.

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Contractual Obligations

The following table provides information with respect to the maturities and scheduled principal repayments of our secured debt, unsecured senior notes, Notes and Credit Facility and scheduled interest payments of our fixed-rate debt at June 30, 2007 and provides information about the minimum commitments due in connection with our ground lease obligations and capital, development and purchase commitments at June 30, 2007. The table does not reflect available maturity extension options.

	Payment Due by Period
	Remainder of 2007		Fiscal Years 2008-2009		Fiscal Years 2010-2011		Fiscal Years Ending After 2011		Total
	(in thousands)
Principal payments—secured debt	$	4,608	$	162,700	$	116,720	$	116,589	$	400,617
Principal payments—Notes								460,000		460,000
Principal payments—unsecured senior notes						61,000		83,000		144,000
Principal payments—Credit Facility(1)						18,000				18,000
Interest payments—fixed-rate debt(2)		22,645		81,340		66,825		27,195		198,005
Ground lease obligations(3)		921		3,332		3,131		72,402		79,786
Development and redevelopment commitments(4)		74,833		17,442						92,275
Capital commitments(5)		23,869								23,869
Total	$	126,876	$	264,814	$	265,676	$	759,186	$	1,416,552

(1) Our Credit Facility has a one-year extension option.

(2) As of June 30, 2007, 94.8% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates, interest payment dates and scheduled maturity dates. The remaining 5.2% debt bears interest at variable rates and the variable interest rate payments are based on LIBOR plus a spread that ranges from 0.75% to 0.85%. The interest payments on our variable-rate debt have not been reported in the table above because management cannot reasonably determine the future interest obligations on its variable-rate debt as management cannot predict what LIBOR rates will be in the future. As of June 30, 2007, one-month LIBOR was 5.32%. See additional information regarding our debt under Item 3: Quantitative and Qualitative Disclosures About Market Risk and Note 4 to our consolidated financial statements.

(3) We have non-cancelable ground lease obligations for the SeaTac Office Center in Seattle, Washington expiring in December 2032, with an option to extend the lease for an additional 30 years, and Kilroy Airport Center in Long Beach, California with a lease period for Phases I, II, III and IV expiring in July 2084.

(4) Amounts represent contractual commitments for development and redevelopment contracts and executed leases for development and redevelopment projects under construction at June 30, 2007. Costs include the remaining total estimated investment, excluding capitalized interest and development overhead for pre-leased properties, and excluding capitalized interest, development overhead and potential future leasing costs and tenant improvements for projects not yet pre-leased at June 30, 2007. The timing of these expenditures may fluctuate based on the ultimate progress of construction.

(5) Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements.

Capital Commitments

As of June 30, 2007, we had five development projects and two redevelopment projects that were under construction. Our total estimated investment for these projects is approximately $414 million, including capitalized interest. We had incurred costs of approximately $299 million on these projects as of June 30, 2007 and currently project we could spend approximately $86 million of the remaining $115 million of presently budgeted development costs during the remainder of 2007. We are currently contractually obligated to pay approximately $75 million during the remainder of 2007.

45

As of June 30, 2007, we had executed leases that contractually committed us to pay approximately $22 million in unpaid leasing costs and tenant improvements, and we had executed contracts outstanding that contractually committed us to pay approximately $2 million in capital improvements at June 30, 2007. During the remainder of 2007, we plan to spend approximately $14 million to $16 million in capital improvements, tenant improvements and leasing costs for properties within our stabilized portfolio, depending on leasing activity. Capital expenditures may fluctuate in any given period subject to the nature, extent and timing of improvements required to maintain our properties. Tenant improvements and leasing costs may also fluctuate in any given period depending upon factors such as the type of property, the term of the lease, the type of lease, the involvement of external leasing agents and overall market conditions.

Off-Balance Sheet Arrangements

As of June 30, 2007 and the date this report was filed, we do not have any off-balance sheet transactions, arrangements or obligations, including contingent obligations.

Historical Cash Flows

The principal sources of funding for development, redevelopment, acquisitions and capital expenditures are cash flow from operating activities, the Credit Facility, secured and unsecured debt financing and proceeds from our dispositions. Our net cash provided by operating activities fluctuated by $76.3 million, or 4,488.2%, to $74.6 million for the six months ended June 30, 2007, compared to $1.7 million used in operating activities for the six months ended June 30, 2006. The change is primarily attributable to a $71.7 million cash payment made to our Executive Officers in January 2006, which represented the total amount earned under a special long-term compensation program. The remaining change is primarily due to a decrease in cash paid for interest as compared to the same period in 2006.

Net cash used in investing activities increased $78.7 million, or 147.9%, to $131.9 million for the six months ended June 30, 2007, compared to $53.2 million for the six months ended June 30, 2006. The increase was primarily attributable to expenditures for the acquisition and development of development properties and undeveloped land during the six months ended June 30, 2007. There were no acquisitions during the same period in 2006. These increases were partially offset by an increase in net proceeds received from dispositions as compared to the same period in 2006 and proceeds received from the termination of a profit participation agreement. (See Note 12 to our consolidated financial statements.)

Net cash provided by financing activities decreased $3.1 million, or 5.2%, to $56.5 million cash provided by financing activities for the six months ended June 30, 2007, compared to $59.6 million for the six months ended June 30, 2006. The decrease is due to an increase in dividends paid to common stockholders during the six months ended June 30, 2007 as compared to the same period in 2006. The increase in dividends paid is attributable to the dividends on the shares we issued in May 2006, as well as an increase in our dividend rate during 2007. During the six months ended June 30, 2006, we received approximately $136.1 million in net proceeds from the May 2006 share issuance. We did not raise any equity capital during the six months ended June 30, 2007. However, there was an increase of approximately $166.4 million in net proceeds received from debt financings during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006, partially offset by $29.1 million in cash paid for capped call options on common stock in 2007. See Note 4 to our consolidated financial statements for information about the issuance of the Notes.

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Non-GAAP Supplemental Financial Measure: Funds From Operations

Management believes that FFO is a useful supplemental measure of our operating performance. We compute 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 computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Other REITs may use different methodologies for calculating FFO, and accordingly, our FFO may not be comparable to other REITs.

Because FFO excludes depreciation and amortization, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses and interest costs, providing a perspective not immediately apparent from net income. In addition, management believes that FFO provides useful information to the investment community about our financial performance when compared to other REITs since FFO is generally recognized as the industry standard for reporting the operations of REITs.

However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.

The following table presents our Funds from Operations, for the three months and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,					Six Months Ended June 30,
	2007			2006		2007			2006
	(in thousands)
Net income available for common stockholders	$	13,090		$	17,975	$	29,572		$	31,502
Adjustments:
Minority interest in earnings of Operating Partnership		906			1,557		2,049			2,962
Depreciation and amortization of real estate assets		17,526			18,098		34,551			35,607
Net gain on dispositions of operating properties		(4,848	)				(13,474	)		(5,655	)
Funds From Operations(1)	$	26,674		$	37,630	$	52,698		$	64,416

(1) Reported amounts are attributable to our common stockholders and common unitholders of the Operating Partnership.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risk we face is interest rate risk. We mitigate this risk by maintaining prudent amounts of leverage, minimizing interest expense while continuously evaluating all available debt and equity resources and following established risk management policies and procedures which include the periodic use of derivative instruments. Our primary strategy when entering into derivative contracts is to minimize the variability that changes in interest rates could have on our future cash flows. When we have derivative instruments, we generally employ such derivative instruments to effectively convert a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes. As of June 30, 2007 and December 31, 2006, we did not have any derivative instruments.

Information about our changes in interest rate risk exposures from December 31, 2006 to June 30, 2007 is incorporated herein by reference from “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Tabular Presentation of Market Risk

The tabular presentation below provides information about our interest rate sensitive financial instruments at June 30, 2007 and December 31, 2006. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. The table presents principal cash flows and related weighted average interest rates by contractual maturity dates at June 30, 2007. The table also presents comparative summarized information for financial instruments held at December 31, 2006. The interest rates on our variable-rate debt are indexed to LIBOR plus spreads of 0.75% to 0.85% at June 30, 2007 and LIBOR plus spreads of 0.85% to 1.10% at December 31, 2006.

Interest Rate Risk Analysis—Tabular Presentation

(dollars in millions)

	Maturity Date																		June 30, 2007					December 31, 2006
	Remaining 2007			2008			2009			2010			2011			Thereafter			Total			Fair Value		Total			Fair Value
Liabilities:
Unsecured debt:
Variable-rate										$	18.0								$	18.0		$	18.0	$	276.0		$	276.0
Variable-rate index											LIBOR									LIBOR					LIBOR
Fixed-rate										$	61.0					$	543.0		$	604.0		$	598.6	$	144.0		$	146.7
Average interest rate(1)											5.72	%					3.74	%		3.94	%				6.14	%
Secured debt:
Variable-rate										$	35.5								$	35.5		$	35.5	$	66.5		$	66.5
Variable-rate index											LIBOR									LIBOR					LIBOR
Fixed-rate	$	4.6		$	81.4		$	81.3		$	6.2		$	75.0		$	116.6		$	365.1		$	365.8	$	392.7		$	392.0
Average interest rate(1)		6.21	%		4.09	%		7.15	%		6.57	%		6.69	%		5.64	%		5.87	%				5.93	%

(1) Represents average interest rate of fixed-rate debt maturities.

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ITEM 4.    CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of June 30, 2007, the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer concluded, as of that time, that our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes that occurred during the quarter covered by this report in our internal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Other than ordinary routine litigation incidental to the business, we are not a party to, and our properties are not subject to, any legal proceedings which, if determined adversely to us, would have a material adverse effect upon our financial condition, results of operations or cash flows.

ITEM 1A.    RISK FACTORS—No changes

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Operating Partnership issued $460,000,000 in aggregate principal amount of Notes, as previously disclosed on Forms 8-K filed with the SEC on April 5, 2007 and April 11, 2007.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES—None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of our stockholders on May 17, 2007, our stockholders elected William P. Dickey (25,210,372 votes for and 766,052 votes withheld) as director of the Company for a term expiring in the year 2010.

ITEM 5.    OTHER INFORMATION

On July 24, 2007, the Company and the Operating Partnership entered into: (i) an Employment Agreement with Steven R. Scott, pursuant to which Mr. Scott agreed to continue serving the Company as Senior Vice President, San Diego; (ii) an Employment Agreement with Tyler H. Rose, pursuant to which Mr. Rose agreed to continue serving the Company as Senior Vice President and Treasurer; and (iii) an Employment Agreement with Heidi Roth, pursuant to which Ms. Roth agreed to continue serving the Company as Senior Vice President and Controller (collectively, the “Employment Agreements”). Each Employment Agreement is effective as of January 1, 2007 (the “Effective Date”).

The Employment Agreements supersede any previous employment agreements by and between the Company and Mr. Scott, Mr. Rose and Ms. Roth (the “Executives”), respectively. Copies of the Employment Agreements are filed with this report as Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4. The summary of the Employment Agreements provided herein is qualified in its entirety by reference to the text of the Employment Agreements, which is incorporated herein by reference.

Term

Each of the Employment Agreements has an initial term beginning on the Effective Date and ending on December 31, 2009. On December 31, 2009 and on each December 31 thereafter, the term of each Employment Agreement will automatically extend for one additional year, unless either the Company or the Executive gives written notice of non-extension at least ninety (90) days before such December 31, whereupon the Employment Agreement will terminate on such December 31.

Compensation

In consideration for the services that Mr. Scott will render pursuant to Mr. Scott’s Employment Agreement, Mr. Scott is entitled to receive: (i) an annual base salary of $350,000, subject to annual review by the Executive Compensation Committee (the “Committee”) of the Board of Directors (the “Board”); (ii) an annual cash award, which target equals $300,000, 25% of which may be payable in Company stock at the sole discretion of the Committee; and (iii) an annual stock incentive award, which target equals $575,000, 100% of which is payable in Company stock.

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In consideration for the services that Mr. Rose will render pursuant to Mr. Rose’s Employment Agreement, Mr. Rose is entitled to receive: (i) an annual base salary of $350,000, subject to annual review by the Committee; (ii) an annual cash award, which target equals $275,000, 25% of which may be payable in Company stock at the sole discretion of the Committee; and (iii) an annual stock incentive award, which target equals $450,000, 100% of which is payable in Company stock.

In consideration for the services that Ms. Roth will render pursuant to Ms. Roth’s Employment Agreement, Ms. Roth is entitled to receive: (i) an annual base salary of $200,000, subject to annual review by the Committee; and (ii) an annual cash award, which target equals $100,000, 25% of which may be payable in Company stock at the sole discretion of the Committee.

The Executives are also generally entitled to participate in all compensation plans and programs offered by the Company to its executive officers, including outperformance incentive award plans, and in all benefit plans and programs offered by the Company to its executive officers and its employees. The Executives are also eligible to receive certain perquisites pursuant to policies implemented by the Board and the Committee.

Termination of Employment by the Company Without Cause or by the Relevant Executive for Good Reason

In the event that the employment of Mr. Scott or Mr. Rose is terminated without “Cause” or for “Good Reason” (as defined in the applicable Employment Agreement), such terminated Executive is entitled to receive the following payments and benefits (together with the Severance Payment, the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) annual incentive compensation, based on actual performance prior to the date of termination and reasonably anticipated performance through the remainder of the year; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards (excluding outperformance incentive awards) as governed by the applicable plans, programs, and agreements, but with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan; (vi) the settlement of any deferral arrangements in accordance with the plans and programs governing the deferral; and (vii) continuation health coverage for the terminated Executive, his spouse and his dependents, as applicable, for two years after the date of termination, at the expense of the Company. In addition, each Executive is entitled to receive a severance payment (the “Severance Payment”) equal to (i) two times his annual base salary and (ii) two times the average of his two highest annual incentives (e.g., the sum of the annual cash award for Mr. Scott and Mr. Rose, as detailed above, and the annual stock incentive target, which is $575,000 for Mr. Scott and $450,000 for Mr. Rose) during the three preceding full performance years.

In the event that the employment of Ms. Roth is terminated without “Cause” or for “Good Reason” (as defined in the applicable Employment Agreement), Ms. Roth is entitled to receive the following payments and benefits (together with the Roth Severance Payment, the “Roth Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) annual incentive compensation, based on actual performance prior to the date of termination and reasonable anticipated performance through the remainder of the year; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards (excluding outperformance incentive awards) as governed by the applicable plans, programs, and agreements, but with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan; (vi) the settlement of any deferral arrangements in accordance with the plans and programs governing the deferral; and (vii) continuation health coverage for Ms. Roth, her spouse and her dependents, as applicable, for one and one-half years after the date of termination, at the expense of the Company. In addition, Ms. Roth is entitled to receive a severance payment (the “Roth Severance Payment”) equal to (i) one and one-half times her annual base salary and (ii) one and one-half times the average of her two highest annual incentives during the three preceding full performance years.

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Termination of Employment Upon Retirement, Death or Disability

In the event that the employment of Mr. Scott or Mr. Rose is terminated due to his retirement, such terminated Executive is entitled to receive all Termination Benefits, except that (i) his Severance Payment shall be equal to zero and (ii) the continuation of health coverage for the terminated Executive, his spouse and his dependents, as applicable, shall be for one year after the date of termination, at the expense of the Company.

In the event that the employment of Mr. Scott or Mr. Rose is terminated due to his death, such terminated Executive is entitled to receive the Termination Benefits, except that (i) his Severance Payment shall equal (a) one times his annual base salary and (b) one times the average of his two highest annual incentives (e.g., the sum of the annual cash award for Mr. Scott and Mr. Rose, as detailed above, and the annual stock incentive target, which is $575,000 for Mr. Scott and $450,000 for Mr. Rose) during the three preceding full performance years, and (ii) the continuation of health coverage for the terminated Executive, his spouse and his dependents, as applicable, shall be for one year after the date of termination, at the expense of the Company. In the event that the employment of Ms. Roth is terminated due to her death, such terminated Executive is entitled to receive the Roth Termination Benefits, except that (i) the Roth Severance Payment shall be equal to (a) one times her annual base salary and (b) one times the average of her two highest annual incentives during the three preceding full performance years and (ii) the continuation of health coverage for the terminated Executive, her spouse and her dependents, as applicable, shall be for one year after the date of termination, at the expense of the Company.

In the event that the employment of Mr. Scott or Mr. Rose is terminated due to his disability, such terminated Executive is entitled to receive the Termination Benefits, except that the continuation of health coverage for the terminated Executive, his spouse and his dependents, as applicable, shall be for one year after the date of termination, at the expense of the Company. In the event that the employment of Ms. Roth is terminated due to her disability, such terminated Executive is entitled to receive the Roth Termination Benefits, except that the continuation of health coverage for the terminated Executive, her spouse and her dependents, as applicable, shall be for one year after the date of termination, at the expense of the Company.

Change in Control Arrangements

If Mr. Scott or Mr. Rose becomes entitled to the Termination Benefits (or other compensation or benefits) in connection with a change in control of the Company (the “Change in Control Benefits”), then certain excise taxes may apply under Section 4999 of the Internal Revenue Code. To avoid such excise taxes, the Company will reduce the Change in Control Benefits payable to an Executive. The Company will undertake such a reduction, however, only if the Executive retains a greater portion of the Change in Control Benefits after such reduction than the portion of the Change in Control Benefits that the Executive would have retained without such reduction and after the payment of applicable excise taxes. The Company agrees to place the Change in Control Benefits due to the Executives in separate rabbi trusts on behalf of each Executive within thirty (30) days after a “Change in Control” (as defined in the applicable Employment Agreements).

Release and Covenants

The Employment Agreements require each of the Executives to sign a general release in order to receive their termination benefits (including the severance payments) described above, other than accrued but unpaid compensation through the date of termination.

Mr. Scott and Mr. Rose will also be subject to (i) restrictions on competition during the term of the Employment Agreements and for one year after a Change in Control, (ii) restrictions on solicitation during the term of the Employment Agreements and for two years after termination of employment due to disability, without Cause or for Good Reason, (iii) restrictions on disclosure of confidential information during the term of the Employment Agreements and in perpetuity thereafter, and (iv) restrictions on disparaging the Company, its affiliates and agents during the term of the Employment Agreements and in perpetuity thereafter. The Executives

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further agree to cooperate with the Company, during the term of the Employment Agreements and thereafter, regarding any litigation to which the Company is party. If an Executive fails to comply with the restrictions on competition, solicitation, and disclosure of confidential information described above, then the Executive may forfeit all equity awards granted at or after the Effective Date and held by the Executive or his transferee at the time of such non-compliance.

ITEM 6.    EXHIBITS

Exhibit Number	Description
3(i).1	Articles of Amendment and Restatement of the Registrant (1)
3(i).2	Articles Supplementary of the Registrant designating its 7.45% Series A Cumulative Redeemable Preferred Stock (2)
3(i).3	Articles Supplementary of the Registrant designating its Series B Junior Participating Preferred Stock (3)
3(i).4	Articles Supplementary of the Registrant designating its 9.250% Series D Cumulative Redeemable Preferred Stock (4)(5)
3(i).5	Articles Supplementary of the Registrant designating an additional 120,000 shares of its 9.250% Series D Cumulative Redeemable Preferred Stock (5)
3(i).6	Articles Supplementary of the Registrant designating its 7.80% Series E Cumulative Redeemable Preferred Stock (6)
3(i).7	Articles Supplementary of the Registrant designating its 7.50% Series F Redeemable Preferred Stock (7)
3(ii).1	Amended and Restated Bylaws of the Registrant (1)
3(ii).2	Amendment No. 1 to Amended and Restated Bylaws of the Registrant (14)
4.1	Form of Certificate for Common Stock of the Registrant (1)
4.2	Registration Rights Agreement dated January 31, 1997 (1)
4.3	Registration Rights Agreement dated February 6, 1998 (8)
4.4	Second Amended and Restated Registration Rights Agreement dated as of March 5, 2004 (2)
4.5	Registration Rights Agreement dated as of October 31, 1997 (9)
4.6	Rights Agreement dated as of October 2, 1998 between Kilroy Realty Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, which includes the form of Articles Supplementary of the Series B Junior Participating Preferred Stock of Kilroy Realty Corporation as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (10)
4.7	Registration Rights Agreement dated as of October 6, 2000 (11)
4.8	The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percent of the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees to furnish copies of these agreements to the Commission upon request.
4.9	Note and Guarantee Agreement dated August 4, 2004 by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and the purchasers whose names appear in the acceptance form at the end of the Note and Guarantee Agreement (12)

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Exhibit Number	Description
4.10	Form of 5.72% Series A Guaranteed Senior Note due 2010 (12)
4.11	Form of 6.45% Series B Guaranteed Senior Note due 2014 (12)
4.12†	Kilroy Realty 2006 Incentive Award Plan (13)
4.13†	Amendment to Kilroy Realty 2006 Incentive Award Plan (16)
4.14†	Second Amendment to Kilroy Realty 2006 Incentive Award Plan (18)
4.15†	Form of Restricted Stock Award Agreement (17)
4.16	Indenture, dated as of April 2, 2007, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, including the form of 3.25% Exchangeable Senior Notes due 2012 (15)
4.17	Registration Rights Agreement, dated as of April 2, 2007, among Kilroy Realty, L.P., Kilroy Realty Corporation, JP Morgan Securities Inc., Banc of America Securities LLC and Lehman Brothers Inc. (15)
10.1*†	Kilroy Realty Corporation 2007 Deferred Compensation Plan
10.2*†	Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Steven R. Scott effective as of January 1, 2007
10.3*†	Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 1, 2007
10.4*†	Employment Agreement by and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Heidi Roth effective as of January 1, 2007
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*	Section 1350 Certification of Chief Executive Officer
32.2*	Section 1350 Certification of Chief Financial Officer

* Filed herewith

† Management contract or compensatory plan or arrangement

(1) Previously filed as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553).

(2) Previously filed as an exhibit on Form 10-K for the year ended December 31, 2003.

(3) Previously filed as an exhibit to the Registration Statement on Amendment No. 1 to Form S-3 (No. 333-72229).

(4) Previously filed as an exhibit on Form 10-K for the year ended December 31, 1999.

(5) Previously filed as an exhibit to the Registration Statement on Form S-3 (No. 333-34638).

(6) Previously filed as an exhibit on Form 8-A as filed with the Securities and Exchange Commission on October 24, 2003.

(7) Previously filed as an exhibit on Form 8-A as filed with the Securities and Exchange Commission on December 6, 2004.

(8) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 11, 1998.

(9) Previously filed as an exhibit on Form 8-K/A as filed with the Securities and Exchange Commission on December 19, 1997.

(10) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on October 8, 1998.

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(11) Previously filed as an exhibit on Form 10-K for the year ended December 31, 2000.

(12) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 11, 2004.

(13) Previously filed as an exhibit to the Registration Statement on Form S-8 (No. 333-135385).

(14) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 18, 2007.

(15) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on April 5, 2007.

(16) Previously filed as an exhibit on Form 10-K for the year ended December 31, 2006.

(17) Previously filed as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 8, 2007.

(18) Previously filed as an exhibit on Form 10-Q for the quarter ended March 31, 2007.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 26, 2007.

KILROY REALTY CORPORATION
By:	/s/    JOHN B. KILROY, JR.
	John B. Kilroy, Jr. President and Chief Executive Officer (Principal Executive Officer)
By:	/s/    RICHARD E. MORAN JR.
	Richard E. Moran Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer)
By:	/s/    HEIDI R. ROTH
	Heidi R. Roth Senior Vice President and Controller (Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

KILROY REALTY CORPORATION

2007 DEFERRED COMPENSATION PLAN

As Adopted

Effective June 29, 2007

KILROY REALTY CORPORATION

2007 DEFERRED COMPENSATION PLAN

WHEREAS, Kilroy Realty Corporation (the “Company”) desires to establish an unfunded deferred compensation plan, effective as of June 29, 2007 (the “Effective Date”), which provides supplemental retirement income benefits for a select group of highly compensated management employees and directors through (i) deferrals of Salary, Bonuses and Director Fees, (ii) Company Mandatory Contributions, and (iii) Company Discretionary Contributions.

NOW, THEREFORE, the Company hereby adopts and establishes this Kilroy Realty Corporation 2007 Deferred Compensation Plan, the terms of which are hereinafter set forth.

ARTICLE I

TITLE AND DEFINITIONS

1.1 Title. The name of this plan is the “Kilroy Realty Corporation 2007 Deferred Compensation Plan.”

1.2 Definitions. Whenever the following capitalized words are used in this Plan, they shall have the meanings specified below.

a) “Account” shall have the meaning provided in Section 4.1 hereof.

b) “Account Value” shall have the meaning provided in Section 4.3 hereof.

c) “Beneficiary” means the person or persons, including a trustee, personal representative or other fiduciary, last designated in writing by a Participant in accordance with procedures established by the Committee to receive the benefits specified hereunder in the event of the Participant’s death. No beneficiary designation shall become effective until it is filed with the Committee. If there is no Beneficiary designation in effect for a Participant, or if there is no surviving designated Beneficiary, then the benefits specified hereunder shall be distributed in accordance with the applicable laws of descent and distribution.

d) “Board” means the Board of Directors of the Company.

e) “Bonus” means any cash incentive which is awarded by the Company in its discretion to a Participant as remuneration in addition to the Participant’s Salary or Director Fees, as applicable.

f) “Change of Control” means and includes each of the following, except that no transaction or series of transactions shall constitute a Change of Control for purposes of this Plan unless such transaction(s) constitute a “change in control event” within the meaning of Section 409A:

(i) A transaction or series of transactions (other than an offering of the Company’s common stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) (other than the Company, the Partnership, any of their respective Subsidiaries, an employee benefit plan maintained by the

2

Company, the Partnership or any of their respective Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company and immediately after such acquisition possesses more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or 

(ii) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 1.2(f)(i) hereof or Section 1.2(f)(iii) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(A) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the entity that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such entinty, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(B) After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 1.2(e)(iii)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

g) “Claimant” shall have the meaning set forth in Section 7.6(a) hereof.

h) “Code” means the Internal Revenue Code of 1986, as amended.

i) “Committee” shall have the meaning set forth in Section 7.1 hereof.

j) “Company” means Kilroy Realty Corporation, a Maryland corporation, and its successors or assigns.

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k) “Company Account Plan” means any “account balance” nonqualified deferred compensation plan (within the meaning of Section 409A) maintained by the Company or any entity constituting a single employer with the Company within the meaning of Code Section 414(b) or (c).

l) “Company Mandatory Contribution” shall have the meaning set forth in Section 3.2(a) hereof.

m) “Compensation” shall include each of Salary, Director Fees and Bonus.

n) “Director” means any member of the Board.

o) “Director Fee” means cash compensation paid to any Director in respect of services provided to the Company by the Director in his or her capacity as such, but excluding any Bonus paid to such Director.

p) “Discretionary Contribution” shall have the meaning provided in Section 3.2(b) hereof.

q) “Disability” means a “disability” within the meaning of Section 409A.

r) “Effective Date” means June 29, 2007.

s) “Election” means any Initial Deferral Election or any Subsequent Plan-Year Deferral Election.

t) “Election Form” shall have the meaning provided in Section 3.1(d) below.

u) “Eligible Service Provider” means each Employee or Director who is (i) employed by the Company, the Partnership or any Subsidiary, or serves on the Company’s Board, as applicable, and (ii) a member of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and any regulations promulgated thereunder.

v) “Employee” means each officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, the Partnership or any Subsidiary who serves any such entity at the Senior Vice President level or higher.

w) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

x) “In-Service Distribution” means a distribution or distributions of deferred Compensation, together with any gains or losses credited thereto (but excluding any Company Mandatory Contributions and any gains or losses credited thereto), made or, in the case of installment distributions, beginning, in either case, pursuant to an Election to receive such distribution(s) on a specified date prior to any of (i) a Change of Control, or (ii) the Participant’s Separation from Service, Retirement, death or Disability.

y) “Initial Deferral Election” means a Participant’s valid election, made on an Election Form, with respect to (i) the deferral of Salary, Director Fees and/or Bonus, as applicable, under the Plan, and/or (ii) the time and form of distribution of Company Mandatory Contributions, in any case, submitted to the Committee (or its designee) during such Participant’s Initial Election Period.

z) “Initial Election Period” means, for each Eligible Service Provider, (i) if the Employee or Director is an Eligible Service Provider or a Director as of the Effective Date, the period ending June 30, 2007, or (ii) if the Employee or Director is not an Eligible Service Provider as of the

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Effective Date, the period ending thirty days after the date he or she is designated by the Committee, in its sole discretion, as eligible to participate in any Company Account Plan. For purposes of this Plan, (A) if an Employee or Director who is not an Eligible Service Provider on the Effective Date first becomes eligible to participate in any Company Account Plan, such Eligible Service Provider’s thirty-day Initial Election Period shall commence on the first date of eligibility under such other plan, and (ii) if such Eligible Service Provider cannot or otherwise does not make an Initial Deferral Election under this Plan by filing a valid Election Form with the Committee prior to the expiration of such thirty-day period, then such Eligible Service Provider shall only be permitted to make deferral elections under this Plan during Subsequent Election Periods. For the avoidance of doubt, Election Forms filed during an Initial Election Period (X) with respect to any Company Mandatory Contribution, Salary, Director Fees or Bonus that does not constitute Performance-Based Compensation, on or after the first day of the calendar year in which such amounts are earned, and (Y) with respect to any Bonus that constitutes Performance-Based Compensation, after the last date that is at least six months prior to the end of the performance period in which such amounts are earned (June 30 for any calendar-year performance period), in each case, shall only apply to amounts earned after the date that such Election takes effect.

aa) “Investment Alternative” means an investment alternative selected by the Committee pursuant to Section 3.3(d) hereof.

bb) “Participant” means any Eligible Service Provider who makes a valid Election in accordance with Section 3.1 hereof, including any Eligible Service Provider who elects not to defer any Compensation but makes a valid Election only with respect to the time and form of payment of Company Mandatory Contributions.

cc) “Partnership” means Kilroy Realty, L.P.

dd) “Performance-Based Compensation” shall mean “performance-based compensation” within the meaning of Section 409A.

ee) “Plan” shall mean the Kilroy Realty Corporation 2007 Deferred Compensation Plan set forth herein, as may be amended from time to time.

ff) “Plan Year” means the calendar year provided, however, that, except with respect to Performance-Based Compensation earned during 2007, the first Plan Year shall be a short year beginning on July 1, 2007 and ending on December 31, 2007.

gg) “Reallocation Form” means a form (which may be in paper or electronic format) prescribed by the Committee and made available to Participants that Participants may use to reallocate their Accounts amongst available Investment Alternatives and/or to specify the allocation of future deferrals amongst available Investment Alternatives.

hh) “Retirement” shall mean a Participant’s “separation from service” from the Company (within the meaning of Section 409A) by reason of the Participant’s retirement following at least ten years of employment or service as a Director with the Company, the Partnership or a Subsidiary, in any case, after the Participant attains fifty-five years of age.

ii) “Salary” means an Employee Participant’s gross base salary paid by the Company.

jj) “Section 409A” shall have the meaning provided in Section 8.2 below.

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kk) “Separation from Service” means a “separation from service” from the Company within the meaning of Section 409A, but shall not include any Retirement.

ll) “Specified Employee” shall mean any Participant who is, or was at any time during the twelve-month period ending on the Company’s “specified employee identification date,” a “specified employee” of the Company (each within the meaning of Section 409A).

mm) “Specified Employee Payment Date” shall have the meaning provided in Section 6.2 below.

nn) “Subaccount” shall mean any subaccount of an Account described in Section 4.1 below.

oo) “Subsequent Election Period” means one or more periods after an Eligible Service Provider’s Initial Election Period during which such Eligible Service Provider may make a Subsequent Plan-Year Deferral Election, which period(s) shall begin on a date specified by the Committee and shall end no later than (A) December 15^th of the year preceding the year in which any Company Mandatory Contribution, Salary, Director Fee or Bonus that does not constitute Performance-Based Compensation subject to such election is earned, as applicable, and, (B) the date that is at least six months before the end of the applicable performance period in which any Bonus that constitutes Performance-Based Compensation subject to such election is earned (June 30th for any calendar-year performance period).

pp) “Subsequent Plan-Year Deferral Election” means a Participant’s valid election, made on an Election Form, with respect to (i) the deferral of Salary, Director Fees and/or Bonus, as applicable, under the Plan, and/or (ii) the time and form of distribution of Company Mandatory Contributions, in any case, submitted to the Committee (or its designee) during any Subsequent Election Period.

qq) “Subsidiary” means a corporation, association or other business entity of which 50% or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the Company or the Partnership, including (i) any such Subsidiary owned by one or more Company or Partnership Subsidiaries or by the Company or the Partnership together with one or more Company or Partnership Subsidiaries, (ii) any partnership or limited liability company of which 50% or more of the capital and profits interests are owned, directly or indirectly, by the Company, the Partnership or by one or more Company or Partnership Subsidiaries or by the Company or the Partnership together with one or more Company or Partnership Subsidiaries, and (iii) any other entity not described in clauses (i) or (ii) above of which 50% or more of the ownership and the power, pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Company, the Partnership, one or more other Company or Partnership Subsidiaries or the Company or the Partnership together with one or more Company or Partnership Subsidiaries.

rr) “Trust” shall mean a “rabbi trust” satisfying the model trust conditions described in Treas. Rev. Proc 92-64 and any subsequent Internal Revenue Service guidance affecting the validity of such ruling.

ss) “Unforeseeable Emergency” shall mean an “unforeseeable emergency” within the meaning of Section 409A.

6

ARTICLE II

ELIGIBILITY AND PARTICIPATION

2.1 Eligibility. Employees and Directors shall be eligible to participate in the Plan as of the date on which any such individual is designated as an Eligible Service Provider by the Committee, subject to the terms and conditions of the Plan, including without limitation, restrictions as to the timing of Initial Deferral Elections. If a Participant receives a distribution of any portion of such Participant’s Account pursuant to Section 6.1(f) hereof, such Participant shall cease to be an Eligible Service Provider for purposes of making deferrals and eligibility for Company Mandatory Contributions following such distribution unless and until re-designated by the Committee as an Eligible Service Provider.

2.2 Participation. An Eligible Service Provider shall become a Participant in the Plan by submitting a valid Election to the Committee in accordance with Section 3.1 hereof.

ARTICLE III

DEFERRAL ELECTIONS; COMPANY CONTRIBUTIONS; INVESTMENT ELECTIONS

3.1 Elections to Defer Salary, Director Fees and/or Bonus.

a) Initial Deferral Election. Each Eligible Service Provider shall be permitted to make an Initial Deferral Election during the Initial Election Period applicable to such Eligible Service Provider by submitting to the Committee (or its designee) an Election Form on or prior to the last day of such Eligible Service Provider’s Initial Election Period. If an Employee’s or Director’s Initial Election Period expires prior to the time at which such Employee or Director becomes an Eligible Service Provider under this Plan (whether due to prior eligibility under a Company Account Plan or otherwise), then such Employee or Director shall not be permitted to defer any Compensation or make an Election with respect to any Company Mandatory Contributions under this Plan until the first Subsequent Election Period occurring on or after the date on which such Employee or Director becomes an Eligible Service Provider under this Plan (including any such Subsequent Election Period that coincides with the period which would have constituted such Eligible Service Provider’s Initial Deferral Period under this Plan, but for such individual’s prior eligibility under a Company Account Plan). A Participant’s Initial Deferral Election shall remain in effect with respect to subsequent Plan-Year Compensation and Company Mandatory Contributions, unless revoked in a writing submitted to the Committee (or its designee) by the Participant or superseded by a Subsequent Plan-Year Deferral Election made in accordance with Section 3.1(b) hereof, in either case, prior to such time as deferral elections become irrevocable with respect to Compensation or Company Mandatory Contributions earned in any such subsequent Plan Year.

b) Subsequent Plan-Year Deferral Elections. Each Eligible Service Provider shall be permitted to make a Subsequent Plan-Year Deferral Election in any Subsequent Election Period during which such individual remains an Eligible Service Provider by submitting to the Committee (or its designee) an Election Form on or prior to the last day of the applicable Subsequent Election Period. Elections contained in a Subsequent Plan-Year Deferral Election shall apply only to Compensation and/or Company Mandatory Contributions earned after the Plan Year in which such Subsequent Plan-Year Deferral Elections are made (or, with respect to Bonuses that constitute Performance-Based Compensation, during the Plan Year in which such Subsequent Plan-Year Deferral Elections are made, provided that such Elections are made more than six months prior to the end of the applicable performance period) and shall, in no event, modify the

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terms or conditions of deferrals or the time or form of distributions subject to prior Elections that have previously become irrevocable. If an Eligible Service Provider’s Initial Election Period occurs, in part or in whole, during any period which would constitute a Subsequent Election Period for such Eligible Service Provider had it occurred after such Eligible Service Provider’s Initial Election Period, then such Eligible Service Provider shall, as determined in the sole discretion of the Committee, be permitted to make either (i) a single Election with respect to amounts covered by both the Initial and Subsequent Plan-Year Deferral Elections, or (ii) separate Initial and Subsequent Plan-Year Deferral Elections with respect to amounts deferrable and/or distributable under each such Election, in either case, by timely submitting the appropriate Election Form(s) to the Committee (or its designee).

c) Re-Deferral Elections. Participants may re-defer amounts previously deferred under an Initial or Subsequent Plan-Year Deferral Election up to one time per Plan Year by completing and submitting to the Committee a new Election Form in accordance with any rules or policies issued by the Committee with regard to such re-deferrals, provided, however, that (i) such re-deferral elections may only be made prior to such time as a Participant ceases to be an Employee or Director, as applicable, (ii) any such re-deferral must be made at least one year prior to the first date on which any amounts subject to the re-deferral Election would otherwise be paid, absent such re-deferral, (iii) such re-deferral election shall not take effect until at least 12 months after the date on which the re-deferral election is made, (iv) the payment with respect to which such re-deferral election is made must be deferred for an additional period of not less than five years from the date such payment would otherwise have been paid, and (v) any such re-deferral must be timely submitted to the Committee (or its designee) on a form (which may be in paper or electronic format) prescribed by the Committee.

d) Election Forms. Participants shall effectuate Elections (and any re-deferral Elections) by completing and submitting to the Committee (or its designee) a deferral election form (which may be in paper or electronic format) prescribed by the Committee (such form, an “Election Form”) in which Participants specify, at a minimum:

(i) subject to Section 3.1(f) hereof, the levels and types of Compensation to be deferred under the Election;

(ii) to the extent that the Participant elects to receive In-Service Distributions, subject to Article VI below, the specified time, if any, at which In-Service Distributions shall be made (if lump-sum) or begin (if installments), which (A) shall be no earlier than two years after the start of the Plan Year in which the underlying Compensation is earned, and (B) in the case of installments, shall be comprised of no more than five annual installments, provided, however, that In-Service Distributions shall be paid in the form of a lump sum if the portion of the Account (or applicable Subaccount) balance (including any investment gains or losses credited thereto) subject to such In-Service Distribution Election is less than $25,000 at the time of the scheduled commencement of the In-Service Distributions;

(iii) to the extent that the Participant elects to receive distributions in the event of his or her Retirement, subject to Article VI below, the form of payment applicable to distributions payable following the Participant’s Retirement, if any, which may be either lump-sum or up to fifteen annual installments and which Election shall apply to the distribution upon Retirement, if any, of all Company Mandatory Contributions earned in the Plan Year(s) to which such Election applies;

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(iv) subject to Article VI below, whether or not the Participant’s entire Account balance (including any amounts subject to any Subsequent Plan-Year Deferral Elections) and any gains or losses credited to such Account will be distributed in connection with a Change of Control, provided, however, that (A) any distribution pursuant to this Section 3.1(d)(iv) shall be in the form of a lump sum, and (B) for the avoidance of doubt, each Participant’s initial Election to receive or not to receive a Change-of-Control distribution shall govern such Participant’s entire Account and shall be irrevocable for the duration of such Participant’s participation in the Plan; and

(v) subject to Section 3.3 hereof, the allocation of deferred Compensation and any Company Mandatory Contributions and/or earnings on either of the foregoing amongst available Investment Alternatives, each in accordance with the terms of the Plan.

e) Priority of Distributions. Of the distribution events specified by a Participant in an applicable Election Form, the first such distribution event to occur shall govern the distributions of the amounts subject to such Election and distributable on such distribution event, with the following exceptions:

(i) if a Change of Control occurs after the commencement of installments payments pursuant to either an Election to receive In-Service Distributions or an Election to receive distributions in the event of Retirement and the Participant has elected to receive a distribution upon a Change of Control, the Participant’s entire Account balance and any gains or losses credited to such Account shall be distributed in a lump sum upon such Change of Control in accordance with the distribution provisions contained in Section 6.1(e) hereof;

(ii) if a Participant dies or experiences a Disability at any time (including without limitation, after the commencement of installment payments), the distribution provisions contained in Section 6.1(d) hereof shall control distributions of such Participant’s Account without regard to any applicable Elections;

(iii) Company Mandatory Contributions may only be distributed upon a Separation from Service, a Change of Control (if so elected) or a Retirement and, if upon a Retirement, shall be subject to the Retirement distribution provisions contained in the applicable Election Form (and further subject to any applicable provisions of this Section 3.1(e) by virtue of being linked to the Retirement distribution schedule); and

(iv) If a Participant experiences a Separation from Service (other than due to death, Disability or Retirement) prior to the completion of In-Service Distribution installment payments which have commenced prior to any such Separation from Service, amounts subject to such In-Service Distribution Election shall cease to be paid in installments and shall instead be distributed in accordance with Section 6.1(c) hereof.

f) Deferral Amounts. Elections to defer receipt of any of Salary, Director Fees and/or Bonuses must defer a minimum of 5% of the gross amount of any such type of Compensation that is earned during the Plan Year (or, if less, that is earned during the portion of the Plan Year to which the Election applies). Participants may not defer more than 70% of their applicable Salaries, but may defer up to 100% of any Bonuses or Director Fees earned. Participants may, but are not required to, defer either or both of (i) Salary or Director Fees (as applicable), and/or (ii) Bonuses. Company Mandatory Contributions will be automatically made under the Plan for all Participants who have submitted a valid Election Form governing the distribution of such Company

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Mandatory Contributions (subject to Article VI below). Compensation deferred by Participants under the Plan may only be deferred in increments of whole integral percentage points. For the avoidance of doubt, Eligible Service Providers are not required to defer any Compensation under the Plan, and do so solely at their own election.

g) Deferrals Irrevocable. Any Election that has not been revoked in a writing submitted to the Committee on or prior to the last day of the applicable Initial or Subsequent Election Period, as applicable, shall be irrevocable with respect to all Compensation and/or Company Mandatory Contributions deferred or distributable under such Election (i) in the calendar year that such Election is made in the case of (A) any Initial Deferral Election and (B) any Subsequent Plan-Year Deferral Election applicable to a Bonus that constitutes Performance-Based Compensation earned in the year that such Election is made, and (ii) in the calendar year immediately following the year in which such Election is made in the case of any Subsequent Plan-Year Deferral Election applicable to Company Mandatory Contributions, Salary, Director Fees or any Bonus that does not constitute Performance-Based Compensation, provided, however, that any Initial Deferral Election which also serves as a Subsequent Plan-Year Deferral Election shall become irrevocable with respect to Company Mandatory Contributions, Salary, Director Fees and Bonuses earned during the immediately subsequent Plan Year at the end of the applicable Subsequent Election Period. If an Eligible Service Provider fails to make a timely Election for any reason, then the Eligible Service Provider shall not be permitted to defer any Compensation or make an Election with respect to the time and form of distribution of Company Mandatory Contributions under the Plan until the next Subsequent Election Period (unless a prior Election remains in effect with respect to such Participant’s Compensation or Company Mandatory Contributions, in which case such prior Election shall control).

h) Deferral Effectiveness; Termination. Elections covering Company Mandatory Contributions, Salary, Director Fees and/or Bonus compensation that does not constitute Performance-Based Compensation shall be effective with respect to amounts earned during the first pay period beginning after the end of the Initial or Subsequent Election Period in which such Elections are made. Any existing Election that is not either revoked in a writing submitted to the Committee (or its designee) or superseded by a Subsequent Plan-Year Deferral Election, in either case, on or prior to the last day of any Subsequent Election Period, shall be irrevocable with respect to amounts earned during the deferral period covered by such Subsequent Election Period.

3.2 Company Contributions.

a) Company Mandatory Contributions. In respect of each calendar month (i) through the end of which a Participant who is an Employee remains in the service of the Company, the Partnership or a Subsidiary, and (ii) during which such Employee Participant has a valid Election in effect with respect to Company Mandatory Contributions, the Company shall contribute to such Employee Participant’s Account an amount equal to ten percent (10 %) of such Employee Participant’s gross Salary actually earned by such Employee Participant in such calendar month, without regard to the amount of Compensation, if any, that such Employee Participant has elected to defer under the Plan for such calendar month (the “Company Mandatory Contributions”). For the avoidance of doubt, Director Participants who are not also Employees shall not be eligible to receive any Company Mandatory Contributions.

b) Company Discretionary Contributions. The Company may, in the sole discretion of the Board, make additional contributions to Participant Accounts based on the performance of the Participant, the performance of the Company (or any unit thereof) or any other metric deemed appropriate by the Board. If the Company elects to make any contributions to one or more

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Participant accounts pursuant to this Section 3.2(b), such contributions (the “Discretionary Contributions”) shall be subject to such terms and conditions, including without limitation any vesting conditions, as shall be determined by the Board. Terms and conditions applicable to any Discretionary Contributions may, in the sole discretion of the Board, be contained in a separate award agreement between the Company and the Participant receiving such Discretionary Contributions.

3.3 Investment Elections.

a) Initial Allocation. Each Participant shall designate in the first Election Form filed with the Committee (or its designee) by such Participant, the initial allocation of such Participant’s deferred Compensation, any Company Mandatory Contributions and any earnings on either of the foregoing amongst the Investment Alternatives available under the Plan, which allocation shall be designated in increments of whole integral percentage points. Allocations applicable to Participants’ deferred Compensation may differ from allocations applicable to Participants’ Company Mandatory Contributions. In addition, as determined by the Committee in its sole discretion, Participant allocation elections may either be individualized by Subaccount (if any) or may apply generally to all Subaccounts (if any) comprising a Participant’s Account. Procedures for allocating Discretionary Contributions amongst Investment Alternatives will be determined by the Committee if and when the Committee elects to make any such Discretionary Contributions. If a Participant fails to elect Investment Alternatives under this Section 3.3(a) with respect to some or all of such Participant’s Account balance or fails to elect a new Investment Alternative following the elimination of an Investment Alternative in which any portion of such Participant’s Account is notionally invested (as provided under Section 3.3(d) below), such Participant shall be deemed to have elected a notional investment in a money-market or similar account selected by the Committee with respect to such amounts.

b) Subsequent Plan-Year Deferral Elections. Each Participant who makes a Subsequent Plan-Year Deferral Election (following any prior Election) may elect to allocate Compensation, any Company Mandatory Contributions and any earnings on either of the foregoing arising under such Subsequent Plan-Year Deferral Election in the same manner or differently from allocations designated in the preceding Election Form, as indicated by the Participant in the Election Form applicable to such Subsequent Plan-Year Deferral Election.

c) Reallocation. Each Participant may reallocate such Participant’s Account balance (including any earnings thereon) in whole integral percentage points amongst the available Investment Alternatives, as often as daily, by submitting a form (which may be in paper or electronic format) prescribed by the Committee to the Committee (or its designee) indicating the extent to which such reallocation applies to (i) any existing Account balances, and (ii) any future Compensation deferrals, Company Mandatory Contributions and earnings on any of the foregoing. Account reallocations made in accordance with this Section 3.3(c) shall take effect on the first business day following the business day on which a valid reallocation form is received by the Committee (or its designee), unless received by the Committee after 1:00 p.m. (pst), in which case such reallocations shall take effect on the second business day following the business day on which a valid reallocation form is received by the Committee (or its designee).

d) Investment Alternatives. The Investment Alternatives amongst which Participants shall be eligible to allocate and reallocate their Account balances, future deferrals, Company Mandatory Contributions and earnings on any of the foregoing shall be selected by the Committee. The initial Investment Alternatives are attached to this Plan as Schedule A hereto. The Committee may from time to time change the available Investment Alternatives, either by eliminating

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existing Investment Alternatives, adding new Investment Alternatives, or both, provided, however, that no such change of available Investment Alternatives shall be made with retroactive effect. The Committee shall communicate any such changes in available Investment Alternatives to Participants as soon as reasonably practicable once known to the Committee.

e) Notional Investments. Allocation of Participants’ Accounts amongst the Investment Alternatives shall be for purposes of tracking notional gains and losses on such amounts and shall create no obligation on the part of the Company, any Trust (or trustee thereof) or any other party to make any actual investments in such Investment Alternatives, whether in accordance with Participant allocations or otherwise. The Company or the Trust (if any) may, however, in its sole discretion, invest as it deems appropriate in one or more of the Investment Alternatives.

ARTICLE IV

ACCOUNTS

4.1. Accounts. The Committee shall establish and maintain a hypothetical bookkeeping account for each Participant for purposes of reflecting Compensation deferred by such Participant, Company Mandatory Contributions and Discretionary Contributions (if any) payable to such Participant and any notional gains or losses on any of the foregoing generated by the Investment Alternatives in which such bookkeeping account is notionally invested, as provided herein. The Committee may, in its sole discretion, create one or more Subaccounts under any Participant Account to reflect amounts which may be subject to different distribution schedules or otherwise as necessary or convenient to the administration of the Plan (such hypothetical accounts, together with any Subaccounts thereunder, the “Accounts”). Except as expressly provided in Section 6.3 hereof (with regard to the Trust), neither the Plan nor any of the Accounts established hereunder shall hold any actual investments, funds or assets or shall give any Participant or Beneficiary any right, interest or claim in any particular asset of the Company or any Trust, other than that of a general, unsecured creditor.

4.2 Crediting of Accounts. Each Participant’s Account shall be credited as follows:

a) Compensation Deferrals. All Compensation properly deferred by Participants shall be credited to the Participants’ respective Accounts no later than the third business day following the date on which such deferred Compensation would otherwise have been paid to the deferring Participant.

b) Company Mandatory Contributions. All Company Mandatory Contributions shall be credited to the applicable Employee Participant’s Account no later than fifteen days after the end of the month in which such Company Mandatory Contributions were earned.

c) Discretionary Contributions. Discretionary Contributions (if any) shall be credited to the Participants’ respective Accounts at such time or times as are determined by the Board in connection with the Board’s decision to make such Discretionary Contributions.

4.3 Account Valuation; Statements. The Participants’ Accounts shall be valued periodically, but no less often than monthly, taking into account any increase or decrease in the value of the Investment Alternatives in which such Accounts are notionally invested (the “Account Value”). No less frequently than quarterly, statements of such Account valuations shall be made available to Participants either electronically or in a paper format under procedures established by the Committee (or its designee).

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ARTICLE V

VESTING

5.1 Compensation; Company Mandatory Contributions; Earnings. All Compensation deferred by Participants under this Plan, all Company Mandatory Contributions and any notional gains on each of the foregoing, shall be fully vested at all times, except that all such amounts shall be subject to reduction resulting from notional losses generated by Investment Alternatives in which such amounts are notionally invested in accordance with Participant Elections.

5.2 Discretionary Contributions. If the Company elects to make any Discretionary Contributions to one or more Participant Accounts pursuant to this Plan, the vesting terms of such Discretionary Contributions shall be determined by the Board and communicated to the affected Participant(s) at the time at which, or as soon as practicable after, such Discretionary Contributions are made.

ARTICLE VI

DISTRIBUTIONS

6.1. Distribution of Benefits. This Section 6.1 shall be applied in a manner consistent with the provisions of Section 3.1(e) hereof.

a) In-Service Distributions.

(i) Lump-Sum In-Service Distributions. If a Participant designates a lump-sum In-Service Distribution on a date specified in accordance with Section 3.1(d)(ii) hereof with respect to all or any portion of such Participant’s Account (or Subaccounts), that portion of the Participant’s Account (or Subaccounts) so designated shall, subject to Sections 6.1(c), 6.1(d), 6.1(e), 6.1(f) and 6.2 hereof, be paid to the Participant in January of the specified year based on the Account (or Subaccount(s)) Value as of the most recent date prior to such In-Service Distribution on which such Account (or Subaccount(s)) Value was determined in accordance with Section 4.3 hereof.

(ii) Installment In-Service Distributions. If a Participant designates installment In-Service Distributions to begin on a date specified in accordance with Section 3.1(d)(ii) hereof with respect to all or any portion of such Participant’s Account (or Subaccounts), payment of that portion of the Participant’s Account (or Subaccounts) so designated shall, subject to Sections 6.1(c), 6.1(d), 6.1(e), 6.1(f) and 6.2 hereof, begin in January of the specified year and shall continue to be paid in January of each succeeding year until fully paid in accordance with such Election (not to exceed a total of five payments). On each such distribution date, the Participant shall receive a portion of the Account (or Subaccount) Value allocable to such designation multiplied by a fraction, the numerator of which equals one and the denominator of which equals the number of installment payments remaining, including the payment subject to such calculation. Each such installment payment shall be calculated using the Account (or Subaccount(s)) Value as of the most recent date prior to such distribution on which such Account (or Subaccount(s)) Value was determined in accordance with Section 4.3 hereof.

b) Retirement. If a Participant’s service relationship with the Company terminates due to such Participant’s Retirement and a Participant has made one or more valid Elections to receive a distribution in the event of Retirement, then that portion of such Participant’s Account (or

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Subaccounts) subject to such Election(s) shall be distributed (i) if a lump-sum, on or as soon as practicable after the applicable Specified Employee Payment Date, and (ii) if installments, with respect to the first installment on or as soon as practicable after the applicable Specified Employee Payment Date and with respect to each subsequent installment, during the January following the previous installment, in each case, based on the Account Value most recently determined prior to such distribution in accordance with Section 4.3 above. Installment payments made pursuant to this Section 6.1(b) shall be calculated in accordance with the principles contained in Section 6.1(a)(ii) hereof. For the avoidance of doubt, if the Specified Employee Payment Date applicable to an installment Retirement distribution falls during January, then only one distribution shall be made during such January (and in no event prior to the applicable Specified Employee Payment Date), and the remaining distributions shall be made each in succeeding Januaries, until all such installments have been paid in accordance with the Participant’s Election.

c) Separation from Service. Notwithstanding anything herein to the contrary, but (i) consistent with Section 3.1(e) hereof, and (ii) subject to and except as provided in Section 6.2 hereof, if a Participant experiences a Separation from Service, such Participant’s Account shall be distributed in full in the form of a lump-sum payment as soon as practicable after the occurrence of such event, based on the Account Value most recently determined prior to such distribution in accordance with Section 4.3 above.

d) Death; Disability. Notwithstanding anything herein to the contrary, if a Participant dies or experiences a Disability prior to the full distribution of such Participant’s Account, such Account shall be distributed to the Participant’s designated Beneficiary or the Participant, as applicable, as soon as administratively practicable following such Participant’s death or Disability, but in no event later than the month following the month in which such Participant’s death or Disability occurs (unless delayed by legal process), based on the Account Value most recently determined prior to such distribution in accordance with Section 4.3 above.

e) Change of Control. Notwithstanding anything herein to the contrary, if a Participant makes an Election to receive a distribution from such Participant’s Account upon the occurrence of a Change of Control, then all amounts contained in such Participant’s Account shall be distributed to the Participant upon, or as soon as practicable after, the consummation of a Change of Control, based on the Account Value most recently determined prior to such distribution in accordance with Section 4.3 above.

f) Unforeseeable Emergency. If a Participant experiences an Unforeseeable Emergency, the Committee may, in its sole discretion, permit an early distribution of that portion of such Participant’s Account reasonably necessary to satisfy the emergency need giving rise to the Unforeseeable Emergency, including any taxes or penalties reasonably anticipated to result from such distribution and taking into consideration any funds that may become available as a result of the termination of such Participant’s existing Election(s) in connection with such distribution, as described below. If the Participant’s Account is comprised of one or more Subaccounts, the Committee shall determine, in its sole discretion, from which Subaccount such funds shall be distributed. If a Participant takes a distribution pursuant to this Section 6.1(f), such Participant’s existing deferral Election shall immediately terminate with regard to Compensation not yet earned at the time of such distribution and the Participant shall only be eligible to make future Elections under the Plan as determined by the Committee, in its sole discretion and in accordance with Section 409A.

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6.2 Specified Employees. Notwithstanding anything in this Plan or any Election Form to the contrary, with respect to any Participant who is a Specified Employee at the time of such Participant’s Separation from Service, as determined in the sole discretion of the Committee, the distribution of such Participant’s Account (and all Subaccounts) upon such Separation from Service shall be delayed until the date which is six months and one day after the date on which such Separation from Service occurs (such delayed payment date, the “Specified Employee Payment Date”), provided, however, that to the extent that all or any portion of such Participant’s Account would have been distributed during the six-month period following such Separation from Service, whether in a lump sum or installments, in either case, without regard to such Separation from Service, such amounts shall continue be distributed in accordance with such schedule without regard to this Section 6.2, and any remaining balance in such Participant’s Account shall be distributed on the Specified Employee Payment Date.

6.3 Trust. The Company may, in its sole discretion, establish a Trust for purposes of allocating funds to satisfy the obligations arising under this Plan. The rights of Participants and Beneficiaries (if any) with respect to any assets so held in Trust (if any) shall be governed by the terms and conditions of the document(s) creating such Trust.

ARTICLE VII

ADMINISTRATION

7.1 Administration. This Plan shall be administered by the Board, which may, in its sole discretion, subject to the express provisions of this Plan, delegate its duties and responsibilities to a committee comprised of one or more members of the Board and/or one or more employees of the Company, who shall serve at the pleasure of the Board to administer the Plan, provided, however, that with respect to any decision affecting a Director in such Director’s capacity as an Eligible Service Provider or a Participant, the Plan shall be administered by the entire Board (excluding such affected Director). The committee so delegated, in turn, may delegate the administration of ministerial duties to one or more individuals or sub-committees. References to the Committee throughout this Plan shall be understood to refer to the appropriate administrative body as provided under this Section 7.1 (the “Committee”).

7.2 Committee Action. The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee. A member of the Committee shall not vote or act upon any matter which relates solely to himself or herself as a Participant or an Eligible Service Provider. The chairman, chairwoman or any other member or members of the Committee designated by the chairman or chairwoman may execute any certificate or other written direction on behalf of the Committee.

7.3 Powers and Duties of the Committee. The Committee, on behalf of the Participants and their Beneficiaries, shall administer the Plan in accordance with its terms, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:

a) To designate Employees and Directors as Eligible Service Providers;

b) To designate the commencement date of any Subsequent Election Periods;

c) To select and modify Investment Alternatives in accordance with Section 3.3(d) hereof;

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d) To determine the Initial Deferral Period applicable to any Eligible Service Provider and to determine whether a leave of absence or other break in service or change in role constitutes a Separation from Service or otherwise affects eligibility under the Plan;

e) To construe and interpret the terms and provisions of this Plan and to make all factual determinations relevant to the Plan;

f) To compute the amount and kind of benefits payable to Participants and Beneficiaries;

g) To maintain all records that may be necessary for the administration of the Plan;

h) To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as required by law;

i) To make and publish such rules, forms, policies and procedures for the administration of the Plan as are not inconsistent with the terms hereof;

j) To appoint one or more sub-committees or individuals to assist with the administration of the Plan and to delegate to such sub-committee(s) or individuals such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe;

k) To direct and instruct the trustee of the Trust (if the Company establishes a Trust), to the extent the Company is authorized or required to do so under the Plan; and

l) To take all actions set forth in this Plan document.

7.4 Construction and Interpretation. The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which construction and interpretation shall be final and binding on all parties, including but not limited to the Company and all Participants and Beneficiaries.

7.5 Compensation, Expenses and Indemnity.

a) Compensation. The members of the Committee, including members of any subcommittee and other individuals providing services in connection with the administration of this Plan, shall serve without compensation for their services hereunder.

b) Expenses. The Committee is authorized, at the expense of the Company, to employ such legal, financial and tax counsel, as well as any other agents that it deems advisable, to assist in the performance of its duties hereunder. Expenses and fees incurred in connection with the administration of the Plan, including without limitation the foregoing, shall be paid by the Company.

c) Indemnification. To the greatest extent permitted by applicable law, the Company shall indemnify and hold harmless the Committee and each member thereof, the Board and any delegate of the Committee who is an Employee against any and all expenses, liabilities and claims, including without limitation any legal fees to defend against such liabilities and claims, in each case arising out of any such individual’s discharge in good faith of responsibilities under or incident to the Plan, but excluding any expenses and liabilities arising out of the willful misconduct of any such individual. This indemnity shall be additional to and not in limitation of any further indemnities that may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise.

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7.6 Disputes.

a) Claimants. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as “Claimant”) may file a written request for such benefit with the Board, setting forth such Claimant’s claim.

b) Rendering and Notification of Decision. Upon receipt of a claim, the Board shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Board may, however, at its sole discretion, extend the reply period for an additional ninety (90) days. If the claim is denied in whole or in part, the Board shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specific reason or reasons for such denial; (ii) the specific reference to pertinent provisions of the Plan, any Election Form(s) or any other documentation on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under Section 7.6(c) hereof.

c) Within sixty (60) days after the receipt by the Claimant of the written notification described in Section 7.6(b) hereof, the Claimant may make a request in writing for review of the determination of the Board. Such request must be addressed to the Board. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Board. If the Claimant does not request a review within such sixty (60) day-period, he or she shall be barred and estopped from challenging the Board’s determination.

d) Within sixty (60) days after the Board’s receipt of a request for review, the Board shall review the request, taking into consideration all materials presented by the Claimant. The Board will inform the Claimant in writing, in a manner calculated to be understood by the Claimant, of its decision setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of the Plan on which the decision is based. If special circumstances require that the sixty (60)-day time period be extended, the Board will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.

ARTICLE VIII

MISCELLANEOUS

8.1 Unsecured General Creditors. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Company or any Trust. Any and all of the Company’s assets and the Trust assets (if any) which are attributable to amounts paid into the Trust by the Company shall be, and remain, the general unpledged, unrestricted assets of the Company, which shall be subject to the claims of the Company’s general creditors. The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors. It is the intention of the Company that the Plan (and the Trust, if any) be unfunded for purposes of the Code and for purposes of Title I of ERISA.

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8.2 Section 409A. To the extent applicable, the Plan, all Election Forms and all other instruments evidencing amounts subject to the Plan shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation, any such regulations or other guidance that may be issued after the Effective Date (together, “Section 409A”). Notwithstanding any provision of the Plan, any Election Form or any other instrument evidencing amounts subject to the Plan to the contrary, if the Committee determines that any amounts subject to the Plan may be or become subject to Section 409A, the Committee may adopt such amendments to the Plan, any Election Form(s) and any other instruments relating to the Plan, and/or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions as the Committee determines are necessary or appropriate to (a) exempt such amounts from Section 409A, or (b) comply with the requirements of Section 409A, in any case, to preserve the intended tax treatment of the such amounts.

8.3 Restriction Against Assignment. Except as otherwise provided herein or by law, no right or interest of any Participant or Beneficiary under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Participant or Beneficiary under the Plan shall be liable for, or subject to, any obligation or liability of such Participant. When a payment is due under this Plan to a Participant or Beneficiary who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative.

8.4 Withholding. The Company shall have the authority and the right to deduct, withhold or require a Participant or Beneficiary to remit to the Company an amount sufficient to satisfy federal, state, local and foreign taxes (including without limitation any income and employment tax obligations) required by law to be withheld with respect to amounts payable under this Plan

8.5 Expenses. The expenses of administering the Plan shall be borne by the Company.

8.6 Notices. Any notice required or permitted to be given hereunder to a Participant or Beneficiary will be properly given if delivered or mailed, postage prepaid, to the Participant or Beneficiary at his or her last post office address as shown in the Company’s records. Any notice to the Committee or the Company shall be properly given or filed upon receipt by the Committee or the Company at such address as may be specified from time to time by the Committee. Each individual entitled to a benefit under the Plan must file with the Company, in writing, his or her post office address and each change of post office address which occurs between the date of his or her Separation from Service and the date he or she ceases to be a Participant. Any communication, statement or notice addressed to such individual at his or her latest reported address will be binding upon such individual for all purposes of the Plan.

8.7 No Right to Continue Service. Nothing in the Plan, any Election Form or any other instrument evidencing amounts subject to the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company.

8.8 Amendment, Suspension or Termination. The Board may amend, suspend or terminate the Plan in whole or in part, at any time, except that no amendment, suspension or termination shall have any retroactive effect to reduce any amounts allocated to a Participant’s Account.

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8.9 Additional Board Authority. The Board may, in its sole discretion, with respect to this Plan and all matters arising hereunder, take any action permitted under Treas. Reg. 1.409A-3(j) or any successor provision thereto, as such provisions may be amended from time to time, including without limitation, terminate or liquidate the Plan, whether or not in connection with a Change of Control.

8.10 Governing Law. This Plan shall be construed, governed and administered in accordance with applicable provisions of the Code, ERISA and, to the extent not preempted by applicable federal law, the laws of the State of Maryland, without regard to any conflict of laws principles thereof.

8.11 Release. Any payment to a Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims arising under, or with respect to, the Plan against the Committee and the Company. The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release in a form prescribed by the Committee.

8.12 Captions. The captions contained in this Plan are for convenience only and shall have no bearing on the meaning, construction or interpretation of the Plan’s provisions.

8.13 Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.

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IN WITNESS WHEREOF, Kilroy Realty Corporation has caused the Plan to be executed on this 29th day of June, 2007.

KILROY REALTY CORPORATION
By:	/s/ Tyler H. Rose
Name:	Tyler H. Rose
Title:	Senior Vice President and Treasurer

By:	/s/ Tamara J. Porter
Name:	Tamara J. Porter
Title:	Vice President and Corporate Counsel

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SCHEDULE A

[LIST OF INITIAL INVESTMENT ALTERNATIVES]

21

EX-10.2

Exhibit 10.2

Kilroy Realty Corporation

Employment Agreement – Steven R. Scott

Kilroy Realty Corporation

Employment Agreement for Steven R. Scott

			Page
1.	Employment		1
2.	Term		1
3.	Offices and Duties		2
	(a)	Generally	2
	(b)	Devotion of Time and Effort	2
	(c)	Place of Employment	2
4.	Salary and Annual Incentive Compensation		2
	(a)	Base Salary	2
	(b)	Annual Incentive Compensation	3
5.	Long-Term Compensation, Benefits, Deferred Compensation, and Expense Reimbursement		3
	(a)	Executive Compensation Plans	3
	(b)	Employee and Executive Benefit Plans	3
	(c)	Deferral of Compensation	4
	(d)	Reimbursement of Expenses	4
	(e)	Office, Staff and Equipment	4
	(f)	Company Registration Obligations	4
	(g)	Limitations Under Code Section 409A	4
6.	Termination Due to Retirement, Death, or Disability		5
	(a)	Retirement	5
	(b)	Death	6
	(c)	Disability	7
	(d)	Other Terms of Payment Following Retirement, Death, or Disability	8
7.	Termination of Employment For Reasons Other Than Retirement, Death, or Disability		8
	(a)	Termination by the Company for Cause	8
	(b)	Termination by Executive Other Than For Good Reason	9
	(c)	Termination by the Company Without Cause	9
	(d)	Termination by Executive for Good Reason	10
	(e)	Other Terms Relating to Certain Terminations of Employment	10

8.	Definitions Relating to Termination Events		11
	(a)	“Annual Incentives”	11
	(b)	“Cause”	11
	(c)	“Change in Control”	11
	(d)	“Compensation Accrued at Termination”	13
	(e)	“Disability”	13
	(f)	“Good Reason”	13
	(g)	“Partial Year Bonus”	14
	(h)	Intentionally omitted	14
	(i)	“Reasonably Anticipated Performance”	14
	(j)	“Severance Period.”	15
9.	Payment of Financial Obligations		15
10.	Rabbi Trust Obligation; Excise Tax-Related Provisions		15
	(a)	Rabbi Trust Funding	15
	(b)	Reduction of Payments If Excise Tax Would Apply	15
11.	Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement		16
	(a)	Noncompetition Agreement	16
	(b)	Non-Solicitation	16
	(c)	Non-Disclosure; Ownership of Work	16
	(d)	Cooperation With Regard to Litigation	17
	(e)	Non-Disparagement	17
	(f)	Release of Employment Claims	17
	(g)	Forfeiture of Outstanding Options and Other Equity Awards	17
	(h)	Survival	18
	(i)	Remedies	18
12.	Governing Law; Disputes; Arbitration		19
	(a)	Governing Law	19
	(b)	Reimbursement of Expenses in Enforcing Rights	19
	(c)	Arbitration	19
	(d)	Interest on Unpaid Amounts	20
	(e)	LIMITATION ON LIABILITIES	20
	(f)	WAIVER OF JURY TRIAL	20
13.	Miscellaneous		21
	(a)	Integration	21
	(b)	Successors; Transferability	21
	(c)	Beneficiaries	21
	(d)	Notices	21
	(e)	Reformation	22
	(f)	Headings	22
	(g)	No General Waivers	22

ii

	(h)	No Obligation To Mitigate	23
	(i)	Offsets; Withholding	23
	(j)	Successors and Assigns	23
	(k)	Counterparts	23
	(l)	Due Authority and Execution	23
	(m)	Representations of Executive	23
14.	D&O Insurance.		24

iii

Kilroy Realty Corporation

Employment Agreement for Steven R. Scott

THIS EMPLOYMENT AGREEMENT by and between KILROY REALTY CORPORATION, a Maryland corporation (the “Company”), Kilroy Realty, L.P., a Delaware limited partnership (the “Operating Partnership”) and Steven R. Scott. (“Executive”) is effective as of             , 2007 (the “Effective Date”). This Employment Agreement (the “Agreement”) supersedes and replaces in its entirety Executive’s Employment Letter Agreement, dated as of March 13, 2000, with the Company and Operating Partnership (the “Prior Employment Agreement”). Rights and obligations of the parties for periods prior to the Effective Date, and any related remedies, shall remain subject to the terms of the Prior Employment Agreement, which shall remain enforceable for that purpose.

W I T N E S S E T H

WHEREAS, the Company desires to continue to employ Executive as Senior Vice President, San Diego of the Company, and Executive desires to continue in such employment on the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which the Company and Executive each hereby acknowledge, the Company and Executive hereby agree as follows:

1. Employment.

The Company and Operating Partnership hereby agree to continue to employ Executive as their Senior Vice President, San Diego, and Executive hereby agrees to accept and continue in such employment during the Term as defined in Section 2 and to serve in such capacities from and after the Effective Date, upon the terms and conditions set forth in this Agreement. The allocation of the rights and obligations between the Company and the Operating Partnership shall be determined by separate agreement of those parties. For purposes of this Agreement, the term “Company” shall be understood to include the Operating Partnership, unless the context otherwise requires.

2. Term.

The term of employment of Executive under this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on December 31, 2009 and any period of extension thereof in accordance with this Section 2, except that the Term will end at a date, prior to the end of such period or extension thereof, specified in Section 6 or 7 in the event of termination of Executive’s employment. The Term, if not previously ended, shall be extended

automatically without further action by either party by one additional year (added to the end of the Term) first on December 31, 2009 (extending the Term to December 31, 2010) and on each succeeding December 31 thereafter, unless either party shall have served written notice in accordance with Section 13(d) upon the other party at least 90 days before the December 31 extension date electing not to extend the Term further as of that December 31 extension date, in which case employment shall terminate on that December 31 and the Term shall end at that date, subject to earlier termination of employment and earlier termination of the Term in accordance with Section 6 or 7.

3. Offices and Duties.

The provisions of this Section 3 will apply during the Term:

(a) Generally. Executive shall serve as the Senior Vice President, San Diego of the Company. Executive shall have and perform such duties, responsibilities, and authorities as are customary for a senior vice president of a publicly held corporation of the size, type, and nature of the Company as they may exist from time to time and consistent with such position and status. In addition, if the Company and Executive mutually agree, Executive may serve the Company and its subsidiaries and affiliates in other offices and capacities; provided that, if Executive’s service in any such additional office or capacity ceases, such cessation shall have no effect on the compensation payable hereunder.

(b) Devotion of Time and Effort. Executive shall devote substantially all of his business time and attention, and his best efforts, abilities, experience, and talent, to the positions of Senior Vice President, San Diego and for the businesses of the Company without commitment to other business endeavors, except that Executive (i) may make personal investments which are not in conflict with his duties to the Company and manage personal and family financial and legal affairs, (ii) may undertake public speaking engagements, and (iii) may serve as a director of (or similar position with) any educational, charitable, community, civic, religious, or similar type of organization, so long as such activities listed in clauses (i) through (iii) do not preclude or render unlawful Executive’s employment or service to the Company or otherwise materially inhibit the performance of Executive’s duties under this Agreement or impair the business of the Company or its subsidiaries.

(c) Place of Employment. Executive’s principal place of employment shall be at the Company’s offices in San Diego, California.

4. Salary and Annual Incentive Compensation.

As partial compensation for the services to be rendered hereunder by Executive, the Company agrees to pay to Executive during the Term the compensation set forth in this Section 4.

(a) Base Salary. The Company will pay to Executive during the Term a base salary at the annual rate of $350,000, payable commencing at the beginning of the Term in accordance with the Company’s usual payroll practices with respect to senior executives (except to the extent deferred under Section 5(c)). Executive’s annual base salary shall be

2

reviewed by the Executive Compensation Committee of the Board (the “Committee”) each year of the Term. For purposes of this Agreement, “Base Salary” means Executive’s then-current base salary.

(b) Annual Incentive Compensation. During the Term, Executive will be eligible to receive an annual cash award (the “Annual Cash Award”) and an annual stock incentive award (the “Annual Stock Incentive”) which shall offer to Executive an opportunity to earn additional compensation based upon performance in amounts determined by the Committee in accordance with the applicable plan; provided, however, that (i) the annual target incentive opportunity for the Annual Cash Award shall be $300,000 (which $ 300,000 is the “Annual Cash Target”), up to 25% of which may be payable, in the Company’s sole discretion, in Company stock, and (ii) the annual target incentive opportunity for the Annual Stock Incentive shall be $575,000 (which $575,000 is the “Annual Stock Target”), in either case, for achievement of target level performance, with the nature of the performance and the levels of performance triggering payments of such target Annual Cash Award and target Annual Stock Incentive for each year to be established through consultation between the Chief Executive Officer of the Company and the Committee and communicated to Executive during the first quarter of such year by the Committee. The Annual Cash Award and the Annual Stock Incentive paid may be more or less than the annual target incentive opportunity based on the Company’s actual performance in relation to the target level performance. In addition, the Committee (or the Board) may determine, in its discretion, to adjust Executive’s target incentive opportunity or provide an additional incentive opportunity in excess of the target incentive opportunity payable for performance in excess of or in addition to the performance required for payment of the target incentive amount. Any annual incentive compensation payable to Executive shall be paid in accordance with the Company’s usual practices with respect to payment of incentive compensation to senior executives (except to the extent deferred under Section 5(c)).

5. Long-Term Compensation, Benefits, Deferred Compensation, and Expense Reimbursement.

(a) Executive Compensation Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all executive compensation plans and programs intended for general participation by senior executives of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, subject to the eligibility and other requirements of such plans and programs.

During the Term, Executive shall be eligible to participate in any Outperformance Incentive Award plan (including any similar plan or other substitute plan) that may be adopted by the Board in its sole discretion on terms that are at least as favorable to those made available to other senior executives of the Company in accordance with the terms of the applicable program document.

(b) Employee and Executive Benefit Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all employee and executive benefit plans and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, to the extent such plans are generally available to other senior executives or employees of the Company, subject to the eligibility and other requirements

3

of such plans and programs, including, without limitation, plans providing retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance, as well as savings, profit-sharing, 401(k) and stock ownership plans. In addition, Executive shall be eligible to participate in and receive or participate in perquisites under policies implemented by the Board and the Committee. It is understood that no minimum level of perquisites is guaranteed hereunder, and that the Company may make available compensation and benefits to one or more individual executives that will not be deemed “generally available” to senior executives.

In furtherance of and not in limitation of the foregoing, during the Term Executive will participate as Senior Vice President, San Diego in all executive and employee vacation and time-off programs; provided that Executive shall be entitled to a minimum of 20 business days of vacation annually.

(c) Deferral of Compensation. If the Company has in effect or adopts any deferral program or arrangement permitting executives to elect to defer any compensation, Executive will be eligible to participate in such program on terms no less favorable than the terms of participation of any other senior executive officer of the Company. Any plan or program of the Company which provides benefits based on the level of salary, annual incentives, or other compensation of Executive shall, in determining Executive’s benefits, take into account the amount of salary, annual incentives, or other compensation prior to any reduction for voluntary contributions made by Executive under any deferral or similar contributory plan or program of the Company, but shall not treat any payout or settlement under such a deferral or similar contributory plan or program to be additional salary, annual incentives, or other compensation for purposes of determining such benefits, unless otherwise expressly provided under such plan or program.

(d) Reimbursement of Expenses. The Company will promptly reimburse Executive for all reasonable business expenses and disbursements incurred by Executive in the performance of Executive’s duties during the Term in accordance with the Company’s reimbursement policies as in effect from time to time.

(e) Office, Staff and Equipment. The Company agrees to provide to Executive such staff, equipment and office space as is reasonably necessary for Executive to perform his duties hereunder, subject to and on a basis consistent with Company policy on the Effective Date.

(f) Company Registration Obligations. The Company will use its commercially reasonable efforts to file with the Securities and Exchange Commission and thereafter maintain the effectiveness of one or more registration statements registering under the Securities Act of 1933, as amended (the “1933 Act”), the offer and sale of shares by the Company to Executive pursuant to any stock option or other equity-based awards granted to Executive under Company plans or otherwise or, if shares are acquired by Executive in a transaction not involving an offer or sale to Executive but resulting in the acquired shares being “restricted securities” for purposes of the 1933 Act, registering the reoffer and resale of such shares by Executive.

(g) Limitations Under Code Section 409A. Notwithstanding anything to the contrary in this Agreement, in the event that, as a result of Section 409A of the Internal Revenue Code

4

(the “Code”) (and any related regulations or other pronouncements), any of the payments that Executive is entitled to under the terms of this Agreement or any other plan involving deferred compensation (as defined under Code Section 409A) may not be made at the time contemplated by the terms thereof without causing the Executive to be subject to constructive receipt at a date prior to actual payment and/or an income tax penalty and interest and the timing of payment is the sole cause of such adverse tax consequences, the Company will make such payment on the first day permissible under Code Section 409A without the Executive incurring such adverse tax consequences. In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Code Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank. In addition, other provisions of this Agreement or any other such plan notwithstanding, the Company shall have no right to accelerate any such payment or to make any such payment as the result of any specific event except to the extent permitted under Section 409A. The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Termination Due to Retirement, Death, or Disability.

(a) Retirement. Executive may elect to terminate employment hereunder by retirement at or after age 65, or at such earlier age as may be approved by the Board, with at least 30 years of service with the Company (in either case, “Retirement”) upon at least 30 days written notice to the Company. At the time Executive’s employment terminates due to Retirement, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after termination of employment due to Retirement, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination (as defined in Section 8(d));

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive’s employment terminated, a Partial Year Bonus (as defined in Section 8(g));

(iii) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(iv) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment

5

at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; and

(v) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date Executive’s employment terminates.

(b) Death. In the event of Executive’s death which results in the termination of Executive’s employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after death, and the Company will pay Executive’s beneficiary or estate, and Executive’s beneficiary or estate will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive dies, a Partial Year Bonus (as defined in Section 8(g));

(iii) A single severance payment in an amount equal to the sum of: (i) one times the Executive’s Base Salary plus (ii) one times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment. Such payment shall be in addition to any life insurance payments to which the Executive is otherwise entitled and any other compensation earned by Executive hereunder;

(iv) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; and

6

(vi) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive’s spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date of Executive’s death.

(c) Disability. The Company may terminate the employment of Executive hereunder due to the Disability (as defined in Section 8(e)) of Executive. Upon termination of employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after termination of employment due to Disability, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive becomes disabled, a Partial Year Bonus (as defined in Section 8(g));

(iii) A single severance payment in an amount equal to the sum of: (i) two times the Executive’s Base Salary plus (ii) two times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment; provided further, however, that these payments may be provided under an insurance policy purchased by the Company. Such payment shall be in addition to any disability insurance payments to which the Executive is otherwise entitled and any other compensation earned by Executive hereunder;

(iv) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall

7

become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;

(vi) Disability benefits shall be payable in accordance with the Company’s plans, programs and policies; and

(vii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date Executive’s employment terminates.

(d) Other Terms of Payment Following Retirement, Death, or Disability. Nothing in this Section 6 shall limit the benefits payable or provided in the event Executive’s employment terminates due to Retirement, death, or Disability under the terms of plans or programs of the Company more favorable to Executive (or his beneficiaries) than the benefits payable or provided under this Section 6 (except in the case of Annual Incentives in lieu of which amounts are paid hereunder), including plans and programs adopted after the date of this Agreement. Subject to Section 7(e), amounts payable under this Section 6 following Executive’s termination of employment will be paid as promptly as practicable after such termination of employment.

7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability.

(a) Termination by the Company for Cause. The Company may terminate the employment of Executive hereunder for Cause (as defined in Section 8(b)) at any time. At the time Executive’s employment is terminated for Cause, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) The vesting and exercisability of stock options, RSUs and other equity awards held by Executive at termination and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof); and

(iii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Executive’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage under any applicable law.

8

(b) Termination by Executive Other Than For Good Reason. Executive may terminate his employment hereunder voluntarily for reasons other than Good Reason (as defined in Section 8(f)) at any time upon at least 90 days’ written notice to the Company. An election by Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of employment by Executive for reasons other than Good Reason at the date of expiration of the Term. At the time Executive’s employment is terminated by Executive other than for Good Reason, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease, and the Company will pay Executive, and Executive will be entitled to the same compensation and rights specified in Section 7(a).

(c) Termination by the Company Without Cause. The Company may terminate the employment of Executive hereunder without Cause upon at least 90 days’ written notice to Executive. At the time Executive’s employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the Company and Executive under Sections 1 through 5 will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) A single severance payment in cash in an aggregate amount equal to the sum of: (i) two times the Executive’s Base Salary plus (ii) two times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment;

(iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive’s employment terminates, a Partial Year Bonus (as defined in Section 8(g));

(iv) All equity awards held by Executive at termination which vest based on time shall become vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;

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(vi) All deferral arrangements under Section 5(c) will be settled in accordance with the plans and programs governing the deferral; and

(vii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of two (2) years after the date Executive’s employment terminates.

Payments and benefits under this Section 7(c) are subject to Section 5(g). In particular, payments under Sections 7(c)(ii) and (iii) likely will be required under Section 5(g) to be made at the date six months after termination of employment.

(d) Termination by Executive for Good Reason. Executive may terminate his employment hereunder for Good Reason upon 90 days’ written notice to the Company; provided, however, that, if the basis for such Good Reason is correctible and the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not then terminate his employment for Good Reason with respect to the matters addressed in the written notice, and therefore Executive’s notice of termination will automatically become null and void. At the time Executive’s employment is terminated by Executive for Good Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the same compensation and rights specified in Section 7(c)(i) – (vii) and the text following clause (vii).

If any payment or benefit under this Section 7(d) is based on Base Salary or other level of compensation or benefits at the time of Executive’s termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive’s termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(d).

(e) Other Terms Relating to Certain Terminations of Employment. In the event Executive’s employment terminates for any reason set forth in Section 7(b) through (d), Executive will be entitled to the benefit of any terms of plans or agreements applicable to Executive which are more favorable than those specified in this Section 7 (except without duplication of payments or benefits, including in the case of Annual Incentives in lieu of which amounts are paid hereunder). Except as otherwise provided under Section 5(g), amounts payable under this Section 7 following Executive’s termination of employment, other than those expressly payable on a deferred or installment basis, will be paid as promptly as practicable after such a termination of employment. References to the amount of compensation paid as salary and Annual Incentives in previous years includes payments to Executive by the Company and Operating Partnership in periods prior to the Effective Date.

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The Company and the Operating Partnership, and any successor(s) thereto, shall use their commercially reasonable efforts to allow Executive to receive long term capital gain treatment for federal income tax purposes for all interests held by Executive in the Operating Partnership at the time of termination of Executive’s employment (provided, that, nothing herein shall prevent Company from terminating Executive’s employment), and the Company and the Operating Partnership, and any successor(s) thereto, shall reasonably cooperate with Executive to obtain favorable tax treatment for Executive with regard to all interests held by Executive in the Operating Partnership.

8. Definitions Relating to Termination Events.

(a) “Annual Incentives”. For purposes of this Agreement, Annual Incentives shall mean the Annual Cash Award and the Annual Stock Target.

(b) “Cause”. For purposes of this Agreement, “Cause” shall mean Executive’s:

(i) conviction for commission of a felony or a crime involving moral turpitude;

(ii) willful commission of any act of theft, fraud, embezzlement or misappropriation against the Company or its subsidiaries or affiliates;

(iii) willful and continued failure to substantially perform Executive’s duties hereunder (other than such failure resulting from Executive’s incapacity due to physical or mental illness), which failure is not remedied within 30 calendar days after written demand for substantial performance is delivered by the Company which specifically identifies the manner in which the Company believes that Executive has not substantially performed Executive’s duties.

No act, or failure to act, on the part of Executive shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the independent members of the Board at a meeting of the Board (after reasonable notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail.

(c) “Change in Control”. For purposes of this Agreement, a “Change in Control” means the following:

i. A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company and immediately after such acquisition possesses more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

ii. During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 8(c)(i) hereof or Section 8(c)(iii) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

iii. The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(A) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity “)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and;

(B) After which no person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section

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8(c)(iii)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

iv. The Company’s stockholders approve a liquidation or dissolution of the Company and all material contingencies to such liquidation or dissolution have been satisfied or waived.

(d) “Compensation Accrued at Termination”. For purposes of this Agreement, “Compensation Accrued at Termination” means the following:

(i) The unpaid portion of annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the date of Executive’s termination of employment, pro rated through such date of termination, payable in accordance with the Company’s regular pay schedule;

(ii) Except as otherwise provided in this Agreement, all earned and unpaid and/or vested, nonforfeitable amounts owing or accrued at the date of Executive’s termination of employment under any compensation and benefit plans, programs, and arrangements set forth or referred to in Sections 4(b) and 5(a) and 5(b) hereof (including any earned and vested Annual Incentives) in which Executive theretofore participated, payable in accordance with the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted or accrued; and

(iii) Reasonable business expenses and disbursements incurred by Executive prior to Executive’s termination of employment, to be reimbursed to Executive, as authorized under Section 5(d), in accordance the Company’s reimbursement policies as in effect at the date of such termination.

(e) “Disability”. For purposes of this Agreement, “Disability” means that the Executive qualifies to receive long-term disability payments under the Company’s or the Operating Partnership’s long-term disability insurance program, as it may be amended from time to time.

(f) “Good Reason”. For purposes of this Agreement, “Good Reason” shall mean, without Executive’s express written consent, the occurrence of any of the following circumstances unless, if correctable, such circumstances are fully corrected within 30 days of the notice of termination given in respect thereof:

(i) The assignment to Executive of duties materially inconsistent with Executive’s position and status hereunder, or an alteration, materially adverse to Executive, in the nature of Executive’s duties, responsibilities, and authorities, Executive’s positions or the conditions of Executive’s employment from those specified in Section 3 or otherwise hereunder (other than inadvertent actions which are

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promptly remedied); except the foregoing shall not constitute Good Reason if occurring in connection with the termination of Executive’s employment for Cause, Disability, Retirement, as a result of Executive’s death, or as a result of action by or with the consent of Executive; for purposes of this Section 8(f)(i), references to the Company (and the Board and stockholders of the Company) refer to the ultimate parent company (and its board and stockholders) succeeding the Company following an acquisition in which the corporate existence of the Company continues, in accordance with Section 13(b);

(ii) on or after a Change in Control (A) a material reduction by the Company in Executive’s Base Salary, (B) the setting of Executive’s annual target incentive opportunity or payment of earned Annual Incentives in amounts materially less than specified under or otherwise not in conformity with Section 4 hereof, or (C) a material adverse change in benefits not in conformity with Section 5;

(iii) the failure by the Company to pay to Executive any portion of Executive’s base salary or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due;

(iv) the failure by the Company to continue in effect any material compensation or benefit plan in which Executive participated immediately prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of compensation or benefits provided and the level of Executive’s participation relative to other participants, as existed at the time of the Change in Control;

(v) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company’s obligations and to perform under this Agreement, as contemplated in Section 13(b) hereof; or

(vi) any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement.

(g) “Partial Year Bonus”. For purposes of this Agreement, a Partial Year Bonus is an amount equal to the annual incentive compensation that would have become payable to Executive for that year if his employment had not terminated, based on the performance actually achieved prior to the date Executive’s employment terminates and the Reasonably Anticipated Performance for the remainder of the year.

(h) Intentionally omitted.

(i) “Reasonably Anticipated Performance”. For purposes of this Agreement, “Reasonably Anticipated Performance” is performance reasonably anticipated at the time of

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termination of employment, as determined by the Board, in good faith, based on discussions with management of the Company and Executive and based on documents (including term sheets, leases and letters of intent) and, in the absence of documentation, material negotiations have commenced at the time of termination and the transaction in question is completed, and other facts and circumstances in existence at the time of termination

(j) “Severance Period.” For purposes of this Agreement, the “Severance Period” shall be:

(i) the two-year period immediately following Executive’s termination due to his Disability;

(ii) the two-year period immediately following Executive’s termination by the Company without Cause or Executive’s termination of employment for Good Reason; and

(iii) in all other cases, there will be no Severance Period.

9. Payment of Financial Obligations

The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement, including, without limitation, the payment of Executive’s Base Salary, Annual Cash Award, Annual Stock Incentive, and other benefits set forth in Section 5(b) hereof, the payment of the severance payment and Partial Year Bonus and provision of the severance benefits (if applicable) as set forth in Section 6 and Section 7 hereof and any indemnification obligations, shall be allocated between the Company and the Operating Partnership by the Committee based on any reasonable method.

10. Rabbi Trust Obligation; Excise Tax-Related Provisions.

(a) Rabbi Trust Funding. In the event of a Change in Control (other than an acquisition resulting in the acquirer being the beneficial owner of less than 50% of the Company’s voting securities), the Company shall, not later than 30 days after the time of such Change in Control, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential cash obligations of the Company that have arisen or would arise as a result such Change in Control and a subsequent termination of Executive’s employment under Section 7(c) or 7(d). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company.

(b) Reduction of Payments If Excise Tax Would Apply. In the event Executive becomes entitled to any amount of benefits payable in connection with a Change in Control or other change in control (whether or not such amounts are payable pursuant to this Agreement) (the “Severance Payments”) and Executive’s receipt of such Severance Payments would cause Executive to become subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Code (or any similar federal, state, or local tax that may hereafter be imposed), the

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Company shall reduce the Severance Payments to the extent necessary to avoid the application of the Excise Tax if, as a result of such reduction, the net benefits to Executive of the Severance Payments as so reduced (after payment of applicable income taxes) exceeds the net benefit to Executive of the Severance Payments without such reduction (after payment of applicable income taxes and excise taxes). Unless Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce the Severance Payments by first reducing the portion of the Severance Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Change in Control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation. The determination that Executive’s Severance Payments would cause him to become subject to the Excise Tax and the calculation of the amount of any reduction, shall be made, at the Company’s discretion, by the Company’s outside auditing firm or by a nationally-recognized accounting or benefits consulting firm designated by the Company prior to a Change in Control. The firm’s expenses shall be paid by the Company.

11. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement.

(a) Noncompetition Agreement. Executive and the Company and the Operating Partnership shall execute a Noncompetition Agreement within sixty (60) days from                     , 2007 that shall only apply during the Term and for a period of one year following a Change in Control.

(b) Non-Solicitation. Without the consent in writing of the Board, Executive will not, at any time during the Term and for the length of the Severance Period, acting alone or in conjunction with others, directly or indirectly (i) induce any customers of the Company or any of its affiliates with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its affiliates, to curtail or cancel their business with the Company or any such affiliate; (ii) induce, or attempt to influence, any employee of the Company or any of its affiliates to terminate employment; or (iii) solicit or assist any third party in the solicitation of, any person who is an employee of the Company or any affiliate; provided, however, that activities engaged in by or on behalf of the Company are not restricted by this covenant. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. Notwithstanding anything in this Section 11(b) to the contrary, Executive is permitted to solicit any individual who served as his executive assistant during the Term.

(c) Non-Disclosure; Ownership of Work. Executive shall not, at any time during the Term and thereafter (including following Executive’s termination of employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any proprietary information, secrets, organizational or employee information, or other confidential information belonging or relating to the Company and its affiliates and customers so long as such information has not otherwise been disclosed through no wrongdoing of the Executive or an individual under a similar restriction or is not otherwise in the public domain,

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except as required by law or pursuant to legal process. In addition, upon termination of employment for any reason, Executive will return to the Company or its affiliates all documents and other media containing information belonging or relating to the Company or its affiliates. Executive will promptly disclose in writing to the Company all inventions, discoveries, developments, improvements and innovations (collectively referred to as “Inventions”) that Executive has conceived or made during the Term; provided, however, that in this context “Inventions” are limited to those which (i) relate in any manner to the existing or contemplated business activities of the Company and its affiliates; (ii) are suggested by or result from Executive’s work at the Company; or (iii) result from the use of the time, materials or facilities of the Company and its affiliates. All Inventions will be the Company’s property rather than Executive’s. Should the Company request it, Executive agrees to sign any document that the Company may reasonably require to establish ownership in any Invention.

(d) Cooperation With Regard to Litigation. Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate of the Company, as may be reasonably requested and after taking into account Executive’s post-termination responsibilities and obligations. The Company agrees to reimburse Executive, on an after-tax basis, for all reasonable expenses actually incurred in connection with his provision of testimony or assistance.

(e) Non-Disparagement . Executive shall not, at any time during the Term and thereafter make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company, its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations, nor shall members of the Board of Directors or Executive’s successor in office make any such statements or representations regarding Executive. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive or his successor or members of the Board of Directors from making truthful statements that are required by applicable law, regulation or legal process.

(f) Release of Employment Claims. Executive agrees, as a condition to receipt of any termination payments and benefits provided for in Sections 6 and 7 herein (other than Compensation Accrued at Termination) (the “Termination Benefits”), that he will execute a general release in substantially the form attached hereto as Exhibit A.

(g) Forfeiture of Outstanding Options and Other Equity Awards. The provisions of Sections 6 and 7 notwithstanding, if Executive fails to comply with the restrictive covenants under Section 11(a) – (c), all options to purchase Common Stock and other equity awards granted by the Company at and after the Effective Date and then held by Executive or a transferee of Executive shall be immediately forfeited and thereupon such options and equity awards shall be cancelled. Notwithstanding the foregoing, Executive shall not forfeit any option or equity award unless and until there shall have been delivered to him, within six months after

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the Board (i) had knowledge of conduct or an event allegedly constituting grounds for such forfeiture and (ii) had reason to believe that such conduct or event could be grounds for such forfeiture, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such forfeiture and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive has engaged in conduct set forth in this Section 11(g) which constitutes grounds for forfeiture of Executive’s options and equity awards; provided, however, that if any option is exercised or equity award is settled after delivery of such notice and the Board subsequently makes the determination described in this sentence, Executive shall be required to pay to the Company an amount equal to the difference between the aggregate value of the shares acquired upon such exercise of the option at the date of the Board determination and the aggregate exercise price paid by Executive and an amount equal to the fair market value of the shares delivered in settlement of the equity award at the date of such determination (net of any cash payment for the shares by Executive). Any such forfeiture shall apply to such options notwithstanding any term or provision of any option agreement. In addition, options and equity awards granted to Executive on or after the Effective Date, and gains resulting from the exercise of such options and settlement of such equity awards, shall be subject to forfeiture in accordance with the Company’s standard policies relating to such forfeitures and clawbacks, as such policies are in effect at the time of grant of such options or equity awards.

(h) Survival. The provisions of this Section 11 shall survive the termination of the Term and any termination or expiration of this Agreement.

(i) Remedies. Executive agrees that any breach of the terms of this Section 11 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; Executive therefore also agrees that in the event of said breach or any threat of breach and notwithstanding Section 12, the Company shall be entitled to an immediate injunction and restraining order from a court of competent jurisdiction to prevent such breach and/or threatened breach and/or continued breach by Executive and/or any and all persons and/or entities acting for and/or with Executive, without having to prove damages. The availability of injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity, but remedies other than injunctive relief may only be pursued in an arbitration brought in accordance with Section 12. The terms of this paragraph shall not prevent the Company from pursuing in an arbitration any other available remedies for any breach or threatened breach of this Section 11, including but not limited to the recovery of damages from Executive. Executive hereby further agrees that, if it is ever determined, in an arbitration brought in accordance with Section 12, that willful actions by Executive have constituted wrongdoing that contributed to any material misstatement or omission from any report or statement filed by the Company with the U.S. Securities and Exchange Commission or material fraud against the Company, then the Company, or its successor, as appropriate, may recover all of any award or payment made to Executive, less the amount of any net tax owed by Executive with respect to such award or payment over the tax benefit to Executive from the repayment or return of the award or payment, pursuant to Section 7(c) or (d), and Executive agrees to repay and return such awards and amounts to the Company within 30 calendar days

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of receiving notice from the Company that the Board has made the determination referenced above and accordingly the Company is demanding repayment pursuant to this Section 11(i). The Company or its successor may, in its sole discretion, affect any such recovery by (i) obtaining repayment directly from Executive; (ii) setting off the amount owed to it against any amount or award that would otherwise be payable by the Company to Executive; or (iii) any combination of (i) and (ii) above.

12. Governing Law; Disputes; Arbitration.

(a) Governing Law. This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of California, without regard to conflicts of law principles. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is unenforceable because of the duration or geographic scope of such provision, it is the parties’ intent that such court shall have the power to modify the duration or geographic scope of such provision, as the case may be, to the extent necessary to render the provision enforceable and, in its modified form, such provision shall be enforced.

(b) Reimbursement of Expenses in Enforcing Rights. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in negotiating this Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to interpret this Agreement or enforce rights pursuant to this Agreement (A) prior to a Change in Control, shall be paid on behalf of or reimbursed to Executive promptly by the Company provided the Executive is the prevailing party, and (B) after a Change in Control, shall be paid on behalf of or reimbursed to Executive promptly by the Company regardless of whether Executive is the prevailing party, provided that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive’s assertion of such rights was in bad faith or frivolous, as determined by arbitrators in accordance with Section 12(c) or a court having jurisdiction over the matter.

(c) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles, California by three arbitrators in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of California, (ii) any of the courts of the State of California, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it

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may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to Section 12(b), the Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. Notwithstanding any provision in this Section 12, Executive shall be paid compensation due and owing under this Agreement during the pendency of any dispute or controversy arising under or in connection with this Agreement.

(d) Interest on Unpaid Amounts. Any amount which has become payable pursuant to the terms of this Agreement or any decision by arbitrators or judgment by a court of law pursuant to this Section 12 but which has not been timely paid shall bear interest at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

(e) LIMITATION ON LIABILITIES. IF EITHER EXECUTIVE OR THE COMPANY IS AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL AND CONSEQUENTIAL DAMAGES PLUS INTEREST ON ANY DELAYED PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S) THAT SUCH PAYMENTS WERE DUE AND SHALL EXCLUDE PUNITIVE DAMAGES EVEN IF THE RULES REFERRED TO IN SECTION 12(C) WOULD PROVIDE OTHERWISE.

(f) WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL FOR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. This provision is subject to Section 12(C), requiring arbitration of disputes hereunder.

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13. Miscellaneous.

(a) Integration. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company, any parent or predecessor company, and the Company’s subsidiaries during the Term, including the Prior Employment Agreement, but excluding existing contracts relating to compensation under executive compensation and employee benefit plans of the Company and its subsidiaries. The foregoing notwithstanding, Executive shall not participate in the Company’s Employee Protection Program unless the aggregate benefits provided under such plan would exceed the aggregate benefits provided to Executive under this Agreement upon termination of employment, in which case Executive shall only receive the excess amount provided under the Company’s Employee Protection Program. Executive shall remain entitled to any right or benefit under a Change-in-Control Agreement executed by the Company and Executive, for so long as such Change-in-Control Agreement remains in effect, if and to the extent that such right or benefit is more favorable than a corresponding provision of this Agreement, but no payment or benefit under the Change-in-Control Agreement shall be made or extended which duplicates any payment or benefit hereunder. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings or under any benefit or compensation plan of the Company.

(b) Successors; Transferability. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether or not the corporate existence of the Company continues) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise and, in the case of an acquisition of the Company in which the corporate existence of the Company continues, the ultimate parent company following such acquisition. Subject to the foregoing, the Company may transfer and assign this Agreement and the Company’s rights and obligations hereunder to another entity that is substantially comparable to the Company in its financial strength and ability to perform the Company’s obligations under this Agreement. Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c).

(c) Beneficiaries. Executive shall be entitled to designate (and change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits provided hereunder following Executive’s death.

(d) Notices. Whenever under this Agreement it becomes necessary to give notice, such notice shall be in writing, signed by the party or parties giving or making the same, and

21

shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice:

If to the Company:

KILROY REALTY CORPORATION

12200 West Olympic Boulevard, Suite 200

Los Angeles, CA 90064

Attention: Secretary

With a copy to:

Scott Hodgkins, Esquire

Latham & Watkins LLP

633 West Fifth Street, Suite 4000

Los Angeles, CA 90071-2007

If to Executive:

Steven R. Scott

12200 West Olympic Boulevard, Suite 200

Los Angeles, CA 90064

With a copy to:

William L. Neff, Esquire

Hogan & Hartson LLP

555 13^th Street NW

Washington, D.C. 20004

If the parties by mutual agreement supply each other with fax numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective two days after deposit into the mails by delivery to the U.S. Post Office.

(e) Reformation. The invalidity of any portion of this Agreement shall not be deemed to render the remainder of this Agreement invalid.

(f) Headings. The headings of this Agreement are for convenience of reference only and do not constitute a part hereof.

(g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to

22

such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced.

(h) No Obligation To Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive’s damages upon any termination of employment; provided, however, that, to the extent Executive receives from a subsequent employer health or other insurance benefits that are substantially similar to the benefits referred to in Section 5(b) hereof, any such benefits to be provided by the Company to Executive following the Term shall be correspondingly reduced.

(i) Offsets; Withholding . The amounts required to be paid by the Company to Executive pursuant to this Agreement shall not be subject to offset other than with respect to any amounts that are owed to the Company by Executive due to his receipt of funds as a result of his fraudulent activity. The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement, including under Sections 6 and 7, or otherwise by the Company, will be subject to withholding to satisfy required withholding taxes and other required deductions.

(j) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns.

(k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(l) Due Authority and Execution. The execution, delivery and performance of this Agreement have been duly authorized by the Company and this Agreement represents the valid, legal and binding obligation of the Company, enforceable against the Company according to its terms.

(m) Representations of Executive. Executive represents and warrants to the Company that he has the legal right to enter into this Agreement and to perform all of the obligations on his part to be performed hereunder in accordance with its terms and that he is not a party to any agreement or understanding, written or oral, which prevents him from entering into this Agreement or performing all of his obligations hereunder. In the event of a breach of such representation or warranty on Executive’s part or if there is any other legal impediment which prevents him from entering into this Agreement or performing all of his obligations hereunder, the Company shall have the right to terminate this Agreement forthwith in accordance with the same notice and hearing procedures specified above in respect of a termination by the Company for Cause pursuant to Section 7(a) and shall have no further obligations to Executive hereunder. Notwithstanding a termination by the Company under this Section 13(m), Executive’s obligations under Section 11 shall survive such termination.

23

14. D&O Insurance.

The Company will maintain directors’ and officers’ liability insurance during the Term and for a period of six years thereafter, covering acts and omissions of Executive during the Term, on terms substantially no less favorable than those in effect on the Effective Date.

IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the date first above written.

[Signature Page Follows]

24

KILROY REALTY CORPORATION
By:	/s/ Tyler H. Rose
	Name:	Tyler H. Rose
	Title:	Senior Vice President and Treasurer
KILROY REALTY CORPORATION
By:	/s/ Tamara J. Porter
	Name:	Tamara J. Porter
	Title:	Vice President and Corporate Counsel
KILROY REALTY, L.P.
By:	/s/ Tyler H. Rose
	Name:	Tyler H. Rose
	Title:	Senior Vice President and Treasurer
KILROY REALTY, L.P.
By:	/s/ Tamara J. Porter
	Name:	Tamara J. Porter
	Title:	Vice President and Corporate Counsel

EXECUTIVE

/s/ Steven R. Scott

Steven R. Scott

25

EXHIBIT A ¹

For and in consideration of the payments and other benefits due to Steven R. Scott (the “Executive”) pursuant to the Employment Agreement dated as of                     , 2007 (the “Employment Agreement”), by and between Kilroy Realty Corporation, (the “Company”) and the Executive, and for other good and valuable consideration, the Executive hereby agrees, for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, to forever release, discharge and covenant not to sue the Company, or any of its divisions, affiliates, subsidiaries, parents, branches, predecessors, successors, assigns, and, with respect to such entities, their officers, directors, trustees, employees, agents, shareholders, administrators, general or limited partners, representatives, attorneys, insurers and fiduciaries, past, present and future (the “Released Parties”) from any and all claims of any kind arising out of, or related to, his employment with the Company, its affiliates and subsidiaries (collectively, with the Company, the “Affiliated Entities”) or the Executive’s separation from employment with the Affiliated Entities, which the Executive now has or may have against the Released Parties, whether known or unknown to the Executive, by reason of facts which have occurred on or prior to the date that the Executive has signed this Release. Such released claims include, without limitation, any and all claims relating to the foregoing under federal, state or local laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et. seq., the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et. seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et. seq. the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et. seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et. seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et. seq., and any and all state or local laws regarding employment discrimination and/or federal, state or local laws of any type or description regarding employment, including but not limited to any claims arising from or derivative of the Executive’s employment with the Affiliated Entities, as well as any and all such claims under state contract or tort law.

The Executive has read this Release carefully, acknowledges that the Executive has been given at least 21 days to consider all of its terms and has been advised to consult with any attorney and any other advisors of the Executive’s choice prior to executing this Release, and the Executive fully understands that by signing below the Executive is voluntarily giving up any right which the Executive may have to sue or bring any other claims against the Released Parties, including any rights and claims under the Age Discrimination in Employment Act. The Executive also understands that the Executive has a period of seven days after signing this

¹ This release may be amended by the Company to reflect new laws and changes in applicable laws.

Release within which to revoke his agreement, and that neither the Company nor any other person is obligated to make any payments or provide any other benefits to the Executive pursuant to the Agreement until eight days have passed since the Executive’s signing of this Release without the Executive’s signature having been revoked other than any accrued obligations or other benefits payable pursuant to the terms of the Company’s normal payroll practices or employee benefit plans. Finally, the Executive has not been forced or pressured in any manner whatsoever to sign this Release, and the Executive agrees to all of its terms voluntarily.

Notwithstanding anything else herein to the contrary, this Release shall not affect: (i) the Company’s obligations under any compensation or employee benefit plan, program or arrangement (including, without limitation, obligations to the Executive under the Employment Agreement, any stock option, stock award or agreements or obligations under any pension, deferred compensation or retention plan) provided by the Affiliated Entities where the Executive’s compensation or benefits are intended to continue or the Executive is to be provided with compensation or benefits, in accordance with the express written terms of such plan, program or arrangement, beyond the date of the Executive’s termination; (ii) rights to indemnification the Executive may have under the Employment Agreement or a separate agreement entered into with the Company; or (iii) rights Executive may have as a shareholder, unit holder or prior member of the operating partnership.

This Release is final and binding and may not be changed or modified except in a writing signed by both parties. Section 12 of the Employment Agreement shall apply to this Release.

Date Steven R. Scott

KILROY REALTY CORPORATION
By:
	Name:
	Title:
KILROY REALTY CORPORATION
By:
	Name:
	Title:

2

EX-10.3

Exhibit 10.3

Kilroy Realty Corporation

Employment Agreement – Tyler H. Rose

Kilroy Realty Corporation

Employment Agreement for Tyler H. Rose

			Page
1.	Employment		1
2.	Term		1
3.	Offices and Duties		2
	(a)	Generally	2
	(b)	Devotion of Time and Effort	2
	(c)	Place of Employment	2
4.	Salary and Annual Incentive Compensation		2
	(a)	Base Salary	2
	(b)	Annual Incentive Compensation	3
5.	Long-Term Compensation, Benefits, Deferred Compensation, and Expense Reimbursement		3
	(a)	Executive Compensation Plans	3
	(b)	Employee and Executive Benefit Plans	3
	(c)	Deferral of Compensation	4
	(d)	Reimbursement of Expenses	4
	(e)	Office, Staff and Equipment	4
	(f)	Company Registration Obligations	4
	(g)	Limitations Under Code Section 409A	4
6.	Termination Due to Retirement, Death, or Disability		5
	(a)	Retirement	5
	(b)	Death	6
	(c)	Disability	7
	(d)	Other Terms of Payment Following Retirement, Death, or Disability	8
7.	Termination of Employment For Reasons Other Than Retirement, Death, or Disability		8
	(a)	Termination by the Company for Cause	8
	(b)	Termination by Executive Other Than For Good Reason	9
	(c)	Termination by the Company Without Cause	9
	(d)	Termination by Executive for Good Reason	10
	(e)	Other Terms Relating to Certain Terminations of Employment	10

8.	Definitions Relating to Termination Events		11
	(a)	“Annual Incentives”	11
	(b)	“Cause”	11
	(c)	“Change in Control”	11
	(d)	“Compensation Accrued at Termination”	13
	(e)	“Disability”	13
	(f)	“Good Reason”	13
	(g)	“Partial Year Bonus”	14
	(h)	Intentionally omitted	14
	(i)	“Reasonably Anticipated Performance”	14
	(j)	“Severance Period”	15
9.	Payment of Financial Obligations		15
10.	Rabbi Trust Obligation; Excise Tax-Related Provisions		15
	(a)	Rabbi Trust Funding	15
	(b)	Reduction of Payments If Excise Tax Would Apply	15
11.	Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement		16
	(a)	Noncompetition Agreement	16
	(b)	Non-Solicitation	16
	(c)	Non-Disclosure; Ownership of Work	16
	(d)	Cooperation With Regard to Litigation	17
	(e)	Non-Disparagement	17
	(f)	Release of Employment Claims	17
	(g)	Forfeiture of Outstanding Options and Other Equity Awards	17
	(h)	Survival	18
	(i)	Remedies	18
12.	Governing Law; Disputes; Arbitration		19
	(a)	Governing Law	19
	(b)	Reimbursement of Expenses in Enforcing Rights	19
	(c)	Arbitration	19
	(d)	Interest on Unpaid Amounts	20
	(e)	LIMITATION ON LIABILITIES	20
	(f)	WAIVER OF JURY TRIAL	20
13.	Miscellaneous		21
	(a)	Integration	21
	(b)	Successors; Transferability	21
	(c)	Beneficiaries	21
	(d)	Notices	21
	(e)	Reformation	22
	(f)	Headings	22
	(g)	No General Waivers	22

ii

	(h)	No Obligation To Mitigate	23
	(i)	Offsets; Withholding	23
	(j)	Successors and Assigns	23
	(k)	Counterparts	23
	(l)	Due Authority and Execution	23
	(m)	Representations of Executive	23
14.	D&O Insurance		24

iii

Kilroy Realty Corporation

Employment Agreement for Tyler H. Rose

THIS EMPLOYMENT AGREEMENT by and between KILROY REALTY CORPORATION, a Maryland corporation (the “Company”), Kilroy Realty, L.P., a Delaware limited partnership (the “Operating Partnership”) and Tyler H. Rose. (“Executive”) is effective as of             , 2007 (the “Effective Date”). This Employment Agreement (the “Agreement”) supersedes and replaces in its entirety Executive’s Employment Agreement, dated as of March 10, 1997, with the Company and Operating Partnership (the “Prior Employment Agreement”). Rights and obligations of the parties for periods prior to the Effective Date, and any related remedies, shall remain subject to the terms of the Prior Employment Agreement, which shall remain enforceable for that purpose.

W I T N E S S E T H

WHEREAS, the Company desires to continue to employ Executive as Senior Vice President and Treasurer of the Company, and Executive desires to continue in such employment on the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which the Company and Executive each hereby acknowledge, the Company and Executive hereby agree as follows:

1. Employment.

The Company and Operating Partnership hereby agree to continue to employ Executive as their Senior Vice President and Treasurer, and Executive hereby agrees to accept and continue in such employment during the Term as defined in Section 2 and to serve in such capacities from and after the Effective Date, upon the terms and conditions set forth in this Agreement. The allocation of the rights and obligations between the Company and the Operating Partnership shall be determined by separate agreement of those parties. For purposes of this Agreement, the term “Company” shall be understood to include the Operating Partnership, unless the context otherwise requires.

2. Term.

The term of employment of Executive under this Agreement (the “Term”) shall be the period commencing on the Effective Date and ending on December 31, 2009 and any period of extension thereof in accordance with this Section 2, except that the Term will end at a date, prior to the end of such period or extension thereof, specified in Section 6 or 7 in the event of termination of Executive’s employment. The Term, if not previously ended, shall be extended

automatically without further action by either party by one additional year (added to the end of the Term) first on December 31, 2009 (extending the Term to December 31, 2010) and on each succeeding December 31 thereafter, unless either party shall have served written notice in accordance with Section 13(d) upon the other party at least 90 days before the December 31 extension date electing not to extend the Term further as of that December 31 extension date, in which case employment shall terminate on that December 31 and the Term shall end at that date, subject to earlier termination of employment and earlier termination of the Term in accordance with Section 6 or 7.

3. Offices and Duties.

The provisions of this Section 3 will apply during the Term:

(a) Generally. Executive shall serve as the Senior Vice President and Treasurer of the Company. Executive shall have and perform such duties, responsibilities, and authorities as are customary for the senior vice president and treasurer of a publicly held corporation of the size, type, and nature of the Company as they may exist from time to time and consistent with such position and status. In addition, if the Company and Executive mutually agree, Executive may serve the Company and its subsidiaries and affiliates in other offices and capacities; provided that, if Executive’s service in any such additional office or capacity ceases, such cessation shall have no effect on the compensation payable hereunder.

(b) Devotion of Time and Effort. Executive shall devote substantially all of his business time and attention, and his best efforts, abilities, experience, and talent, to the positions of Senior Vice President and Treasurer and for the businesses of the Company without commitment to other business endeavors, except that Executive (i) may make personal investments which are not in conflict with his duties to the Company and manage personal and family financial and legal affairs, (ii) may undertake public speaking engagements, and (iii) may serve as a director of (or similar position with) any educational, charitable, community, civic, religious, or similar type of organization, so long as such activities listed in clauses (i) through (iii) do not preclude or render unlawful Executive’s employment or service to the Company or otherwise materially inhibit the performance of Executive’s duties under this Agreement or impair the business of the Company or its subsidiaries.

(c) Place of Employment. Executive’s principal place of employment shall be at the Company’s principal executive offices in Los Angeles, California.

4. Salary and Annual Incentive Compensation.

As partial compensation for the services to be rendered hereunder by Executive, the Company agrees to pay to Executive during the Term the compensation set forth in this Section 4.

(a) Base Salary. The Company will pay to Executive during the Term a base salary at the annual rate of $350,000, payable commencing at the beginning of the Term in accordance with the Company’s usual payroll practices with respect to senior executives (except to the extent deferred under Section 5(c)). Executive’s annual base salary shall be

2

reviewed by the Executive Compensation Committee of the Board (the “Committee”) each year of the Term. For purposes of this Agreement, “Base Salary” means Executive’s then-current base salary.

(b) Annual Incentive Compensation. During the Term, Executive will be eligible to receive an annual cash award (the “Annual Cash Award”) and an annual stock incentive award (the “Annual Stock Incentive”) which shall offer to Executive an opportunity to earn additional compensation based upon performance in amounts determined by the Committee in accordance with the applicable plan; provided, however, that (i) the annual target incentive opportunity for the Annual Cash Award shall be $275,000 (which $ 275,000 is the “Annual Cash Target”), up to 25% of which may be payable, in the Company’s sole discretion, in Company stock, and (ii) the annual target incentive opportunity for the Annual Stock Incentive shall be $450,000 (which $450,000 is the “Annual Stock Target”), in either case, for achievement of target level performance, with the nature of the performance and the levels of performance triggering payments of such target Annual Cash Award and target Annual Stock Incentive for each year to be established through consultation between the Chief Executive Officer of the Company and the Committee and communicated to Executive during the first quarter of such year by the Committee. The Annual Cash Award and the Annual Stock Incentive paid may be more or less than the annual target incentive opportunity based on the Company’s actual performance in relation to the target level performance. In addition, the Committee (or the Board) may determine, in its discretion, to adjust Executive’s target incentive opportunity or provide an additional incentive opportunity in excess of the target incentive opportunity payable for performance in excess of or in addition to the performance required for payment of the target incentive amount. Any annual incentive compensation payable to Executive shall be paid in accordance with the Company’s usual practices with respect to payment of incentive compensation to senior executives (except to the extent deferred under Section 5(c)).

5. Long-Term Compensation, Benefits, Deferred Compensation, and Expense Reimbursement.

(a) Executive Compensation Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all executive compensation plans and programs intended for general participation by senior executives of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, subject to the eligibility and other requirements of such plans and programs.

During the Term, Executive shall be eligible to participate in any Outperformance Incentive Award plan (including any similar plan or other substitute plan) that may be adopted by the Board in its sole discretion on terms that are at least as favorable to those made available to other senior executives of the Company in accordance with the terms of the applicable program document.

(b) Employee and Executive Benefit Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all employee and executive benefit plans and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, to the extent such plans are generally available to other senior executives or employees of the Company, subject to the eligibility and other requirements

3

of such plans and programs, including, without limitation, plans providing retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance, as well as savings, profit-sharing, 401(k) and stock ownership plans. In addition, Executive shall be eligible to participate in and receive or participate in perquisites under policies implemented by the Board and the Committee. It is understood that no minimum level of perquisites is guaranteed hereunder, and that the Company may make available compensation and benefits to one or more individual executives that will not be deemed “generally available” to senior executives.

In furtherance of and not in limitation of the foregoing, during the Term Executive will participate as Senior Vice President and Treasurer in all executive and employee vacation and time-off programs; provided that Executive shall be entitled to a minimum of 20 business days of vacation annually.

(c) Deferral of Compensation. If the Company has in effect or adopts any deferral program or arrangement permitting executives to elect to defer any compensation, Executive will be eligible to participate in such program on terms no less favorable than the terms of participation of any other senior executive officer of the Company. Any plan or program of the Company which provides benefits based on the level of salary, annual incentives, or other compensation of Executive shall, in determining Executive’s benefits, take into account the amount of salary, annual incentives, or other compensation prior to any reduction for voluntary contributions made by Executive under any deferral or similar contributory plan or program of the Company, but shall not treat any payout or settlement under such a deferral or similar contributory plan or program to be additional salary, annual incentives, or other compensation for purposes of determining such benefits, unless otherwise expressly provided under such plan or program.

(d) Reimbursement of Expenses. The Company will promptly reimburse Executive for all reasonable business expenses and disbursements incurred by Executive in the performance of Executive’s duties during the Term in accordance with the Company’s reimbursement policies as in effect from time to time.

(e) Office, Staff and Equipment. The Company agrees to provide to Executive such staff, equipment and office space as is reasonably necessary for Executive to perform his duties hereunder, subject to and on a basis consistent with Company policy on the Effective Date.

(f) Company Registration Obligations. The Company will use its commercially reasonable efforts to file with the Securities and Exchange Commission and thereafter maintain the effectiveness of one or more registration statements registering under the Securities Act of 1933, as amended (the “1933 Act”), the offer and sale of shares by the Company to Executive pursuant to any stock option or other equity-based awards granted to Executive under Company plans or otherwise or, if shares are acquired by Executive in a transaction not involving an offer or sale to Executive but resulting in the acquired shares being “restricted securities” for purposes of the 1933 Act, registering the reoffer and resale of such shares by Executive.

(g) Limitations Under Code Section 409A. Notwithstanding anything to the contrary in this Agreement, in the event that, as a result of Section 409A of the Internal Revenue Code

4

(the “Code”) (and any related regulations or other pronouncements), any of the payments that Executive is entitled to under the terms of this Agreement or any other plan involving deferred compensation (as defined under Code Section 409A) may not be made at the time contemplated by the terms thereof without causing the Executive to be subject to constructive receipt at a date prior to actual payment and/or an income tax penalty and interest and the timing of payment is the sole cause of such adverse tax consequences, the Company will make such payment on the first day permissible under Code Section 409A without the Executive incurring such adverse tax consequences. In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Code Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank. In addition, other provisions of this Agreement or any other such plan notwithstanding, the Company shall have no right to accelerate any such payment or to make any such payment as the result of any specific event except to the extent permitted under Section 409A. The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Termination Due to Retirement, Death, or Disability.

(a) Retirement. Executive may elect to terminate employment hereunder by retirement at or after age 65, or at such earlier age as may be approved by the Board, with at least 30 years of service with the Company (in either case, “Retirement”) upon at least 30 days written notice to the Company. At the time Executive’s employment terminates due to Retirement, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after termination of employment due to Retirement, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination (as defined in Section 8(d));

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive’s employment terminated, a Partial Year Bonus (as defined in Section 8(g));

(iii) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(iv) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment

5

at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; and

(v) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date Executive’s employment terminates.

(b) Death. In the event of Executive’s death which results in the termination of Executive’s employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after death, and the Company will pay Executive’s beneficiary or estate, and Executive’s beneficiary or estate will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive dies, a Partial Year Bonus (as defined in Section 8(g));

(iii) A single severance payment in an amount equal to the sum of: (i) one times the Executive’s Base Salary plus (ii) one times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment. Such payment shall be in addition to any life insurance payments to which the Executive is otherwise entitled and any other compensation earned by Executive hereunder;

(iv) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be

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governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; and

(vi) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive’s spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date of Executive’s death.

(c) Disability. The Company may terminate the employment of Executive hereunder due to the Disability (as defined in Section 8(e)) of Executive. Upon termination of employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease except for obligations which expressly continue after termination of employment due to Disability, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive becomes disabled, a Partial Year Bonus (as defined in Section 8(g));

(iii) A single severance payment in an amount equal to the sum of: (i) two times the Executive’s Base Salary plus (ii) two times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment; provided further, however, that these payments may be provided under an insurance policy purchased by the Company. Such payment shall be in addition to any disability insurance payments to which the Executive is otherwise entitled and any other compensation earned by Executive hereunder;

(iv) All equity awards held by Executive at termination that vest based on time shall be fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall

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become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;

(vi) Disability benefits shall be payable in accordance with the Company’s plans, programs and policies; and

(vii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one (1) year after the date Executive’s employment terminates.

(d) Other Terms of Payment Following Retirement, Death, or Disability. Nothing in this Section 6 shall limit the benefits payable or provided in the event Executive’s employment terminates due to Retirement, death, or Disability under the terms of plans or programs of the Company more favorable to Executive (or his beneficiaries) than the benefits payable or provided under this Section 6 (except in the case of Annual Incentives in lieu of which amounts are paid hereunder), including plans and programs adopted after the date of this Agreement. Subject to Section 7(e), amounts payable under this Section 6 following Executive’s termination of employment will be paid as promptly as practicable after such termination of employment.

7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability.

(a) Termination by the Company for Cause. The Company may terminate the employment of Executive hereunder for Cause (as defined in Section 8(b)) at any time. At the time Executive’s employment is terminated for Cause, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) The vesting and exercisability of stock options, RSUs and other equity awards held by Executive at termination and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof); and

(iii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Executive’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage under any applicable law.

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(b) Termination by Executive Other Than For Good Reason . Executive may terminate his employment hereunder voluntarily for reasons other than Good Reason (as defined in Section 8(f)) at any time upon at least 90 days’ written notice to the Company. An election by Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of employment by Executive for reasons other than Good Reason at the date of expiration of the Term. At the time Executive’s employment is terminated by Executive other than for Good Reason, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease, and the Company will pay Executive, and Executive will be entitled to the same compensation and rights specified in Section 7(a).

(c) Termination by the Company Without Cause . The Company may terminate the employment of Executive hereunder without Cause upon at least 90 days’ written notice to Executive. At the time Executive’s employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the Company and Executive under Sections 1 through 5 will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following:

(i) Executive’s Compensation Accrued at Termination;

(ii) A single severance payment in cash in an aggregate amount equal to the sum of: (i) two times the Executive’s Base Salary plus (ii) two times the average of the two highest Annual Incentives (as defined in Section 8(a)) received by Executive during the preceding three completed performance years, provided that the Annual Stock Target provided for in this Agreement instead of the actual Annual Stock Incentive shall be used in the calculation of the severance payment;

(iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive’s employment terminates, a Partial Year Bonus (as defined in Section 8(g));

(iv) All equity awards held by Executive at termination which vest based on time shall become vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 11(g) hereof);

(v) Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any Outperformance Incentive Award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and Reasonably Anticipated Performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;

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(vi) All deferral arrangements under Section 5(c) will be settled in accordance with the plans and programs governing the deferral; and

(vii) All other rights under any other compensatory or benefit plan, including any deferral under Section 5(c), shall be governed by such plan. In addition, at Company’s expense, Executive and his spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which the Executive was participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of two (2) years after the date Executive’s employment terminates.

Payments and benefits under this Section 7(c) are subject to Section 5(g). In particular, payments under Sections 7(c)(ii) and (iii) likely will be required under Section 5(g) to be made at the date six months after termination of employment.

(d) Termination by Executive for Good Reason. Executive may terminate his employment hereunder for Good Reason upon 90 days’ written notice to the Company; provided, however, that, if the basis for such Good Reason is correctible and the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not then terminate his employment for Good Reason with respect to the matters addressed in the written notice, and therefore Executive’s notice of termination will automatically become null and void. At the time Executive’s employment is terminated by Executive for Good Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the same compensation and rights specified in Section 7(c)(i) – (vii) and the text following clause (vii).

If any payment or benefit under this Section 7(d) is based on Base Salary or other level of compensation or benefits at the time of Executive’s termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive’s termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(d).

(e) Other Terms Relating to Certain Terminations of Employment. In the event Executive’s employment terminates for any reason set forth in Section 7(b) through (d), Executive will be entitled to the benefit of any terms of plans or agreements applicable to Executive which are more favorable than those specified in this Section 7 (except without duplication of payments or benefits, including in the case of Annual Incentives in lieu of which amounts are paid hereunder). Except as otherwise provided under Section 5(g), amounts payable under this Section 7 following Executive’s termination of employment, other than those expressly payable on a deferred or installment basis, will be paid as promptly as practicable after such a termination of employment. References to the amount of compensation paid as salary and Annual Incentives in previous years includes payments to Executive by the Company and Operating Partnership in periods prior to the Effective Date.

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The Company and the Operating Partnership, and any successor(s) thereto, shall use their commercially reasonable efforts to allow Executive to receive long term capital gain treatment for federal income tax purposes for all interests held by Executive in the Operating Partnership at the time of termination of Executive’s employment (provided, that, nothing herein shall prevent Company from terminating Executive’s employment), and the Company and the Operating Partnership, and any successor(s) thereto, shall reasonably cooperate with Executive to obtain favorable tax treatment for Executive with regard to all interests held by Executive in the Operating Partnership.

8. Definitions Relating to Termination Events.

(a) “Annual Incentives”. For purposes of this Agreement, Annual Incentives shall mean the Annual Cash Award and the Annual Stock Target.

(b) “Cause” . For purposes of this Agreement, “Cause” shall mean Executive’s:

(i) conviction for commission of a felony or a crime involving moral turpitude;

(ii) willful commission of any act of theft, fraud, embezzlement or misappropriation against the Company or its subsidiaries or affiliates;

(iii) willful and continued failure to substantially perform Executive’s duties hereunder (other than such failure resulting from Executive’s incapacity due to physical or mental illness), which failure is not remedied within 30 calendar days after written demand for substantial performance is delivered by the Company which specifically identifies the manner in which the Company believes that Executive has not substantially performed Executive’s duties.

No act, or failure to act, on the part of Executive shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the independent members of the Board at a meeting of the Board (after reasonable notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail.

(c) “Change in Control”. For purposes of this Agreement, a “Change in Control” means the following:

i. A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company and immediately after such acquisition possesses more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

ii. During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 8(c)(i) hereof or Section 8(c)(iii) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

iii. The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(A) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and;

(B) After which no person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section

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8(c)(iii)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

iv. The Company’s stockholders approve a liquidation or dissolution of the Company and all material contingencies to such liquidation or dissolution have been satisfied or waived.

(d) “Compensation Accrued at Termination” . For purposes of this Agreement, “Compensation Accrued at Termination” means the following:

(i) The unpaid portion of annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the date of Executive’s termination of employment, pro rated through such date of termination, payable in accordance with the Company’s regular pay schedule;

(ii) Except as otherwise provided in this Agreement, all earned and unpaid and/or vested, nonforfeitable amounts owing or accrued at the date of Executive’s termination of employment under any compensation and benefit plans, programs, and arrangements set forth or referred to in Sections 4(b) and 5(a) and 5(b) hereof (including any earned and vested Annual Incentives) in which Executive theretofore participated, payable in accordance with the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted or accrued; and

(iii) Reasonable business expenses and disbursements incurred by Executive prior to Executive’s termination of employment, to be reimbursed to Executive, as authorized under Section 5(d), in accordance the Company’s reimbursement policies as in effect at the date of such termination.

(e) “Disability”. For purposes of this Agreement, “Disability” means that the Executive qualifies to receive long-term disability payments under the Company’s or the Operating Partnership’s long-term disability insurance program, as it may be amended from time to time.

(f) “Good Reason”. For purposes of this Agreement, “Good Reason” shall mean, without Executive’s express written consent, the occurrence of any of the following circumstances unless, if correctable, such circumstances are fully corrected within 30 days of the notice of termination given in respect thereof:

(i) The assignment to Executive of duties materially inconsistent with Executive’s position and status hereunder, or an alteration, materially adverse to Executive, in the nature of Executive’s duties, responsibilities, and authorities, Executive’s positions or the conditions of Executive’s employment from those specified in Section 3 or otherwise hereunder (other than inadvertent actions which are

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promptly remedied); except the foregoing shall not constitute Good Reason if occurring in connection with the termination of Executive’s employment for Cause, Disability, Retirement, as a result of Executive’s death, or as a result of action by or with the consent of Executive; for purposes of this Section 8(f)(i), references to the Company (and the Board and stockholders of the Company) refer to the ultimate parent company (and its board and stockholders) succeeding the Company following an acquisition in which the corporate existence of the Company continues, in accordance with Section 13(b);

(ii) on or after a Change in Control (A) a material reduction by the Company in Executive’s Base Salary, (B) the setting of Executive’s annual target incentive opportunity or payment of earned Annual Incentives in amounts materially less than specified under or otherwise not in conformity with Section 4 hereof, or (C) a material adverse change in benefits not in conformity with Section 5;

(iii) the failure by the Company to pay to Executive any portion of Executive’s base salary or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due;

(iv) the failure by the Company to continue in effect any material compensation or benefit plan in which Executive participated immediately prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of compensation or benefits provided and the level of Executive’s participation relative to other participants, as existed at the time of the Change in Control;

(v) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company’s obligations and to perform under this Agreement, as contemplated in Section 13(b) hereof; or

(vi) any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement.

(g) “Partial Year Bonus”. For purposes of this Agreement, a Partial Year Bonus is an amount equal to the annual incentive compensation that would have become payable to Executive for that year if his employment had not terminated, based on the performance actually achieved prior to the date Executive’s employment terminates and the Reasonably Anticipated Performance for the remainder of the year.

(h) Intentionally omitted.

(i) “Reasonably Anticipated Performance”. For purposes of this Agreement, “Reasonably Anticipated Performance” is performance reasonably anticipated at the time of

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termination of employment, as determined by the Board, in good faith, based on discussions with management of the Company and Executive and based on documents (including term sheets, leases and letters of intent) and, in the absence of documentation, material negotiations have commenced at the time of termination and the transaction in question is completed, and other facts and circumstances in existence at the time of termination

(j) “Severance Period.” For purposes of this Agreement, the “Severance Period” shall be:

(i) the two-year period immediately following Executive’s termination due to his Disability;

(ii) the two-year period immediately following Executive’s termination by the Company without Cause or Executive’s termination of employment for Good Reason; and

(iii) in all other cases, there will be no Severance Period.

9. Payment of Financial Obligations

The payment or provision to the Executive by the Company of any remuneration, benefits or other financial obligations pursuant to this Agreement, including, without limitation, the payment of Executive’s Base Salary, Annual Cash Award, Annual Stock Incentive, and other benefits set forth in Section 5(b) hereof, the payment of the severance payment and Partial Year Bonus and provision of the severance benefits (if applicable) as set forth in Section 6 and Section 7 hereof and any indemnification obligations, shall be allocated between the Company and the Operating Partnership by the Committee based on any reasonable method.

10. Rabbi Trust Obligation; Excise Tax-Related Provisions.

(a) Rabbi Trust Funding. In the event of a Change in Control (other than an acquisition resulting in the acquirer being the beneficial owner of less than 50% of the Company’s voting securities), the Company shall, not later than 30 days after the time of such Change in Control, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential cash obligations of the Company that have arisen or would arise as a result such Change in Control and a subsequent termination of Executive’s employment under Section 7(c) or 7(d). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company.

(b) Reduction of Payments If Excise Tax Would Apply. In the event Executive becomes entitled to any amount of benefits payable in connection with a Change in Control or other change in control (whether or not such amounts are payable pursuant to this Agreement) (the “Severance Payments”) and Executive’s receipt of such Severance Payments would cause Executive to become subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Code (or any similar federal, state, or local tax that may hereafter be imposed), the

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Company shall reduce the Severance Payments to the extent necessary to avoid the application of the Excise Tax if, as a result of such reduction, the net benefits to Executive of the Severance Payments as so reduced (after payment of applicable income taxes) exceeds the net benefit to Executive of the Severance Payments without such reduction (after payment of applicable income taxes and excise taxes). Unless Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce the Severance Payments by first reducing the portion of the Severance Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Change in Control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation. The determination that Executive’s Severance Payments would cause him to become subject to the Excise Tax and the calculation of the amount of any reduction, shall be made, at the Company’s discretion, by the Company’s outside auditing firm or by a nationally-recognized accounting or benefits consulting firm designated by the Company prior to a Change in Control. The firm’s expenses shall be paid by the Company.

11. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement.

(a) Noncompetition Agreement. Executive and the Company and the Operating Partnership shall execute a Noncompetition Agreement within sixty (60) days from             , 2007 that shall only apply during the Term and for a period of one year following a Change in Control.

(b) Non-Solicitation. Without the consent in writing of the Board, Executive will not, at any time during the Term and for the length of the Severance Period, acting alone or in conjunction with others, directly or indirectly (i) induce any customers of the Company or any of its affiliates with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its affiliates, to curtail or cancel their business with the Company or any such affiliate; (ii) induce, or attempt to influence, any employee of the Company or any of its affiliates to terminate employment; or (iii) solicit or assist any third party in the solicitation of, any person who is an employee of the Company or any affiliate; provided, however, that activities engaged in by or on behalf of the Company are not restricted by this covenant. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. Notwithstanding anything in this Section 11(b) to the contrary, Executive is permitted to solicit any individual who served as his executive assistant during the Term.

(c) Non-Disclosure; Ownership of Work. Executive shall not, at any time during the Term and thereafter (including following Executive’s termination of employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any proprietary information, secrets, organizational or employee information, or other confidential information belonging or relating to the Company and its affiliates and customers so long as such information has not otherwise been disclosed through no wrongdoing of the Executive or an individual under a similar restriction or is not otherwise in the public domain,

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except as required by law or pursuant to legal process. In addition, upon termination of employment for any reason, Executive will return to the Company or its affiliates all documents and other media containing information belonging or relating to the Company or its affiliates. Executive will promptly disclose in writing to the Company all inventions, discoveries, developments, improvements and innovations (collectively referred to as “Inventions”) that Executive has conceived or made during the Term; provided, however, that in this context “Inventions” are limited to those which (i) relate in any manner to the existing or contemplated business activities of the Company and its affiliates; (ii) are suggested by or result from Executive’s work at the Company; or (iii) result from the use of the time, materials or facilities of the Company and its affiliates. All Inventions will be the Company’s property rather than Executive’s. Should the Company request it, Executive agrees to sign any document that the Company may reasonably require to establish ownership in any Invention.

(d) Cooperation With Regard to Litigation . Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate of the Company, as may be reasonably requested and after taking into account Executive’s post-termination responsibilities and obligations. The Company agrees to reimburse Executive, on an after-tax basis, for all reasonable expenses actually incurred in connection with his provision of testimony or assistance.

(e) Non-Disparagement. Executive shall not, at any time during the Term and thereafter make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company, its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations, nor shall members of the Board of Directors or Executive’s successor in office make any such statements or representations regarding Executive. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive or his successor or members of the Board of Directors from making truthful statements that are required by applicable law, regulation or legal process.

(f) Release of Employment Claims. Executive agrees, as a condition to receipt of any termination payments and benefits provided for in Sections 6 and 7 herein (other than Compensation Accrued at Termination) (the “Termination Benefits”), that he will execute a general release in substantially the form attached hereto as Exhibit A.

(g) Forfeiture of Outstanding Options and Other Equity Awards. The provisions of Sections 6 and 7 notwithstanding, if Executive fails to comply with the restrictive covenants under Section 11(a) – (c), all options to purchase Common Stock and other equity awards granted by the Company at and after the Effective Date and then held by Executive or a transferee of Executive shall be immediately forfeited and thereupon such options and equity awards shall be cancelled. Notwithstanding the foregoing, Executive shall not forfeit any option or equity award unless and until there shall have been delivered to him, within six months after

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the Board (i) had knowledge of conduct or an event allegedly constituting grounds for such forfeiture and (ii) had reason to believe that such conduct or event could be grounds for such forfeiture, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such forfeiture and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive has engaged in conduct set forth in this Section 11(g) which constitutes grounds for forfeiture of Executive’s options and equity awards; provided, however, that if any option is exercised or equity award is settled after delivery of such notice and the Board subsequently makes the determination described in this sentence, Executive shall be required to pay to the Company an amount equal to the difference between the aggregate value of the shares acquired upon such exercise of the option at the date of the Board determination and the aggregate exercise price paid by Executive and an amount equal to the fair market value of the shares delivered in settlement of the equity award at the date of such determination (net of any cash payment for the shares by Executive). Any such forfeiture shall apply to such options notwithstanding any term or provision of any option agreement. In addition, options and equity awards granted to Executive on or after the Effective Date, and gains resulting from the exercise of such options and settlement of such equity awards, shall be subject to forfeiture in accordance with the Company’s standard policies relating to such forfeitures and clawbacks, as such policies are in effect at the time of grant of such options or equity awards.

(h) Survival. The provisions of this Section 11 shall survive the termination of the Term and any termination or expiration of this Agreement.

(i) Remedies. Executive agrees that any breach of the terms of this Section 11 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; Executive therefore also agrees that in the event of said breach or any threat of breach and notwithstanding Section 12, the Company shall be entitled to an immediate injunction and restraining order from a court of competent jurisdiction to prevent such breach and/or threatened breach and/or continued breach by Executive and/or any and all persons and/or entities acting for and/or with Executive, without having to prove damages. The availability of injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity, but remedies other than injunctive relief may only be pursued in an arbitration brought in accordance with Section 12. The terms of this paragraph shall not prevent the Company from pursuing in an arbitration any other available remedies for any breach or threatened breach of this Section 11, including but not limited to the recovery of damages from Executive. Executive hereby further agrees that, if it is ever determined, in an arbitration brought in accordance with Section 12, that willful actions by Executive have constituted wrongdoing that contributed to any material misstatement or omission from any report or statement filed by the Company with the U.S. Securities and Exchange Commission or material fraud against the Company, then the Company, or its successor, as appropriate, may recover all of any award or payment made to Executive, less the amount of any net tax owed by Executive with respect to such award or payment over the tax benefit to Executive from the repayment or return of the award or payment, pursuant to Section 7(c) or (d), and Executive agrees to repay and return such awards and amounts to the Company within 30 calendar days

18

of receiving notice from the Company that the Board has made the determination referenced above and accordingly the Company is demanding repayment pursuant to this Section 11(i). The Company or its successor may, in its sole discretion, affect any such recovery by (i) obtaining repayment directly from Executive; (ii) setting off the amount owed to it against any amount or award that would otherwise be payable by the Company to Executive; or (iii) any combination of (i) and (ii) above.

12. Governing Law; Disputes; Arbitration.

(a) Governing Law. This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of California, without regard to conflicts of law principles. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is unenforceable because of the duration or geographic scope of such provision, it is the parties’ intent that such court shall have the power to modify the duration or geographic scope of such provision, as the case may be, to the extent necessary to render the provision enforceable and, in its modified form, such provision shall be enforced.

(b) Reimbursement of Expenses in Enforcing Rights. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in negotiating this Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to interpret this Agreement or enforce rights pursuant to this Agreement (A) prior to a Change in Control, shall be paid on behalf of or reimbursed to Executive promptly by the Company provided the Executive is the prevailing party, and (B) after a Change in Control, shall be paid on behalf of or reimbursed to Executive promptly by the Company regardless of whether Executive is the prevailing party, provided that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive’s assertion of such rights was in bad faith or frivolous, as determined by arbitrators in accordance with Section 12(c) or a court having jurisdiction over the matter.

(c) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles, California by three arbitrators in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of California, (ii) any of the courts of the State of California, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it

19

may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to Section 12(b), the Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. Notwithstanding any provision in this Section 12, Executive shall be paid compensation due and owing under this Agreement during the pendency of any dispute or controversy arising under or in connection with this Agreement.

(d) Interest on Unpaid Amounts. Any amount which has become payable pursuant to the terms of this Agreement or any decision by arbitrators or judgment by a court of law pursuant to this Section 12 but which has not been timely paid shall bear interest at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

(e) LIMITATION ON LIABILITIES. IF EITHER EXECUTIVE OR THE COMPANY IS AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL AND CONSEQUENTIAL DAMAGES PLUS INTEREST ON ANY DELAYED PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S) THAT SUCH PAYMENTS WERE DUE AND SHALL EXCLUDE PUNITIVE DAMAGES EVEN IF THE RULES REFERRED TO IN SECTION 12(C) WOULD PROVIDE OTHERWISE.

(f) WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL FOR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. This provision is subject to Section 12(C), requiring arbitration of disputes hereunder.

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13. Miscellaneous.

(a) Integration. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company, any parent or predecessor company, and the Company’s subsidiaries during the Term, including the Prior Employment Agreement, but excluding existing contracts relating to compensation under executive compensation and employee benefit plans of the Company and its subsidiaries. The foregoing notwithstanding, Executive shall not participate in the Company’s Employee Protection Program unless the aggregate benefits provided under such plan would exceed the aggregate benefits provided to Executive under this Agreement upon termination of employment, in which case Executive shall only receive the excess amount provided under the Company’s Employee Protection Program. Executive shall remain entitled to any right or benefit under a Change-in-Control Agreement executed by the Company and Executive, for so long as such Change-in-Control Agreement remains in effect, if and to the extent that such right or benefit is more favorable than a corresponding provision of this Agreement, but no payment or benefit under the Change-in-Control Agreement shall be made or extended which duplicates any payment or benefit hereunder. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings or under any benefit or compensation plan of the Company.

(b) Successors; Transferability. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether or not the corporate existence of the Company continues) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise and, in the case of an acquisition of the Company in which the corporate existence of the Company continues, the ultimate parent company following such acquisition. Subject to the foregoing, the Company may transfer and assign this Agreement and the Company’s rights and obligations hereunder to another entity that is substantially comparable to the Company in its financial strength and ability to perform the Company’s obligations under this Agreement. Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c).

(c) Beneficiaries. Executive shall be entitled to designate (and change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits provided hereunder following Executive’s death.

(d) Notices. Whenever under this Agreement it becomes necessary to give notice, such notice shall be in writing, signed by the party or parties giving or making the same, and

21

shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice:

If to the Company:

KILROY REALTY CORPORATION

12200 West Olympic Boulevard, Suite 200

Los Angeles, CA 90064

Attention: Secretary

With a copy to:

Scott Hodgkins, Esquire

Latham & Watkins LLP

633 West Fifth Street, Suite 4000

Los Angeles, CA 90071-2007

If to Executive:

Tyler H. Rose

12200 West Olympic Boulevard, Suite 200

Los Angeles, CA 90064

With a copy to:

William L. Neff, Esquire

Hogan & Hartson LLP

555 13^th Street NW

Washington, D.C. 20004

If the parties by mutual agreement supply each other with fax numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective two days after deposit into the mails by delivery to the U.S. Post Office.

(e) Reformation. The invalidity of any portion of this Agreement shall not be deemed to render the remainder of this Agreement invalid.

(f) Headings. The headings of this Agreement are for convenience of reference only and do not constitute a part hereof.

(g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to

22

such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced.

(h) No Obligation To Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive’s damages upon any termination of employment; provided, however, that, to the extent Executive receives from a subsequent employer health or other insurance benefits that are substantially similar to the benefits referred to in Section 5(b) hereof, any such benefits to be provided by the Company to Executive following the Term shall be correspondingly reduced.

(i) Offsets; Withholding. The amounts required to be paid by the Company to Executive pursuant to this Agreement shall not be subject to offset other than with respect to any amounts that are owed to the Company by Executive due to his receipt of funds as a result of his fraudulent activity. The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement, including under Sections 6 and 7, or otherwise by the Company, will be subject to withholding to satisfy required withholding taxes and other required deductions.

(j) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns.

(k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(l) Due Authority and Execution. The execution, delivery and performance of this Agreement have been duly authorized by the Company and this Agreement represents the valid, legal and binding obligation of the Company, enforceable against the Company according to its terms.

(m) Representations of Executive. Executive represents and warrants to the Company that he has the legal right to enter into this Agreement and to perform all of the obligations on his part to be performed hereunder in accordance with its terms and that he is not a party to any agreement or understanding, written or oral, which prevents him from entering into this Agreement or performing all of his obligations hereunder. In the event of a breach of such representation or warranty on Executive’s part or if there is any other legal impediment which prevents him from entering into this Agreement or performing all of his obligations hereunder, the Company shall have the right to terminate this Agreement forthwith in accordance with the same notice and hearing procedures specified above in respect of a termination by the Company for Cause pursuant to Section 7(a) and shall have no further obligations to Executive hereunder. Notwithstanding a termination by the Company under this Section 13(m), Executive’s obligations under Section 11 shall survive such termination.

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14. D&O Insurance.

The Company will maintain directors’ and officers’ liability insurance during the Term and for a period of six years thereafter, covering acts and omissions of Executive during the Term, on terms substantially no less favorable than those in effect on the Effective Date.

IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the date first above written.

[Signature Page Follows]

24

KILROY REALTY CORPORATION
By:	/s/ Jeffrey C. Hawken
	Name:	Jeffrey C. Hawken
	Title:	Executive Vice President and Chief Operating Officer
KILROY REALTY CORPORATION
By:	/s/ Tamara J. Porter
	Name:	Tamara J. Porter
	Title:	Vice President and Corporate Counsel
KILROY REALTY, L.P.
By:	/s/ Jeffrey C. Hawken
	Name:	Jeffrey C. Hawken
	Title:	Executive Vice President and Chief Operating Officer
KILROY REALTY, L.P.
By:	/s/ Tamara J. Porter
	Name:	Tamara J. Porter
	Title:	Vice President and Corporate Counsel

EXECUTIVE

/s/ Tyler H. Rose

Tyler H. Rose

25

EXHIBIT A ¹

For and in consideration of the payments and other benefits due to Tyler H. Rose (the “Executive”) pursuant to the Employment Agreement dated as of                     , 2007 (the “Employment Agreement”), by and between Kilroy Realty Corporation, (the “Company”) and the Executive, and for other good and valuable consideration, the Executive hereby agrees, for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, to forever release, discharge and covenant not to sue the Company, or any of its divisions, affiliates, subsidiaries, parents, branches, predecessors, successors, assigns, and, with respect to such entities, their officers, directors, trustees, employees, agents, shareholders, administrators, general or limited partners, representatives, attorneys, insurers and fiduciaries, past, present and future (the “Released Parties”) from any and all claims of any kind arising out of, or related to, his employment with the Company, its affiliates and subsidiaries (collectively, with the Company, the “Affiliated Entities”) or the Executive’s separation from employment with the Affiliated Entities, which the Executive now has or may have against the Released Parties, whether known or unknown to the Executive, by reason of facts which have occurred on or prior to the date that the Executive has signed this Release. Such released claims include, without limitation, any and all claims relating to the foregoing under federal, state or local laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et. seq., the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et. seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et. seq. the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et. seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et. seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et. seq., and any and all state or local laws regarding employment discrimination and/or federal, state or local laws of any type or description regarding employment, including but not limited to any claims arising from or derivative of the Executive’s employment with the Affiliated Entities, as well as any and all such claims under state contract or tort law.

The Executive has read this Release carefully, acknowledges that the Executive has been given at least 21 days to consider all of its terms and has been advised to consult with any attorney and any other advisors of the Executive’s choice prior to executing this Release, and the Executive fully understands that by signing below the Executive is voluntarily giving up any right which the Executive may have to sue or bring any other claims against the Released Parties, including any rights and claims under the Age Discrimination in Employment Act. The Executive also understands that the Executive has a period of seven days after signing this

¹ This release may be amended by the Company to reflect new laws and changes in applicable laws.

Release within which to revoke his agreement, and that neither the Company nor any other person is obligated to make any payments or provide any other benefits to the Executive pursuant to the Agreement until eight days have passed since the Executive’s signing of this Release without the Executive’s signature having been revoked other than any accrued obligations or other benefits payable pursuant to the terms of the Company’s normal payroll practices or employee benefit plans. Finally, the Executive has not been forced or pressured in any manner whatsoever to sign this Release, and the Executive agrees to all of its terms voluntarily.

Notwithstanding anything else herein to the contrary, this Release shall not affect: (i) the Company’s obligations under any compensation or employee benefit plan, program or arrangement (including, without limitation, obligations to the Executive under the Employment Agreement, any stock option, stock award or agreements or obligations under any pension, deferred compensation or retention plan) provided by the Affiliated Entities where the Executive’s compensation or benefits are intended to continue or the Executive is to be provided with compensation or benefits, in accordance with the express written terms of such plan, program or arrangement, beyond the date of the Executive’s termination; (ii) rights to indemnification the Executive may have under the Employment Agreement or a separate agreement entered into with the Company; or (iii) rights Executive may have as a shareholder, unit holder or prior member of the operating partnership.

This Release is final and binding and may not be changed or modified except in a writing signed by both parties. Section 12 of the Employment Agreement shall apply to this Release.

Date Tyler H. Rose

KILROY REALTY CORPORATION
By:
	Name:
	Title:
KILROY REALTY CORPORATION
By:
	Name:
	Title:

2

EX-10.4

Exhibit 10.4

July 24, 2007

Heidi Roth

[address]

Dear Heidi,

Following our discussions, this letter sets forth the terms of our agreement relative to your employment with Kilroy Realty Corporation (the “Company”) and Kilroy Realty, L.P. (the “Operating Partnership”).

1. Position/Title:	Senior Vice President—Controller
2. Term:	Effective as of January 1, 2007 and ending December 31, 2009, and automatically extended on December 31, 2009 and each December 31 thereafter for an additional 12 month term unless either the Company or you provides notice to the other party at least 90 days before the December 31 extension date electing not to extend the Term further as of that December 31.
3. Base Salary:	$200,000
4. Bonus:	An annual cash award (the “Annual Incentive”). The annual target incentive opportunity for the Annual Incentive shall be $100,000, up to 25% of which may be payable, in the Company’s sole discretion, in Company stock, as such target may be adjusted by the Company.
5. Benefits:	All employee and executive benefit plans and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, to the extent such plans are generally available to other senior executives or employees of the Company, subject to the eligibility and other requirements of such plans and programs.
6. Vacation:	20 days per year
7. Severance:	If employment is terminated for reasons other than (i) Cause, (ii) by you other than for Good Reason or (iii) the end of the term of this Agreement, you shall receive severance payments equal to:

	•        Compensation accrued at termination;
	•        A single severance payment in cash in an aggregate amount equal to the sum of: (i) one and one-half times Base Salary plus (ii) one and one-half times the average of the two highest Annual Incentives received by you during the preceding three completed performance years; provided, however, if employment is terminated by reason of death, your severance payment will be one times Base Salary and your average Annual Incentive;
	•        In lieu of any Annual Incentive compensation a partial year bonus based on actual performance against bonus targets as of the date of termination;
	•        All equity awards held by you at termination which vest based on time shall become fully vested and all other terms of such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;
	•        Any performance objectives upon which the earning of performance-based restricted stock, RSUs, and other equity awards and other long-term incentive awards (including cash awards, but excluding any outperformance incentive award) is conditioned shall be deemed to have been met at the greater of (A) target level at the date of termination, or (B) actual performance and reasonably anticipated performance at the date of termination, and such amounts shall become fully vested and non-forfeitable as a result of termination of employment at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted;
	•        All other rights under any other compensatory or benefit plan, including any deferrals, shall be governed by such plan; and
	•        At Company’s expense, you and your spouse and dependent children shall be entitled to continuation of health insurance coverage (i.e., medical, dental and vision) under the Company’s group health plan(s) in which you were participating on the date of termination or if such plan(s) have been terminated, in the plan(s) in which senior executives of the Company participate for a period of one and one-half years after the date your employment terminates; provided, however, if employment is terminated by reason of death or disability, the continuation of benefits is for a period of one (1) year.
10. Cause:	If employment terminates due to Cause, you will receive your compensation accrued through the date of termination and no additional amounts other than what you are entitled to pursuant to the terms of any Company benefit plans.

2

	For purposes of this Agreement, “Cause” shall mean:
	•        conviction for commission of a felony or a crime involving moral turpitude;
	•        willful commission of any act of theft, fraud, embezzlement or misappropriation against the Company or its subsidiaries or affiliates;
	•        willful and continued failure to substantially perform your duties (other than such failure resulting from your incapacity due to physical or mental illness), which failure is not remedied within 30 calendar days after written demand for substantial performance is delivered by the Company which specifically identifies the manner in which the Company believes that you have not substantially performed your duties.
	No act, or failure to act, on the part of you shall be deemed “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company.
12. Good Reason:	For purposes of this Agreement, “Good Reason” shall mean, without your express written consent, the occurrence of any of the following circumstances unless, if correctable, such circumstances are fully corrected within 30 days of the notice of termination given in respect thereof which notice must be given within 90 days of the occurrence:
	•        The assignment of duties materially inconsistent with your position and status hereunder, or an alteration, materially adverse to you, in the nature of your duties, responsibilities, and authorities, your positions or the conditions of your employment;
	•        On or after a change in control (A) a material reduction by the Company in your Base Salary, (B) the setting of your annual target incentive opportunity or payment of earned Annual Incentives in amounts materially less than specified above or (C) a material adverse change in benefits;
	•        the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company’s obligations and to perform under this Agreement;
	•        any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement.
13. Release:	You agree, as a condition to receipt of any termination payments and benefits provided for in Section 7 herein, that you will execute a general release in substantially the form attached hereto as Exhibit A.

3

14. WAIVER OF JURY TRIAL:.

TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL FOR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.

15. Governing Law/ Arbitration:

This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of California, without regard to conflicts of law principles. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles, California by three arbitrators in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and you hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of California, (ii) any of the courts of the State of California, or (iii) any other court having jurisdiction. The Company and you further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and you hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and you hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

4

This Agreement supersedes any prior agreements with you regarding employment as well as any other discussions to date and is between you and the Company and the Operating Partnership.

/s/ Tyler H. Rose

Name: Tyler H. Rose

Title: Senior Vice President and Treasurer

Kilroy Realty Corporation

/s/ Tamara J. Porter

Name: Tamara J. Porter

Title: Vice President and Corporate Counsel

Kilroy Realty Corporation

/s/ Tyler H. Rose

Name: Tyler H. Rose

Title: Senior Vice President and Treasurer

Kilroy Realty, L.P.

/s/ Tamara J. Porter

Name: Tamara J. Porter

Title: Vice President and Corporate Counsel

Kilroy Realty, L.P.

I understand and accept that the terms of this Agreement are all-inclusive and supersede all other verbal and written discussions of employment.

Signature:	/s/ Heidi Roth	Date:	July 24, 2007
	Heidi Roth

5

EXHIBIT A ¹

For and in consideration of the payments and other benefits due to Heidi Roth (the “Executive”) pursuant to the Agreement dated as of July 24, 2007 (the “Agreement”), by and among Kilroy Realty Corporation, (the “Company”), Kilroy Realty, L.P. and the Executive, and for other good and valuable consideration, the Executive hereby agrees, for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, to forever release, discharge and covenant not to sue the Company, or any of its divisions, affiliates, subsidiaries, parents, branches, predecessors, successors, assigns, and, with respect to such entities, their officers, directors, trustees, employees, agents, shareholders, administrators, general or limited partners, representatives, attorneys, insurers and fiduciaries, past, present and future (the “Released Parties”) from any and all claims of any kind arising out of, or related to, his employment with the Company, its affiliates and subsidiaries (collectively, with the Company, the “Affiliated Entities”) or the Executive’s separation from employment with the Affiliated Entities, which the Executive now has or may have against the Released Parties, whether known or unknown to the Executive, by reason of facts which have occurred on or prior to the date that the Executive has signed this Release. Such released claims include, without limitation, any and all claims relating to the foregoing under federal, state or local laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et. seq., the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et. seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et. seq., the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et. seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et. seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et. seq., and any and all state or local laws regarding employment discrimination and/or federal, state or local laws of any type or description regarding employment, including but not limited to any claims arising from or derivative of the Executive’s employment with the Affiliated Entities, as well as any and all such claims under state contract or tort law.

The Executive has read this Release carefully, acknowledges that the Executive has been given at least 21 days to consider all of its terms and has been advised to consult with any attorney and any other advisors of the Executive’s choice prior to executing this Release, and the Executive fully understands that by signing below the Executive is voluntarily giving up any right which the Executive may have to sue or bring any other claims against the Released Parties, including any rights and claims under the Age Discrimination in Employment Act. The Executive also understands that the Executive has a period of seven days after signing this Release within which to revoke his agreement, and that neither the Company nor any other person is obligated to make any payments or provide any other benefits to the Executive pursuant to the Agreement until eight days have passed since the Executive’s signing of this Release without the Executive’s signature having been revoked other than any accrued obligations or other benefits payable

¹ This release may be amended by the Company to reflect new laws and changes in applicable laws.

pursuant to the terms of the Company’s normal payroll practices or employee benefit plans. Finally, the Executive has not been forced or pressured in any manner whatsoever to sign this Release, and the Executive agrees to all of its terms voluntarily.

Notwithstanding anything else herein to the contrary, this Release shall not affect: (i) the Company’s obligations under any compensation or employee benefit plan, program or arrangement (including, without limitation, obligations to the Executive under the Agreement, any stock option, stock award or agreements or obligations under any pension, deferred compensation or retention plan) provided by the Affiliated Entities where the Executive’s compensation or benefits are intended to continue or the Executive is to be provided with compensation or benefits, in accordance with the express written terms of such plan, program or arrangement, beyond the date of the Executive’s termination; (ii) rights to indemnification the Executive may have under the Agreement or a separate agreement entered into with the Company; or (iii) rights Executive may have as a shareholder, unit holder or prior member of the operating partnership.

This Release is final and binding and may not be changed or modified except in a writing signed by both parties. Section 15 of the Agreement shall apply to this Release.

Date	Heidi Roth
Date	Kilroy Realty Corporation
Date	Kilroy Realty Corporation

2

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John B. Kilroy, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    JOHN B. KILROY, JR.        

John B. Kilroy, Jr.

President and Chief Executive Officer

Date: July 26, 2007

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard E. Moran Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    RICHARD E. MORAN JR.

Richard E. Moran Jr.

Executive Vice President and

Chief Financial Officer

Date: July 26, 2007

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

/s/    JOHN B. KILROY, JR.

John B. Kilroy, Jr.

President and Chief Executive Officer

Date: July 26, 2007

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document and is not being incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to Kilroy Realty Corporation and will be retained by Kilroy Realty Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Kilroy Realty Corporation (the “Company”) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

/s/    RICHARD E. MORAN JR.

Richard E. Moran Jr.

Executive Vice President and

Chief Financial Officer

Date: July 26, 2007

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document and is not being incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing. The signed original of this written statement required by Section 906 has been provided to Kilroy Realty Corporation and will be retained by Kilroy Realty Corporation and furnished to the Securities and Exchange Commission or its staff upon request.