KILROY REALTY CORP (Form: 10-Q, Received: 08/03/2012 06:02:07)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-12675 (Kilroy Realty Corporation)

Commission File Number: 000-54005 (Kilroy Realty, L.P.)

KILROY REALTY CORPORATION

KILROY REALTY, L.P.

(Exact name of registrant as specified in its charter)




Kilroy Realty Corporation	Maryland	95-4598246
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Kilroy Realty, L.P.	Delaware	95-4612685
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064
(Address of principal executive offices) (Zip Code)

(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.

Kilroy Realty Corporation Yes þ No o

Kilroy Realty, L. P. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Kilroy Realty Corporation Yes þ No o

Kilroy Realty, L.P. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Kilroy Realty Corporation
Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Kilroy Realty, L.P.
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Kilroy Realty Corporation Yes o No þ

Kilroy Realty, L.P. Yes o No þ

As of August 1, 2012 , 68,932,731 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2012 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to "Kilroy Realty Corporation" or the "Company," "we," "our," and "us" mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to "Kilroy Realty, L.P." or the "Operating Partnership" mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidated subsidiaries.

The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of June 30, 2012 , the Company owned an approximate 97.6% common general partnership interest in the Operating Partnership. The remaining approximate 2.4% common limited partnership interests are owned by non-affiliated investors and certain directors and executive officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership's day-to-day management and control and can cause it to enter into certain major transactions including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure, and distribution policies.

There are a few differences between the Company and the Operating Partnership which are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but guarantees some of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company's business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company is required to contribute to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company's business through the Operating Partnership's operations, by the Operating Partnership's incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests and stockholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners' capital in the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements. The Operating Partnership's financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P. This noncontrolling interest represents the Company's 1% indirect general partnership interest in Kilroy Realty Finance Partnership, L.P., which is directly held by Kilroy Realty Finance, Inc., a wholly-owned subsidiary of the Company. The differences between stockholders' equity, partners' capital and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership, and in the Company's noncontrolling interest in Kilroy Realty Finance Partnership, L.P.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:


•	Combined reports better reflect how management and the analyst community view the business as a single operating unit;


•	Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;


•	Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and


•	Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:


•	consolidated financial statements;


•	the following notes to the consolidated financial statements:


◦	Note 5, Secured and Unsecured Debt of the Operating Partnership;


◦	Note 6, Noncontrolling Interests on the Company's Consolidated Financial Statements;


◦	Note 7, Preferred and Common Stock of the Company;


◦	Note 8, Preferred and Common Units of the Operating Partnership;


◦	Note 15, Net Income Available to Common Stockholders Per Share of the Company;


◦	Note 16, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;


◦	Note 18, Pro Forma Results of the Company;


◦	Note 19, Pro Forma Results of the Operating Partnership;


•	"Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of the Company"; and


•	"Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of the Operating Partnership."

This report also includes separate sections under Part I, Item 4. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and 18 U.S.C. §1350.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012

TABLE OF CONTENTS



		Page
	PART I-FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION	1
	Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 20 11	1
	Consolidated Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011 (unaudited)	2
	Consolidated Statements of Equity for the Six Months ended June 30, 2012 and 2011 (unaudited)	3
	Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011 (unaudited)	4

Item 1.	FINANCIAL STATEMENTS OF KILROY REALTY, L.P.	6
	Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 20 11	6
	Consolidated Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011 (unaudited)	7
	Consolidated Statements of Capital for the Six Months ended June 30, 2012 and 2011 (unaudited)	8
	Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011 (unaudited)	9
	Notes to Consolidated Financial Statements	11

Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	58

Item 4.	CONTROLS AND PROCEDURES (KILROY REALTY CORPORATION AND KILROY REALTY, L.P.)	58

	PART II-OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	60

Item 1A.	RISK FACTORS	60

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	60

Item 3.	DEFAULTS UPON SENIOR SECURITIES	60

Item 4.	MINE SAFETY DISCLOSURES	60

Item 5.	OTHER INFORMATION	60

Item 6.	EXHIBITS	61

SIGNATURES		62

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	576,433		$	537,574
Buildings and improvements (Note 2)	3,137,665			2,830,310
Undeveloped land and construction in progress (Note 2)	557,657			430,806
Total real estate held for investment	4,271,755			3,798,690
Accumulated depreciation and amortization	(801,083		)	(742,503		)
Total real estate assets held for investment, net	3,470,672			3,056,187
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 14)	—			84,156
CASH AND CASH EQUIVALENTS	18,111			4,777
RESTRICTED CASH	97			358
MARKETABLE SECURITIES (Note 12)	6,546			5,691
CURRENT RECEIVABLES, NET (Note 4)	7,643			8,395
DEFERRED RENT RECEIVABLES, NET (Note 4)	110,689			101,142
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	168,488			155,522
DEFERRED FINANCING COSTS, NET	18,919			18,368
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 11)	46,357			12,199
TOTAL ASSETS	$	3,847,522		$	3,446,795
LIABILITIES, NONCONTROLLING INTEREST AND EQUITY
LIABILITIES:
Secured debt (Notes 2, 5 and 12)	$	381,097		$	351,825
Exchangeable senior notes, net (Notes 5 and 12)	161,844			306,892
Unsecured debt, net (Notes 5 and 12)	1,130,732			980,569
Unsecured line of credit (Notes 5 and 12)	102,000			182,000
Accounts payable, accrued expenses and other liabilities	98,940			81,713
Accrued distributions (Note 17)	25,975			22,692
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	108,462			79,781
Rents received in advance and tenant security deposits	31,768			26,917
Liabilities and deferred revenue of real estate assets held for sale (Note 14)	—			13,286
Total liabilities	2,040,818			2,045,675
COMMITMENTS AND CONTINGENCIES (Note 11)
NONCONTROLLING INTEREST (Note 6):
7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership	73,638			73,638
EQUITY:
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	—			—
7.80% Series E Cumulative Redeemable Preferred stock, $.01 par value, 1,610,000 shares authorized, issued and outstanding ($40,250 liquidation preference)	—			38,425
7.50% Series F Cumulative Redeemable Preferred stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding ($86,250 liquidation preference)	—			83,157
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference)	96,155			—
Common stock, $.01 par value, 150,000,000 shares authorized, 68,927,731 and 58,819,717 shares issued and outstanding, respectively	689			588
Additional paid-in capital	1,856,431			1,448,997
Distributions in excess of earnings	(259,495		)	(277,450		)
Total stockholders' equity	1,693,780			1,293,717
Noncontrolling interest:
Common units of the Operating Partnership (Note 6)	39,286			33,765
Total equity	1,733,066			1,327,482
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY	$	3,847,522		$	3,446,795

See accompanying notes to consolidated financial statements.

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,
	2012			2011			2012			2011
REVENUES:
Rental income	$	94,265		$	80,158		$	184,484		$	157,155
Tenant reimbursements	9,065			7,130			17,369			13,152
Other property income	592			1,102			1,479			1,856
Total revenues	103,922			88,390			203,332			172,163
EXPENSES:
Property expenses	21,196			17,356			38,731			34,865
Real estate taxes	8,881			8,127			17,270			16,017
Provision for bad debts	—			120			2			146
Ground leases	615			424			1,417			763
General and administrative expenses	9,251			7,440			18,018			14,000
Acquisition-related expenses	1,813			1,194			3,341			1,666
Depreciation and amortization	40,624			31,378			77,370			59,819
Total expenses	82,380			66,039			156,149			127,276
OTHER (EXPENSES) INCOME:
Interest income and other net investment (losses) gains (Note 12)	(110		)	58			374			242
Interest expense (Note 5)	(19,155		)	(21,228		)	(40,318		)	(42,104		)
Total other (expenses) income	(19,265		)	(21,170		)	(39,944		)	(41,862		)
INCOME FROM CONTINUING OPERATIONS	2,277			1,181			7,239			3,025
DISCONTINUED OPERATIONS (Note 14)
Income from discontinued operations	—			2,291			900			5,314
Net gain on dispositions of discontinued operations	—			—			72,809			—
Total income from discontinued operations	—			2,291			73,709			5,314
NET INCOME	2,277			3,472			80,948			8,339
Net loss (income) attributable to noncontrolling common units of the Operating Partnership	20			10			(1,775		)	(24		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	2,297			3,482			79,173			8,315
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
Distributions to noncontrolling cumulative redeemable preferred units of the Operating Partnership	(1,397		)	(1,397		)	(2,794		)	(2,794		)
Preferred dividends (Note 7)	(1,700		)	(2,402		)	(4,721		)	(4,804		)
Original issuance costs of redeemed preferred stock (Note 7)	—			—			(4,918		)	—
Total preferred distributions and dividends	(3,097		)	(3,799		)	(12,433		)	(7,598		)
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	(800	)	$	(317	)	$	66,740		$	717
Loss from continuing operations available to common stockholders per common share - basic (Note 15)	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Loss from continuing operations available to common stockholders per common share - diluted (Note 15)	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Net (loss) income available to common stockholders per share - basic (Note 15)	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Net (loss) income available to common stockholders per share - diluted (Note 15)	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Weighted average common shares outstanding - basic (Note 15)	68,344,734			57,685,710			65,996,719			55,008,765
Weighted average common shares outstanding - diluted (Note 15)	68,344,734			57,685,710			65,996,719			55,008,765
Dividends declared per common share	$	0.35		$	0.35		$	0.70		$	0.70

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

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



				Common Stock										Total Stock- holders' Equity			Noncontrol- ling Interests - Common Units of the Operating Partnership			Total Equity
	Preferred Stock			Number of Shares		Common Stock		Additional Paid-in Capital			Distributions in Excess of Earnings
BALANCE AS OF DECEMBER 31, 2010	$	121,582		52,349,670		$	523	$	1,211,498		$	(247,252	)	$	1,086,351		$	31,379		$	1,117,730
Net income											8,315			8,315			24			8,339
Issuance of common stock				6,037,500		61		220,954						221,015						221,015
Issuance of share-based compensation awards				68,727		1		2,155						2,156						2,156
Noncash amortization of share-based compensation								2,813						2,813						2,813
Repurchase of common stock and restricted stock units				(11,485	)			(732		)				(732		)				(732		)
Exercise of stock options				15,000				395						395						395
Exchange of common units of the Operating Partnership				5,000				91						91			(91		)	—
Adjustment for noncontrolling interest								(3,223		)				(3,223		)	3,223			—
Preferred distributions and dividends											(7,598		)	(7,598		)				(7,598		)
Dividends declared per common share and common unit ($0.70 per share/unit)											(39,381		)	(39,381		)	(1,204		)	(40,585		)
BALANCE AS OF JUNE 30, 2011	$	121,582		58,464,412		$	585	$	1,433,951		$	(285,916	)	$	1,270,202		$	33,331		$	1,303,533

				Common Stock										Total Stock- holders' Equity			Noncontrol- ling Interests - Common Units of the Operating Partnership			Total Equity
	Preferred Stock			Number of Shares		Common Stock		Additional Paid-in Capital			Distributions in Excess of Earnings
BALANCE AS OF DECEMBER 31, 2011	$	121,582		58,819,717		$	588	$	1,448,997		$	(277,450	)	$	1,293,717		$	33,765		$	1,327,482
Net income											79,173			79,173			1,775			80,948
Issuance of Series G Preferred stock (Note 7)	96,155													96,155						96,155
Redemption of Series E and Series F Preferred stock (Note 7)	(121,582		)								(4,918		)	(126,500		)				(126,500		)
Issuance of common stock (Note 7)				10,063,189		101		408,374						408,475						408,475
Issuance of share-based compensation awards (Note 9)				62,137				657						657						657
Noncash amortization of share-based compensation (Note 9)								3,827						3,827						3,827
Repurchase of common stock and restricted stock units (Note 9)				(22,312	)			(603		)				(603		)				(603		)
Exercise of stock options				5,000				129						129						129
Adjustment for noncontrolling interest								(4,950		)				(4,950		)	4,950			—
Preferred distributions and dividends											(7,515		)	(7,515		)				(7,515		)
Dividends declared per common share and common unit ($0.70 per share/unit)											(48,785		)	(48,785		)	(1,204		)	(49,989		)
BALANCE AS OF JUNE 30, 2012	$	96,155		68,927,731		$	689	$	1,856,431		$	(259,495	)	$	1,693,780		$	39,286		$	1,733,066

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	80,948		$	8,339
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	76,792			61,029
Increase in provision for bad debts	2			146
Depreciation of furniture, fixtures and equipment	584			530
Noncash amortization of share-based compensation awards	3,419			2,239
Noncash amortization of deferred financing costs and debt discounts and premiums	5,310			6,884
Noncash amortization of net (below)/above market rents (Note 3)	(2,589		)	1,398
Net gain on dispositions of discontinued operations (Note 14)	(72,809		)	—
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(4,465		)	(4,668		)
Straight-line rents	(10,575		)	(8,906		)
Net change in other operating assets	(4,318		)	(2,493		)
Net change in other operating liabilities	7,285			(8,033		)
Insurance proceeds received for property damage	(951		)	—
Net cash provided by operating activities	78,633			56,465
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties, net of cash acquired (Note 2)	(272,256		)	(378,554		)
Expenditures for acquisition of development properties (Note 2)	(79,157		)	—
Expenditures for operating properties	(40,218		)	(28,230		)
Expenditures for development and redevelopment properties and undeveloped land	(26,084		)	(12,347		)
Net proceeds received from dispositions of operating properties (Note 14)	143,161			—
Insurance proceeds received for property damage	951			—
Increase in acquisition-related deposits	(28,250		)	(16,500		)
Decrease in restricted cash	261			112
Net cash used in investing activities	(301,592		)	(435,519		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Series G preferred stock (Note 7)	96,155			—
Redemption of Series E and Series F preferred stock (Note 7)	(126,500		)	—
Net proceeds from issuance of common stock (Note 7)	408,475			221,015
Borrowings on unsecured line of credit	253,000			302,000
Repayments on unsecured line of credit	(333,000		)	(216,000		)
Proceeds from issuance of secured debt	97,000			135,000
Principal payments on secured debt	(103,254		)	(3,403		)
Proceeds from the issuance of unsecured debt (Note 5)	150,000			—
Repayments of exchangeable senior notes (Note 5)	(148,000		)	—
Financing costs	(3,644		)	(5,201		)
Decrease in loan deposits	—			2,027
Repurchase of common stock and restricted stock units (Note 9)	(603		)	(732		)
Proceeds from exercise of stock options	129			395
Dividends and distributions paid to common stockholders and common unitholders	(45,713		)	(37,877		)
Dividends and distributions paid to preferred stockholders and preferred unitholders	(7,752		)	(7,598		)
Net cash provided by financing activities	236,293			389,626
Net increase in cash and cash equivalents	13,334			10,572
Cash and cash equivalents, beginning of period	4,777			14,840
Cash and cash equivalents, end of period	$	18,111		$	25,412

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)

(unaudited, in thousands)



	Six Months Ended June 30,
	2012		2011
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $7,021 and $3,327 as of June 30, 2012 and 2011, respectively	$	36,935	$	34,568
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	13,062	$	9,966
Tenant improvements funded directly by tenants to third parties	$	9,838	$	3,027
Assumption of secured debt with property acquisitions (Notes 2 and 5)	$	35,690	$	30,042
Assumption of other assets and liabilities with operating and development property acquisitions, net (Note 2)	$	4,940	$	4,438
NONCASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders	$	24,726	$	21,064
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders	$	1,577	$	1,909
Issuance of share-based compensation awards, net (Note 9)	$	30,762	$	7,216
Exchange of common units of the Operating Partnership into shares of the Company's common stock	$	—	$	91

See accompanying notes to consolidated financial statements.

ITEM 1: FINANCIAL STATEMENTS OF KILROY REALTY, L.P.

KILROY REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)



	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	576,433		$	537,574
Buildings and improvements (Note 2)	3,137,665			2,830,310
Undeveloped land and construction in progress (Note 2)	557,657			430,806
Total real estate held for investment	4,271,755			3,798,690
Accumulated depreciation and amortization	(801,083		)	(742,503		)
Total real estate assets held for investment, net	3,470,672			3,056,187
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 14)	—			84,156
CASH AND CASH EQUIVALENTS	18,111			4,777
RESTRICTED CASH	97			358
MARKETABLE SECURITIES (Note 12)	6,546			5,691
CURRENT RECEIVABLES, NET (Note 4)	7,643			8,395
DEFERRED RENT RECEIVABLES, NET (Note 4)	110,689			101,142
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	168,488			155,522
DEFERRED FINANCING COSTS, NET	18,919			18,368
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 11)	46,357			12,199
TOTAL ASSETS	$	3,847,522		$	3,446,795
LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL
LIABILITIES:
Secured debt (Notes 2, 5 and 12)	$	381,097		$	351,825
Exchangeable senior notes, net (Notes 5 and 12)	161,844			306,892
Unsecured debt, net (Notes 5 and 12)	1,130,732			980,569
Unsecured line of credit (Notes 5 and 12)	102,000			182,000
Accounts payable, accrued expenses and other liabilities	98,940			81,713
Accrued distributions (Note 17)	25,975			22,692
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	108,462			79,781
Rents received in advance and tenant security deposits	31,768			26,917
Liabilities and deferred revenue of real estate assets held for sale (Note 14)	—			13,286
Total liabilities	2,040,818			2,045,675
COMMITMENTS AND CONTINGENCIES (Note 11)
7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS	73,638			73,638
CAPITAL:
Partners' Capital (Note 8):
7.80% Series E Cumulative Redeemable Preferred units, 1,610,000 units issued and outstanding ($40,250 liquidation preference)	—			38,425
7.50% Series F Cumulative Redeemable Preferred units, 3,450,000 units issued and outstanding ($86,250 liquidation preference)	—			83,157
6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,155			—
Common units, 68,927,731 and 58,819,717 held by the general partner and 1,718,131 and 1,718,131 held by common limited partners issued and outstanding, respectively	1,634,174			1,203,259
Total partners' capital	1,730,329			1,324,841
Noncontrolling interest in consolidated subsidiaries	2,737			2,641
Total capital	1,733,066			1,327,482
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL	$	3,847,522		$	3,446,795

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
REVENUES:
Rental income	$	94,265		80,158			$	184,484		$	157,155
Tenant reimbursements	9,065			7,130			17,369			13,152
Other property income	592			1,102			1,479			1,856
Total revenues	103,922			88,390			203,332			172,163
EXPENSES:
Property expenses	21,196			17,356			38,731			34,865
Real estate taxes	8,881			8,127			17,270			16,017
Provision for bad debts	—			120			2			146
Ground leases	615			424			1,417			763
General and administrative expenses	9,251			7,440			18,018			14,000
Acquisition-related expenses	1,813			1,194			3,341			1,666
Depreciation and amortization	40,624			31,378			77,370			59,819
Total expenses	82,380			66,039			156,149			127,276
OTHER (EXPENSES) INCOME:
Interest income and other net investment (losses) gains (Note 12)	(110		)	58			374			242
Interest expense (Note 5)	(19,155		)	(21,228		)	(40,318		)	(42,104		)
Total other (expenses) income	(19,265		)	(21,170		)	(39,944		)	(41,862		)
INCOME FROM CONTINUING OPERATIONS	2,277			1,181			7,239			3,025
DISCONTINUED OPERATIONS (Note 14)
Income from discontinued operations	—			2,291			900			5,314
Net gain on dispositions of discontinued operations	—			—			72,809			—
Total income from discontinued operations	—			2,291			73,709			5,314
NET INCOME	2,277			3,472			80,948			8,339
Net income attributable to noncontrolling interests in consolidated subsidiaries	(43		)	(32		)	(96		)	(65		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	2,234			3,440			80,852			8,274
Preferred distributions (Note 8)	(3,097		)	(3,799		)	(7,515		)	(7,598		)
Original issuance costs of redeemed preferred units (Note 8)	—			—			(4,918		)	—
Total preferred distributions	(3,097		)	(3,799		)	(12,433		)	(7,598		)
NET (LOSS) INCOME AVAILABLE TO COMMON UNITHOLDERS	$	(863	)	$	(359	)	$	68,419		$	676
Loss from continuing operations available to common unitholders per common unit - basic (Note 16)	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Loss from continuing operations available to common unitholders per common unit - diluted (Note 16)	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Net (loss) income available to common unitholders per unit - basic (Note 16)	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Net (loss) income available to common unitholders per unit - diluted (Note 16)	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Weighted average common units outstanding - basic (Note 16)	70,062,865			59,407,687			67,714,850			56,731,316
Weighted average common units outstanding - diluted (Note 16)	70,062,865			59,407,687			67,714,850			56,731,316
Distributions declared per common unit	$	0.35		$	0.35		$	0.70		$	0.70

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

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



	Partners' Capital								Total Partners' Capital			Noncontrolling Interests in Consolidated Subsidiaries
	Preferred Units			Number of Common Units		Common Units			Total Partners' Capital			Noncontrolling Interests in Consolidated Subsidiaries		Total Capital
BALANCE AS OF DECEMBER 31, 2010	$	121,582		54,072,801		$	994,511		$	1,116,093		$	1,637	$	1,117,730
Net income						8,274			8,274			65		8,339
Issuance of common units				6,037,500		221,015			221,015					221,015
Issuance of share-based compensation awards				68,727		2,156			2,156					2,156
Noncash amortization of share-based compensation						2,813			2,813					2,813
Repurchase/redemption of common units and restricted stock units				(11,485	)	(732		)	(732		)			(732		)
Exercise of stock options				15,000		395			395					395
Preferred distributions						(7,598		)	(7,598		)			(7,598		)
Distributions declared per common unit ($0.70 per unit)						(40,585		)	(40,585		)			(40,585		)
BALANCE AS OF JUNE 30, 2011	$	121,582		60,182,543		$	1,180,249		$	1,301,831		$	1,702	$	1,303,533

	Partners' Capital								Total Partners' Capital			Noncontrolling Interests in Consolidated Subsidiaries
	Preferred Units			Number of Common Units		Common Units			Total Partners' Capital			Noncontrolling Interests in Consolidated Subsidiaries		Total Capital
BALANCE AS OF DECEMBER 31, 2011	$	121,582		60,537,848		$	1,203,259		$	1,324,841		$	2,641	$	1,327,482
Net income						80,852			80,852			96		80,948
Issuance of Series G Preferred units (Note 8)	96,155								96,155					96,155
Redemption of Series E and Series F Preferred units (Note 8)	(121,582		)			(4,918		)	(126,500		)			(126,500		)
Issuance of common units (Note 8)				10,063,189		408,475			408,475					408,475
Issuance of share-based compensation awards (Note 9)				62,137		657			657					657
Noncash amortization of share-based compensation (Note 9)						3,827			3,827					3,827
Repurchase/redemption of common units and restricted stock units (Note 9)				(22,312	)	(603		)	(603		)			(603		)
Exercise of stock options				5,000		129			129					129
Preferred distributions						(7,515		)	(7,515		)			(7,515		)
Distributions declared per common unit ($0.70 per unit)						(49,989		)	(49,989		)			(49,989		)
BALANCE AS OF JUNE 30, 2012	$	96,155		70,645,862		$	1,634,174		$	1,730,329		$	2,737	$	1,733,066

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	80,948		$	8,339
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of building and improvements and leasing costs	76,792			61,029
Increase in provision for bad debts	2			146
Depreciation of furniture, fixtures and equipment	584			530
Noncash amortization of share-based compensation awards	3,419			2,239
Noncash amortization of deferred financing costs and debt discounts and premiums	5,310			6,884
Noncash amortization of net (below)/above market rents (Note 3)	(2,589		)	1,398
Net gain on dispositions of discontinued operations (Note 14)	(72,809		)	—
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(4,465		)	(4,668		)
Straight-line rents	(10,575		)	(8,906		)
Net change in other operating assets	(4,318		)	(2,493		)
Net change in other operating liabilities	7,285			(8,033		)
Insurance proceeds received for property damage	(951		)	—
Net cash provided by operating activities	78,633			56,465
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties, net of cash acquired (Note 2)	(272,256		)	(378,554		)
Expenditures for acquisition of development properties (Note 2)	(79,157		)	—
Expenditures for operating properties	(40,218		)	(28,230		)
Expenditures for development and redevelopment properties and undeveloped land	(26,084		)	(12,347		)
Net proceeds received from dispositions of operating properties (Note 14)	143,161			—
Insurance proceeds received for property damage	951			—
Increase in acquisition-related deposits	(28,250		)	(16,500		)
Decrease in restricted cash	261			112
Net cash used in investing activities	(301,592		)	(435,519		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Series G preferred units (Note 8)	96,155			—
Redemption of Series E and Series F preferred units (Note 8)	(126,500		)	—
Net proceeds from issuance of common units (Note 8)	408,475			221,015
Borrowings on unsecured line of credit	253,000			302,000
Repayments on unsecured line of credit	(333,000		)	(216,000		)
Proceeds from issuance of secured debt	97,000			135,000
Principal payments on secured debt	(103,254		)	(3,403		)
Proceeds from the issuance of unsecured debt (Note 5)	150,000			—
Repayments of exchangeable senior notes (Note 5)	(148,000		)	—
Financing costs	(3,644		)	(5,201		)
Decrease in loan deposits	—			2,027
Repurchase/redemption of common units and restricted stock units (Note 9)	(603		)	(732		)
Proceeds from exercise of stock options	129			395
Distributions paid to common unitholders	(45,713		)	(37,877		)
Distributions paid to preferred unitholders	(7,752		)	(7,598		)
Net cash provided by financing activities	236,293			389,626
Net increase in cash and cash equivalents	13,334			10,572
Cash and cash equivalents, beginning of period	4,777			14,840
Cash and cash equivalents, end of period	$	18,111		$	25,412

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)

(unaudited, in thousands)



	Six Months Ended June 30,
	2012		2011
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $7,021 and $3,327 as of June 30, 2012 and 2011, respectively	$	36,935	$	34,568
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	13,062	$	9,966
Tenant improvements funded directly by tenants to third parties	$	9,838	$	3,027
Assumption of secured debt with property acquisitions (Notes 2 and 5)	$	35,690	$	30,042
Assumption of other assets and liabilities with operating and development property acquisitions, net (Note 2)	$	4,940	$	4,438
NONCASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders	$	24,726	$	21,064
Accrual of distributions payable to preferred unitholders	$	1,577	$	1,909
Issuance of share-based compensation awards, net (Note 9)	$	30,762	$	7,216

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2012 and 2011

(unaudited)

1. Organization and Basis of Presentation

Organization

Kilroy Realty Corporation (the "Company") is a self-administered real estate investment trust ("REIT") active in office and industrial submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego, greater Seattle, and the San Francisco Bay Area, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). The Company's common stock is publicly traded on the New York Stock Exchange ("NYSE") under the ticker symbol "KRC."

We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the "Operating Partnership") and Kilroy Realty Finance Partnership, L.P. (the "Finance Partnership"). We conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicates otherwise, the terms "Kilroy Realty Corporation" or the "Company," "we," "our," and "us" refer to Kilroy Realty Corporation and its consolidated subsidiaries and the term "Operating Partnership" refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees, and properties apply to both the Company and the Operating Partnership.

The following table of office buildings (the "Office Properties") and industrial buildings (the "Industrial Properties") summarizes our stabilized portfolio of operating properties as of June 30, 2012 . As of June 30, 2012 , all of our properties are owned and all of our business is currently conducted in the state of California with the exception of nine office properties located in the state of Washington.



	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage Occupied
Office Properties ⁽¹⁾	114	12,227,267	457	89.3	%
Industrial Properties	39	3,413,354	59	92.5	%
Total Stabilized Portfolio	153	15,640,621	516	90.0	%

________________________


(1)	Includes ten office properties acquired in three transactions during the six months ended June 30, 2012 encompassing 794,126 rentable square feet (see Note 2 for additional information).

Our stabilized portfolio excludes undeveloped land, development and redevelopment properties currently under construction or committed for construction, "lease-up" properties and properties "held-for-sale". As of June 30, 2012 , we had one office development property under construction which is expected to encompass approximately 341,000 rentable square feet upon completion, and four office redevelopment properties under construction encompassing approximately 918,000 rentable square feet. We define "lease-up" properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. We had no "lease-up" properties and no held-for-sale properties as of June 30, 2012 .

As of June 30, 2012 , the Company owned a 97.6% general partnership interest in the Operating Partnership. The remaining 2.4% common limited partnership interest in the Operating Partnership as of June 30, 2012 was owned by non-affiliated investors and certain of our directors and executive officers (see Note 6). Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. The number of common units held by the Company is at all times equivalent to the number of outstanding shares of the Company's common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company's common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership's Sixth Amended and Restated Agreement of Limited Partnership (as amended, the "Partnership Agreement") (see Note 6).

Kilroy Realty Finance, Inc., our wholly-owned subsidiary, is the sole general partner of the Finance Partnership and owns a 1.0% general partnership interest. The Operating Partnership owns the remaining 99.0% limited partnership interest. Kilroy Services, LLC ("KSLLC"), which is a wholly-owned subsidiary of the Operating Partnership, is the entity through which we conduct substantially all of our development activities. With the exception of the Operating Partnership, all of our subsidiaries, which include Kilroy Realty TRS, Inc., Kilroy Realty Management, L.P., Kilroy RB, LLC, Kilroy RB II, LLC, Kilroy Realty Northside Drive, LLC, Kilroy Realty 303, LLC, Fremont Lake Union Center, LLC, KR 690 Middlefield, LLC and KR MML 12701, LLC are wholly-owned.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC, and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

As of June 30, 2012 the consolidated financial statements of the Company and the Operating Partnership also included two variable interest entities ("VIE") in which we are deemed to be the primary beneficiary. During the six months ended June 30, 2012, eight office buildings were acquired in two transactions and transferred to two special purpose VIEs to facilitate potential like−kind exchanges pursuant to Section 1031 of the Code to defer taxable gains on sales for federal and state income tax purposes ("Section 1031 Exchange"). The Company is obligated to complete the Section 1031 Exchanges, if any, and take title to the properties within 180 days of the acquisition dates (see Note 2). The VIEs will be terminated upon the completion of the Section 1031 Exchanges. The impact of consolidating the VIEs increased the Company's total assets and liabilities by approximately $212.1 million and $12.7 million , respectively, at June 30, 2012. As of December 31, 2011, the consolidated financial statements of the Company and the Operating Partnership included one VIE of which we were deemed to be the primary beneficiary, which was established in September 2011 to facilitate a Section 1031 Exchange. The impact of consolidating this VIE increased the Company's total assets and liabilities by approximately $108.5 million and $7.3 million , respectively, at December 31, 2011 . This Section 1031 Exchange was completed in January 2012 and this entity was no longer a VIE at June 30, 2012.

The accompanying interim financial statements have been prepared by 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 that 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, 2012. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2011 .

Change in Statements of Cash Flows Presentation

Certain prior period amounts in the consolidated statements of cash flows of the Company and the Operating Partnership have been reclassified to conform to the current period presentation. We reclassified cash flow changes from "Marketable securities," "Current receivables," "Other deferred leasing costs" and "Prepaid expenses and other assets" into "Net change in other operating assets" for all periods presented. We also reclassified cash flow changes from "Accounts payable, accrued expenses and other liabilities," "Deferred revenue" and "Rents received in advance and tenant security deposits" into "Net change in other operating liabilities" for all periods presented. Each category change had previously been presented separately.

Recent Accounting Pronouncements

Effective January 1, 2012, we adopted the provisions of ASU No. 2011-04, Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"), which amended ASC Topic 820, Fair Value Measurement. The objective of this guidance is to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards. The guidance also requires expanded fair value disclosures related to Level 3 financial instruments and Level 3 financial instrument transfers. The guidance does not require any new fair value measurements. The adoption of this guidance did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. Acquisitions

Operating Properties

During the six months ended June 30, 2012 , we acquired the ten operating office properties listed below from unrelated third parties. Unless otherwise noted, we funded these acquisitions with proceeds from the Company's public offering of common stock in February 2012 (see Note 7), borrowings under the unsecured line of credit (see Note 5), and disposition proceeds (see Note 14).



Property	Date of Acquisition	Number of Buildings	Rentable Square Feet	Occupancy as of June 30, 2012	Purchase Price (in millions) ⁽¹⁾
4100-4700 Bohannon Drive
Menlo Park, CA ⁽²⁾	February 29, 2012	7	374,139	77.0%	$	162.5
701 and 801 N. 34th Street
Seattle, WA ⁽³⁾	June 1, 2012	2	308,407	99.4%	105.4
837 N. 34th Street
Seattle, WA ⁽²⁾	June 1, 2012	1	111,580	100.0%	39.2
Total		10	794,126		$	307.1

________________________


(1)	Excludes acquisition-related costs and includes assumed unpaid leasing commissions, tenant improvements, and other property related liabilities.


(2)	As of June 30, 2012, these properties are temporarily being held in separate VIEs to facilitate potential Section 1031 Exchanges (see Note 1).

(3)

We acquired these properties through the acquisition of the ownership interest of the bankruptcy remote LLC that owns the properties. In connection with this acquisition we also acquired cash of approximately $4.0 million , other assets of approximately $0.2 million and we assumed current liabilities of approximately $0.6 million and secured debt with an outstanding principal balance of $34.0 million and a premium of $1.7 million as a result of recording the debt at fair value at the acquisition date (see Note 5.)

The related assets, liabilities, and results of operations of the acquired properties are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:



	4100-4700 Bohannon Drive, Menlo Park, CA ⁽¹⁾		All Other Acquisitions ⁽²⁾		Total
	(in thousands)
Assets
Land and improvements ⁽³⁾	$	38,810	$	—	$	38,810
Buildings and improvements ⁽⁴⁾	124,617		143,968		268,585
Cash and cash equivalents	—		3,973		3,973
Deferred leasing costs and acquisition-related intangible assets ⁽⁵⁾	9,470		15,980		25,450
Prepaid expenses and other assets	—		184		184
Total assets acquired	172,897		164,105		337,002

Liabilities
Deferred revenue and acquisition-related intangible liabilities ⁽⁶⁾	10,380		13,650		24,030
Secured debt ⁽⁷⁾	—		35,690		35,690
Accounts payable, accrued expenses and other liabilities	137		554		691
Total liabilities assumed	10,517		49,894		60,411
Net assets and liabilities acquired ⁽⁸⁾	$	162,380	$	114,211	$	276,591

________________________


(1)	The purchase of 4100-4700 Bohannon Drive, Menlo Park, CA, represents the largest acquisition and approximately 53% of the total aggregate purchase price of the operating properties acquired during the six months ended June 30, 2012.


(2)	The purchase price of all other acquisitions completed during the six months ended June 30, 2012 were individually less than 5% and in aggregate less than 10% of the Company's total assets as of December 31, 2011.


(3)	In connection with the acquisitions of 701, 801, and 837 N. 34th Street, Lake Union, WA, we assumed the lessee obligations under a ground lease with an initial expiration in December 2041. The ground lease obligation contains three 10 -year extension options and one 45 -year extension option (see Note 11 for additional information pertaining to this ground lease).


(4)	Represents buildings, building improvements and tenant improvements.

(5)

Represents in-place leases (approximately $17.3 million with a weighted average amortization period of 6.1 years ), above-market leases (approximately $0.1 million with a weighted average amortization period of 2.7 years ), leasing commissions (approximately $7.5 million with a weighted average amortization period of 3.9 years ), and a below-market ground lease obligation (approximately $0.5 million with a weighted average amortization period of 59.6 years ).


(6)	Represents below-market leases (approximately $22.9 million with a weighted average amortization period of 7.2 years ) and an above-market ground lease obligation (approximately $1.1 million with a weighted average amortization period of 29.6 years ).


(7)	Represents the fair value of the mortgage loan assumed, which includes an unamortized premium of approximately $1.7 million at the date of acquisition (see Note 5).


(8)	Reflects the purchase price plus cash received, net of assumed secured debt and other lease-related obligations.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Development Projects

On May 9, 2012 the Company acquired a 100% pre-leased development opportunity at 690 E. Middlefield Road in Mountain View, California, from an unaffiliated third party, for a total purchase price of $84.0 million , which was comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other net accrued liabilities. The development project is expected to comprise two office buildings totaling approximately 341,000 square-feet office campus upon completion, and is 100% pre-leased to a single tenant. The related assets and liabilities of the acquired project are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:



	Total
	(in thousands)
Assets
Undeveloped land and construction in progress	$	84,014
Prepaid expenses and other assets	1,300
Total assets acquired	85,314

Liabilities
Accounts payable, accrued expenses and other liabilities	6,157
Total liabilities assumed	6,157
Net assets and liabilities acquired	$	79,157

3. Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net

The following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-market ground lease obligation) as of June 30, 2012 and December 31, 2011 :

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	June 30, 2012			December 31, 2011
	(in thousands)
Deferred Leasing Costs and Acquisition-related Intangible Assets, net ⁽¹⁾ :
Deferred leasing costs	$	149,603		$	142,652
Accumulated amortization	(53,642		)	(52,974		)
Deferred leasing costs, net	95,961			89,678
Above-market operating leases	26,677			28,143
Accumulated amortization	(9,232		)	(8,101		)
Above-market operating leases, net	17,445			20,042
In-place leases	74,915			61,355
Accumulated amortization	(20,422		)	(15,753		)
In-place leases, net	54,493			45,602
Below-market ground lease obligation	690			200
Accumulated amortization	(101		)	—
Below-market ground lease obligation, net	589			200
Total deferred leasing costs and acquisition-related intangible assets, net	$	168,488		$	155,522
Acquisition-related Intangible Liabilities, net ⁽¹⁾⁽²⁾ :
Below-market operating leases	$	59,496		$	37,582
Accumulated amortization	(10,497		)	(6,158		)
Below-market operating leases, net	48,999			31,424
Above-market ground lease obligation	6,320			5,200
Accumulated amortization	(71		)	(37		)
Above-market ground lease obligation, net	6,249			5,163
Total acquisition-related intangible liabilities, net	$	55,248		$	36,587

________________________


(1)	Balances and accumulated amortization amounts at June 30, 2012 reflect the write-off of the following fully amortized amounts at January 1, 2012: deferred leasing costs (approximately $9.5 million ), above-market leases (approximately $1.6 million ), in-place leases (approximately $3.7 million ), and below-market leases (approximately $1.0 million ).


(2)	Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands)						(in thousands)
Deferred leasing costs ⁽¹⁾	$	5,293		$	3,970		$	9,791		$	7,738
Above-market operating leases ⁽²⁾	1,375			972			2,746			1,625
In-place leases ⁽¹⁾	4,598			2,686			8,379			4,859
Below-market ground lease obligation ⁽³⁾	51			—			101			—
Below-market operating leases ⁽⁴⁾	(3,439		)	(227		)	(5,335		)	(227		)
Above-market ground lease obligation ⁽⁵⁾	(19		)	(5		)	(35		)	(5		)
Total	$	7,859		$	7,396		$	15,647		$	13,990

_________________________


(1)	The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented.


(2)	The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.


(3)	The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented.


(4)	The amortization of below−market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.


(5)	The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition−related intangibles as of June 30, 2012 for future periods:



Year Ending	Deferred Leasing Costs		Above-Market Operating Leases ⁽¹⁾		In-Place Leases		Below-Market Ground Lease Obligation ⁽²⁾		Below-Market Operating Leases ⁽³⁾			Above-Market Ground Lease Obligation ⁽⁴⁾
	(in thousands)
Remaining 2012	$	10,528	$	2,729	$	8,486	$	104	$	(5,550	)	$	(50	)
2013	19,115		4,908		14,394		8		(10,178		)	(101		)
2014	17,005		4,015		11,314		8		(9,563		)	(101		)
2015	13,436		2,387		7,353		8		(7,427		)	(101		)
2016	10,915		1,412		4,636		8		(5,399		)	(101		)
Thereafter	24,962		1,994		8,310		453		(10,882		)	(5,795		)
Total	$	95,961	$	17,445	$	54,493	$	589	$	(48,999	)	$	(6,249	)

_______________________


(1)	Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.


(2)	Represents estimated annual amortization related to below−market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.


(3)	Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.


(4)	Represents estimated annual amortization related to above−market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Receivables

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of June 30, 2012 and December 31, 2011 :



	June 30, 2012			December 31, 2011
	(in thousands)
Current receivables	$	10,207		$	10,985
Allowance for uncollectible tenant receivables	(2,564		)	(2,590		)
Current receivables, net	$	7,643		$	8,395

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of June 30, 2012 and December 31, 2011 :



	June 30, 2012			December 31, 2011
	(in thousands)
Deferred rent receivables	$	113,537		$	104,548
Allowance for deferred rent receivables	(2,848		)	(3,406		)
Deferred rent receivables, net	$	110,689		$	101,142

5. Secured and Unsecured Debt of the Operating Partnership

Secured Debt

In May 2012, the Operating Partnership repaid two secured mortgage loans with a combined outstanding principal balance of $101.0 million that were scheduled to mature in August 2012 .

In June 2012, in connection with the acquisition of two office buildings in Lake Union, Washington, the Operating Partnership assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $34.0 million at the acquisition date and is scheduled to mature on August 7, 2015 . The loan bears contractual interest at an annual rate of 5.09% and requires monthly interest only payments. This mortgage loan was recorded at fair value on the date of the acquisition resulting in a premium of approximately $1.7 million . This premium will be accreted on a straight-line basis, which approximates the effective interest method, as a reduction to interest expense from the acquisition date through the maturity date of the mortgage loan. This will result in interest being recorded at an effective interest rate of 3.50% for financial reporting purposes. The mortgage loan and the two office buildings that secure the mortgage loan are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

In June 2012, the Operating Partnership obtained a $97.0 million mortgage loan that bears interest at an annual rate of 4.48% and matures on July 1, 2027 . The loan is secured by office properties located at 2211 Michelson in Irvine, California and 2100 and 2110 Colorado Avenue in Santa Monica, California and requires monthly principal and interest payments based on a 30-year amortization period with an initial three years of interest only payments. The secured debt and the three properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

Although both new mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments, and environmental liabilities.

Exchangeable Senior Notes

The table below summarizes the balance and significant terms of the Company's 3.25% Exchangeable Notes due April 2012 (the "3.25% Exchangeable Notes") and 4.25% Exchangeable Notes due November 2014 (the "4.25% Exchangeable Notes" and together with the 3.25% Exchangeable Notes, the "Exchangeable Notes") outstanding as of June 30, 2012 and December 31, 2011 . The Company repaid the 3.25% Exchangeable Notes in April 2012 upon maturity.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	3.25% Exchangeable Notes					4.25% Exchangeable Notes
	June 30, 2012		December 31, 2011			June 30, 2012			December 31, 2011
	(in thousands)
Principal amount	$	—	$	148,000		$	172,500		$	172,500
Unamortized discount	—		(924		)	(10,656		)	(12,684		)
Net carrying amount of liability component	$	—	$	147,076		$	161,844		$	159,816
Carrying amount of equity component			$33,675			$19,835
Maturity date			April 2012			November 2014
Stated coupon rate ⁽¹⁾			3.25%			4.25%
Effective interest rate ⁽²⁾			5.45%			7.13%
Exchange rate per $1,000 principal value of the Exchangeable Notes, as adjusted ⁽³⁾						27.8307
Exchange price, as adjusted ⁽³⁾						$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined ⁽³⁾						4,800,796

_____________________


(1)	Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15 ^th and November 15 ^th of each year.


(2)	The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.


(3)	The exchange rate, exchange price, and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.

Capped Call Transactions

In connection with the offerings of the Exchangeable Notes, we entered into capped call option transactions ("capped calls") to mitigate the dilutive impact of the potential conversion of the Exchangeable Notes. The capped calls for the 3.25% Exchangeable Notes, which referenced a total of 1,121,201 shares of common stock with an exchange price of $102.72 at December 31, 2011, were terminated when the 3.25% Exchangeable Notes were repaid in April 2012. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of both June 30, 2012 and December 31, 2011 .



	4.25% Exchangeable Notes ⁽¹⁾
Referenced shares of common stock	4,800,796
Exchange price including effect of capped calls	$	42.81

________________________


(1)	The capped calls mitigate the dilutive impact to us of the potential exchange of all of the 4.25% Exchangeable Notes into shares of common stock.

For the three and six months ended June 30, 2012 and 2011, the per share average trading price of the Company's common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below:



	Three Months Ended June 30,		Six Months Ended June 30,
	2012	2011	2012	2011
Per share average trading price of the Company's common stock	$46.75	$39.90	$44.82	$38.94

As a result, even though the 4.25% Exchangeable Notes were not convertible during the three and six months ended June 30, 2012 , if they were convertible, the approximate fair value of the shares upon conversion at these dates would have been equal to approximately $226.3 million and $218.6 million , respectively, which would have exceeded the $172.5 million principal amount of the 4.25% Exchangeable Notes by approximately $53.8 million and $46.1 million , respectively. Similarly, even though the 4.25% Exchangeable Notes were not convertible during the three and six months ended June 30, 2011, if they were convertible, the approximate fair value of the shares upon conversion at these dates would have been equal to approximately $191.4 million and $187.1 million , respectively, which would have exceeded the $172.5 million principal amount of the 4.25% Exchangeable Notes by approximately $18.9 million and $14.6 million , respectively. The average trading price of the Company's common stock on the NYSE for the three months ended March 31, 2012 and the three and six months ended June 30, 2011 was below the exchange price of the 3.25% Exchangeable Notes. See Notes 15 and 16 for a discussion of the impact of the Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest Expense for the Exchangeable Notes

The unamortized discount on the Exchangeable Notes is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the Exchangeable Notes based on the effective interest rates set forth above, before the effect of capitalized interest, for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in thousands)
Contractual interest payments	$	2,020	$	3,035	$	5,055	$	6,070
Amortization of discount	1,155		1,722		2,952		3,410
Interest expense attributable to the Exchangeable Notes	$	3,175	$	4,757	$	8,007	$	9,480

Unsecured Term Loan Facility

In March 2012, the Operating Partnership entered into a new $150.0 million unsecured term loan (the "Unsecured Term Loan Facility"), which is included in unsecured debt, net on our consolidated balance sheets. The Unsecured Term Loan Facility bears interest at an annual rate of LIBOR plus 1.750% , which can vary depending on the Operating Partnership's credit rating, and is scheduled to mature on March 29, 2016 . Under the terms of the Unsecured Term Loan Facility, we may exercise an option to extend the maturity date by one year. We may elect to borrow up to an additional $100.0 million under an accordion option, subject to bank approval. We used the borrowings under the Unsecured Term Loan Facility to repay the 3.25% Exchangeable Notes in April 2012 upon maturity.

Unsecured Line of Credit

The following table summarizes the balance and terms of our unsecured line of credit (the "Credit Facility") as of June 30, 2012 and December 31, 2011 , respectively:



	June 30, 2012			December 31, 2011
	(in thousands)
Outstanding borrowings	$	102,000		$	182,000
Remaining borrowing capacity	398,000			318,000
Total borrowing capacity ⁽¹⁾	$	500,000		$	500,000
Interest rate ⁽²⁾	2.00		%	2.05		%
Facility fee-annual rate ⁽³⁾	0.350%
Maturity date ⁽⁴⁾	August 2015

________________________


(1)	We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the Credit Facility.


(2)	The Credit Facility interest rate was calculated based on an annual rate of LIBOR plus 1.750% as of both June 30, 2012 and December 31, 2011 .


(3)	The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we also incurred origination and legal costs of approximately $8.3 million that are currently being amortized through the maturity date of the Credit Facility.


(4)	Under the terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.

The Company intends to borrow amounts under the Credit Facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures, and to potentially repay long-term debt. In March 2012, we amended the Credit Facility to reduce the FMV Cap Rate (as defined in the Credit Facility agreement), which is used to calculate the fair value of our assets for certain covenants under the Credit Facility, from 7.50% to 6.75% . There were no other changes to the terms of the Credit Facility in connection with this amendment.

Debt Covenants and Restrictions

The Credit Facility, the Unsecured Term Loan Facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. 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. We believe we were in compliance with all of our debt covenants as of June 30, 2012 .

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of June 30, 2012 :



Year Ending	(in thousands)
Remaining 2012	$	2,051
2013	6,373
2014	262,443
2015	494,028
2016	158,151
Thereafter	863,230
Total	$	1,786,276	⁽¹⁾

________________________


(1)	Includes gross principal balance of outstanding debt before impact of all debt discounts and premiums.

Capitalized Interest and Loan Fees

The following table sets forth our gross interest expense, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and six months ended June 30, 2012 and 2011 . The capitalized amounts are a cost of development and redevelopment, and increase the carrying value of undeveloped land and construction in progress.



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands)
Gross interest expense	$	23,489		$	23,293		$	48,483		$	46,148
Capitalized interest	(4,334		)	(2,065		)	(8,165		)	(4,044		)
Interest expense	$	19,155		$	21,228		$	40,318		$	42,104

6. Noncontrolling Interests on the Company's Consolidated Financial Statements

7.45% Series A Cumulative Redeemable Preferred Units of the Operating Partnership

As of both June 30, 2012 and December 31, 2011 , the Operating Partnership had outstanding 1,500,000 7.45% Series A Cumulative Redeemable Preferred Units representing preferred limited partnership interests in the Operating Partnership with a redemption value of $50.00 per unit. There were no changes to this noncontrolling interest during the three and six months ended June 30, 2012 and 2011 .

Common Units of the Operating Partnership

The Company owned a 97.6% , 97.2% and 97.1% common general partnership interest in the Operating Partnership as of June 30, 2012 , December 31, 2011 , and June 30, 2011 , respectively. The remaining 2.4% , 2.8% and 2.9% common limited partnership interest as of June 30, 2012 , December 31, 2011 and June 30, 2011 , respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,718,131 common units outstanding held by these investors, executive officers and directors as of June 30, 2012 , December 31, 2011 and June 30, 2011 .

The noncontrolling common units may be redeemed by unitholders for cash. We, at our option, may satisfy the cash redemption obligation with shares of the Company's common stock on a one-for-one basis. Whether satisfied in cash or shares of the Company's common stock, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company's common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable balance sheet date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $81.2 million and $64.7 million as of June 30, 2012 and December 31, 2011 , respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company's common stock.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Preferred and Common Stock of the Company

Redemption of 7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred Stock

On April 16, 2012 (the "Redemption Date"), the Company redeemed all 1,610,000 outstanding shares of its 7.80% Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock") and all 3,450,000 outstanding shares of its 7.50% Series F Cumulative Redeemable Preferred Stock ("Series F Preferred Stock"). On the Redemption Date, the shares of Series E and Series F Preferred Stock (together, the “Redeemed Preferred Stock”) were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $126.5 million in aggregate, plus all accrued and unpaid dividends to the Redemption Date.

During the six months ended June 30, 2012, we recognized a non-recurring non-cash charge of $4.9 million as a reduction to net income available to common stockholders for the original issuance costs related to the Redeemed Preferred Stock.

Issuance of 6.875% Series G Cumulative Redeemable Preferred Stock

In March 2012, the Company issued 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("Series G Preferred Stock") at a public offering price of $25.00 per share, for a total of approximately $96.2 million of net proceeds, after deducting the underwriting discount and other accrued offering-related costs. Dividends on the Series G Preferred Stock are cumulative and are payable quarterly in arrears on the 15th day of each February, May, August and November, commencing May 15, 2012. The Series G Preferred Stock is presented in stockholders' equity on the consolidated balance sheet net of issuance costs.

The outstanding shares of Series G Preferred Stock do not have a stated maturity date and are not subject to any sinking fund or mandatory redemption. Holders of the Series G Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly dividend periods (whether or not consecutive). The Company may not redeem the Series G Preferred Stock prior to March 27, 2017, except in limited circumstances relating to the Company’s continuing qualification as a REIT and upon certain specified change in control transactions in which the Company’s common shares and the acquiring or surviving entity common securities would not be listed on the NYSE, NYSE Amex or NASDAQ, or any successor exchanges. On or after March 27, 2017, the Company may, at its option, redeem the Series G Preferred Stock, in whole or in part at any time or from time to time, by payment of $25.00 per share in cash, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a specified change of control transaction, the Company may, at its option, redeem the Series G Preferred Stock in whole or in part within 120 days after the change of control occurred, by paying $25.00 per share in cash, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Series G Preferred Stock upon the occurrence of a specified change of control transaction, the holders of Series G Preferred Stock have the right to convert some or all of their shares into a number of the Company’s common shares based on a pre-determined formula subject to a maximum share cap of 4,390,000 common shares.

Issuance of Common Stock

In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and commissions and offering expenses, were approximately $382.1 million . We used a portion of the net proceeds from the offering to fund acquisitions and for general corporate purposes.

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in July 2011, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $200.0 million from time to time in "at the market" offerings. During the three months ended June 30, 2012 , we sold 575,689 shares of common stock under this program in exchange for aggregate gross proceeds of approximately $27.0 million and net proceeds of approximately $26.5 million , after underwriting discounts and commissions. The proceeds from the sales were used to fund acquisitions and general corporate purposes including repayment of borrowings under the Credit Facility. We did not sell any shares during the first quarter 2012. Since commencement of the program, we have sold 930,994 shares of common stock and, as of June 30, 2012 , approximately $160.0 million remains available to be sold under this program. Actual future sales will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Preferred and Common Units of the Operating Partnership

Issuance of 6.875% Series G Cumulative Redeemable Preferred Units

In March 2012, the Company issued 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("Series G Preferred Stock") as discussed in Note 7. The net proceeds of approximately $96.2 million were contributed by the Company to the Operating Partnership in exchange for 4,000,000 Series G Preferred Units. The Company is the sole holder of the Series G Preferred Units. The terms of the Series G Preferred Units are substantially similar to the terms of the Series G Preferred Stock discussed in Note 7. Distributions on the Series G Preferred Units are paid to the Company.

Redemption of 7.80% Series E and 7.50% Series F Cumulative Redeemable Preferred Units

On April 16, 2012 (the "Redemption Date"), the Company redeemed all 1,610,000 outstanding shares of its Series E Preferred Stock and all 3,450,000 outstanding shares of its Series F Preferred Stock as discussed in Note 7. For each share of Series E and Series F Preferred Stock that was outstanding, the Company had an equivalent number of 7.80% Series E Cumulative Redeemable Preferred Units ("Series E Preferred Units") and 7.50% Series F Cumulative Redeemable Preferred Units ("Series F Preferred Units") that was outstanding with substantially similar terms as the Series E and Series F Preferred Stock. In connection with the redemption of the Series E and Series F Preferred Stock, the Series E and Series F Preferred Units held by the Company were redeemed by the Operating Partnership.

Issuance of Common Units

In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock as discussed in Note 7. The net offering proceeds of approximately $382.1 million were contributed by the Company to the Operating Partnership in exchange for 9,487,500 common units.

In the second quarter of 2012, the Company utilized its at-the-market stock offering program to issue an aggregate of 575,689 shares of common stock as discussed in Note 7. The net offering proceeds of approximately $26.5 million were contributed by the Company to the Operating Partnership in exchange for 575,689 common units.

Common Units Outstanding

The Company owned 68,927,731 , 58,819,717 , and 58,464,412 common units representing a 97.6% , 97.2% , and 97.1% common general partnership interest in the Operating Partnership as of June 30, 2012 , December 31, 2011 , and June 30, 2011 , respectively. The remaining 2.4% , 2.8% , and 2.9% common limited partnership interest as of June 30, 2012 , December 31, 2011 , and June 30, 2011 , respectively, was owned by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,718,131 common units outstanding held by these investors, officers and directors as of June 30, 2012 , December 31, 2011 , and June 30, 2011 . For a further discussion of the noncontrolling common units as of June 30, 2012 and December 31, 2011 , please refer to Note 6.

9. Share-Based Compensation

Stockholder Approved Equity Compensation Plans

As of June 30, 2012 , we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan as amended (the “2006 Plan”). As of June 30, 2012 , 650,648 shares were available for grant under the 2006 Plan. The number of shares that remains available for grant is calculated using the weighted share counting provisions set forth in the 2006 Plan, which are based on the type of awards that are granted. The maximum number of shares available for grant subject to full value awards (which generally include equity awards other than options and stock appreciation rights) was 222,824 shares as of June 30, 2012 .

On March 30, 2012, the Executive Compensation Committee of the Company's Board of Directors granted 206,477 restricted stock units ("RSUs") to the Company's Chief Executive Officer. Fifty-percent of the RSUs granted will vest in seven equal annual installments beginning on December 31, 2012 through December 31, 2018, subject to continued employment through the applicable vesting date. The grant date fair value of these time-based RSUs was $4.8 million , which was based on the $46.61 closing share price of the Company's common stock on the New York Stock Exchange on the grant date. Compensation expense will be recognized on a straight-line basis over the service vesting period for these time-based RSUs. The remaining fifty-percent of the RSUs granted will vest in seven equal annual installments beginning on December 31, 2012 through December 31, 2018, subject to the achievement of certain absolute and relative total shareholder return goals measured annually and, in the case of the absolute goals, cumulatively over the performance period, as well as continued employment through the applicable vesting date. The grant date fair value of these market measure-based RSUs was $4.3 million and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The grant date fair value is allocated among each of the seven annual vesting tranches for these market measure-based RSUs and compensation expense will be recognized over the service vesting period using the accelerated expense attribution method.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	March 2012 Market Measure-based RSU Grant
Grant date fair value per share	$41.20
Expected share price volatility	31.00%
Risk-free interest rate	1.60%
Dividend yield	3.80%
Expected life	7 years

The computation of expected volatility is based on a blend of the historical volatility of our common shares over 14 years as that is expected to be most consistent with future volatility and equates to a time period twice as long as the seven-year term of the RSUs and implied volatility data based on the observed pricing of six-month publicly traded options on our common shares. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at the grant date. The expected dividend yield is estimated by examining the average of the historical dividend yield levels over the seven-year term of the RSUs and our current annualized dividend yield as of the grant date. The expected life of the RSUs is equal to the seven-year vesting period.

Summary of Time-Based RSUs

A summary of our time-based RSU activity from January 1, 2012 through June 30, 2012 is presented below:



	Nonvested RSUs				Vested RSUs		Total RSUs
	Amount		Weighted-Average Grant Date Fair Value Per Share		Vested RSUs		Total RSUs
Outstanding at January 1, 2012	147,961		$	32.18	694,714		842,675
Granted ⁽¹⁾	204,829		44.34		—		204,829
Vested	(58,940	)	36.80		58,940		—
Issuance of dividend equivalents ⁽²⁾					14,546		14,546
Canceled ⁽³⁾					(4,221	)	(4,221	)
Outstanding as of June 30, 2012	293,850		$	41.57	763,979		1,057,829

________________________


(1)	Includes 103,239 RSUs issued to the Company's Chief Executive Officer, as described above.


(2)	RSUs issued as dividend equivalents are vested upon issuance.


(3)	We accept the return of RSUs, at the current quoted closing share price of the Company's common stock, to satisfy minimum statutory tax-withholding requirements related to either RSUs that have vested or RSU dividend equivalents in accordance with the terms of the 2006 Plan.

A summary of our time-based RSU activity for the six months ended June 30, 2012 and 2011 is presented below:



	RSUs Granted			RSUs Vested
Six Months Ended June 30,	Non-Vested RSUs Issued	Weighted-Average Grant Date Fair Value Per Share		Vested RSUs		Total Vest-Date Fair Value ⁽¹⁾ (in thousands)
2012	204,829	$	44.34	(58,940	)	$	2,420
2011	107,673	37.94		(23,035	)	897

_______________________


(1)	Total fair value of RSUs vested was calculated based on the quoted closing share price of the Company's common stock on the NYSE on the day of vesting.

Summary of Nonvested Shares

A summary of our nonvested shares activity from January 1, 2012 through June 30, 2012 is presented below:



Nonvested Shares	Shares		Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2012	83,966		$	39.83
Granted	62,137		41.84
Vested ⁽¹⁾	(35,623	)	37.90
Outstanding as of June 30, 2012	110,480		$	41.64

________________________


(1)	The total shares vested include 22,312 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested. We accept the return of shares at the current quoted closing share price of the Company's common stock to satisfy tax obligations.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of our nonvested and vested share activity for the six months ended June 30, 2012 and 2011 is presented below:



	Shares Granted			Shares Vested
Six Months Ended June 30,	Non-Vested Shares Issued	Weighted-Average Grant Date Fair Value Per Share		Vested Shares		Total Fair Value at Vest Date ⁽¹⁾ (in thousands)
2012	62,137	$	41.84	(35,623	)	$	1,388
2011	68,727	37.83		(9,474	)	370

_______________________


(1)	Total fair value of shares vested was calculated based on the quoted closing share price of the Company's common stock on the NYSE on the date of vesting.

Summary of Stock Options

On February 22, 2012, the Executive Compensation Committee of the Company granted non-qualified stock options to certain key members of our senior management team, including our executive officers, to purchase an aggregate 1,550,000 shares of the Company's common stock at an exercise price per share equal to $42.61 , the closing price of the Company's common stock on the grant date. The options will vest ratably in annual installments over a five-year period, subject to continued employment through the applicable vesting date. The term of each option is ten years from the date of the grant. Dividends will not be paid on vested or unvested options. The options were granted pursuant to the 2006 Plan.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions for the February 2012 grant.



	February 2012 Option Grant
Fair value of options granted per share	$9.20
Expected stock price volatility	33.00%
Risk-free interest rate	1.35%
Dividend yield	3.80%
Expected life of option	6.5 years

The computation of expected volatility is based on a blend of the historical volatility of our common shares over a time period longer than the expected life of the option and implied volatility data based on the observed pricing of six-month publicly traded options on our common shares. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at the grant date. The expected dividend yield is estimated by examining the average of the historical dividend yield levels over the expected life of the option and the current dividend yield as of the grant date. The expected life of the options is calculated as the average of the vesting term and the contractual term.

A summary of our stock option activity from January 1, 2012 through June 30, 2012 is presented below:



	Number of Options		Exercise Price	Remaining Contractual Term (years)
Outstanding at January 1, 2012 ⁽¹⁾	5,000		$25.77
Granted	1,550,000		42.61
Exercised	(5,000	)	25.77
Forfeited	(10,000	)	42.61
Outstanding at June 30, 2012 ⁽²⁾⁽³⁾	1,540,000		$42.61	9.7

________________________


(1)	Stock options outstanding as of December 31, 2011 were granted in 2002 and exercised in 2012 prior to expiration. No stock options were granted during 2003 through 2011.


(2)	As of June 30, 2012, none of the outstanding stock options were exercisable.


(3)	The total intrinsic value of options outstanding at June 30, 2012 was $8.9 million .

Share-based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $2.4 million and $1.4 million for the three months ended June 30, 2012 and 2011 , respectively, and $3.8 million and $2.8 million for the six months ended June 30, 2012 and 2011 , respectively. Of the total share-based compensation cost, $0.2 million and $0.3 million was capitalized as part of real estate assets for the three months ended June 30, 2012 and 2011 , respectively, and $0.4 million and $0.6 million was capitalized as part of real estate assets for the six months ended June 30, 2012 and 2011 , respectively. As of June 30, 2012 , there was approximately $30.6 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that is expected to be recognized over a weighted-average period of 2.7 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to June 30, 2012 .

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Future Minimum Rent

We have operating leases with tenants that expire at various dates through 2027 and are either subject to scheduled fixed increases or adjustments in rent based on the Consumer Price Index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future contractual minimum rent under operating leases as of June 30, 2012 for future periods is summarized as follows:



Year Ending	(in thousands)
Remaining 2012	$	176,516
2013	355,682
2014	328,315
2015	283,224
2016	247,101
Thereafter	741,997
Total	$	2,132,835

11. Commitments and Contingencies

Non-refundable Escrow Deposits

As of June 30, 2012 , we had $30.0 million in non-refundable escrow deposits related to potential future acquisitions, subject only to the failure of satisfaction of conditions precedent to the closing. The escrow deposits are included in prepaid expenses and other assets, net on the consolidated balance sheets. Of the escrow deposits at June 30, 2012, $25.0 million relate to acquisitions that closed subsequent to June 30, 2012 (see Note 17 for additional information pertaining to these acquisitions).

Ground Leases

The following table summarizes our properties which are held subject to long-term noncancellable ground lease obligations and the respective contractual expiration dates:



Property	Contractual Expiration Date ⁽¹⁾
601 108th Ave NE in Bellevue, Washington	November 2093
701, 801 and 837 N. 34th Street in Seattle, Washington ⁽²⁾	December 2041
Kilroy Airport Center Phases I, II, and III in Long Beach, California	July 2084
370 3rd Street in San Francisco, California ⁽³⁾	December 2022

____________________


(1)	Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.


(2)	The Company has three 10 -year and one 45 -year extension option for this ground lease which if exercised would extend the expiration date to December 2116.


(3)	The Company has an option to acquire the land underlying this ground lease during the period from November 2012 through October 2013 for a total estimated purchase price not to exceed $27.5 million .

The future minimum rent commitment under our ground leases as of June 30, 2012 is summarized as follows:



Year Ending	(in thousands)
Remaining 2012	$	2,138
2013	3,095
2014	3,095
2015	3,095
2016	3,095
Thereafter	163,019
Total ^{(1)(2)(3)(4)(5)}	$	177,537

____________________


(1)	Reflects the minimum ground lease obligations before the impact of ground lease extension options.

(2)

One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million . The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of June 30, 2012 .

(3)

One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. Currently, gross income does not exceed the threshold requiring us to pay percentage rent. The contractual obligations included above assumes the annual lease rental obligation in effect as of June 30, 2012 .


(4)	One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations included above assumes the annual lease rental obligation in effect as of June 30, 2012 .


(5)	The contractual obligation included for one of our ground lease obligations assumes that the Company will exercise the land purchase option during 2012. The amount presented above excludes the estimated purchase price which is not to exceed $27.5 million .

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12. Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets and liabilities we record at fair value on a recurring basis on our consolidated financial statements are the marketable securities and corresponding deferred compensation plan liability, both of which are related to our deferred compensation plan. The following table sets forth the fair value of our marketable securities and related deferred compensation plan liability as of June 30, 2012 and December 31, 2011 :



	Fair Value (Level 1) ⁽¹⁾
Description	June 30, 2012		December 31, 2011
	(in thousands)
Marketable securities ⁽²⁾	$	6,546	$	5,691
Deferred compensation plan liability ⁽³⁾	6,451		5,597

________________________


(1)	Based on quoted prices in active markets for identical securities.


(2)	The marketable securities are held in a limited rabbi trust.


(3)	The deferred compensation plan liability is reported on our consolidated balance sheets in accounts payable, accrued expenses, and other liabilities.

We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment (losses) gains in the consolidated statements of operations. We adjust the deferred compensation plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost for the period. The following table sets forth the related amounts recorded during the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended						Six Months Ended
Description	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
	(in thousands)
Net (loss) gain on marketable securities	$	(155	)	$	26		$	280		$	213
Decrease (increase) to compensation cost	155			(26		)	(280		)	(213		)

Financial Instruments Disclosed at Fair Value

The following table sets forth the carrying value and the fair value of our other financial instruments as of June 30, 2012 and December 31, 2011 :



	Carrying Value		Fair Value		Carrying Value		Fair Value
	June 30, 2012				December 31, 2011
	(in thousands)
Liabilities
Secured debt ⁽¹⁾	$	381,097	$	397,843	$	351,825	$	367,402
Exchangeable senior notes, net ⁽¹⁾	161,844		177,803		306,892		320,919
Unsecured debt, net ⁽²⁾	1,130,732		1,218,422		980,569		1,011,982
Unsecured line of credit ⁽¹⁾	102,000		102,023		182,000		182,299

________________________


(1)	Fair value calculated using Level II inputs which are based on model−derived valuations in which significant inputs and significant value drivers are observable in active markets.

(2)

Fair value calculated primarily using Level I inputs which are based on quoted prices for identical instruments in active markets. The fair value of the Series B unsecured senior notes and the Unsecured Term Loan Facility are calculated using Level II inputs which are based on model−derived valuations in which significant inputs and significant value drivers are observable in active markets. The carrying value and fair value of these Level II instruments is $233.0 million and $240.0 million , respectively, as of June 30, 2012. The carrying value and fair value of the Level II instruments, which only included the Series B unsecured senior notes at December 31,2011, was $83.0 million and $88.9 million , respectively.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. Segment Disclosure

We have one reportable segment which is our Office Properties segment and we have one non-reportable segment which is our Industrial Properties segment. We also have certain corporate level activities including legal administration, accounting, finance, management information systems, and acquisitions, which are not considered separate operating segments.

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

Net Operating Income is considered by management to be an important and appropriate supplemental performance measure to net income (loss) because we believe it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from GAAP income (loss) from operations or net income (loss). In addition, Net Operating Income is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating Net Operating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Due to the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP income (loss) from operations or net income (loss).

The following tables reconcile our reportable segment activity to our consolidated net income for the three and six months ended June 30, 2012 and 2011 , and the assets by segment to the consolidated assets as of June 30, 2012 and December 31, 2011:



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands)
Reportable Segment - Office Properties
Operating revenues ⁽¹⁾	$	97,510		$	81,726		$	190,235		$	159,022
Property and related expenses	29,004			24,470			53,971			47,215
Net Operating Income	68,506			57,256			136,264			111,807
Non-Reportable Segment - Industrial Properties
Operating revenues ⁽¹⁾	6,412			6,664			13,097			13,141
Property and related expenses	1,688			1,557			3,449			4,576
Net Operating Income	4,724			5,107			9,648			8,565
Total Segments:
Operating revenues ⁽¹⁾	103,922			88,390			203,332			172,163
Property and related expenses	30,692			26,027			57,420			51,791
Net Operating Income	$	73,230		$	62,363		$	145,912		$	120,372
Reconciliation to Consolidated Net Income:
Total Net Operating Income for segments	$	73,230		$	62,363		$	145,912		$	120,372
Unallocated (expenses) income:
General and administrative expenses	(9,251		)	(7,440		)	(18,018		)	(14,000		)
Acquisition-related expenses	(1,813		)	(1,194		)	(3,341		)	(1,666		)
Depreciation and amortization	(40,624		)	(31,378		)	(77,370		)	(59,819		)
Interest income and other net investment (losses) gains	(110		)	58			374			242
Interest expense	(19,155		)	(21,228		)	(40,318		)	(42,104		)
Income from continuing operations	2,277			1,181			7,239			3,025
Income from discontinued operations ⁽²⁾	—			2,291			73,709			5,314
Net income	$	2,277		$	3,472		$	80,948		$	8,339

________________________


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


(2)	See Note 14 for the breakdown of income from discontinued operations by segment.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



	June 30, 2012		December 31, 2011
	(in thousands)
Assets:
Reportable Segment - Office Properties
Land, buildings, and improvements, net	$	2,770,594	$	2,480,338
Undeveloped land and construction in progress	557,657		430,806
Total assets ⁽¹⁾	3,605,101		3,248,661

Non-Reportable Segment - Industrial Properties
Land, buildings, and improvements, net	142,421		145,043
Total assets ⁽¹⁾	152,391		156,741

Total Segments
Land, buildings, and improvements, net	2,913,015		2,625,381
Undeveloped land and construction in progress	557,657		430,806
Total assets ⁽¹⁾	3,757,492		3,405,402

Reconciliation to Consolidated Assets:
Total assets allocated to segments	$	3,757,492	$	3,405,402
Other unallocated assets:
Cash and cash equivalents	18,111		4,777
Restricted cash	97		358
Marketable securities	6,546		5,691
Deferred financing costs, net	18,919		18,368
Prepaid expenses and other assets, net	46,357		12,199
Total consolidated assets	$	3,847,522	$	3,446,795

____________________


(1)	Includes land, buildings, and improvements, undeveloped land and construction in progress, real estate assets held for sale, current receivables, deferred rent receivables, deferred leasing costs, and acquisition-related intangible assets, all shown on a net basis.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14. Discontinued Operations

The following table summarizes the properties sold during the six months ended June 30, 2012 .

Location

Property Type

Month of Disposition

Number of Buildings

Rentable Square Feet

Sales Price (in millions)

15004 Innovation Drive and 10243 Genetic Center Drive, San Diego, CA ⁽¹⁾

Office

January

253,676

146.1

__________________


(1)	Properties were classified as held-for-sale on the consolidated balance sheets as of December 31, 2011.

The following table summarizes the components that comprise income from discontinued operations for the three and six months ended June 30, 2012 and 2011 .



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in thousands)
Revenues:
Rental income	$	—	$	3,294	$	870	$	6,587
Tenant reimbursements	—		380		133		780
Other property income	—		—		—		659
Total revenues	—		3,674		1,003		8,026

Expenses:
Property expenses	—		227		27		407
Real estate taxes	—		286		70		565
Depreciation and amortization	—		870		6		1,740
Total expenses	—		1,383		103		2,712

Income from discontinued operations before net gain on dispositions of discontinued operations	—		2,291		900		5,314
Net gain on dispositions of discontinued operations	—		—		72,809		—
Total income from discontinued operations	$	—	$	2,291	$	73,709	$	5,314

The following table summarizes the total income from discontinued operations within the consolidated statements of operations by segment for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011 ⁽¹⁾		2012		2011 ⁽¹⁾
	(in thousands)
Reportable Segment
Office Properties	$	—	$	1,574	$	73,709	$	3,883
Non-Reportable Segment
Industrial Properties	—		717		—		1,431
Total income from discontinued operations	$	—	$	2,291	$	73,709	$	5,314

__________________


(1)	Includes two office and one industrial buildings encompassing 282,611 rentable square feet that were disposed of in 2011.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15. Net (Loss) Income Available to Common Stockholders Per Share of the Company

The following table reconciles the numerator and denominator in computing the Company's basic and diluted per-share computations for net (loss) income available to common stockholders for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	2,277		$	1,181		$	7,239		$	3,025
Loss from continuing operations attributable to noncontrolling common units of the Operating Partnership	20			75			134			136
Preferred distributions and dividends	(3,097		)	(3,799		)	(12,433		)	(7,598		)
Allocation to participating securities (nonvested shares and time-based RSUs)	(432		)	(327		)	(818		)	(649		)
Numerator for basic and diluted loss from continuing operations available to common stockholders	(1,232		)	(2,870		)	(5,878		)	(5,086		)
Income from discontinued operations	—			2,291			73,709			5,314
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	—			(65		)	(1,909		)	(160		)
Numerator for basic and diluted net (loss) income available to common stockholders	$	(1,232	)	$	(644	)	$	65,922		$	68
Denominator:
Basic weighted average vested shares outstanding	68,344,734			57,685,710			65,996,719			55,008,765
Effect of dilutive securities - contingently issuable shares and stock options ⁽¹⁾	—			—			—			—
Diluted weighted average vested shares and common share equivalents outstanding	68,344,734			57,685,710			65,996,719			55,008,765
Basic earnings per share:
Loss from continuing operations available to common stockholders per share	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Income from discontinued operations per common share	0.00			0.04			1.09			0.09
Net (loss) income available to common stockholders per share	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Diluted earnings per share:
Loss from continuing operations available to common stockholders per share	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Income from discontinued operations per common share	0.00			0.04			1.09			0.09
Net (loss) income available to common stockholders per share	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00

______________________


(1)	Dilutive securities were not included in the current period presentation of the 2011 weighted average shares outstanding because we reported a net loss from continuing operations attributable to common stockholders for the six months ended June 30, 2011 resulting from the reclassification of the revenues and expenses of operating properties that were sold during 2011 and 2012.

The impact of the contingently issuable shares, which consist of the 103,238 market measure-based RSUs and the Exchangeable Notes, and the 1,540,000 stock options, were not considered in our diluted earnings per share calculation for the three and six months ended June 30, 2012 since we reported a loss from continuing operations attributable to common stockholders in the respective period and the effect was anti-dilutive. The impact of stock options and the Exchangeable Notes were not considered in our diluted earnings per share calculation for the three and six months ended June 30, 2011 since we reported a loss from continuing operations attributable to common stockholders and the effect was anti-dilutive. See Note 5 for additional information regarding the Exchangeable Notes and Note 9 for additional information regarding the outstanding stock options and market measure-based RSUs.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

16. Net (Loss) Income Available to Common Unitholders Per Unit of the Operating Partnership

The following table reconciles the numerator and denominator in computing the Operating Partnership's basic and diluted per-unit computations for net (loss) income available to common unitholders for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations	$	2,277		$	1,181		$	7,239		$	3,025
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(43		)	(32		)	(96		)	(65		)
Preferred distributions	(3,097		)	(3,799		)	(12,433		)	(7,598		)
Allocation to participating securities (nonvested units and time-based RSUs)	(432		)	(327		)	(818		)	(649		)
Numerator for basic and diluted loss from continuing operations available to common unitholders	(1,295		)	(2,977		)	(6,108		)	(5,287		)
Income from discontinued operations	—			2,291			73,709			5,314
Numerator for basic and diluted net (loss) income available to common unitholders	$	(1,295	)	$	(686	)	$	67,601		$	27
Denominator:
Basic weighted average vested units outstanding	70,062,865			59,407,687			67,714,850			56,731,316
Effect of dilutive securities - contingently issuable shares and stock options ⁽¹⁾	—			—			—			—
Diluted weighted average vested units and common unit equivalents outstanding	70,062,865			59,407,687			67,714,850			56,731,316
Basic earnings per unit:
Loss from continuing operations available to common unitholders per unit	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Income from discontinued operations per common unit	0.00			0.04			1.09			0.09
Net (loss) income available to common unitholders per unit	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00
Diluted earnings per unit:
Loss from continuing operations available to common unitholders per unit	$	(0.02	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Income from discontinued operations per common unit	0.00			0.04			1.09			0.09
Net (loss) income available to common unitholders per unit	$	(0.02	)	$	(0.01	)	$	1.00		$	0.00

______________________

(1)

Dilutive securities were not included in the current period presentation of the 2011 weighted average units outstanding because the Operating Partnership reported a net loss from continuing operations attributable to common unitholders for the six months ended June 30, 2011 resulting from the reclassification of the revenues and expenses of operating properties that were sold during 2011 and 2012.

The impact of the contingently issuable units, which consist of the 103,238 market measure-based RSUs and the Exchangeable Notes, and the 1,540,000 stock options, were not considered in our diluted earnings per unit calculation for the three and six months ended June 30, 2012 since the Operating Partnership reported a loss from continuing operations attributable to common unitholders in the respective period and the effect was anti-dilutive. The impact of stock options and the Exchangeable Notes were not considered in our diluted earnings per unit calculation for the three and six months ended June 30, 2011 since the Operating Partnership reported a loss from continuing operations attributable to common unitholders and the effect was anti-dilutive. See Note 5 for additional information regarding the Exchangeable Notes and Note 9 for additional information regarding the outstanding stock options and market measure-based RSUs.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. Subsequent Events

On July 17, 2012, aggregate dividends, distributions, and dividend equivalents of $25.1 million were paid to common stockholders and common unitholders of record on June 29, 2012 and RSU holders on the payment date.

On July 20, 2012, we completed the acquisition of an office development opportunity in San Francisco, California for a purchase price of approximately $18.5 million . We intend to develop an office project at this site. We are currently in the process of completing the purchase price allocation for this acquisition.

On July 24, 2012, we completed the acquisition of one office building encompassing approximately 416,755 rentable square feet in Bellevue, Washington for a purchase price of approximately $186.1 million . In connection with the acquisition, the Company assumed approximately $83.5 million in mortgage debt with an interest rate of 6.37% per year and a maturity date of April 1, 2013. We are currently in the process of completing the purchase price allocation for this acquisition.

On July 31, 2012, we completed the acquisition of one office building encompassing approximately 321,883 rentable square feet in Los Angeles, California for a purchase price of approximately $79.0 million plus approximately $5.0 million of other accrued liabilities. In connection with the acquisition, the Company issued approximately $5.0 million of common units of the operating partnership and assumed approximately $53.8 million in mortgage debt with an interest rate of 5.23% per year and a maturity date of January 1, 2016. We are currently in the process of completing the purchase price allocation for this acquisition.

18. Pro Forma Results of the Company

The following pro forma consolidated results of operations of the Company for the three and six months ended June 30, 2012 and 2011 assumes that the acquisition of 4100-4700 Bohannon Drive, Menlo Park, CA, was completed as of January 1, 2011 . Pro forma data may not be indicative of the results that would have been reported had the acquisitions actually occurred as of January 1, 2011 , nor does it intend to be a projection of future results.



	Three Months Ended ⁽¹⁾ June 30,						Six Months Ended ⁽¹⁾ June 30,
	2012			2011			2012		2011
	(in thousands except per share amounts)

Revenues	$	103,661		$	91,576		$	205,210	$	178,306
Net (loss) income available to common stockholders ⁽²⁾⁽³⁾	$	(935	)	$	(659	)	$	67,330	$	(580	)
Net (loss) income available to common stockholders per share - basic ⁽²⁾⁽³⁾	$	(0.02	)	$	(0.02	)	$	1.01	$	(0.02	)
Net (loss) income available to common stockholders per share - diluted ⁽²⁾⁽³⁾	$	(0.02	)	$	(0.02	)	$	1.01	$	(0.02	)

________________________


(1)	The purchase of 4100-4700 Bohannon Drive, Menlo Park, CA, represents the largest acquisition and 53% of the total aggregate purchase price of the operating properties acquired during the six months ended June 30, 2012.


(2)	The pro forma results for the three and six months ended June 30, 2012 were adjusted to exclude acquisition-related expenses of approximately $0.1 million and $0.5 million , respectively, incurred in 2012 for the acquisition of 4100-4700 Bohannon Drive, Menlo Park, CA. The pro forma results for the three and six months ended June 30, 2011 were adjusted to include these expenses.

(3)

The pro forma results for all periods presented includes incremental interest expense assuming the acquisitions were funded by pro forma borrowings under the Credit Facility. The pro forma interest expense estimate is calculated based on the actual interest rate in effect on the Credit Facility for each respective period. Actual funding of the acquisitions may be from different sources and the pro forma borrowings and related pro forma interest expense estimate assumed herein are not indicative of actual results.

The following table summarizes the results of operations for the property at 4100-4700 Bohannon Drive, Menlo Park, CA, from February 29, 2012, the date of acquisition, through June 30, 2012 :



	(in thousands)
Revenues	$	4,765
Net income ⁽¹⁾	1,302

________________________


(1)	Reflects the net operating income less depreciation for these properties and amortization of lease-related intangibles.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

19. Pro Forma Results of the Operating Partnership

The following pro forma consolidated results of operations of the Operating Partnership for the three and six months ended June 30, 2012 and 2011 assumes that the acquisition of 4100-4700 Bohannon Drive, Menlo Park, CA, was completed as of January 1, 2011 . Pro forma data may not be indicative of the results that would have been reported had the acquisitions actually occurred as of January 1, 2011 , nor does it intend to be a projection of future results.



	Three Months Ended ⁽¹⁾ June 30,						Six Months Ended ⁽¹⁾ June 30,
	2012			2011			2012		2011
	(in thousands except per share amounts)

Revenues	$	103,661		$	91,576		$	205,210	$	178,306
Net (loss) income available to common unitholders ⁽²⁾⁽³⁾	$	(1,001	)	$	(711	)	$	69,024	$	(659	)
Net (loss) income available to common unitholders per unit - basic ⁽²⁾⁽³⁾	$	(0.02	)	$	(0.02	)	$	1.01	$	(0.02	)
Net (loss) income available to common unitholders per unit - diluted ⁽²⁾⁽³⁾	$	(0.02	)	$	(0.02	)	$	1.01	$	(0.02	)

________________________


(1)	The purchase of 4100-4700 Bohannon Drive, Menlo Park, CA, represents the largest acquisition and 53% of the total aggregate purchase price of the operating properties acquired during the six months ended June 30, 2012.


(2)	The pro forma results for the three and six months ended June 30, 2012 were adjusted to exclude acquisition-related expenses of approximately $0.1 million and $0.5 million , respectively, incurred in 2012 for the acquisition of 4100-4700 Bohannon Drive, Menlo Park, CA. The pro forma results for the three and six months ended June 30, 2011 were adjusted to include these expenses.

(3)

The following table summarizes the results of operations for the property at 4100-4700 Bohannon Drive, Menlo Park, CA, from February 29, 2012, the date of acquisition, through June 30, 2012 :



	(in thousands)
Revenues	$	4,765
Net income ⁽¹⁾	1,302

________________________


(1)	Reflects the net operating income less depreciation for these properties and amortization of lease-related intangibles.

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. The results of operations discussion is combined for the Company and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities.

Statements contained in this “Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements include, among other things, statements or information concerning projected future occupancy and rental rates, lease expirations, debt maturity, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, dispositions, future incentive compensation, pending, potential or proposed acquisitions and other forward-looking financial data, as well as the discussion below under the captions “-Factors That May Influence Future Results of Operations," “-Liquidity and Capital Resource of the Company," and “-Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance, results or events. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in forward-looking statements. For a discussion of those risk factors, see the discussion below as well as “Item 1A: Risk Factors” and “Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company's and the Operating Partnership's annual report on Form 10-K for the year ended December 31, 2011 and their respective other filings with the SEC. All forward-looking statements are based on currently available information and speak only as of the date of this report. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

Overview and Background

We are a self-administered REIT active in office and industrial submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A real estate properties in the coastal regions of Los Angeles, Orange County, San Diego County, greater Seattle and the San Francisco Bay Area, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our properties through the Operating Partnership and the Finance Partnership, and conduct substantially all of our operations through the Operating Partnership. We owned a 97.6% , 97.2% and 97.1% general partnership interest in the Operating Partnership as of June 30, 2012 , December 31, 2011 and June 30, 2011 , respectively. All our properties are held in fee except for twelve office buildings which are held subject to long−term ground leases for the land (see Note 11 to our consolidated financial statements included in this report for additional information).

Factors That May Influence Future Results of Operations

Acquisitions . During the six months ended June 30, 2012 , we acquired ten office buildings in three transactions totaling approximately $307.1 million and one development opportunity for a total purchase price of $84.0 million , which was comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other accrued liabilities (see Note 2 to our consolidated financial statements included in this report for more information), and during 2011 we acquired eleven office buildings in eight transactions totaling approximately $637.8 million . As of the date of this report, we have completed the acquisition of two additional office buildings in two transactions with an aggregate purchase price of approximately $265.1 million and one development opportunity with a purchase price of approximately $18.5 million. We generally finance our acquisitions through proceeds from the issuance of debt and equity securities, borrowings under our unsecured line of credit (the "Credit Facility"), proceeds from our capital recycling program and the assumption of existing debt.

As a key component of our growth strategy, we continually evaluate acquisition opportunities (including office properties and undeveloped land) as they arise. As a result, at any point in time we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence review, which may include potential acquisitions under contract. As of the date of this report, we are in various stages of negotiation on potential future acquisition opportunities. We cannot provide assurance that we will acquire these properties. In the future, we may enter into agreements to acquire other properties, either as wholly-owned properties or through joint ventures, and those agreements typically will be subject to the satisfaction of closing conditions. We cannot provide assurance that we will enter into any agreements to acquire proper

ties, or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. Costs associated with acquisitions are expensed as incurred and we may be unable to complete an acquisition after making a nonrefundable deposit or incurring acquisition−related costs. In addition, acquisitions are subject to various other risks and uncertainties. During the three and six months ended June 30, 2012 , we incurred approximately $1.8 million and $3.3 million , respectively, of third-party acquisition costs and we anticipate that we will incur additional third-party acquisition costs throughout 2012 as we pursue other potential acquisitions.

Capital Recycling Program. As part of our current strategy, we intend to evaluate various office and industrial assets for potential disposition and then use the proceeds to fund potential acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we intend, when practical, to enter into like-kind exchanges under Section 1031 of the Code to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes.

In connection with this strategy, during the six months ended June 30, 2012 , we disposed of two office buildings in one transaction for approximately $146.1 million . These properties were previously reported as held-for-sale as of December 31, 2011(see Note 14 to our consolidated financial statements included in this report for more information). We were able to successfully complete Section 1031 Exchanges for these properties and were able to reinvest the funds into qualified replacement acquisition properties.

As part of our capital recycling program strategy, we continue to evaluate opportunities for the potential disposition of additional properties, including certain undeveloped land holdings and the potential sale of all or a portion of, or the sale of an equity interest in all or a portion of, our industrial properties. The timing of any potential transactions will depend on market conditions and other factors including but not limited to our capital needs and our ability to defer some or all of the taxable gains on the sales. We cannot assure you that we will dispose of any additional properties, or that future acquisitions and/or dispositions, if any, will qualify as like−kind exchange under Section 1031 of the Code.

Leasing Activity and Changes in Rental Rates . 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, newly acquired properties with vacant space, 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. The following tables set forth certain information regarding leasing activity during the three and six months ended June 30, 2012 .

Information on Leases Commenced and Executed

For Leases That Commenced During the Three Months Ended June 30, 2012



	1st & 2nd Generation ⁽¹⁾				2nd Generation ⁽¹⁾
	Number of Leases ⁽²⁾		Rentable Square Feet ⁽²⁾		TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal	TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
Office Properties	25	14	226,146	143,230	$	32.12	12.5	%	8.9	%	29.0	%	67
Industrial Properties	—	2	—	243,133	0.47		(21.4	)%	(28.1	)%	100.0	%	49
Total portfolio	25	16	226,146	386,363	$	17.77	3.3	%	(0.8	)%	52.4	%	59

For Leases That Commenced During the Six Months Ended June 30, 2012



	1st & 2nd Generation ⁽¹⁾				2nd Generation ⁽¹⁾
	Number of Leases ⁽²⁾		Rentable Square Feet ⁽²⁾		TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal	TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
Office Properties	44	32	391,475	334,222	$	29.14	8.1	%	3.4	%	41.4	%	65
Industrial Properties	1	4	5,000	308,814	0.51		(20.9	)%	(26.8	)%	75.8	%	48
Total portfolio	45	36	396,475	643,036	$	19.24	2.0	%	(2.8	)%	52.9	%	59

For Leases Signed During the Three Months Ended June 30, 2012 ⁽⁸⁾



	1st & 2nd Generation ⁽¹⁾				2nd Generation ⁽¹⁾
	Number of Leases ⁽²⁾		Rentable Square Feet ⁽²⁾		TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal	TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Weighted Average Lease Term (in months)
Office Properties	22	16	301,852	190,431	$	37.63	18.8	%	11.7	%	69
Industrial Properties	1	4	15,000	339,155	0.89		(16.0	)%	(21.5	)%	43
Total portfolio	23	20	316,852	529,586	$	22.09	12.8	%	5.9	%	58

For Leases Signed During the Six Months Ended June 30, 2012 ⁽⁸⁾



	1st & 2nd Generation ⁽¹⁾				2nd Generation ⁽¹⁾
	Number of Leases ⁽²⁾		Rentable Square Feet ⁽²⁾		TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal	TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁶⁾		Changes in Cash Rents ⁽⁵⁾		Weighted Average Lease Term (in months)
Office Properties	39	29	468,602	256,001	$	35.74	16.5	%	8.9	%	68
Industrial Properties	2	4	20,000	339,155	0.96		(16.2	)%	(21.7	)%	43
Total portfolio	41	33	488,602	595,156	$	23.62	12.1	%	4.7	%	59

_______________________


(1)	First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream.


(2)	Represents leasing activity for leases that commenced or signed during the period, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.


(3)	Amounts exclude tenant-funded tenant improvements.


(4)	Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired.


(5)	Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired.


(6)	Excludes commenced and executed leases of approximately 100,000 and 69,000 rentable square feet, respectively, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison.


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


(8)	For the three months ended June 30, 2012, 8 leases totaling approximately 69,000 rentable square feet were signed but not commenced as of June 30, 2012. For the six months ended June 30, 2012, 9 leases totaling approximately 118,000 rentable square feet were signed but not commenced as of June 30, 2012.

As of June 30, 2012 , we believe that the weighted average cash rental rates for our overall portfolio, including recently acquired properties, are up to 5% above the current average market rental rates, although individual properties within any particular submarket presently may be leased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our portfolio.

In general, rental rates have stabilized in many of our submarkets over the last several quarters. Our rental rates and occupancy are impacted by general economic conditions, including the pace of regional economic growth and access to capital. Therefore, 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 market rates. Additionally, decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have further negative effects on our future financial condition, results of operations, and cash flows.

Scheduled Lease Expirations . The following table sets forth certain information regarding our lease expirations for the remainder of 2012 and the next five years.

Lease Expirations ⁽¹⁾



Year of Lease Expiration	Number of Expiring Leases	Total Square Feet	% of Total Leased Sq. Ft.		Annualized Base Rent ⁽²⁾		% of Total Annualized Base Rent ⁽²⁾		Annualized Base Rent per Sq. Ft. ⁽²⁾
Office Properties:
Remainder of 2012	31	182,107	1.3	%	$	5,689	1.6	%	$	31.24
2013	94	1,167,702	8.4	%	33,047		9.4	%	28.30
2014	92	1,135,182	8.2	%	31,178		8.9	%	27.47
2015	136	2,068,132	14.9	%	63,108		18.1	%	30.51
2016	68	784,087	5.6	%	19,695		5.6	%	25.12
2017	83	1,840,625	13.2	%	53,329		15.2	%	28.97
Total Office	504	7,177,835	51.6	%	$	206,046	58.8	%	$	28.71
Industrial Properties:
Remainder of 2012	3	168,133	1.2	%	$	971	0.3	%	$	5.78
2013	8	426,277	3.1	%	3,074		0.9	%	7.21
2014	17	554,620	4.0	%	4,436		1.3	%	8.00
2015	14	712,351	5.1	%	4,672		1.3	%	6.56
2016	9	426,947	3.1	%	2,952		0.8	%	6.91
2017	4	149,482	1.1	%	888		0.3	%	5.94
Total Industrial	55	2,437,810	17.6	%	$	16,993	4.9	%	$	6.97
Total	559	9,615,645	69.2	%	$	223,039	63.7	%	$	23.20

________________________


(1)	The information presented reflects leasing activity through June 30, 2012 . For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases and vacant space as of June 30, 2012 .

(2)

Annualized base rent is calculated as the GAAP straight lined rental revenue for the last month of the reporting period multiplied by 12 months. Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Annualized base rent also excludes month−to−month leases and vacant space as of June 30, 2012. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption "Information on Leases Commenced and Executed."

In addition to the 1.6 million rentable square feet, or 10.0% , of currently available space in our stabilized portfolio, leases representing approximately 2.5% and 11.5% of the occupied square footage of our stabilized portfolio are scheduled to expire during the remainder of 2012 and in 2013 , respectively. The leases scheduled to expire during the remainder of 2012 and in 2013 represent approximately 1.3 million rentable square feet of office space, or 11.0% of our total annualized base rental revenue, and 0.6 million rentable square feet of industrial space, or 1.2% of our total annualized base rental revenue, respectively. We believe that the weighted average cash rental rates are up to 5% above the current average quoted market rates for leases scheduled to expire during the remainder of 2012 and 2013 , although individual properties within any particular submarket presently may be leased either above, below, or at the current quoted market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our overall portfolio. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties are located.

Development and Redevelopment Programs . We believe that a portion of our long-term future potential growth will continue to come from our development pipeline and redevelopment opportunities both within our existing portfolio and through potential acquisition properties. Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. As of June 30, 2012 , we had four redevelopment projects and one development project under construction.

In the second quarter of 2012, we acquired a development opportunity in Mountain View, California to develop an approximately 341,000 rentable square foot office building which was 100% pre-leased to a single tenant at the acquisition date. The development project has a total estimated investment of approximately $200 million at completion. The purchase price of $84.0 million is comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other net accrued liabilities. Construction began during the second quarter of 2012 and is currently expected to be completed in the first quarter of 2015.

In the fourth quarter of 2011, we commenced redevelopment on one of our acquired properties located in the South of Market District submarket of San Francisco, which encompasses approximately 410,000 rentable square feet. The redevelopment project has a total estimated investment of approximately $147.4 million at completion, including the $88.5 million net carrying value of the project at the commencement of redevelopment. Construction is currently expected to be completed in the fourth quarter of 2012. The building is currently 9% occupied and upon acquisition, we pre-leased an additional 28% by executing an 11-year lease for 114,000 square feet that commences in phases. The first phase encompassing approximately 70,000 rentable square feet commenced in July 2012 and the balance is expected to commence after the completion of construction of the tenant improvements. As of June 30, 2012, the building is approximately 37% leased.

In the third quarter of 2011, we commenced the redevelopment of two of our existing office properties to upgrade and modernize the buildings and adjacent common areas. One office property is located in the Long Beach submarket of Los Angeles and encompasses approximately 98,000 rentable square feet. This property was 50% leased prior to the commencement of redevelopment which was done in two phases. Redevelopment on the half that was leased was completed during the second quarter of 2012 and the tenant is currently occupying this space. Redevelopment of the second half commenced in the second quarter of 2012 and construction is expected to be complete in the fourth quarter of 2012. The redevelopment project has a total estimated investment of approximately $19.7 million at completion, including the $6.3 million net carrying value of the project at the commencement of redevelopment.

The second office redevelopment property on which we commenced redevelopment in the third quarter of 2011 is located in the Sorrento Mesa submarket of San Diego and encompasses approximately 111,000 rentable square feet. The property is 100% pre−leased to a single tenant. As part of the redevelopment, we are incorporating one of our undeveloped land parcels. The redevelopment project has a total estimated investment of approximately $37.4 million at completion, including the $22.2 million net carrying value of the project at the commencement of redevelopment. Construction is currently expected to be completed in the third quarter of 2012.

In the third quarter of 2010, we commenced the redevelopment of one of our buildings in the El Segundo submarket of Los Angeles County which encompasses approximately 299,000 rentable square feet. We are currently upgrading and modernizing the building and adjacent common areas since it was previously occupied by a former tenant for more than 25 years. The redevelopment project has a total estimated investment of approximately $60.3 million at completion, including the $9.1 million net carrying value of the project at the commencement of redevelopment. Construction is currently expected to be completed in the fourth quarter of 2012. The building is 100% pre-leased to DIRECTV and we project that DIRECTV will become our largest tenant based on annualized base rental revenue of $22.3 million. Upon completion of the redevelopment, DIRECTV will lease approximately 630,000 rentable square feet and represent approximately 6.2% of our projected annualized base rental revenue.

As of June 30, 2012 , our future development pipeline included 110.2 gross acres of land with an aggregate cost basis of approximately $276.7 million . Although during the past few years we had reduced the scope and delayed the timing of our development program because of the economic environment, we have continued to evaluate development and redevelopment opportunities throughout the West Coast and we have proactively worked to enhance the entitlements for our existing development land pipeline.

We expect that if the economic environment continues to improve and development yields again become economically attractive and accretive to the Company's growth and long term strategic value, which we have seen in selective submarkets, we will continue to evaluate selective development and redevelopment opportunities within our portfolio. An increase in our development and redevelopment activities would increase the average development and redevelopment asset balances qualifying for interest and other carry cost capitalization. During the three and six months ended June 30, 2012 , we did not capitalize interest on five of our seven future development pipeline properties with an aggregate cost basis of approximately $137.0 million , as it was determined these projects did not currently qualify for interest and other carry cost capitalization under GAAP. For the three and six months ended June 30, 2012, we capitalized $0.6 million and $1.4 million, respectively, of internal costs to our qualifying development and redevelopment projects. For the three and six months ended June 30, 2011, respectively, we capitalized $0.3

million and $0.8 million of internal costs to our qualifying development and redevelopment projects.

Incentive Compensation . Our Executive Compensation Committee determines compensation, including equity and cash incentive programs, for our executive officers in accordance with the terms and conditions of applicable agreements and incentive award programs. Incentive compensation earned under the 2012 annual bonus program is structured to allow the Executive Compensation Committee to evaluate a variety of key factors and metrics at the end of the year and make a determination of incentive compensation for executive officers based on the Company's and management's overall performance. As a result, accrued incentive compensation and compensation expense for future incentive compensation awards could be affected by our operating and development performance, financial results, total shareholder return, market conditions and other performance conditions. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.

Share-Based Compensation . As of June 30, 2012 , there was $30.6 million of total unrecognized compensation cost related to outstanding nonvested shares of restricted common stock, RSUs and stock options issued under share-based compensation arrangements. Those costs are expected to be recognized over a weighted-average period of 2.7 years. The $30.6 million of unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued based on the Company's and management's performance in 2012 . Share-based compensation expense for potential future awards could be affected by our operating and development performance, financial results, total shareholder return and market conditions. Consequently, we cannot predict the amounts that will be recorded in future periods for such share-based awards. See Note 9 to our consolidated financial statements for additional information regarding our share-based incentive compensation plan.

Stabilized Portfolio Information

As of June 30, 2012 , our stabilized portfolio was comprised of 114 Office Properties encompassing an aggregate of approximately 12.2 million rentable square feet and 39 Industrial Properties encompassing an aggregate of approximately 3.4 million rentable square feet. Our stabilized portfolio includes all of our properties with the exception of undeveloped land, one development and four redevelopment properties currently under construction, "lease−up" properties and properties "held-for-sale". We define lease-up properties as properties recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. We define redevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We had no "lease-up" properties and no held-for-sale properties as of June 30, 2012.

The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from June 30, 2011 to June 30, 2012 :



	Office Properties				Industrial Properties				Total
	Number of Buildings		Rentable Square Feet		Number of Buildings		Rentable Square Feet		Number of Buildings		Rentable Square Feet
Total as of June 30, 2011	107		11,465,821		40		3,605,407		147		15,071,228
Acquisitions ⁽¹⁾⁽²⁾	12		1,200,632						12		1,200,632
Properties moved to the redevelopment portfolio	(1	)	(111,318	)					(1	)	(111,318	)
Dispositions	(4	)	(344,234	)	(1	)	(192,053	)	(5	)	(536,287	)
Remeasurement			16,366								16,366
Total as of June 30, 2012	114		12,227,267		39		3,413,354		153		15,640,621

________________________


(1)	Excludes 370 3rd Street in San Francisco, California, which was added to our redevelopment portfolio upon acquisition in December 2011.


(2)	Excludes 690 E. Middlefield Road in Mountain View, California, which was added to our development portfolio upon acquisition in May 2012.

Occupancy Information

The following table sets forth certain information regarding our stabilized portfolio:

Stabilized Portfolio Occupancy



Region	Number of Buildings	Rentable Square Feet	Occupancy at ⁽¹⁾
Region	Number of Buildings	Rentable Square Feet	6/30/2012		3/31/2012		12/31/2011
Office Properties:
Los Angeles and Ventura Counties	28	2,981,473	88.0	%	87.0	%	83.5	%
San Diego	59	5,184,287	87.5		91.7		92.5
Orange County	5	540,656	93.6		93.3		93.4
San Francisco Bay Area	13	2,210,367	91.4		89.2		93.3
Greater Seattle	9	1,310,484	93.8		90.3		89.9
	114	12,227,267	89.3		90.0		90.1
Industrial Properties:
Orange County	39	3,413,354	92.5		97.0		100.0
	39	3,413,354	92.5		97.0		100.0
Total Stabilized Portfolio	153	15,640,621	90.0	%	91.6	%	92.4	%



	Average Occupancy for Three Months Ended June 30,
	Stabilized Portfolio ⁽¹⁾				Same Store Portfolio ⁽²⁾
	2012		2011		2012		2011
Office Properties	89.3	%	88.1	%	89.0	%	86.8	%
Industrial Properties	95.5		97.0		95.5		96.8
Total Portfolio	90.7	%	90.2	%	90.7	%	89.4	%



	Average Occupancy for Six Months Ended June 30,
	Stabilized Portfolio ⁽¹⁾				Same Store Portfolio ⁽²⁾
	2012		2011		2012		2011
Office Properties	89.6	%	88.4	%	89.7	%	88.5	%
Industrial Properties	96.2		95.7		96.2		95.5
Total Portfolio	91.1	%	90.2	%	91.4	%	90.3	%

________________________


(1)	Occupancy percentages reported are based on our stabilized portfolio as of the end of the period presented.


(2)	Occupancy percentages reported are based on Office Properties and Industrial Properties owned and stabilized as of January 1, 2011 and still owned and stabilized as of June 30, 2012 . See discussion under "Results of Operations" for additional information.

As of June 30, 2012 , the Office Properties and Industrial Properties represented approximately 93.7% and 6.3% , respectively, of our total annualized base rental revenue. During the three months ended June 30, 2012 , the Office and Industrial Properties represented approximately 93.5% and 6.5% , respectively, of our total Net Operating Income, as defined. During the six months ended June 30, 2012 , the Office and Industrial Properties represented approximately 93.4% and 6.6% , respectively, of our total Net Operating Income, as defined.

Current Regional Information

Although real estate fundamentals continue to be challenging in some of our regional submarkets, we have generally seen a modest decrease in vacancy rates and lease concession packages and are starting to see an increase in rental rates.

Los Angeles and Ventura Counties. Our Los Angeles and Ventura Counties stabilized office portfolio of 3.0 million rentable square feet was 88.0% occupied with approximately 356,900 available rentable square feet as of June 30, 2012 compared to 83.5% occupied with approximately 491,300 available rentable square feet as of December 31, 2011 . The increase in occupancy is primarily attributable to the commencement of three leases encompassing approximately 92,000 rentable square feet in El Segundo and West Los Angeles.

As of June 30, 2012 , leases representing an aggregate of approximately 83,000 and 268,100 rentable square feet are scheduled to expire during the remainder of 2012 and in 2013 , respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during the remainder of 2012 and in 2013 represents approximately 2.5% of our occupied rentable square feet and 2.9% of our annualized base rental revenues in our total stabilized portfolio.

San Diego County. Our San Diego County stabilized office portfolio of 5.2 million rentable square feet was 87.5% occupied with approximately 645,500 available rentable square feet as of June 30, 2012 compared to 92.5% occupied with approximately 391,100 available rentable square feet as of December 31, 2011 . The decrease in occupancy is primarily attributable to four leases that expired during the six months ended June 30, 2012. As of June 30, 2012 , we have leased 54,600 rentable square feet in this region that was vacant at June 30, 2012 to two tenants. The new leases are scheduled to commence during the third and fourth quarters of 2012.

As of June 30, 2012 , leases representing an aggregate of approximately 35,400 and 389,400 rentable square feet are scheduled to expire during the remainder of 2012 in 2013 , respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in this region in 2012 and 2013 represents approximately 3.1% of our occupied rentable square feet and 2.8% of our annualized base rental revenues in our total stabilized portfolio.

Orange County. As of June 30, 2012 , our Orange County stabilized industrial portfolio of 3.4 million rentable square feet was 92.5% occupied with approximately 255,000 available rentable square feet, compared to 100.0% occupied as of December 31, 2011 . The decrease in occupancy is primarily attributable to one tenant early move-out and one lease that expired during the six months ended June 30, 2012.

Our Orange County stabilized office portfolio of approximately 540,700 rentable square feet was 93.6% occupied with approximately 34,400 available rentable square feet as of June 30, 2012 compared to 93.4% occupied with approximately 35,500 available rentable square feet as of December 31, 2011 .

As of June 30, 2012 , leases representing an aggregate of approximately 196,800 and 486,900 rentable square feet are scheduled to expire during the remainder of 2012 and in 2013 , respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in 2012 and 2013 represents approximately 4.9% of our occupied rentable square feet and 1.7% of our annualized base rental revenues in our total stabilized portfolio. Of the 683,700 rentable square feet scheduled to expire in 2012 and 2013 , approximately 594,400 rentable square feet, or 1.1% of our annualized base rental revenues in our total stabilized portfolio, is industrial space.

San Francisco Bay Area. As of June 30, 2012 , our San Francisco Bay Area stabilized office portfolio of 2.2 million rentable square feet was 91.4% occupied with approximately 189,800 available rentable square feet, compared to 1.8 million rentable square feet at 93.3% occupied with approximately 121,900 available rentable square feet as of December 31, 2011 . The decrease in occupancy is primarily attributable to the acquisition of seven office buildings during the six months ended June 30, 2012 encompassing approximately 374,100 rentable square feet that were 77.0% occupied as of June 30, 2012 . As of June 30, 2012, we have leased 27,900 rentable square feet in this region that was vacant at June 30, 2012 to three tenants. The new leases are scheduled to commence in the third and fourth quarters of 2012.

As of June 30, 2012 , leases representing an aggregate of approximately 32,900 and 308,100 rentable square feet are scheduled to expire during the remainder of 2012 and in 2013 , respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in this region during the remainder of 2012 and in 2013 represents approximately 2.4% of our occupied rentable square feet and 3.7% of our annualized base rental revenues in our total stabilized portfolio.

Greater Seattle. As of June 30, 2012 , our Greater Seattle stabilized office portfolio of 1.3 million rentable square feet was 93.8% occupied with approximately 81,100 available rentable square feet, compared to 89.9% occupied with approximately 90,300 available rentable square feet as of December 31, 2011 . The increase in occupancy is primarily attributable to the acquisition of three office buildings during the six months ended June 30, 2012 encompassing approximately 420,000 rentable square feet that were 99.6% occupied as of June 30, 2012 . As of June 30, 2012, we have leased 11,800 rentable square feet in this region that was vacant at June 30, 2012 to one tenant. This new lease is scheduled to commence in the second quarter of 2013.

As of June 30, 2012 , leases representing an aggregate of approximately 2,200 and 141,300 rentable square feet are scheduled to expire during the remainder of 2012 and in 2013 , respectively. The aggregate rentable square feet under leases scheduled to expire in this region during the remainder of 2012 and in 2013 represents approximately 1.0% of our occupied rentable square feet and 1.1% of our annualized base rental revenues in our total stabilized portfolio.

Results of Operations

Management internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income. We define “Net Operating Income” as operating revenues (rental income, tenant reimbursements, and other property income) less operating expenses (property expenses, real estate taxes, provision for bad debts, and ground leases). The Net Operating Income information presented within this Management's Discussion and Analysis of Financial Condition and Results of Operations is the same Net Operating Income information disclosed in our segment information in Note 13 to our consolidated financial statements.

Management further evaluates Net Operating Income from the stabilized portfolio by evaluating the performance from the following property groups:


•	Same Store Office Properties - which includes the results of all of the office properties that were owned and included in our stabilized office portfolio as of January 1, 2011 and still owned and and included in the stabilized portfolio as of June 30, 2012 ;


•	Office Acquisitions Properties - which includes the results, from the dates of acquisition through the periods presented, for the ten office buildings we acquired during 2011 and the ten office buildings we acquired during the six months ended June 30, 2012 ;


•	Other Office - which includes the results generated by two buildings that were moved out of the stabilized office portfolio during 2011 to redevelopment since the properties are being repositioned (the “Redevelopment Properties”);


•	Same Store Industrial Properties - which includes the results of all the industrial properties that were owned and included in our stabilized industrial portfolio as of January 1, 2011 and still owned and included in the stabilized portfolio as of June 30, 2012 .

The following table sets forth certain information regarding the stabilized portfolio as of June 30, 2012:



Property Type	# of Buildings	Rentable Square Feet
Office Properties
Same Store Office Properties	94	9,860,746
Office Acquisitions Properties	20	2,366,521
Total Office Properties	114	12,227,267

Industrial Properties
Same Store Industrial Properties	39	3,413,354
Total Industrial Properties	39	3,413,354

Total Stabilized Portfolio	153	15,640,621

Comparison of the Three Months Ended June 30, 2012 to the Three Months Ended June 30, 2011

The following table reconciles our Net Operating Income, as defined, to our net income for the three months ended June 30, 2012 and 2011 .



	Three Months Ended June 30,						Dollar Change			Percentage Change
	2012			2011			Dollar Change			Percentage Change
	($ in thousands)
Net Operating Income, as defined
Office Properties	$	68,506		$	57,256		$	11,250		19.6	%
Industrial Properties	4,724			5,107			(383		)	(7.5	)
Total portfolio	73,230			62,363			10,867			17.4
Reconciliation to Net Income:
Net Operating Income, as defined for the total portfolio	73,230			62,363			10,867			17.4
Unallocated (expense) income:
General and administrative expenses	(9,251		)	(7,440		)	(1,811		)	24.3
Acquisition-related expenses	(1,813		)	(1,194		)	(619		)	51.8
Depreciation and amortization	(40,624		)	(31,378		)	(9,246		)	29.5
Interest income and other net investment (losses) gains	(110		)	58			(168		)	(289.7	)
Interest expense	(19,155		)	(21,228		)	2,073			(9.8	)
Income from continuing operations	2,277			1,181			1,096			92.8
Income from discontinued operations	—			2,291			(2,291		)	(100.0	)
Net income	$	2,277		$	3,472		$	(1,195	)	(34.4	)%

The following tables summarize the Net Operating Income, as defined, for our stabilized portfolio for the three months ended June 30, 2012 and 2011 .



	2012											2011
	Same Store Office		Office Acquisitions		Other Office			Same Store Industrial		Total		Same Store Office		Office Acquisitions		Other Office			Same Store Industrial			Total
	(in thousands)											(in thousands)
Operating revenues:
Rental income	$	71,691	$	16,333	$	844		$	5,397	$	94,265	$	70,091	$	3,932	$	362		$	5,773		$	80,158
Tenant reimbursements	5,364		2,708		35			958		9,065		5,285		914		34			897			7,130
Other property income	289		246		—			57		592		1,108		—		—			(6		)	1,102
Total	77,344		19,287		879			6,412		103,922		76,484		4,846		396			6,664			88,390
Property and related expenses:
Property expenses	16,253		3,587		316			1,040		21,196		15,168		886		424			878			17,356
Real estate taxes	6,407		1,533		293			648		8,881		6,697		362		426			642			8,127
Provision for bad debts	—		—		—			—		—		83		—		—			37			120
Ground leases	224		106		285			—		615		330		60		34			—			424
Total	22,884		5,226		894			1,688		30,692		22,278		1,308		884			1,557			26,027
Net Operating Income (Loss), as defined	$	54,460	$	14,061	$	(15	)	$	4,724	$	73,230	$	54,206	$	3,538	$	(488	)	$	5,107		$	62,363



	Three Months Ended June 30, 2012 as compared to the Three Months Ended June 30, 2011
	Same Store Office					Office Acquisitions				Same Store Industrial					Total
	Dollar Change			% Change		Dollar Change		% Change		Dollar Change			% Change		Dollar Change			% Change
										($ in thousands)
Operating revenues:
Rental income	$	1,600		2.3	%	$	12,401	315.4	%	$	(376	)	(6.5	)%	$	14,107		17.6	%
Tenant reimbursements	79			1.5		1,794		196.3		61			6.8		1,935			27.1
Other property income	(819		)	(73.9	)	246		100.0		63			(1,050.0	)	(510		)	(46.3	)
Total	860			1.1		14,441		298.0		(252		)	(3.8	)	15,532			17.6
Property and related expenses:
Property expenses	1,085			7.2		2,701		304.9		162			18.5		3,840			22.1
Real estate taxes	(290		)	(4.3	)	1,171		323.5		6			0.9		754			9.3
Provision for bad debts	(83		)	(100.0	)	—		—		(37		)	(100.0	)	(120		)	100.0
Ground leases	(106		)	(32.1	)	46		76.7		—			—		191			45.0
Total	606			2.7		3,918		299.5		131			8.4		4,665			17.9
Net Operating Income, as defined	$	254		0.5	%	$	10,523	297.4	%	$	(383	)	(7.5	)%	$	10,867		17.4	%

Net Operating Income increased $10.9 million , or 17.4% , for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 primarily resulting from:


•	An increase of $10.5 million attributable to the Office Acquisition Properties.


•	An increase of $0.3 million attributable to the Same Store Office Properties which is primarily comprised of:


▪	An increase in rental income of $1.6 million primarily resulting from an increase in average occupancy of 2.2%, from 86.8% for the three months ended June 30, 2011 , to 89.0% for the three months ended June 30, 2012 ; and


▪	An offsetting decrease in other property income of $0.8 million primarily as the result of a $0.6 million cash distribution received during the prior year period under a bankruptcy claim related to a former tenant that defaulted on their lease in 2009. Other property income for both periods consist primarily of lease termination fees and other miscellaneous income;


•	An increase in property and related expenses of $0.6 million primarily resulting from:


•	$0.5 million of repairs incurred during the three months ended June 30, 2012 as the result of water damage at one of our properties which we anticipate receiving an insurance reimbursement for later this year; and


•	An increase of $0.5 million in property expenses primarily as a result of an increase in certain recurring operating costs such as property management expenses and janitorial and other service-related costs primarily as a result of an increase in average occupancy, as described above; and


•	An offsetting decrease in real estate taxes of $0.3 million as a result of successful property tax appeals; and


•	An offsetting decrease of $0.4 million attributable to the Same Store Industrial Properties primarily resulting from a decrease in average occupancy of 1.3%, from 96.8% for the three months ended June 30, 2011 , to 95.5% for the three months ended June 30, 2012 ; and

•

A net operating loss of $0.5 million for the three months ended June 30, 2011 attributable primarily to Other Office generated by the Redevelopment Properties. This net operating loss represented the operating expenses for the Redevelopment Properties for the three months ended June 30, 2011. Operating expenditures for the Redevelopment Properties during the three months ended June 30, 2012 qualified for capitalization and were included as a cost of redevelopment.

Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $1.8 million , or 24.3% , for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 primarily attributable to an increase in compensation expense related to the February 2012 stock option grants made to our senior management team, higher payroll costs associated with the renegotiation of our Chief Executive Officer's employment agreement and an increase in payroll and administrative costs associated with the growth of the Company.

Depreciation and Amortization

Depreciation and amortization increased by $9.2 million , or 29.5% , for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 , primarily related to the Office Acquisition Properties.

Interest Expense

The following table sets forth our gross interest expense, including debt discounts/premiums and loan cost amortization, net of capitalized interest, including capitalized debt discounts/premiums and loan cost amortization for the three months ended June 30, 2012 and 2011 :



	2012			2011			Dollar Change			Percentage Change
	($ in thousands)
Gross interest expense	$	23,489		$	23,293		$	196		0.8	%
Capitalized interest	(4,334		)	(2,065		)	(2,269		)	109.9	%
Interest expense	$	19,155		$	21,228		$	(2,073	)	(9.8	)%

Gross interest expense, before the effect of capitalized interest, increased $0.2 million , or 0.8% , for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 resulting from an increase in our average outstanding debt balances offset by a decrease in our weighted average effective interest rate from approximately 6.1% during the three months ended June 30, 2011 to approximately 5.5% during the three months ended June 30, 2012.

Capitalized interest increased $2.3 million , or 109.9% , for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 primarily attributable to an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.

Comparison of the Six Months Ended June 30, 2012 to the Six Months Ended June 30, 2011

The following table reconciles our Net Operating Income, as defined, to our net income for the six months ended June 30, 2012 and 2011 .



	Six Months Ended June 30,						Dollar Change			Percentage Change
	2012			2011			Dollar Change			Percentage Change
	($ in thousands)
Net Operating Income, as defined
Office Properties	136,264			111,807			24,457			21.9
Industrial Properties	9,648			8,565			1,083			12.6
Total portfolio	145,912			120,372			25,540			21.2
Reconciliation to Net Income:
Net Operating Income, as defined for the total portfolio	145,912			120,372			25,540			21.2
Unallocated (expense) income:
General and administrative expenses	(18,018		)	(14,000		)	(4,018		)	28.7
Acquisition-related expenses	(3,341		)	(1,666		)	(1,675		)	100.5
Depreciation and amortization	(77,370		)	(59,819		)	(17,551		)	29.3
Interest income and other net investment gains	374			242			132			54.5
Interest expense	(40,318		)	(42,104		)	1,786			(4.2	)
Income from continuing operations	7,239			3,025			4,214			139.3	%
Income from discontinued operations	73,709			5,314			68,395			1,287.1	%
Net income	$	80,948		$	8,339		$	72,609		870.7	%

The following tables summarize the Net Operating Income, as defined, for our total portfolio for the six months ended June 30, 2012 and 2011 .



	2012											2011
	Same Store Office		Office Acquisitions		Other Office			Same Store Industrial		Total		Same Store Office		Office Acquisitions		Other Office			Same Store Industrial		Total
	(in thousands)											(in thousands)
Operating revenues:
Rental income	$	143,475	$	28,466	$	1,612		$	10,931	$	184,484	$	140,564	$	4,442	$	730		$	11,419	$	157,155
Tenant reimbursements	10,225		4,934		119			2,091		17,369		10,397		974		66			1,715		13,152
Other property income	1,151		253		—			75		1,479		1,818		—		31			7		1,856
Total	154,851		33,653		1,731			13,097		203,332		152,779		5,416		827			13,141		172,163
Property and related expenses:
Property expenses	29,927		6,167		488			2,149		38,731		29,866		923		810			3,266		34,865
Real estate taxes	12,523		2,835		612			1,300		17,270		13,451		429		852			1,285		16,017
Provision for bad debts	2		—		—			—		2		121		—		—			25		146
Ground leases	449		302		666			—		1,417		632		60		71			—		763
Total	42,901		9,304		1,766			3,449		57,420		44,070		1,412		1,733			4,576		51,791
Net Operating Income (Loss), as defined	$	111,950	$	24,349	$	(35	)	$	9,648	$	145,912	$	108,709	$	4,004	$	(906	)	$	8,565	$	120,372



	Six Months Ended June 30, 2012 as compared to the Six Months Ended June 30, 2011
	Same Store Office					Office Acquisitions				Same Store Industrial					Total
	Dollar Change			% Change		Dollar Change		% Change		Dollar Change			% Change		Dollar Change			% Change
										($ in thousands)
Operating revenues:
Rental income	$	2,911		2.1	%	$	24,024	540.8	%	$	(488	)	(4.3	)%	$	27,329		17.4	%
Tenant reimbursements	(172		)	(1.7	)	3,960		406.6		376			21.9		4,217			32.1
Other property income	(667		)	(36.7	)	253		100.0		68			971.4		(377		)	(20.3	)
Total	2,072			1.4		28,237		521.4		(44		)	(0.3	)	31,169			18.1
Property and related expenses:
Property expenses	61			0.2		5,244		568.1		(1,117		)	(34.2	)	3,866			11.1
Real estate taxes	(928		)	(6.9	)	2,406		560.8		15			1.2		1,253			7.8
Provision for bad debts	(119		)	(98.3	)	—		—		(25		)	(100.0	)	(144		)	(98.6	)
Ground leases	(183		)	(29.0	)	242		403.3		—			—		654			85.7
Total	(1,169		)	(2.7	)	7,892		558.9		(1,127		)	(24.6	)	5,629			10.9
Net Operating Income, as defined	$	3,241		3.0	%	$	20,345	508.1	%	$	1,083		12.6	%	$	25,540		21.2	%

Net Operating Income increased $25.5 million , or 21.2% , for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 primarily resulting from:


•	An increase of $20.3 million attributable to the Office Acquisition Properties;


•	An increase of $3.2 million attributable to the Same Store Office Properties which primarily comprised of:


▪	An increase in rental income of $2.9 million primarily resulting from an increase in average occupancy of 1.2%, from 88.5% for the six months ended June 30, 2011 , to 89.7% for the six months ended June 30, 2012 ; and


•	A decrease in property and related expenses of $1.2 million primarily resulting from:


•	Receipt of approximately $1.0 million in insurance proceeds during the six months ended June 30, 2012 which were recorded as a reduction of property expenses since the charge for the related property damage was recorded as property expenses in prior periods; and


•	A decrease in real estate taxes of $0.9 million as a result of successful property tax appeals; and


•	An increase of $0.5 million in property expenses primarily as a result of an increase in certain recurring operating costs such as property management expenses and janitorial and other service-related costs primarily as a result of an increase in average occupancy, as described above; and


•	An offsetting increase of $0.5 million for repairs incurred during the six months ended June 30, 2012 attributable to water damage at one of our properties which we anticipate receiving an insurance reimbursement for later this year.


▪	An offsetting decrease in other property income of $0.7 million primarily due to a $0.6 million cash distribution received during the prior year period under a bankruptcy claim related to a former tenant that defaulted on their lease in 2009. Other property income for both periods consist primarily of lease termination fees and other miscellaneous income;


•	An increase of $1.1 million attributable to the Same Store Industrial Properties primarily resulting from legal fees and consulting costs of $1.3 million incurred during the six months ended June 30, 2011 as compared to the six months ended June 30, 2012 , primarily related to a dispute with a former tenant at one of our industrial properties;

•

A net operating loss of $0.9 million for the six months ended June 30, 2011 attributable to Other Office generated by the Redevelopment Properties. This net operating loss represented the operating expenses for the Redevelopment Properties for the six months ended June 30, 2011. Operating expenditures for the Redevelopment Properties during the six months ended June 30, 2012 qualified for capitalization and were included as a cost of redevelopment.

Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $4.0 million , or 28.7% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 primarily attributable to an increase in compensation expense related to the February 2012 stock option grants made to our senior management team, higher payroll costs associated with the renegotiation of our Chief Executive Officer's employment agreement and an increase in payroll and administrative costs associated with the growth of the Company.

Depreciation and Amortization

Depreciation and amortization increased by $17.6 million , or 29.3% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 , primarily related to the Office Acquisition Properties.

Interest Expense



	2012			2011			Dollar Change			Percentage Change
	($ in thousands)
Gross interest expense	$	48,483		$	46,148		$	2,335		5.1	%
Capitalized interest	(8,165		)	(4,044		)	(4,121		)	101.9	%
Interest expense	$	40,318		$	42,104		$	(1,786	)	(4.2	)%

Gross interest expense, before the effect of capitalized interest, increased $2.3 million , or 5.1% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 resulting from an increase in our average outstanding debt balances offset by a decrease in our weighted average effective interest rate from approximately 6.2% during the six months ended June 30, 2011 to approximately 5.7% during the three months ended June 30, 2012.

Capitalized interest increased $4.1 million , or 101.9% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 primarily attributable to an increase in our development and redevelopment activity, which resulted in higher average asset balances qualifying for interest capitalization.

Liquidity and Capital Resources of the Company

In this "Liquidity and Capital Resources of the Company" section, the term the "Company" refers only to Kilroy Realty Corporation on an unconsolidated basis, and excludes the Operating Partnership and all other subsidiaries.

The Company's business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company's source of capital. The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations and borrowings available under its Credit Facility, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its preferred and common stockholders for the next twelve months. Cash flows from operating activities generated by the Operating Partnership for the three and six months ended June 30, 2012 were sufficient to cover the Company's payment of cash dividends to its stockholders. However, there can be no assurance that the Operating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital could adversely affect the Operating Partnership's ability to make distributions to the Company, which would in turn, adversely affect the Company's ability to pay cash dividends to its stockholders.

The Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the pubic offering and sale from time to time by the Company of its preferred stock, common stock, debt securities and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it is required by the Operating Partnership's partnership agreement to contribute the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its Credit Facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes, and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled "Liquidity and Capital Resources of the Operating Partnership" should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.

Distribution Requirements

The Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gain) on an annual basis to maintain qualification as a REIT for federal income tax purposes and is required to pay income tax at regular corporate rates to the extent it distributes less than 100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retained earnings to fund its on−going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may be required to use borrowings under the Operating Partnership's Credit Facility, if necessary, to meet REIT distribution requirements and maintain its REIT status. The Company may also need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, as well as potential developments of new or existing properties or acquisitions.

The Company intends to continue to make, but has not committed to make, regular quarterly cash distributions to common stockholders and common unitholders from cash flow from operating activities. All such distributions are at the discretion of the board of directors. The Company has historically distributed amounts in excess of our taxable income resulting in a return of capital to its stockholders and the Company currently believes it has the ability to maintain distributions at the 2011 levels to meet its REIT requirements for 2012. The Company considers market factors and its performance in addition to REIT requirements in determining our distribution levels. In addition, one of the covenants contained within the Credit Facility and Unsecured Term Loan Facility prohibits the Company from paying dividends in excess of 95% of Funds From Operations ("FFO"). Amounts accumulated for distribution to stockholders are invested primarily in interest−bearing accounts and short−term interest−bearing securities, which are consistent with the Company's intention to maintain its qualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmental agency securities, certificates of deposit, and interest−bearing bank deposits.

On May 17, 2012 , the Board of Directors declared a regular quarterly cash dividend of $0.35 per common share payable on July 17, 2012 to stockholders of record on June 29, 2012 and caused a $0.35 per Operating Partnership unit cash distribution to be paid in respect of the Operating Partnership's common limited partnership interests, including those owned by the Company.

On March 27, 2012, the Company issued 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("Series G Preferred Stock") at a public offering price of $25.00 per share, for a total of approximately $96.2 million of net proceeds, after deducting underwriting discounts and other accrued offering-related costs. Dividends on the Series G Preferred Stock will be paid quarterly in arrears on the 15th day of each February, May, August and November, commencing May 15, 2012. On May 17, 2012 , the Board of Directors declared a dividend of $0.42969 per share on the Series G Preferred Stock for the period commencing on and including May 15, 2012, and ending on and including August 14, 2012. The dividend will be payable on August 15, 2012, to Series G Preferred stockholders of record on July 31, 2012. The second quarter ended June 30, 2012 was the first full quarter that the Series G Preferred Stock were outstanding, which resulted in quarterly dividend payments for the Series G Preferred stock of approximately $1.7 million. The Company is also required to make quarterly cash distributions to the 7.45% Series A Preferred unitholders of $0.7 million, payable quarterly in arrears on the 15th day of each February, May, August and November.

On April 16, 2012 (the "Redemption Date"), the Company redeemed all 1,610,000 outstanding shares of its 7.80% Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock") and all 3,450,000 outstanding shares of its 7.50% Series F Cumulative Redeemable Preferred Stock ("Series F Preferred Stock"). On the Redemption Date, the shares of Series E and Series F Preferred Stock (together, the “Redeemed Preferred Stock”) were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share plus $2.9 million of dividends, which included $0.5 million of additional dividends attributable to the acceleration of the Series E Preferred Stock and Series F Preferred Stock dividend payment from April 1, 2012 to April 16, 2012 and redemption-related costs.

As a result of the aforementioned transactions, during the second quarter of 2012, our quarterly preferred dividend and distribution payments decreased to a run-rate of $3.1 million per quarter from $3.8 million per quarter in prior periods. The $0.7 million decrease is attributable to the lower rate and reduced number of outstanding shares of Series G Preferred Stock as compared to the Series E Preferred Stock and Series F Preferred Stock.

Capitalization

As of June 30, 2012 , our total debt as a percentage of total market capitalization was 33.0% and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization was 36.3% , which was calculated based on the closing price per share of the Company's common stock of $48.41 on June 30, 2012 as shown in the table below.



	Shares/Units at June 30, 2012	Aggregate Principal Amount or $ Value Equivalent		% of Total Market Capitalization
	($ in thousands)
Debt:
Credit Facility		$	102,000	1.9	%
Unsecured Term Loan Facility		150,000		2.8
4.25% Unsecured Exchangeable Notes due 2014 ⁽¹⁾		172,500		3.2
Unsecured Senior Notes due 2014		83,000		1.5
Unsecured Senior Notes due 2015 ⁽¹⁾		325,000		6.0
Unsecured Senior Notes due 2018 ⁽¹⁾		325,000		6.0
Unsecured Senior Notes due 2020 ⁽¹⁾		250,000		4.6
Secured debt ⁽¹⁾		378,776		7.0
Total debt		1,786,276		33.0
Equity and Noncontrolling Interests:
7.450% Series A Cumulative Redeemable Preferred units ⁽²⁾	1,500,000	75,000		1.4
6.875% Series G Cumulative Redeemable Preferred stock ⁽³⁾	4,000,000	100,000		1.9
Common limited partnership units outstanding ⁽⁴⁾⁽⁵⁾	1,718,131	83,175		1.5
Common shares outstanding ⁽⁵⁾	68,927,731	3,336,791		62.2
Total equity and noncontrolling interests		3,594,966		67.0
Total Market Capitalization		$	5,381,242	100.0	%

________________________


(1)	Represents gross aggregate principal amount due at maturity before the effect of the unamortized discounts and premiums as of June 30, 2012 .


(2)	Value based on $50.00 per unit liquidation preference.


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


(4)	Represents common units not owned by the Company.


(5)	Value based on closing price per share of our common stock of $48.41 as of June 30, 2012 .

Liquidity and Capital Resources of the Operating Partnership

In this "Liquidity and Capital Resources of the Operating Partnership" section, the terms "we," "our," and "us" refer to the Operating Partnership or the Operating Partnership and the Company together, as the context requires.

General

Our primary liquidity sources and uses are as follows:

Liquidity Sources


•	Net cash flow from operations;


•	Borrowings under the Credit Facility;


•	Proceeds from additional secured or unsecured debt financings;


•	Proceeds from public or private issuance of debt or equity securities; and


•	Proceeds from the disposition of nonstrategic assets through our capital recycling program.

Liquidity Uses


•	Property or undeveloped land acquisitions;


•	Property operating and corporate expenses;


•	Capital expenditures, tenant improvement and leasing costs;


•	Debt service and principal payments, including debt maturities;


•	Distributions to common and preferred security holders;


•	Development and redevelopment costs; and


•	Outstanding debt repurchases.

General Strategy

Our general strategy is to maintain a conservative balance sheet with a top credit profile and to maintain a capital structure that allows for financial flexibility and diversification of capital resources. We manage our capital structure to reflect a long−term investment approach and utilize multiple sources of capital to meet our long−term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forth above under the caption “ —Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhances our ability to obtain additional sources of liquidity if necessary, and, therefore, we are well−positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities.

Summary of 2012 Funding Transactions

We have been very active in the capital markets, our capital recycling program and loan originations to finance our acquisition activity and our continued desire to improve our debt maturities and lower our overall weighted average cost of capital. This was primarily as a result of the following transactions:

•

During the second quarter of 2012, the Operating Partnership acquired two secured mortgage loans with a combined principal balance of $131.0 million and repaid two secured mortgage loans with a combined outstanding principal balance of $101.0 million that were scheduled to mature in August 2012 (see Note 5 to our consolidated financial statements included in this report for additional information). Subsequent to June 30, 2012, the Operating Partnership assumed two secured mortgage loans with a combined principal balance of $137.3 million in connection with two acquisitions (see Note 17 to our consolidated financial statements included in this report for additional information).

•

In April 2012, the Company redeemed all 1,610,000 outstanding shares of its Series E Preferred Stock and all 3,450,000 outstanding shares of its Series F Preferred Stock at a redemption price of $25.00 per share plus all accumulated and unpaid dividends up to and including the redemption date of April 16, 2012, for total payment of $129.4 million (see Note 7 to our consolidated financial statements included in this report for additional information).


•	In April 2012, the Operating Partnership repaid its 3.25% Exchangeable Notes with an aggregate principal amount of $148.0 million and entered into a new $150.0 million unsecured term loan facility (the "Unsecured Term Loan Facility") in March 2012 (see Note 5 to our consolidated financial statements included in this report for additional information).


•	During the second quarter of 2012 we issued 575,689 shares under our at−the−market stock offering program. The net offering proceeds, after deducting underwriting discounts and commissions, of approximately $26.5 million were contributed to the Operating Partnership (see "— Liquidity Sources" below for additional information).


•	In March 2012, the Company issued 4,000,000 shares of its Series G Preferred Stock at a public offering price of $25.00

per share. The net proceeds, after deducting the underwriting discount and other accrued offering-related costs, of $96.2 million were contributed to the Operating Partnership (see Notes 7 and 8 to our consolidated financial statements included in this report for additional information).

•

In February 2012, the Company completed an underwritten public offering of 9,487,500 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately $382.1 million were contributed to the Operating Partnership (see Notes 7 and 8 to our consolidated financial statements included in this report for additional information).


•	In January 2012, the Company completed the sale of two office buildings to an unrelated third party for a cash sales price of approximately $146.1 million (see Note 14 to our consolidated financial statements included in this report for additional information).

Liquidity Sources

Credit Facility

The following table summarizes the balance and terms of our Credit Facility as of June 30, 2012 and December 31, 2011 , respectively:



	June 30, 2012			December 31, 2011
	(in thousands)
Outstanding borrowing	$	102,000		$	182,000
Remaining borrowing capacity	398,000			318,000
Total borrowing capacity ⁽¹⁾	$	500,000		$	500,000
Interest rate ⁽²⁾	2.00		%	2.05		%
Facility fee - annual rate ⁽³⁾	0.350%
Maturity date ⁽⁴⁾	August 2015

________________________


(1)	We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the Credit Facility.


(2)	The Credit Facility interest rate was calculated based on an annual rate of LIBOR plus 1.750% as of both June 30, 2012 and December 31, 2011 .


(3)	The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we also incurred origination and legal costs of approximately $8.3 million that are currently being amortized through the maturity date of the Credit Facility.


(4)	Under the terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.

In March 2012, we amended the Credit Facility to reduce the FMV Cap Rate (as defined in the Credit Facility agreement), which is used to calculate the fair value of our assets for certain covenants under the Credit Facility, from 7.50% to 6.75%. There were no other changes to the terms of the Credit Facility in connection with this amendment.

Capital Recycling Program

As part of our current strategy, we intend to evaluate various office and industrial assets for potential disposition and then use the proceeds to fund potential acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we intend, when practical, to enter into like-kind exchanges under Section 1031 of the Code to defer some or all taxable gains, if any, on the sales for federal and state income tax purposes. During the six months ended June 30, 2012 , we disposed of two office buildings in one transaction for approximately $146.1 million . These properties were previously reported as held-for-sale as of December 31, 2011. We also continue to evaluate opportunities for the potential disposition of additional properties, including the potential sale of all or a portion of, or the sale of an equity interest in all or a portion of, our industrial properties as well as the disposition of certain undeveloped land holdings.

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in July 2011, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $200.0 million from time to time in "at the market" offerings. During the three months ended June 30, 2012 , we sold 575,689 shares of common stock under the program in exchange for aggregate gross proceeds of approximately $27.0 million and net proceeds of approximately $26.5 million after underwriting discounts and commissions . The proceeds from the sales were used to fund acquisitions and general corporate purposes including repayment of borrowings under the Credit Facility. We did not sell any shares during the first quarter 2012. Since commencement of the program, we have sold 930,994 shares of common stock and, as of June 30, 2012 , approximately $160.0 million remains available to be sold under this program. Actual sales will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

Shelf Registration Statement

As discussed above under “-Liquidity and Capital Resources of the Company,” the Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, debt securities and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it is required by the Operating Partnership's partnership agreement to contribute the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its Credit Facility, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

Unsecured Term Loan Facility

In March 2012, we entered into a new Unsecured Term Loan Facility, which is included in unsecured debt, net on our consolidated balance sheets. The Unsecured Term Loan Facility bears interest at an annual rate of LIBOR plus 1.750% and is scheduled to mature on March 29, 2016. Under the terms of the Unsecured Term Loan Facility, we may exercise an option to extend the maturity date by one year. We may elect to borrow up to an additional $100.0 million under an accordion option, subject to bank approval. We used the borrowings under the Unsecured Term Loan Facility to repay the 3.25% Exchangeable Notes in April 2012 upon maturity.

Exchangeable Notes, Unsecured Debt, and Secured Debt

The aggregate principal amount of our 4.25% Exchangeable Notes, unsecured debt, and secured debt of the Operating Partnership outstanding as of June 30, 2012 was as follows:



	Aggregate Principal Amount Outstanding
	(in thousands)
Unsecured Term Loan Facility due 2016	$	150,000
4.25% Exchangeable Notes due 2014 ⁽¹⁾	172,500
Unsecured Senior Notes due 2014	83,000
Unsecured Senior Notes due 2015 ⁽¹⁾	325,000
Unsecured Senior Notes due 2018 ⁽¹⁾	325,000
Unsecured Senior Notes due 2020 ⁽¹⁾	250,000
Secured Debt ⁽¹⁾	378,776
Total Exchangeable Notes, Unsecured Debt, and Secured Debt	$	1,684,276

________________________


(1)	Represents gross aggregate principal amount before the effect of the unamortized discounts and premiums as of June 30, 2012 .

Debt Composition

The composition of the Operating Partnership's aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt as of June 30, 2012 and December 31, 2011 was as follows:



	Percentage of Total Debt				Weighted Average Interest Rate
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Secured vs. unsecured:
Unsecured ⁽¹⁾	78.8	%	80.9	%	4.7	%	4.7	%
Secured	21.2		19.1		5.0		5.2
Variable-rate vs. fixed-rate:
Variable-rate	14.1		9.9		2.0		2.0
Fixed-rate ⁽¹⁾	85.9		90.1		5.2		5.1
Stated rate ⁽¹⁾					4.8		4.8
GAAP effective rate ⁽²⁾					5.0		5.2
GAAP effective rate including debt issuance costs					5.4	%	5.6	%

________________________


(1)	Excludes the impact of the amortization of any debt discounts/premiums.


(2)	Includes the impact of the amortization of any debt discounts/premiums, excluding debt issuance costs.

Liquidity Uses

Contractual Obligations

The following table provides information with respect to our contractual obligations as of June 30, 2012 . The table: (i) indicates the maturities and scheduled principal repayments of our secured debt, 4.25% Exchangeable Notes, unsecured debt, and Credit Facility; (ii) indicates the scheduled interest payments of our fixed−rate and variable−rate debt as of June 30, 2012 ; (iii) provides information about the minimum commitments due in connection with our ground lease obligations and other lease and contractual commitments; and (iv) provides estimated redevelopment and development commitments as of June 30, 2012 . Note that the table does not reflect our available debt maturity extension options and reflects gross aggregate principal amounts before the effect of unamortized discounts/premiums.



	Payment Due by Period
	Less than 1 Year (Remainder of 2012)		1–3 Years (2013-2014)		4–5 Years (2015-2016)		More than 5 Years (After 2016)		Total
	(in thousands)
Principal payments—secured debt ⁽¹⁾	$	2,051	$	13,316	$	75,179	$	288,230	$	378,776
Principal payments—4.25% Exchangeable Notes ⁽²⁾	—		172,500		—		—		172,500
Principal payments—unsecured debt ⁽³⁾	—		83,000		475,000		575,000		1,133,000
Principal payments—Credit Facility	—		—		102,000		—		102,000
Interest payments—fixed-rate debt ⁽⁴⁾	39,678		156,335		109,773		130,602		436,388
Interest payments—variable-rate debt ⁽⁵⁾	2,520		10,080		7,150		—		19,750
Ground lease obligations ⁽⁶⁾	29,638		6,190		6,190		163,019		205,037
Lease and contractual commitments ⁽⁷⁾	45,748		4,308		1,835		—		51,891
Redevelopment and development commitments ⁽⁸⁾	48,000		104,000		—		—		152,000
Total	$	167,635	$	549,729	$	777,127	$	1,156,851	$	2,651,342

________________________


(1)	Represents gross aggregate principal amount before the effect of the unamortized premium of approximately $2.3 million as of June 30, 2012 .


(2)	Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $10.7 million as of June 30, 2012 .


(3)	Represents gross aggregate principal amount before the effect of the unamortized discount of approximately $2.2 million as of June 30, 2012 .


(4)	As of June 30, 2012 , 85.9% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed−rate payments based on the contractual interest rates, interest payment dates, and scheduled maturity dates.

(5)

As of June 30, 2012 , 14.1% of our debt bore interest at variable rates which was incurred under the Unsecured Term Loan Facility and Credit Facility. The variable interest rate payments are based on LIBOR plus a spread of 1.750% as of June 30, 2012 . The information in the table above reflects our projected interest rate obligations for these variable−rate payments based on outstanding principal balances as of June 30, 2012 , the scheduled interest payment dates, and the contractual maturity dates.

(6)

Reflects minimum lease payments as discussed in Note 11 to our consolidated financial statements, through the contractual lease expiration date before the impact of extension options. This table also assumes that for one of our ground leases the Company exercises the purchase option at the end of 2012 for an estimated purchase price not to exceed $27.5 million. (See Note 11 to our consolidated financial statements included in this report for additional information).


(7)	Amounts represent commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements. The timing of these expenditures may fluctuate.


(8)	Amounts represent contractual commitments for redevelopment and development projects under construction at June 30, 2012 . The timing of these expenditures may fluctuate based on the ultimate progress of construction.

Other Potential Liquidity Uses

In 2011 we acquired eleven buildings for approximately $603.3 million in cash and through June 30, 2012 we have acquired ten buildings for approximately $272.3 million in cash, all of which we funded through various capital raising activities, and in selected instances, the assumption of existing indebtedness. In addition, during the second quarter of 2012, we acquired a development opportunity for approximately $84.0 million, which was comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other accrued liabilities. The development project is expected to encompass approximately 341,000 rentable square feet upon completion, and is 100% pre-leased to a single tenant. We continually evaluate acquisition and development opportunities as they arise. In addition to ongoing and potential acquisitions of office properties, we have increased our focus on the acquisition of undeveloped land, development and redevelopment opportunities. The pursuit of these opportunities may increase, perhaps substantially, when compared to the level of similar acquisitions over the last two years.

As of the filing date, we have closed on two additional office property acquisitions and one additional office development opportunity and are in various stages of negotiation on other potential future acquisition opportunities including potential joint venture opportunities. We expect that any material acquisitions or development activities will be funded with borrowings under our Credit Facility, the public or private issuance of debt or equity securities, or through the disposition of assets under our capital recycling program.

In addition, the amounts we are required to spend on tenant improvements and leasing costs we ultimately incur will depend on actual leasing activity. Tenant improvements and leasing costs generally fluctuate in any given period depending on factors such as the type of property, the term of the lease, the type of the lease, the involvement of external leasing agents, and overall market conditions. Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to maintain or improve our properties.

Factors That May Influence Future Sources of Capital and Liquidity of the Company and the Operating Partnership

We continue to evaluate sources of financing for our business activities, including borrowings under the Credit Facility, issuance of public and private equity securities, unsecured debt and fixed-rate secured mortgage financing, and proceeds from the disposition of nonstrategic assets through our capital recycling program. However, the Operating Partnership's ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by various factors including the state of economic conditions, including the state of the credit and equity markets, significant tenant defaults, a decline in the demand for office or industrial properties, a decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of future borrowings. These events could result in the following:


•	Decreases in our cash flows from operations, which could create further dependence on our Credit Facility;


•	An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and


•	A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership's ability to incur additional debt, refinance existing debt at competitive rates, or comply with its existing debt obligations.

In addition to the factors noted above, the Operating Partnership's credit ratings are subject to ongoing evaluation by credit rating agencies and may be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. In the event that the Operating Partnership's credit ratings are downgraded, we may incur higher borrowing costs and may experience difficulty in obtaining additional financing or refinancing existing indebtedness.

Debt Covenants

The Credit Facility, Unsecured Term Loan Facility, unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Key existing financial covenants and their covenant levels include:



Credit Facility and Unsecured Term Loan Facility (as defined in the applicable Credit Agreements):	Covenant Level	Actual Performance at June 30, 2012 ⁽¹⁾
Total debt to total asset value	less than 60%	34%
Fixed charge coverage ratio	greater than 1.5x	2.3x
Unsecured debt ratio	greater than 1.67x	2.53x
Unencumbered asset pool debt service coverage	greater than 2.0x	3.3x


Unsecured Senior Notes due 2015, 2018 and 2020 (as defined in the applicable Indentures):
Total debt to total asset value	less than 60%	40%
Interest coverage	greater than 1.5x	3.1x
Secured debt to total asset value	less than 40%	8%
Unencumbered asset pool value to unsecured debt	greater than 150%	259%

________________________


(1)	In March 2012, we amended the Credit Facility to reduce the FMV Cap Rate (as defined in the Credit Facility), which is used to calculate the fair value of our assets for certain covenants under the Credit Facility, from 7.50% to 6.75%.

The Operating Partnership was in compliance with all its debt covenants as of June 30, 2012 . Our current expectation is that the Operating Partnership will continue to meet the requirements of its debt covenants in both the short and long term. However, in the event of a renewed economic slow down or continued volatility in the credit markets, there is no certainty that the Operating Partnership will be able to continue to satisfy all the covenant requirements.

Consolidated Historical Cash Flow Summary

Our historical cash flow activity for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 is as follows:



	Six Months Ended June 30,
	2012			2011			Dollar Change			Percentage Change
	($ in thousands)
Net cash provided by operating activities	$	78,633		$	56,465		$	22,168		39.3	%
Net cash used in investing activities	(301,592		)	(435,519		)	133,927			(30.8	)%
Net cash provided by financing activities	236,293			389,626			(153,333		)	(39.4	)%

Operating Activities

Our cash flows from operations depends on numerous factors including the occupancy level of our portfolio, the rental rates achieved on our leases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions and related interest costs, and other general and administrative costs. Our net cash provided by operating activities increased by $22.2 million , or 39.3% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 primarily as a result of an increase in cash Net Operating Income generated primarily from our Office Acquisition Properties partially offset by a decrease in cash Net Operating Income as a result of the loss of income related to the disposition of five properties subsequent to June 30, 2011. See additional information under the caption "−Results of Operations."

Investing Activities

Our net cash used in investing activities is generally used to fund property acquisitions, recurring and nonrecurring capital expenditures for our operating properties, and development and redevelopment projects. Our net cash used in investing activities decreased $133.9 million , or 30.8% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 . This net decrease was primarily attributable to $143.2 million of net proceeds received from the disposition of two operating properties in the first quarter of 2012.

Financing Activities

Our net cash provided by financing activities is generally impacted by our capital raising activities net of dividends and distributions paid to common and preferred security holders. Net cash provided by financing activities decreased by $153.3 million , or 39.4% , for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 . The decrease in cash provided by financing activities was primarily attributable to the repayment of debt utilizing the $143.2 million of net proceeds received from the disposition of the two operating properties discussed above. See additional information under the caption "Liquidity and Capital Resources of the Operating Partnership—Summary of 2012 Funding Transactions."

Off-Balance Sheet Arrangements

As of June 30, 2012 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements, or obligations, including contingent obligations.

Non-GAAP Supplemental Financial Measure: Funds From Operations

We calculate FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP,

gains and losses from sales of depreciable real estate and impairment write−downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures.

We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone would provide.

However, FFO should not be viewed as an alternative measure of 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 FFO for the three and six months ended June 30, 2012 and 2011 :



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in thousands)
Net (loss) income available to common stockholders	$	(800	)	$	(317	)	$	66,740		$	717
Adjustments:
Net (loss) income attributable to noncontrolling common units of the Operating Partnership	(20		)	(10		)	1,775			24
Depreciation and amortization of real estate assets	40,328			31,970			76,792			61,029
Net gain on dispositions of discontinued operations	—			—			(72,809		)	—
Funds From Operations ⁽¹⁾	$	39,508		$	31,643		$	72,498		$	61,770

________________________


(1)	Reported amounts are attributable to common stockholders and common unitholders.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risk we face is interest rate risk. We mitigate this risk by following established risk management policies and procedures. These policies include maintaining prudent amounts of debt, including a greater amount of fixed−rate debt as compared to variable−rate debt in our portfolio, and may include the periodic use of derivative instruments. As of June 30, 2012 and December 31, 2011, we did not have any interest−rate sensitive derivative assets or liabilities.

Information about our changes in interest rate risk exposures from December 31, 2011 to June 30, 2012 is incorporated herein by reference from "Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership.”

Market Risk

As of June 30, 2012, approximately 14.1% of our total outstanding debt of $1.8 billion was subject to variable interest rates. The remaining 85.9% bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes.

In general, interest rate fluctuations applied to our variable−rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuations applied to our fixed−rate debt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated and need to be refinanced. However, interest rate fluctuations will impact the fair value of the fixed−rate debt instruments.

We generally determine the fair value of our secured debt, unsecured line of credit, and unsecured term loan facility by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market rate by obtaining period−end treasury rates for maturities that correspond to the maturities of our fixed−rate debt and then adding an appropriate credit spread based on information obtained from third−party financial institutions. We calculate the market rate of our unsecured line of credit and unsecured term loan facility by obtaining the period−end LIBOR rate and then adding an appropriate credit spread based on information obtained from third−party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan−to−value ratio of the debt to the collateral. These calculations are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow. We determine the fair value of the liability component of our Exchangeable Notes by performing discounted cash flow analyses using an appropriate market interest rate based upon spreads for our publicly traded debt. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end of the reporting period. See Note 12 to our consolidated financial statements included in this report for additional information on the fair value of our financial assets and liabilities as of June 30, 2012 and December 31, 2011.

As of June 30, 2012, the total outstanding balance of our variable−rate debt was comprised of borrowings on our Credit Facility of $102.0 million and borrowings on our Unsecured Term Loan Facility of $150.0 million, which were indexed to LIBOR plus a spread of 1.750% (weighted average interest rate of 2.00% ). As of December 31, 2011, the total outstanding balance of our variable−rate debt was comprised of borrowings of $182.0 million on our Credit Facility, which was indexed to LIBOR plus a spread of 1.750% (weighted average interest rate was 2.05%). Assuming no changes in the outstanding balance of our existing variable−rate debt as of June 30, 2012, a 100 basis point increase in the LIBOR rate would increase our projected annual interest expense, before the effect of capitalization, by approximately $2.5 million. Comparatively, if interest rates were 100 basis points higher as of December 31, 2011, our projected annual interest expense, before the effect of capitalization, would have been $1.8 million higher.

The total carrying value of our fixed−rate debt, including our Exchangeable Notes, was approximately $1.5 billion and $1.6 billion as of June 30, 2012 and December 31, 2011, respectively. The total estimated fair value of our fixed−rate debt was approximately $1.6 billion and $1.7 billion as of June 30, 2012 and December 31, 2011, respectively. For sensitivity purposes, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed−rate debt of approximately $62.6 million, or 3.8%, as of June 30, 2012. Comparatively, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed−rate debt of approximately $64.2 million, or 3.8%, as of December 31, 2011.


ITEM 4.	CONTROLS AND PROCEDURES

Kilroy Realty Corporation

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act 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), the Company 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, 2012 , the end of the period covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded, as of that time, that 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 the Company's 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.

Kilroy Realty, L.P.

The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Operating Partnership's reports under the Exchange Act 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), the Operating Partnership 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, 2012 , the end of the period covered by this report. Based on the foregoing, the Operating Partnership's Chief Executive Officer and Chief Financial Officer concluded, as of that time, that 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 the Operating Partnership's 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.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our properties are subject to routine litigation incidental to our business. As of June 30, 2012 , we are not a defendant in, and our properties are not subject to, any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect upon our financial condition, results of operations, or cash flows.


ITEM 1A.	RISK FACTORS

There have been no material changes to the risk factors included in the Company's and the Operating Partnership's annual report on Form 10-K for the year ended December 31, 2011 .


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS-None


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES-None


ITEM 4.	MINE SAFETY DISCLOSURES-None


ITEM 5.	OTHER INFORMATION-None


ITEM 6.	EXHIBITS



Exhibit Number		Description

3.(i)1*		Kilroy Realty Corporation Articles of Restatement

3.(i)2		Certificate of Limited Partnership of Kilroy Realty, L.P. ⁽¹⁾

3.(i)3		Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. ⁽¹⁾

3.(ii)1		Second Amended and Restated Bylaws of Kilroy Realty Corporation ⁽²⁾

3.(ii)2		Amendment No. 1 to Second Amended and Restated Bylaws of Kilroy Realty Corporation ⁽³⁾

3.(ii)3		Sixth Amendment and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., dated March 27, 2012 ⁽⁴⁾

4.1*		Registration Rights Agreement dated July 31, 2012

10.1		Promissory Note, dated June 28, 2012 ⁽⁵⁾

10.2		Loan Agreement dated June 28, 2012, by and between KR MML 12701, LLC and Massachusetts Mutual Life Insurance Company ⁽⁵⁾

10.3		Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Irvine) for 2211 Michelson Drive, Irvine, California, dated June 28, 2012 ⁽⁵⁾

10.4		Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Santa Monica) for 2100-2110 Colorado Avenue, Santa Monica, California, dated June 28, 2012 ⁽⁵⁾

10.5		Recourse Guaranty Agreement, dated June 28, 2012 ⁽⁵⁾

10.6		Environmental Indemnification Agreement, dated June 28, 2012 ⁽⁵⁾

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation

31.3*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.

31.4*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty, L.P.

32.1*		Section 1350 Certification of Chief Executive Officer of Kilroy Realty Corporation

32.2*		Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation

32.3*		Section 1350 Certification of Chief Executive Officer of Kilroy Realty, L.P.

32.4*		Section 1350 Certification of Chief Financial Officer of Kilroy Realty, L.P.

101.1		The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Equity (unaudited), (iv) Consolidated Statements of Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to the Consolidated Financial Statements (unaudited). ⁽⁶⁾

________________________


*	Filed herewith


†	Management contract or compensatory plan or arrangement


(1)	Previously filed by Kilroy Realty, L.P. as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010.


(2)	Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2008.


(3)	Previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 27, 2009.


(4)	Previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 2, 2012.


(5)	Previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012.


(6)	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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 August 2, 2012 .



KILROY REALTY CORPORATION

	By:	/s/ John B. Kilroy, Jr.
		John B. Kilroy, Jr. President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Tyler H. Rose
		Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer)

	By:	/s/ Heidi R. Roth
		Heidi R. Roth Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

SIGNATURES



KILROY REALTY, L.P.

BY:	KILROY REALTY CORPORATION
	Its general partner

	By:	/s/ John B. Kilroy, Jr.
		John B. Kilroy, Jr. President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Tyler H. Rose
		Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer)

	By:	/s/ Heidi R. Roth
		Heidi R. Roth Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

Exhibit 3.(i)1

KILROY REALTY CORPORATION

ARTICLES OF RESTATEMENT

KILROY REALTY CORPORATION, a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “Department”) that:

FIRST : The Corporation desires to and does hereby restate in its entirety the charter of the Corporation (the “Charter”) as currently in effect pursuant to Section 2-608 of the Maryland General Corporation Law (the “MGCL”).

SECOND : The following provisions, together with the provisions of the Articles Supplementary relating to the 7.45% Series A Cumulative Redeemable Preferred Stock of the Corporation attached hereto as Exhibit I and the Articles Supplementary relating to the 6.875% Series G Cumulative Redeemable Preferred Stock of the Corporation attached hereto as Exhibit II, both of which are incorporated herein by reference, are all the provisions of the Charter currently in effect, as restated herein:

ARTICLE I

NAME OF THE CORPORATION

The name of the corporation (hereinafter the “ Corporation ”) is:

Kilroy Realty Corporation

ARTICLE II

RESIDENT AGENT; PRINCIPAL OFFICE IN STATE

The address of the Corporation's principal office in the State of Maryland is ℅ Ballard Spahr LLP, 300 E. Lombard Street, 18 ^th Floor, Baltimore, Maryland 21202. The name of the Corporation's resident agent is Charles R. Moran, Esq., whose address is ℅ Ballard Spahr LLP, 300 E. Lombard Street, 18 ^th Floor, Baltimore, Maryland 21202, said resident agent being a citizen of the state of Maryland residing therein.

ARTICLE III

PURPOSE OF THE CORPORATION

The purpose for which the Corporation is formed is to engage in any lawful act or activity (including, without limitation or obligation, engaging in business as a real estate investment trust (a “ REIT ”) under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended, or any successor statute of similar import (the “ Code ”)) for which corporations may be organized under the Maryland General Corporation Law, as amended from time to time, and any successor statute hereafter enacted (the “ MGCL ”).

ARTICLE IV

AUTHORIZED CAPITAL STOCK

The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 180,000,000, consisting of 150,000,000 shares of common stock, par value $.01 per share (the “ Common Stock ”), and 30,000,000 shares of preferred stock, par value $.01 per share (the “ Preferred Stock ”) which may be issued in one or more classes as described in Paragraph C of this Article IV . The aggregate par value of all of the Corporation's authorized shares having par value is $1,800,000. The Common Stock and each class of the Preferred Stock shall each constitute a separate class of capital stock of the Corporation.

The following is a description of each of the classes of stock of the Corporation and a statement of the powers, preferences and rights of such stock, and the qualifications, limitations and restrictions thereof:

A. Voting Rights .

1. Common Stock . Except as may otherwise be required by law, and subject to the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to Paragraph C of this Article IV granting the holders of one or more classes of Preferred Stock exclusive voting powers with respect to any matter, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders.

2. Preferred Stock . Except as may otherwise be required by law, and subject to the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to Paragraph C of this Article IV granting the holders of one or more classes of Preferred Stock voting powers with respect to any matter, the Preferred Stock shall have no voting rights and shall have no rights to receive notice of any meetings except as expressly provided in the resolution establishing any class thereof.

B. Terms of Common Stock . The Common Stock shall be subject to the express terms of the Preferred Stock or any classes thereof.

1. Dividend Rights . After the provisions with respect to preferential dividends on any class of Preferred Stock (fixed in accordance with the provisions of Paragraph C of this Article IV ), if any, shall have been satisfied and after the Corporation shall have complied with all the requirements, if any, with respect to redemption of, or the setting aside of sums as sinking funds or redemption or purchase accounts with respect to, any class of Preferred Stock (fixed in accordance with the provisions of Paragraph C of this Article IV ), and subject further to any other conditions that may be fixed in accordance with the provisions of Paragraph C of this Article IV , then, and not otherwise, the holders of Common Stock shall be entitled to receive such dividends as may be authorized and declared from time to time by the Board of Directors out of funds legally available therefor. All distributions paid with respect to the Common Stock shall be paid pro rata, with no preference to any share of Common Stock as compared with other shares of Common Stock.

2. Rights Upon Liquidation . In the event of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after distribution in full of the preferential amounts, if any (fixed in accordance with the provisions of Paragraph C of this Article IV ), to be distributed to the holders of Preferred Stock by reason thereof, the holders of Common Stock shall, subject to the additional rights, if any (fixed in accordance with the provisions of Paragraph C of this Article IV ), of the holders of any outstanding shares of Preferred Stock, be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them.

C. Issuance and Terms of Preferred Stock . The Preferred Stock may be issued, from time to time, in one or more classes, and each class shall be known and designated by such designations, as may be stated and expressed in a resolution or resolutions adopted by the Board of Directors of the Corporation and as shall have been set forth in articles supplementary made, executed, acknowledged, filed and recorded in the manner required by the

MGCL in order to make the same effective. Each class shall consist of such number of shares as shall be stated and expressed in such resolution or resolutions providing for the issue of Preferred Stock of such class together with such additional number of shares as the Board of Directors by resolution or resolutions may from time to time determine to issue as a part of such class. All shares of any one class of such Preferred Stock shall be alike in every particular except that shares issued at different times may accumulate dividends from different dates. The Board of Directors shall have power and authority to state and determine in the resolution or resolutions providing for the issue of each class of Preferred Stock the number of shares of each such class authorized to be issued, the voting powers (if any) and the designations, preferences and relative, participating, optional, conversion or other rights appertaining to each such class, and the qualifications, limitations or restrictions thereof (including, but not by way of limitation, full power and authority to determine as to the Preferred Stock of each such class, the rate or rates of dividends payable thereon, the times of payment of such dividends, the prices and manner upon which the Preferred Stock may be redeemed, the amount or amounts payable thereon in the event of liquidation, dissolution or winding up of the Corporation or in the event of any merger or consolidation of or sale of assets by the Corporation, the rights (if any) to convert the Preferred Stock into, and/or to purchase, stock of any other class or series, the terms of any sinking fund or redemption or purchase account (if any) to be provided for shares of such class of Preferred Stock, restrictions on ownership and transfer to preserve tax benefits, and the voting powers (if any) of the holders of any class of Preferred Stock generally or with respect to any particular matter, which may be less than, equal to or greater than one vote per share, and which may, without limiting the generality of the foregoing, include the right, voting as a class by itself or together with the holders of any other class of Preferred Stock or all classes of Preferred Stock as a single class, to elect one or more directors of the Corporation generally or under such specific circumstances and on such conditions, as shall be provided in the resolution or resolutions of the Board of Directors adopted pursuant hereto, including, without limitation, in the event there shall have been a default in the payment of dividends on or redemption of any one or more classes of Preferred Stock). The Board of Directors may from time to time decrease the number of shares of any class of Preferred Stock (but not below the number thereof then outstanding) by providing that any unissued shares previously assigned to such class shall no longer constitute part thereof and may assign such unissued shares to an existing or newly created class. The foregoing provisions of this Paragraph C with respect to the creation or issuance of classes of Preferred Stock shall be subject to any additional conditions with respect thereto which may be contained in any resolutions then in effect which shall have theretofore been adopted in accordance with the foregoing provisions of this Paragraph C with respect to any then outstanding class of Preferred Stock.

D. Authorization of Capital Stock; Issuance and Reclassification of Shares . The Board of Directors may authorize the issuance from time to time of shares of its capital stock of any class or series whether now or hereafter authorized, or securities convertible into shares of its capital stock of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Charter of the Corporation or the Bylaws of the Corporation, or in the MGCL. In addition, the Board of Directors shall have the power, in its sole discretion without limitation, to classify or reclassify any unissued shares of capital stock of the Corporation, whether now or hereafter authorized, by setting, altering or eliminating, in any one or more respects, from time to time, before the issuance of such shares of capital stock of the Corporation, any feature of such shares including, but not limited to, the designation, par value, preferences or conversion or other rights, voting powers, qualifications and terms and conditions of redemption, limitations as to dividends and other distributions, restrictions on ownership and transfer to preserve tax benefits and any other restrictions on such shares.

E. Restrictions on Ownership and Transfer to Preserve Tax Benefits .

1. Definitions . For the purposes of Paragraph E of this Article IV , the following terms shall have the following meanings:

“ Beneficial Ownership ” shall mean ownership of Common Stock by a Person who is or would be treated as an owner of such Common Stock either actually or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “ Beneficial Owner ,” “ Beneficially Own ,” “ Beneficially Owns ” and “ Beneficially Owned ” shall have the correlative meanings.

“ Charitable Beneficiary ” shall mean one or more beneficiaries of a Trust, as determined pursuant to Subparagraph E(3)(f) of this Article IV .

“ Code ” shall have the meaning set forth in Article III hereof. All section references to the Code shall include any successor provisions thereof as may be adopted from time to time.

“ Common Stock ” shall have the meaning set forth in the preamble to Article IV hereof.

“ Corporation ” shall have the meaning set forth in the preamble to these Articles of Restatement.

“ Constructive Ownership ” shall mean ownership of Common Stock by a Person who is or would be treated as an owner of such Common Stock either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “ Constructive Owner ,” “ Constructively Own ,” “ Constructively Owns ” and “ Constructively Owned ” shall have the correlative meanings.

“ Initial Public Offering ” shall mean the sale of Common Stock pursuant to the Corporation's first effective registration statement for such Common Stock filed under the Securities Act of 1933, as amended.

“ IRS ” means the United States Internal Revenue Service.

“ Market Price ” shall mean the last reported sales price reported on the New York Stock Exchange of the Common Stock on the trading day immediately preceding the relevant date, or if the Common Stock is not then traded on the New York Stock Exchange, the last reported sales price of the Common Stock on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which the Common Stock may be traded, or if the Common Stock is not then traded over any exchange or quotation system, then the market price of the Common Stock on the relevant date as determined in good faith by the Board of Directors of the Corporation.

“ Operating Partnership ” shall mean Kilroy Realty, L.P., a Delaware limited partnership.

“ OP Units ” shall have the meaning set forth in Paragraph H of Article IV hereof.

“ Ownership Limit ” shall mean 7.0% (by value or by number of shares, whichever is more restrictive) of the outstanding Common Stock of the Corporation.

“ Partnership Agreement ” shall mean the Agreement of Limited Partnership of Kilroy Realty, L.P., as such agreement may be amended from time to time.

“ Person ” shall mean an individual, corporation, partnership, limited liability company, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity; but does not include an underwriter acting in a capacity as such in a public offering of shares of Common Stock provided that the ownership of such shares of Common Stock by such underwriter would not result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise result in the Corporation failing to qualify as a REIT.

“ Purported Beneficial Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph E(2)(b) of this Article IV , the purported beneficial transferee or owner for whom the Purported Record Transferee

would have acquired or owned shares of Common Stock, if such Transfer had been valid under Subparagraph E(2)(a) of this Article IV .

“ Purported Record Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph E(2)(b) of this Article IV , the record holder of the shares of Common Stock if such Transfer had been valid under Subparagraph E(2)(a) of this Article IV .

“ REIT ” shall mean a real estate investment trust under Sections 856 through 860 of the Code.

“ Restriction Termination Date ” shall mean the first day after the date of the Initial Public Offering on which (1) the Board of Directors of the Corporation determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT and (2) such determination is approved by the affirmative vote of the holders of not less than two-thirds of the shares of the Corporation's capital stock outstanding and entitled to vote thereon.

“ Transfer ” shall mean any sale, transfer, gift, assignment, devise or other disposition of Common Stock, including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Common Stock or (ii) the sale, transfer, assignment or other disposition of any securities (or rights convertible into or exchangeable for Common Stock), whether voluntary or involuntary, whether such transfer has occurred of record or beneficially or Beneficially or Constructively (including but not limited to transfers of interests in other entities which results in changes in Beneficial or Constructive Ownership of Common Stock), and whether such transfer has occurred by operation of law or otherwise.

“ Trust ” shall mean each of the trusts provided for in Subparagraph E(3) of this Article IV .

“ Trustee ” shall mean any Person unaffiliated with the Corporation, or a Purported Beneficial Transferee, or a Purported Record Transferee, that is appointed by the Corporation to serve as trustee of a Trust.

2. Restriction on Ownership and Transfers .

(a) From the date of the Initial Public Offering and prior to the Restriction Termination Date:

(i) except as provided in Subparagraph E(9) of this Article IV , no Person shall Beneficially Own Common Stock in excess of the Ownership Limit;

(ii) except as provided in Subparagraph E(9) of this Article IV , no Person shall Constructively Own in excess of 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of Common Stock of the Corporation; and

(iii) no Person shall Beneficially or Constructively Own Common Stock to the extent that such Beneficial or Constructive Ownership would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT (including but not limited to ownership that would result in the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation (either directly or indirectly through one or more partnerships) from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).

(b) If, during the period commencing on the date of the Initial Public Offering and prior

to the Restriction Termination Date, any Transfer (whether or not such Transfer is the result of a transaction entered into through the facilities of the New York Stock Exchange (“ NYSE ”)) or other event occurs that, if effective, would result in any Person Beneficially or Constructively Owning Common Stock in violation of Subparagraph E(2)(a) of this Article IV , (i) then that number of shares of Common Stock that otherwise would cause such Person to violate Subparagraph E(2)(a) of this Article IV (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Subparagraph E(3) , effective as of the close of business on the business day prior to the date of such Transfer or other event, and such Purported Beneficial Transferee shall thereafter have no rights in such shares or (ii) if, for any reason, the transfer to the Trust described in clause (i) of this sentence is not automatically effective as provided therein to prevent any Person from Beneficially or Constructively Owning Common Stock in violation of Subparagraph E(2)(a) of this Article IV , then the Transfer of that number of shares of Common Stock that otherwise would cause any Person to violate Subparagraph E(2)(a) shall be void ab initio , and the Purported Beneficial Transferee shall have no rights in such shares.

(c) Subject to Paragraph K of this Article IV and notwithstanding any other provisions contained herein, during the period commencing on the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Common Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE) that, if effective, would result in the capital stock of the Corporation being beneficially owned by less than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio , and the intended transferee shall acquire no rights in such Common Stock.

(d) It is expressly intended that the restrictions on ownership and Transfer described in this Subparagraph E(2) of Article IV shall apply to the redemption/exchange rights provided in Section 8.6 of the Partnership Agreement. Notwithstanding any of the provisions of the Partnership Agreement to the contrary, a partner of the Operating Partnership shall not be entitled to effect an exchange of an interest in the Operating Partnership for Common Stock if the actual or beneficial or Beneficial or Constructive ownership of Common Stock would be prohibited under the provisions of this Article IV .

3. Transfers of Common Stock in Trust .

(a) Upon any purported Transfer or other event described in Subparagraph E(2)(b) of this Article IV , such Common Stock shall be deemed to have been transferred to the Trustee in his capacity as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the business day prior to the purported Transfer or other event that results in a transfer to the Trust pursuant to Subparagraph E(2)(b) . The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation, any Purported Beneficial Transferee, and any Purported Record Transferee. Each Charitable Beneficiary shall be designated by the Corporation as provided in Subparagraph E(3)(f) of this Article IV .

(b) Common Stock held by the Trustee shall be issued and outstanding Common Stock of the Corporation. The Purported Beneficial Transferee or Purported Record Transferee shall have no rights in the shares of Common Stock held by the Trustee. The Purported Beneficial Transferee or Purported Record Transferee shall not benefit economically from ownership of any shares held in trust by the Trustee, shall have no rights to dividends and shall not possess any rights to vote or other rights attributable to the shares of Common Stock held in the Trust.

(c) The Trustee shall have all voting rights and rights to dividends with respect to Common Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or distribution paid prior to the discovery by the Corporation that shares of Common Stock have been transferred to the Trustee shall be paid to the Trustee upon demand, and any dividend or distribution declared but unpaid shall be paid when due to the Trustee with respect to such Common Stock. Any dividends or distributions so paid over to the Trustee shall be held in trust for the Charitable Beneficiary. The Purported Record Transferee and Purported Beneficial Transferee shall have no voting rights with respect to the Common Stock held in the Trust and, subject to Maryland law, effective as of the date the Common Stock has been transferred to the Trustee, the Trustee shall have the authority (at the Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported Record Transferee with respect to such Common Stock prior to the discovery by the Corporation that the Common Stock has

been transferred to the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary; provided , however , that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article IV , until the Corporation has received notification that the Common Stock has been transferred into a Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of stockholders.

(d) Within 20 days of receiving notice from the Corporation that shares of Common Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares of Common Stock held in the Trust to a person, designated by the Trustee, whose ownership of the shares of Common Stock will not violate the ownership limitations set forth in Subparagraph E(2)(a) . Upon such sale, the interest of the Charitable Beneficiary in the shares of Common Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and to the Charitable Beneficiary as provided in this Subparagraph E(3)(d) . The Purported Record Transferee shall receive the lesser of (i) the price paid by the Purported Record Transferee for the shares of Common Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Common Stock at Market Price, the Market Price of such shares of Common Stock on the day of the event which resulted in the transfer of such shares of Common Stock to the Trust) and (ii) the price per share received by the Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares of Common Stock held in the Trust. Any net sales proceeds in excess of the amount payable to the Purported Record Transferee shall be immediately paid to the Charitable Beneficiary together with any dividends or other distributions thereon. If, prior to the discovery by the Corporation that shares of such Common Stock have been transferred to the Trustee, such shares of Common Stock are sold by a Purported Record Transferee then (x) such shares of Common Stock shall be deemed to have been sold on behalf of the Trust and (y) to the extent that the Purported Record Transferee received an amount for such shares of Common Stock that exceeds the amount that such Purported Record Transferee was entitled to receive pursuant to this Subparagraph E(3)(d) , such excess shall be paid to the Trustee upon demand.

(e) Common Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price paid by the Purported Record Transferee for the shares of Common Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Common Stock at Market Price, the Market Price of such shares of Common Stock on the day of the event which resulted in the transfer of such shares of Common Stock to the Trust) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer until the Trustee has sold the shares of Common Stock held in the Trust pursuant to Subparagraph E(3)(d) . Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares of Common Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and any dividends or other distributions held by the Trustee with respect to such Common Stock shall thereupon be paid to the Charitable Beneficiary.

(f) By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that (i) the shares of Common Stock held in the Trust would not violate the restrictions set forth in Subparagraph E(2)(a) in the hands of such Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code.

4. Remedies For Breach . If the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall at any time determine in good faith that a Transfer or other event has taken place in violation of Subparagraph E(2) of this Article IV or that a Person intends to acquire, has attempted to acquire or may acquire beneficial ownership (determined without reference to any rules of attribution), Beneficial Ownership or Constructive Ownership of any shares of the Corporation in violation of Subparagraph E(2) of this Article IV , the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall take such action as it deems advisable to refuse to give effect or to prevent such Transfer, including, but not limited to, causing the Corporation to redeem shares of Common Stock, refusing to give effect to such Transfer on the books of the Corporation or instituting

proceedings to enjoin such Transfer; provided , however , that any Transfers (or, in the case of events other than a Transfer, ownership or Constructive Ownership or Beneficial Ownership) in violation of Subparagraph E(2)(a) of this Article IV , shall automatically result in the transfer to a Trust as described in Subparagraph E(2)(b) and any Transfer in violation of Subparagraph E(2)(c) shall automatically be void ab initio irrespective of any action (or non-action) by the Board of Directors.

5. Notice of Restricted Transfer . Any Person who acquires or attempts to acquire shares in violation of Subparagraph E(2) of this Article IV , or any Person who is a Purported Beneficial Transferee such that an automatic transfer to a Trust results under Subparagraph E(2)(b) of this Article IV , shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Corporation's status as a REIT.

6. Owners Required to Provide Information . From the date of the Initial Public Offering and prior to the Restriction Termination Date each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of shares of Common Stock and each Person (including the stockholder of record) who is holding shares of Common Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall, on demand, provide to the Corporation a completed questionnaire containing the information regarding their ownership of such shares, as set forth in the regulations (as in effect from time to time) of the U.S. Department of Treasury under the Code. In addition, each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of shares of Common Stock and each Person (including the stockholder of record) who is holding shares of Common Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall, on demand, be required to disclose to the Corporation in writing such information as the Corporation may request in order to determine the effect, if any, of such stockholder's actual and constructive ownership of shares of Common Stock on the Corporation's status as a REIT and to ensure compliance with the Ownership Limit, or such other limit as provided from time to time in these Articles of Restatement or as otherwise permitted by the Board of Directors.

7. Remedies Not Limited . Nothing contained in this Article IV (but subject to Paragraph K of this Article IV ) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation's status as a REIT.

8. Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Paragraph E of this Article IV , including any definition contained in Subparagraph E(1) , the Board of Directors shall have the power to determine the application of the provisions of this Paragraph E with respect to any situation based on the facts known to it (subject, however, to the provisions of Paragraph K of this Article IV ). In the event Paragraph E requires an action by the Board of Directors and these Articles of Restatement fail to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Paragraph E . Absent a decision to the contrary by the Board of Directors (which the Board may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Subparagraph E(2)(b) ) acquired Beneficial or Constructive Ownership of Common Stock in violation of Subparagraph E(2)(a) , such remedies (as applicable) shall apply first to the shares of Common Stock which, but for such remedies, would have been actually owned by such Person, and second to shares of Common Stock which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such shares of Common Stock based upon the relative number of the shares of Common Stock held by each such Person.

9. Exceptions .

(a) Subject to Subparagraph E(2)(a)(iii) , the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Beneficially Owning shares of Common Stock in excess of the Ownership Limit if the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual's Beneficial Ownership of such shares of Common Stock will violate the Ownership Limit or that any such violation will not cause the Corporation to fail to qualify as a REIT under

the Code, and agrees that any violation of such representations or undertaking (or other action which is contrary to the restrictions contained in Subparagraph E(2) of this Article IV ) or attempted violation will result in such Common Stock being transferred to a Trust in accordance with Subparagraph E(2)(b) of this Article IV .

(b) Subject to Subparagraph E(2)(a)(iii) , the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Constructively Owning Common Stock in excess of 9.8% (by value or by number of shares of Common Stock, whichever is more restrictive) of the outstanding shares of Common Stock of the Corporation, if such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Corporation (or a tenant of any entity owned in whole or in part by the Corporation) that would cause the Corporation to own, actually or Constructively more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Corporation obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact and agrees that any violation or attempted violation will result in such Common Stock being transferred to a Trust in accordance with Subparagraph E(2)(b) of this Article IV . Notwithstanding the foregoing, the inability of a Person to make the certification described in this Subparagraph E(9)(b) shall not prevent the Board of Directors, in its sole discretion, from exempting such Person from the limitation on a Person Constructively Owning Common Stock in excess of 9.8% of the outstanding shares of Common Stock if the Board of Directors determines that the resulting application of Section 856(d)(2)(B) of the Code would affect the characterization of less than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the Code) of the Corporation in any taxable year, after taking into account the effect of this sentence with respect to all other Common Stock to which this sentence applies.

(c) Prior to granting any exception pursuant to Subparagraph E(9)(a) or (b) of this Article IV , the Board of Directors may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation's status as a REIT.

F. Preemptive Rights . No holder of shares of stock of any class shall have any preemptive or preferential right to subscribe or to purchase any additional shares of any class, or any bonds or convertible securities of any nature; provided , however , that the Board of Directors may, in authorizing the issuance of shares of stock of any class or series, confer any preemptive or preferential right that the Board of Directors may deem advisable in connection with such issuance.

G. Legends . Each certificate for Common Stock and Preferred Stock shall bear the following legends:

Class of Stock

THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE CORPORATION'S CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE

SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.

Restriction on Ownership and Transfer

THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 7.0% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING “CLOSELY HELD” UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY TRANSFER SHARES OF COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO . ALL TERMS IN THIS LEGEND THAT ARE DEFINED IN THE CHARTER OF THE CORPORATION SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SHARES OF COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.

H. Exchange of OP Units . So long as the Corporation remains the general partner of the Operating Partnership, the Board of Directors of the Corporation is hereby expressly vested with authority (subject to the restrictions on ownership, transfer and redemption of Common Stock set forth in this Article IV ) to issue, and shall issue to the extent provided in the Partnership Agreement, Common Stock in exchange for the units into which partnership interests of the Operating Partnership are divided (the “ OP Units ”), and as the same may be adjusted, as provided in the Partnership Agreement.

I. Reservation of Shares . Pursuant to the obligations of the Corporation under the Partnership Agreement to issue Common Stock in exchange for OP Units, the Board of Directors is hereby required to reserve and authorize for issuance a sufficient number of authorized but unissued shares of Common Stock to permit the Corporation to issue Common Stock in exchange for OP Units that may be exchanged for or converted into Common Stock as

provided in the Partnership Agreement.

J. Severability . If any provision of this Article IV or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

K. NYSE . Nothing in this Article IV shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. The shares of Common Stock that are the subject of such transaction shall continue to be subject to the provisions of this Article IV after such settlement.

ARTICLE V

CORPORATE EXISTENCE

The Corporation is to have perpetual existence.

ARTICLE VI

BOARD OF DIRECTORS

A. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. The Corporation shall have a board of six (6) directors until that number is increased or decreased in accordance with the Bylaws of the Corporation, or as contemplated by the provisions of Paragraph D of this Article VI . However, the number of directors shall never be less than the minimum number required by the MGCL. At least a majority of the directors shall be Independent Directors (as defined in the next sentence). An Independent Director is a director who is not an employee, officer or affiliate of the Corporation or Kilroy Industries or a subsidiary or division thereof, or a relative of a principal executive officer, or who is not an individual member of an organization acting as an advisor, consultant or legal counsel receiving compensation on a continuing basis from the Corporation in addition to director's fees. The following persons shall be the directors of the Corporation until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal:

John B. Kilroy, Sr.

John B. Kilroy, Jr.

Dale F. Kinsella

William P. Dickey

Edward F. Brennan, Ph.D.

Scott S. Ingraham

B. Each director (other than any director who may be elected by holders of Preferred Stock as provided for pursuant to Article IV hereof), shall serve until the next annual meeting of stockholders following his election and until his successor is elected and qualified, or until his earlier death, retirement, resignation or removal.

C. Except as may otherwise be provided pursuant to Article IV hereof with respect to any rights of holders of Preferred Stock to elect additional directors or any agreement relating to the right to designate nominees for election to the Board of Directors, should a vacancy in the Board of Directors occur or be created (whether arising through death, retirement or resignation), such vacancy may be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the Board of Directors or, in the case of a vacancy resulting from an increase in the number of directors, by a majority of the Board of Directors. In the case of a vacancy created by the removal of a director, the vacancy shall be filled by the stockholders at the next annual meeting of the stockholders or at a special meeting of the stockholders called for such purpose, provided , however , that such vacancy may be filled by the affirmative vote of a majority of the remaining directors (subject to approval by the stockholders at the next annual meeting of the stockholders or at a special meeting of the stockholders called for such purpose). A director so elected to fill a vacancy shall serve until the next annual meeting of stockholders and until his successor is elected and qualified or until his earlier death, retirement, resignation or removal. If the stockholders of any class or series of

Preferred Stock are entitled separately to elect one or more directors, the stockholders of that class or series shall fill a vacancy on the Board of Directors which results from the removal of a director elected by that class or series.

D. During any period when the holders of any class of Preferred Stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of Article IV hereof, then upon commencement and for the duration of the period during which such right continues (i) the then otherwise total and authorized number of directors of the Corporation shall automatically be increased by that number of such additional directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant to said provisions, and (ii) each such additional director shall serve until such director's successor shall have been duly elected and qualified, or until such director's right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification, resignation or removal. Except as otherwise provided by the Board of Directors in the resolution or resolutions establishing such class, whenever the holders of any class of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the term of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate and the total and authorized number of directors of the Corporation shall be reduced accordingly.

ARTICLE VII

RELATED PARTY TRANSACTIONS

Without limiting any other procedures available by law or otherwise to the Corporation, the Board of Directors may authorize any agreement or other transaction with any person, corporation, association, company, trust, limited liability company, partnership (limited or general) or other organization, although one or more of the directors or officers of the Corporation may be a party to any such agreement or an officer, director, stockholder, member or partner (general or limited) of such other party (an “ Interested Officer/Director ”), and no such agreement or transaction shall be invalidated or rendered void or voidable solely by reason of the existence of any such relationship if: (i) the existence is disclosed or known to the Board of Directors, and the contract or transaction is authorized, approved or ratified by the affirmative vote of not less than a majority of the disinterested directors, even if they constitute less than a quorum of the Board of Directors; (ii) the existence is disclosed to the stockholders entitled to vote, and the contract or transaction is authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote, other than the votes of the shares held of record by the Interested Officers/Directors or by any corporation, association, company, trust, limited liability company, partnership (limited or general) or other organization in which any Interested Officer/Director is a director or has a material financial interest; or (iii) the contract or transaction is fair and reasonable to the Corporation. Any Interested Officer/Director, or the stock owned by them or by a corporation, association, company, trust, limited liability company, partnership (limited or general) or other organization in which an Interested Officer/Director may have an interest, may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee of the Board of Directors or at a meeting of the stockholders, as the case may be, at which the contract or transaction is authorized, approved or ratified.

ARTICLE VIII

DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION

A. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter of the Corporation or the Bylaws of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

B. The Corporation shall indemnify, in the manner and to the maximum extent permitted by law, any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether

civil, criminal, administrative, investigative, or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation or that such person while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, trustee, partner, member, agent or employee of another corporation, partnership, limited liability company, association, joint venture, trust or other enterprise. To the maximum extent permitted by law, the indemnification provided herein shall include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, and any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter of the Corporation or the Bylaws of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of this Paragraph B of Article VIII with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

The indemnification and reimbursement of expenses provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person against any liability and expenses to the fullest extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Charter of the Corporation or the Bylaws of the Corporation, a vote of stockholders or disinterested directors, or otherwise, both as to action in such person's official capacity as an officer or director and as to action in another capacity, at the request of the Corporation, while acting as an officer or director of the Corporation.

ARTICLE IX

ELECTION OF DIRECTORS

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE X

CERTAIN POWERS OF THE DIRECTORS

A. Determinations by Board . The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Directors consistent with the Charter of the Corporation and in the absence of actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a court, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its stock: the amount of the net income of the Corporation for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its stock or the payment of other distributions on its stock; the amount of paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Corporation; and any matters relating to the acquisition, holding and disposition of any assets by the Corporation.

B. REIT Qualification . Subject to Paragraph K of Article IV hereof, the Board of Directors shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Corporation as a REIT; however , if the Board of Directors determines that it is no longer in the best interests of the Corporation to qualify or continue to be qualified as a REIT and such determination is approved by the affirmative vote of holders of at least two-thirds of the shares of the Corporation's capital stock outstanding and entitled to vote thereon, the Board of Directors may revoke or otherwise terminate the Corporation's REIT election pursuant to Section 856(g) of the Code. The Board of Directors also may determine that compliance with any restriction or limitation on stock ownership and transfers set forth in Article IV is no longer required for REIT qualification.

C. Advisor Agreements . Subject to such approval of stockholders and other conditions, if any, as may be required by any applicable statute, rule or regulation, the Board of Directors may authorize the execution

and performance by the Corporation of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general) or other organization whereby, subject to the supervision and control of the Board of Directors, any such other person, corporation, association, company, trust, partnership (limited or general) or other organization shall render or make available to the Corporation managerial, investment, advisory and/or related services, office space and other services and facilities (including, if deemed advisable by the Board of Directors, the management or supervision of the investments of the Corporation) upon such terms and conditions as may be provided in such agreement or agreements (including, if deemed fair and equitable by the Board of Directors, the compensation payable thereunder by the Corporation).

D. Irrevocable Resolutions . The Board of Directors may designate any of its resolutions to be “irrevocable.” Resolutions so designated may not be revoked subsequently by the Board of Directors without the approval of the issued and outstanding shares of Common Stock of the Corporation by the affirmative vote of a majority of all votes entitled to be cast in respect of such shares of Common Stock.

ARTICLE XI

REMOVAL OF DIRECTORS

Subject to the rights of one or more classes or series of Preferred Stock to elect one or more directors, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least two thirds of the votes entitled to be cast in the election of directors.

ARTICLE XII

AMENDMENTS

Subject to the provisions hereof, the Corporation reserves the right at any time, and from time to time, to amend, alter, repeal, or rescind any provision of its Charter, in the manner now or hereafter prescribed by law, including without limitation any amendment altering the terms or contract rights, as expressly set forth in the Charter of the Corporation, of any outstanding shares of stock; and other provisions authorized or permitted by the laws of the State of Maryland at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors, or any other persons whomsoever by and pursuant to the Charter of the Corporation in its present form or as hereafter amended are granted subject to this reservation.

THIRD : These Articles of Restatement do not amend the Charter.

FOURTH : Under Section 2-608(c) of the MGCL, upon any restatement of the Charter, the Corporation may omit from such restatement all provisions thereof that relate solely to a class of stock if, at the time, there are no shares of the class outstanding and the Corporation has no authority to issue any shares of such class. There are no shares of the Corporation's 8.075% Series A Cumulative Redeemable Preferred Stock (the “Original Series A Preferred Stock”) outstanding and the Corporation has no authority to issue any shares of Original Series A Preferred Stock. Pursuant to Articles Supplementary dated March 5, 2004 and filed with the Department on March 11, 2004, a conformed copy of which is attached hereto as Exhibit I, the Board of Directors reclassified 1,500,000 authorized but unissued shares of Preferred Stock previously classified and designated as Original Series A Preferred Stock as a separate class of Preferred Stock designated as “7.45% Series A Cumulative Redeemable Preferred Stock”;

and pursuant to Articles Supplementary dated March 10, 2004 and filed with the Department on March 11, 2004, the Board of Directors reclassified 200,000 authorized but unissued shares of Preferred Stock previously classified and designated as Original Series A Preferred Stock as Preferred Stock of the Corporation without further designation, nor any preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption, other than those, if any, applicable to shares of Preferred Stock of the Corporation generally. In addition, there are no shares of the Corporation's Series B Junior Participating Preferred Stock (the “Series B Preferred Stock”), 9⅜% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”), 9¼% Series D Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock”), 7.80% Series E Cumulative Redeemable Preferred Stock (the “Series E Preferred Stock”) or 7.50% Series F Cumulative Redeemable Preferred Stock (the “Series F Preferred Stock”) outstanding and the Corporation has no authority to issue any shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock. All Charter provisions that relate solely to the Corporation's Original Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock have been omitted from the foregoing restatement of the Charter.

FIFTH : The foregoing restatement of the Charter has been approved by a majority of the entire Board of Directors.

SIXTH : The current address of the principal office of the Corporation is as set forth in Article II of the foregoing restatement of the Charter.

SEVENTH : The name and address of the Corporation's current resident agent is as set forth in Article II of the foregoing restatement of the Charter.

EIGHTH : There are currently six (6) directors of the Corporation, and the names of those directors currently in office are as follows: John B. Kilroy, Sr., John B. Kilroy, Jr., Dale F. Kinsella, William P. Dickey, Edward F. Brennan, Ph.D. and Scott S. Ingraham.

NINTH : The undersigned Executive Vice President acknowledges these Articles of Restatement to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned Executive Vice President acknowledges that to the best of his knowledge, information, and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles of Restatement to be executed under seal in its name and on its behalf by its Executive Vice President and attested to by its Treasurer as of the 23 ^rd day of May, 2012.

KILROY REALTY CORPORATION

By: /s/ Tyler H. Rose

Tyler H. Rose, Executive Vice President, Chief Financial Officer and Secretary

ATTEST:

/s/ Michelle Ngo

Michelle Ngo, Vice President and

Treasurer

EXHIBIT I

7.45% Series A Cumulative Redeemable Preferred Stock

I- 20

I- 21

KILROY REALTY CORPORATION

ARTICLES SUPPLEMENTARY

1,500,000 SHARES

7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK

Kilroy Realty Corporation, a Maryland corporation (the “ Company ” ), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST : By or as contemplated by Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland (the “ Department ” ) on February 6, 1998 (the “ February 6, 1998 Articles Supplementary ”), the Corporation classified 1,500,000 shares of its authorized but unissued Preferred Stock, par value $.01 per share ( “ Preferred Stock ” ), as a separate class of Preferred Stock designated as “8.075% Series A Cumulative Redeemable Preferred Stock”, and set the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms and conditions of redemption and other terms and conditions of such shares, all as set forth in the February 6, 1998 Articles Supplementary. By or as contemplated by Articles Supplementary filed with the Department on April 20, 1998 (the “ April 20, 1998 Articles Supplementary ” , and together with the February 6, 1998 Articles Supplementary, the “ Prior Articles Supplementary ” ), the Corporation classified an additional 200,000 shares of its authorized but unissued Preferred Stock as “8.075% Series A Cumulative Redeemable Preferred Stock, having the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms and conditions of redemption and other terms and conditions, identical to those as set forth in the February 6, 1998 Articles Supplementary. Correspondingly, and pursuant to or as contemplated by the Prior Articles Supplementary, there were classified as a separate class of Preferred Stock an aggregate of 1,700,000 shares designated as “8.075% Series A Cumulative Redeemable Preferred Stock.”

SECOND : As of the date hereof, no shares of Preferred Stock of the Corporation previously classified or designated as 8.075% Series A Cumulative Redeemable Preferred Stock pursuant to or as contemplated by the Prior Articles Supplementary have been issued by the Corporation, and accordingly, no such shares are either issued or outstanding as of the date hereof.

THIRD : Pursuant to the authority expressly vested in the Board of Directors by the Company by Article IV of the Articles of Amendment and Restatement of the Company filed with the Department on January 21, 1997, as amended, modified and supplemented to date (the “ Charter ” ), and Section 2-105 of the Maryland General Corporation Law (the “ MGCL ” ), the Board of Directors of the Company and/or a duly authorized committee thereof (the “ Board of Directors ” ), by resolutions duly adopted on February 10, 2004 and March 1, 2004, has determined it to be in the best interest of the Corporation that 1,500,000 shares of Preferred Stock of the Corporation previously classified and designated as 8.075% Series A Cumulative Redeemable Preferred Stock pursuant to or as contemplated by the Prior Articles Supplementary, be reclassified, and to that end (i) reclassified such previously classified shares as a separate class of Preferred Stock to be designated as the “7.45% Series A Cumulative Redeemable Preferred Stock”, (ii) authorized the issuance of a maximum of 1,500,000 shares of such class of Preferred Stock, and (iii) set the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms and conditions of redemption and other terms and conditions of such class of Preferred Stock. As a result of the reclassification as aforesaid and as contemplated herein of 1,500,000 shares of Preferred Stock previously classified and designated as 8.075% Series A Preferred Stock, 200,000 shares of Preferred Stock shall continue or remain classified or designated as “8.075% Series A Cumulative Redeemable Preferred Stock”, and in lieu of the 1,500,000 shares of 8.075% Series A Cumulative Redeemable Preferred Stock there shall be 1,500,000 shares of Preferred Stock reclassified as a separate class of Preferred Stock designated as “7.45% Series A Cumulative Redeemable Preferred Stock.”

FOURTH : The class of Preferred Stock of the Company created by the resolutions duly adopted by the Board of Directors of the Company and referred to in Article THIRD of these Articles Supplementary shall have the following designation, number of shares, preferences, conversion and other rights, voting powers, restrictions and limitation as to dividends, qualifications, terms and conditions of redemption and other terms and conditions:

Section 1. Designation And Number . A series of Preferred Stock, designated the “7.45% Series A Cumulative Redeemable Preferred Stock” (the “ Series A Preferred Stock ” ) is hereby established. The number of shares of Series A Preferred Stock shall be 1,500,000.

Section 2. Rank . The Series A Preferred Stock will, with respect to distributions or rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company, or both, rank senior to all classes or series of Common Stock (ad defined in the Charter) and to all classes or series of equity securities of the Company now or hereafter authorized, issued or outstanding, other than any class or series of equity securities of the Company expressly designated as ranking on a parity with or senior to the Series A Preferred Stock as to distributions or rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company, or both. For purposes of these Articles Supplementary, the term “ Parity Preferred Stock ” shall be used to refer to any class or series of equity securities of the Company now or hereafter authorized, issued or outstanding expressly designated by the Company to rank on a parity with Series A Preferred Stock with respect to distributions or rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company, or both, as the context may require. The term “equity securities” does not include debt securities, which will rank senior to the Series A Preferred Stock prior to conversion.

Section 3. Distributions . (a) Payment of Distributions . Subject to the rights of holders of Parity Preferred Stock as to the payment of distributions and holders of equity securities ranking senior to the Series A Preferred Stock as to payment of distributions, holders of Series A Preferred Stock will be entitled to receive, when, as and if declared by the Company, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate per annum of 7.45% of the $50.00 liquidation preference per share of Series A Preferred Stock. Such distributions shall be cumulative, shall accrue from the original date of issuance and will be payable quarterly in arrears, on or before the 15th of February, May, August and November of each year and, in the event of a redemption, on the redemption dates (each a “ Preferred Stock Distribution Payment Date ” ), commencing in each case on the first Preferred Stock Distribution Payment Date after the original date of issuance. The amount of the distribution payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full quarterly period for which distributions are computed, the amount of the distribution payable will be computed on the basis of the actual number of days elapsed in such a 30-day month. If any date on which distributions are to be made on the Series A Preferred Stock is not a Business Day (as defined herein), then payment of the distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Distributions on the Series A Preferred Stock will be made to the holders of record of the Series A Preferred Stock on the relevant record dates, which, unless otherwise provided by the Company with respect to any distribution, will be 15 Business Days prior to the relevant Preferred Stock Distribution Payment Date (each a “ Distribution Record Date ” ). Notwithstanding anything to the contrary set forth herein, each share of Series A Preferred Stock shall also continue to accrue all accrued and unpaid distributions up to the exchange date on any Series A Preference Unit (as defined in the Fifth Amended and Restated Limited Partnership Agreement of Kilroy Realty, L.P. dated as of March 5, 2004 (the “ Fifth Amendment ” )) validly exchanged into such share of Series A Preferred Stock in accordance with the provisions of such Fifth Amendment.

The term “ Business Day ” shall mean each day, other than a Saturday or a Sunday, which is not a day on which banking institutions in New York, New York or Los Angeles, California are authorized or required by law, regulation or executive order to close.

(b) Limitation on Distributions . No distributions on the Series A Preferred Stock shall be declared or paid or set apart for payment by the Company at such time as the terms and provisions of any agreement of the Company, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof

or a default thereunder, or if such declaration, payment or setting apart for payment shall be restricted or prohibited by law.

(c) Distributions Cumulative . Notwithstanding the foregoing, distributions on the Series A Preferred Stock will accrue whether or not the terms and provisions set forth in Section 3(b) hereof at any time prohibit the current payment of distributions, whether or not the Company has earnings, whether or not there are funds legally available for the payment of such of such distributions and whether or not such distributions are authorized. Accrued but unpaid distributions on the Series A Preferred Stock will accumulate as of the Preferred Stock Distribution Payment Date on which they first become payable. Accumulated and unpaid distributions will not bear interest.

(d) Priority as to Distributions . (i) So long as any Series A Preferred Stock is outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Common Stock or any class or series of other stock of the Company ranking junior as to the payment of distributions to the Series A Preferred Stock (such Common Stock or other junior stock, collectively, “ Junior Stock ” ) nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series A Preferred Stock, any Parity Preferred Stock with respect to distributions or any Junior Stock, unless, in each case, all distributions accumulated on all Series A Preferred Stock and all classes and series of outstanding Parity Preferred Stock as to payment of distributions have been paid in full. The foregoing sentence will not prohibit (i) distributions payable solely in Junior Stock, (ii) the conversion of Junior Stock or Parity Preferred Stock into stock of the Company ranking junior to the Series A Preferred Stock as to distributions, and (iii) purchase by the Company of such Series A Preferred Stock, Parity Preferred Stock with respect to distributions or Junior Stock pursuant to Article IV.E . of the Charter with respect to the Common Stock and comparable Charter provisions with respect to other classes of capital stock of the Company to the extent required to preserve the Company's status as a real estate investment trust.

(ii) So long as distributions have not been paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock, all distributions authorized and declared on the Series A Preferred Stock and all classes or series of outstanding Parity Preferred Stock with respect to distributions shall be authorized and declared so that the amount of distributions authorized and declared per share of Series A Preferred Stock and such other classes or series of Parity Preferred Stock shall in all cases bear to each other the same ratio that accrued distributions per share on the Series A Preferred Stock and such other classes or series of Parity Preferred Stock (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such class or series of Parity Preferred Stock do not have cumulative distribution rights) bear to each other.

(e) No Further Rights . Holders of Series A Preferred Stock shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the full cumulative distributions described herein.

Section 4. Liquidation Preference . (a) Payment of Liquidating Distributions . Subject to the rights of holders of Parity Preferred Stock with respect to rights upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company and subject to equity securities ranking senior to the Series A Preferred Stock with respect to rights upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Company, the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Company legally available for distribution or the proceeds thereof, after payment or provision for debts and other liabilities of the Company, but before any payment or distributions of the assets shall be made to holders of Common Stock or any other class or series of shares of the Company that ranks junior to the Series A Preferred Stock as to rights upon liquidation, dissolution or winding-up of the Company, an amount equal to the sum of (i) a liquidation preference of $50 per share of Series A Preferred Stock, and (ii) an amount equal to any accumulated and unpaid distributions thereon to the date of payment. In the event that, upon such voluntary or involuntary liquidation, dissolution or winding-up, there are insufficient assets to permit full payment of liquidating distributions to the holders of Series A Preferred Stock and any Parity Preferred Stock as to rights upon liquidation, dissolution or winding-up of the Company, all payments of liquidating distributions on the Series A Preferred Stock and such Parity Preferred Stock shall be made so that the payments on the Series A Preferred Stock and such Parity Preferred Stock shall in all cases bear to each other the same ratio that the respective rights of the Series A Preferred Stock and such other Parity Preferred Stock (which shall not include any accumulation

in respect of unpaid distributions for prior distribution periods if such Parity Preferred Stock do not have cumulative distribution rights) upon liquidation, dissolution or winding-up of the Company bear to each other.

(b) Notice . Written notice of any such voluntary or involuntary liquidation, dissolution or winding-up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by (i) fax and (ii) by first class mail, postage pre-paid, not less than 30 and not more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Stock at the respective addresses of such holders as the same shall appear on the same transfer records of the Company.

(c) No Further Rights . After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Stock will have no right or claim to any of the remaining assets of the Company.

(d) Consolidation, Merger or Certain Other Transactions . The consolidation or merger or other business combination of the Company with or into any corporation, trust or other entity (or of any corporation, trust or other entity with or into the Company) shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company.

(e) Permissible Distributions . In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of stock of the Company or otherwise is permitted under the MGCL, no effect shall be given to amounts that would be needed, if the Company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of shares of stock of the Company whose preferential rights upon dissolution are superior to those receiving the distribution.

Section 5. Optional Redemption . (a) Right of Optional Redemption . The Series A Preferred Stock may not, subject to Section 7 hereof and except as provided in Section 5(c) hereof, be redeemed prior to September 30, 2009. On or after such date, the Company shall have the right to redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' written notice, at a redemption price, payable in cash, equal to $50 per share of Series A Preferred Stock plus accumulated and unpaid distributions to the date of redemption ( “ Redemption Price ” ). If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional units).

(b) Limitation on Redemption . (i) The redemption price of the Series A Preferred Stock (other than the portion thereof consisting of accumulated but unpaid distributions) will be payable solely out of the sale proceeds of capital stock of the Company and from no other source. For purposes of the preceding sentence, “capital stock” means any equity securities (including Common Stock and Preferred Stock), shares, participation or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing.

(ii) Subject to Section 7 hereof, the Company may not redeem fewer than all of the outstanding shares of Series A Preferred Stock (pursuant to Section 5(a) or (c) hereof) unless all accumulated and unpaid distributions have been paid on all Series A Preferred Stock for all quarterly distribution periods terminating on or prior to the date of redemption.

(c) Redemption at the Option of the Holder . Notwithstanding any provision herein to the contrary but expressly subject to the limitations set forth in this Section 5(c) , so long as any Series A Preferred Stock remains outstanding, in the event of the occurrence of a Covered Transaction (defined below), the Company shall offer to redeem, on the date such Covered Transaction is completed or occurs, all of the Series A Preferred Stock outstanding at the Redemption Price, payable in cash, provided , however , that the Company shall only be obligated to effect such redemption if the redemption of the Series A Preferred Stock was elected in writing by the holders of not less than a majority of the then outstanding Series A Preferred Stock in accordance with this Section 5(c) . The payment of any portion of the Redemption Price shall be subject only to the prior right of payment of outstanding indebtedness, as

applicable, and the restrictions or limitations imposed upon such payment by applicable law or otherwise under these Articles Supplementary or the terms applicable to any Parity Preferred Stock. The Company shall give written notice of a Covered Transaction to each of the respective holders of record of the Series A Preferred Stock, at their respective addresses as they appear on the transfer records of the Company, by the earlier of (i) not less than thirty (30) days prior to the completion or occurrence of a Covered Transaction, if such completion or occurrence is known, or (ii) as soon as practicable after the completion or occurrence of a Covered Transaction. Such notice shall not set forth any non-public information concerning such Covered Transaction. Each of the holders of record of the Series A Preferred Stock shall have until 5:00 p.m. (PST) on the fifteenth (15th) day following receipt of such notice from the Company, to give the Company notice of such holder's election that the Series A Preferred Stock be redeemed. Notwithstanding any provision herein to the contrary, with respect to a Covered Transaction that arises under clause (c) of the definition of Covered Transaction set forth below, in the event that the Company so fails to qualify as a real estate investment trust for any reason other than an affirmative election by the Company not to qualify, (a) the Company shall give notice of the occurrence of a Covered Transaction to each of the holders of record of the Series A Preferred Stock within 15 days after discovery of such failure to qualify, (b) each of the holders of record of the Series A Preferred Stock shall have until 5:00 p.m. (PST) on the fifteenth (15th) day following receipt of such notice from the Company, to give the Company notice of such holder's election that the Series A Preferred Stock be redeemed and (c) if the holders of not less than a majority of the then outstanding Series A Preferred Stock have elected to have the Series A Preferred Stock redeemed, the Series A Preferred Stock shall be redeemed on a date not later than 45 days following the date of discovery of the Company's failure to qualify.

For purposes of this Section 5(c) , the term “ Covered Transaction ” shall mean (a) the Company's completion of a “Rule 13e-3 transaction” (as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) in which, as a result of such transaction, the Company's common stock is no longer registered under Section 12 of the Exchange Act, except that this clause (a) shall not apply to any delisting of the Company's common stock from the New York Stock Exchange or any national securities exchange (as defined in the Exchange Act), (b) the completion of any transaction or series of transactions that would result in a Reorganization Event (defined below) of the Company or (c) the Company's failure (or election not) to qualify as a real estate investment trust as defined in Section 856 (or any successor section) of the Internal Revenue Code of 1986, as amended.

For purposes of this Section 5(c) , the term “ Reorganization Event ” shall mean (x) any sale or other disposition of all or substantially all of the assets of the Company, as the case may be, to an entity that is not an Affiliate of the Company; or (y) any consolidation, amalgamation, merger, business combination, share exchange, reorganization or similar transaction involving the Company pursuant to which the stockholders of the Company immediately prior to the consummation of such transaction will own less than a majority of the equity interests in the entity surviving such transaction; provided , however , a Reorganization Event shall not include any transaction contemplated by clauses (x) or (y) of this definition if the surviving entity has unsecured debt outstanding which is rated at least the lowest credit rating level established as investment grade by at least two of Standard & Poor's, Moody's Investor Service and Fitch Ratings (it being understood that as of the date of these Articles Supplementary the lowest investment grade rating of Standard & Poor's is BBB-, the lowest investment grade rating of Moody's is Baa3 and the lowest investment grade rating of Fitch Ratings is BBB-) and such rating has been reaffirmed in light of the contemplated transaction.

(d) Procedures for Redemption . (i) Notice of redemption will be (i) faxed, and (ii) mailed by the Company, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on the transfer records of the Company. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any Series A Preferred Stock except as to the holder to whom such notice was defective or not given. In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Stock may be listed or admitted to trading, each such notice shall state: (i) the redemption date, (ii) the redemption price, (iii) the number of shares of Series A Preferred Stock to be redeemed, (iv) the place or places where such shares of Series A Preferred Stock are to be surrendered for payment of the redemption price, (v) that distributions on the Series A Preferred Stock to be redeemed will cease to accumulate on such redemption date and (vi) that payment of the redemption price and any accumulated and unpaid distributions will be made upon presentation and surrender of such Series A Preferred Stock. If fewer than all of the shares of Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of

Series A Preferred Stock held by such holder to be redeemed.

(ii) If the Company gives a notice of redemption in respect of Series A Preferred Stock (which notice will be irrevocable) then, by 12:00 noon, New York City time, on the redemption date, the Company will deposit irrevocably in trust for the benefit of the Series A Preferred Stock being redeemed funds sufficient to pay the applicable redemption price, plus any accumulated and unpaid distributions, if any, on such shares to the date fixed for redemption, without interest, and will give irrevocable instructions and authority to pay such redemption price and any accumulated and unpaid distributions, if any, on such shares to the holders of the Series A Preferred Stock upon surrender of the Series A Preferred Stock by such holders at the place designated in the notice of redemption. On and after the date of redemption, distributions will cease to accumulate on the Series A Preferred Stock or portions thereof called for redemption, unless the Company defaults in the payment thereof. If any date fixed for redemption of Series A Preferred Stock is not a Business Day, then payment of the redemption price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the redemption price or any accumulated or unpaid distributions in respect of the Series A Preferred Stock is improperly withheld or refused and not paid by the Company, distributions on such Series A Preferred Stock will continue to accumulate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the applicable redemption price and any accumulated and unpaid distributions.

(e) Status of Redeemed Stock . Any Series A Preferred Stock that shall at any time have been redeemed shall after such redemption, have the status of authorized but unissued Preferred Stock, without designation as to class or series until such shares are once more designated as part of a particular class or series by the Board of Directors.

Section 6. Voting Rights . (a) General . Holders of the Series A Preferred Stock will not have any voting rights, except as set forth below.

(b) Right to Elect Directors . If at any time full distributions shall not have been timely made on any Series A Preferred Stock with respect to any six (6) prior quarterly distribution periods, whether or not consecutive, (a “ Preferred Distribution Default ” ), the holders such Series A Preferred Stock, voting together as a single class with the holders of each class or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable, will have the right to elect two additional directors to serve on the Company's Board of Directors (the “ Preferred Stock Directors ” ) at a special meeting called by the holders of record of at least 10% of the outstanding shares of Series A Preferred Stock or any such class or series of Parity Preferred Stock or at the next annual meeting of stockholders, and at each subsequent annual meeting of stockholders or special meeting held in place thereof, until all such distributions in arrears and distributions for the current quarterly period on the Series A Preferred Stock and each such class or series of Parity Preferred Stock have been paid in full. A distribution in respect of Series A Preferred Stock shall be considered timely made if made within two (2) Business Days after the applicable Preferred Stock Distribution Payment Date if at time of such late payment there shall not be any prior quarterly distribution periods in respect of which full distributions were not timely made at the applicable Preferred Stock Distribution Date. If and when all accumulated distributions and the distribution for the current distribution period on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders of the Series A Preferred Stock shall be divested of the voting rights set forth in Section 6(b) herein (subject to revesting in the event of each and every Preferred Distribution Default) and, if all distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable, the term and office of each Preferred Stock Director so elected shall terminate. Any Preferred Stock Director may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series A Preferred Stock when they have the voting rights set forth in Section 6(b) (voting separately as a single class with all other classes or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote

of the holders of record of a majority of the outstanding Series A Preferred Stock when they have the voting rights set forth in Section 6(b) (voting separately as a single class with all other classes or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable). The Preferred Stock Director shall each be entitled to one vote per director on any manner.

(c) Certain Voting Rights . So long as any Series A Preferred Stock remains outstanding, the Company shall not, without the affirmative vote of the holders of at least two-thirds of the Series A Preferred Stock outstanding at the time (i) designate or create, or increase the authorized or issued amount of, any class or series of shares ranking prior to the Series A Preferred Stock with respect to payment of distributions or rights upon liquidation, dissolution or winding-up or reclassify any authorized shares of the Company into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, (ii) designate or create, or increase the authorized or issued amount of, any Parity Preferred Stock or reclassify any authorized shares of the Company into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, but only to the extent such Parity Preferred Stock is issued to a an affiliate of the Company, or (iii) either (A) consolidate, merge into or with, or convey, transfer or lease its assets substantially as an entirety, to any corporation or other entity, or (B) amend, alter or repeal the provisions of the Company's Charter (including these Articles Supplementary) or By-laws, whether by merger, consolidation or otherwise, in each case that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series A Preferred Stock or the holders thereof; provided , however , that with respect to the occurrence of any event set forth in (iii) above, so long as (a) the Company is the surviving entity and the Series A Preferred Stock remains outstanding with the terms thereof unchanged, or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of any state and substitutes the Series A Preferred Stock for other preferred stock having substantially the same terms and same rights as the Series A Preferred Stock, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed materially and adversely affect such rights, privileges or voting powers of the holders of the Series A Preferred Stock and provided further that any increase in the amount of authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, or any increase in an amount of authorized shares of each class or series, in each case ranking either (a) junior to the Series A Preferred Stock with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up, or (b) on a parity with the Series A Preferred Stock with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up to the extent such Preferred Stock is not issued to a affiliate of the Company, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

Section 7. Restrictions on Ownership and Transfer to Preserve Tax Benefit .

(a) Definitions . for the purposes of this Section 7 of these Articles Supplementary, the following terms shall have the following meanings:

“ Beneficial Ownership ” shall mean ownership of Series A Preferred Stock by a Person who is or would be treated as an owner of such Series A Preferred Stock either actually or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “ Beneficial Owner ,” “ Beneficially Owns ” and “ Beneficially Owned ” shall have the correlative meanings.

“ Beneficial Ownership Limit ” shall mean 7.0% (by value) of the outstanding shares capital stock the Company.

“ Charitable Beneficiary ” shall mean one or more beneficiaries of a Trust, as determined pursuant to Section 7(c)(vi) of these Articles Supplementary, each of which shall be an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended. All section references to the Code shall include any successor provisions thereof as may be adopted from time to time.

“ Constructive Ownership ” shall mean ownership of Series A Preferred Stock by a Person who is or would be treated as an owner of such Series A Preferred Stock either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “ Constructive Owner ,” “ Constructively Owns ” and “ Constructively Owned ” shall have the correlative meanings.

“ Constructive Ownership Limit ” shall mean 9.8% (by value) of the outstanding shares of capital stock the Company.

“ IRS ” means the United States Internal Revenue Service.

“ Market Price ” shall mean the last reported sales price reported on the New York Stock Exchange of the Series A Preferred Stock on the trading day immediately preceding the relevant date, or if the Series A Preferred Stock is not then traded on the New York Stock Exchange, the last reported sales price of the Series A Preferred Stock on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which the Series A Preferred Stock may be traded, or if the Series A Preferred Stock is not then traded over any exchange or quotation system, then the market price of the Series A Preferred Stock on the relevant date as determined in good faith by the Board of Directors of the Company.

“ MGCL ” shall mean the Maryland General Corporation Law, as amended from time to time, and any successor statute hereafter enacted.

“ Operating Partnership ” shall mean Kilroy Realty, L.P., a Delaware limited partnership.

“ Partnership Agreement ” shall mean the Agreement of Limited Partnership of the Operating Partnership, as such agreement may be amended from time to time.

“ Person ” shall mean an individual, corporation, partnership, limited liability company, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity; but does not include an underwriter acting in a capacity as such in a public offering of shares of Series A Preferred Stock provided that the ownership of such shares of Series A Preferred Stock by such underwriter would not result in the Company being “closely held” within the meaning of Section 856(h) of the Code, or otherwise result in the Company failing to qualify as a REIT.

“ Purported Beneficial Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Section 7(b)(ii) of these Articles Supplementary, the Purported Record Transferee, unless the Purported Record Transferee would have acquired or owned shares of Series A Preferred Stock for another Person who is the beneficial transferee or owner of such shares, in which case the Purported Beneficial Transferee shall be such Person.

“ Purported Record Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Section 7(b)(ii) of these Articles Supplementary, the record holder of the Series A Preferred Stock if such Transfer had been valid under Section 7(b)(i) of these Articles Supplementary.

“ REIT ” shall mean a real estate investment trust under Sections 856 through 860 of the Code and, for purposes of taxation of the Company under applicable state law, comparable provisions of the law of such state.

“ Restriction Termination Date ” shall mean the first day after the date hereof on which the

Board of Directors of the Company determines that it is no longer in the best interests of the Company to attempt to, or continue to, qualify as a REIT.

“ Transfer ” shall mean any sale, transfer, gift, assignment, devise or other disposition of Series A Preferred Stock, (including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Series A Preferred Stock or (ii) the sale, transfer, assignment or other disposition of any securities (or rights convertible into or exchangeable for Series A Preferred Stock), whether voluntary or involuntary, whether such transfer has occurred of record or beneficially or Beneficially or Constructively (including but not limited to transfers of interests in other entities which results in changes in Beneficial or Constructive Ownership of Series A Preferred Stock), and whether such transfer has occurred by operation of law or otherwise.

“ Trust ” shall mean each of the trusts provided for in Section 7(c) of these Articles Supplementary.

“ Trustee ” shall mean any Person unaffiliated with the Company, or a Purported Beneficial Transferee, or a Purported Record Transferee, that is appointed by the Company to serve as trustee of a Trust.

(b) Restriction on Ownership and Transfers.

(i) Prior to the Restriction Termination Date:

(A) except as provided in Section 7(i) of these Articles Supplementary, no Person shall Beneficially Own Series A Preferred Stock which, taking into account any other capital stock of the Company Beneficially Owned by such Person, would cause such ownership to exceed the Beneficial Ownership Limit;

(B) except as provided in Section 7(i) of these Articles Supplementary, no Person shall Constructively Own Series A Preferred Stock which, taking into account any other capital stock of the Company Constructively Owned by such Person, would cause such ownership to exceed the Constructive Ownership Limit;

(C) no Person shall Beneficially or Constructively Own Series A Preferred Stock which, taking into account any other capital stock of the Company Beneficially or Constructively Owned by such Person, would result in the Company being “closely held” within the meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT (including but not limited to Beneficial or Constructive Ownership that would result in the Company owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Company (either directly or indirectly through one or more partnerships) from such tenant would cause the Company to fail to satisfy any of the gross income requirements of Section 856(c) of the Code or comparable provisions of state law).

(ii) If, prior to the Restriction Termination Date, any Transfer (whether or not such Transfer is the result of a transaction entered into through the facilities of the New York Stock Exchange (“ NYSE ”)) or other event occurs that, if effective, would result in any Person Beneficially or Constructively Owning Series A Preferred Stock in violation of Section 7(b)(i) of these Articles Supplementary, (1) then that number of shares of Series A Preferred Stock that otherwise would cause such Person to violate Section 7(b)(i) of these Articles Supplementary (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Section 7(c) , effective as of the close of business on the business day prior to the date of such Transfer or other event, and such Purported Beneficial Transferee shall thereafter have no rights in such shares or (2) if, for any reason, the transfer to the Trust described in clause (1) of this sentence is not automatically effective as provided therein to prevent any Person from Beneficially or Constructively Owning Series A Preferred Stock in

violation of Section 7(b)(i) of these Articles Supplementary, then the Transfer of that number of shares of Series A Preferred Stock that otherwise would cause any Person to violate Section 7(b)(1) shall be void ab initio , and the Purported Beneficial Transferee shall have no rights in such shares.

(iii) Notwithstanding any other provisions contained herein, prior to the Restriction Termination Date, any Transfer of Series A Preferred Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE) that, if effective, would result in the capital stock of the Company being beneficially owned by less than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio , and the intended transferee shall acquire no rights in such Series A Preferred Stock.

(iv) It is expressly intended that the restrictions on ownership and Transfer described in this Section 7(b) shall apply to the exchange rights provided in Section 16.7 of the Partnership Agreement. Notwithstanding any of the provisions of the Partnership Agreement to the contrary, a partner of the Operating Partnership shall not be entitled to effect an exchange of an interest in the Operating Partnership for Series A Preferred Stock if the actual or beneficial or Beneficial or Constructive Ownership of Series A Preferred Stock would be prohibited under the provisions of this Section 7 .

(i) Upon any purported Transfer or other event described in Section 7(b)(ii) of these Articles Supplementary, such Series A Preferred Stock shall be deemed to have been transferred to the Trustee in his capacity as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the business day prior to the purported Transfer or other event that results in a transfer to the Trust pursuant to Section 7(b)(ii) . The Trustee shall be appointed by the Company and shall be a Person unaffiliated with the Company, any Purported Beneficial Transferee, or any Purported Record Transferee. Each Charitable Beneficiary shall be designated by the Company as provided in Section 7(c)(vi) of these Articles Supplementary.

(ii) Series A Preferred Stock held by the Trustee shall be issued and outstanding Series A Preferred Stock of the Company. The Purported Beneficial Transferee or Purported Record Transferee shall have no rights in the shares of Series A Preferred Stock held by the Trustee. The Purported Beneficial Transferee or Purported Record Transferee shall not benefit economically from ownership of any shares held in trust by the Trustee, shall have no rights to dividends and shall not possess any rights to vote or other rights attributable to the shares of Series A Preferred Stock held in the Trust.

(iii) The Trustee shall have all voting rights and rights to dividends with respect to Series A Preferred Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or distribution paid prior to the discovery by the Company that shares of Series A Preferred Stock have been transferred to the Trustee shall be paid to the Trustee upon demand, and any dividend or distribution declared but unpaid shall be paid when due to the Trustee with respect to such Series A Preferred Stock. Any dividends or distribution so paid over to the Trustee shall be held in trust for the Charitable Beneficiary.

The Purported Record Transferee and Purported Beneficial Transferee shall have no voting rights with respect to the Series A Preferred Stock held in the Trust and, subject to Maryland law, effective as of the date the Series A Preferred Stock has been transferred to the Trustee, the Trustee shall have the authority (at the Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported Record Transferee with respect to such Series A Preferred Stock prior to the discovery by the Company that the Series A Preferred Stock has been transferred to the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary; provided , however , that if the Company has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding any other provision of these Articles Supplementary to the contrary, until the Company has received notification that the Series A Preferred Stock has been transferred into a Trust, the Company shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes to stockholders.

(iv) Within 20 days of receiving notice from the Company that shares of Series A Preferred Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares of Series A Preferred Stock held in the Trust to a Person, designated by the Trustee, whose ownership of the shares of Series A Preferred Stock will not violate the ownership limitations set forth in Section 7(b)(i) . Upon such sale, the interest of the Charitable beneficiary in the shares of Series A Preferred Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and to the Charitable Beneficiary as provided in this Section 7(c)(iv) . The Purported Record Transferee shall receive the lesser of (1) the price paid by the Purported Record Transferee for the shares of Series A Preferred Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Series A Preferred Stock at Market Price, the Market Price of such shares of Series A Preferred Stock on the day of the event which resulted in the transfer of such shares of Series A Preferred Stock to the Trust) and (2) the price per share received by the Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares of Series A Preferred Stock held in the Trust. Any net sales proceeds in excess of the amount payable to the Purported Record Transferee shall be immediately paid to the Charitable Beneficiary together with any dividends or other distributions thereon. If, prior to the discovery by the Company that shares of such Series A Preferred Stock have been transferred to the Trustee, such shares of Series A Preferred Stock are sold by a Purported Record Transferee then (i) such shares of Series A Preferred Stock shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the Purported Record Transferee received an amount for such shares of Series A Preferred Stock that exceeds the amount that such Purported Record Transferee was entitled to receive pursuant to this Section 7(c)(iv) , such excess shall be paid to the Trustee upon demand.

(v) Series A Preferred Stock transferred to the Trustee shall be deemed to have been offered for sale to the Company, or its designee, at a price per share equal to the lesser of (i) the price paid by the Purported Record Transferee for the shares of Series A Preferred Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Series A Preferred Stock at Market Price, the Market Price of such shares of Series A Preferred Stock on the day of the event which resulted in the transfer of such shares of Series A Preferred Stock to the Trust) and (ii) the Market Price on the date the Company, or its designee, accepts such offer. The Company shall have the right to accept such offer until the Trustee has sold the shares of Series A Preferred Stock held in the Trust pursuant to Section 7(c)(iv) . Upon such a sale to the Company, the interest of the Charitable Beneficiary in the shares of Series A Preferred Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and any dividends or other distributions held by the Trustee with respect to such Series A Preferred Stock shall thereupon be paid to the Charitable Beneficiary.

(vi) By written notice to the Trustee, the Company shall designate one or more nonprofit organizations to be the Charitable beneficiary of the interest in the Trust such that (i) the Series A Preferred Stock held in the Trust would not violate the restrictions set forth in Section 7(b)(i) in the hands of such Charitable Beneficiary and (ii) each charitable Beneficiary is an organization described in Sections 170(l)(A), 170(c)(2) or 501(c)(3) of the Code.

(d) Remedies For Breach . If the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall at any time determine in good faith that a Transfer or other event has taken place in violation of Section 7(b) of these Articles Supplementary or that a Person intends to acquire, has attempted to acquire or may acquire beneficial ownership (determined without reference to any rules of attribution), Beneficial Ownership or Constructive Ownership of any shares of Series A Preferred Stock of the Company in violation of Section 7(b) of these Articles Supplementary, the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall take such action as it deems advisable to refuse to give effect or to prevent such Transfer, including, but not limited to, causing the Company to redeem shares of Series A Preferred Stock, refusing to give effect to such Transfer on the books of the Company or instituting proceedings to enjoin such transfer; provided , however , that any Transfers (or, in the case of events other than a Transfer, ownership or Constructive Ownership or Beneficial Ownership) in violation of Section 7(b)(i) of these Articles Supplementary, shall automatically result in the transfer to a Trust as described in Section 7(b)(ii) and any Transfer in violation of Section 7(b)(iii ) shall automatically be void ab initio irrespective of any action (or non-action) by the Board of Directors.

(e) Notice of Restricted Transfer . Any Person who acquires or attempts to acquire shares of Series A Preferred Stock in violation of Section 7(b) of these Articles Supplementary, or any Person who is a Purported Beneficial Transferee such that an automatic transfer to a Trust results under Section 7(b)(ii) of these Articles Supplementary, shall immediately give written notice to the Company of such event and shall provide to the Company such other information as the Company may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Company's status as a REIT.

(f) Owners Required To Provide Information . Prior to the Restriction Termination date each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of Series A Preferred Stock and each Person (including the shareholder of record) who is holding Series A Preferred Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall provide to the Company such information that the Company may request, in good faith, in order to determine the Company's status as a REIT.

(g) Remedies Not Limited . Nothing contained in these Articles Supplementary (but subject to Section 7(n) of these Articles Supplementary) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Company and the interests of its shareholders by preservation of the Company's status as a REIT.

(h) Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Section 7 of these Articles Supplementary, including any definition contained in Section 7(a) , the Board of Directors shall have the power to determine the application of the provisions of this Section 7 with respect to any situation based on the facts known to it (subject, however, to the provision of Section 7(n) of these Articles Supplementary). In the event Section 7 requires an action by the Board of Directors and these Articles Supplementary fail to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Section 7 . Absent a decision to the contrary by the Board of Directors (which the Board of Directors may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Section 7(b) ) acquired Beneficial or Constructive Ownership of Series A Preferred Stock in violation of Section 7(b)(i) , such remedies (as applicable) shall apply first to the shares of Series A Preferred Stock which, but for such remedies, would have been actually owned by such Person, and second to shares of Series A Preferred Stock, which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such shares of Series A Preferred Stock based upon the relative number of the shares of Series A Preferred Stock held by each such Person.

(i) Exceptions .

(i) Subject to Section 7(b)(i)(C) , the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Beneficially Owning shares of Series A Preferred Stock in violation of Section 7(b)(i)(A) if the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual's Beneficial Ownership of such shares of Series A Preferred Stock will violate Section 7(b)(i)(A) or that any such violation will not cause the Company to fail to qualify as a REIT under the Code, and agrees that any violation of such representations or undertakings (or other action which is contrary to the restrictions contained in Section 7(b) of these Articles Supplementary) or attempted violation will result in such Series A Preferred Stock being transferred to a Trust in accordance with Section 7(b)(ii) of these Articles Supplementary.

(ii) Subject to Section 7(b)(i)(C) , the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Constructively Owning Series A Preferred Stock in violation of Section 7(b)(i)(B) , if such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Company (or a tenant of any entity owned in whole or in part by the Company) that would cause the Company to own, actually or Constructively more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Company obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact and agrees that any violation or attempted violation will result in such Series A Preferred Stock being transferred to a Trust in accordance with Section 7(b)(ii) of these Articles Supplementary. Notwithstanding the foregoing, the inability of a Person to make the certification described in this Section 7(i)(ii) shall not prevent the Board of Directors, in its sole discretion, from exempting such Person from the limitation on a Person Constructively

Owning Series A Preferred Stock in violation of Section 7(b)(i)(B) if the Board of Directors determines that the resulting application of Section 856(d)(2)(B) of the Code and comparable provisions of applicable state law would affect the characterization of less than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the Code) of the Company in any taxable year, after taking into account the effect of this sentence with respect to all other capital stock of the Company to which this sentence applies.

(iii) Prior to granting any exception pursuant to Section 7(i)(i) or (ii) of these Articles Supplementary, the Board of Directors may require a ruling from the internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Company's status as a REIT.

(j) Legends . Each certificate for Series A Preferred Stock shall bear the following legends:

Class of Stock

THE COMPANY IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE COMPANY'S CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE COMPANY HAS THE AUTHORITY TO ISSUE AND, IF THE COMPANY IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE.

Restrictions on Ownership and Transfer

THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE COMPANY'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE COMPANY'S SERIES A PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY BENEFICIALLY OWNED BY SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP TO EXCEED THE BENEFICIAL OWNERSHIP LIMIT OF 7%; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE COMPANY'S SERIES A PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP TO EXCEED THE CONSTRUCTIVE OWNERSHIP LIMIT OF 9.8%; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN THE COMPANY BEING “CLOSELY HELD” UNDER SECTION 856(h) OF THE CODE OR

OTHERWISE CAUSE THE COMPANY TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY TRANSFER SERIES A PREFERRED STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE COMPANY BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE COMPANY. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SERIES A PREFERRED STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE COMPANY MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO . ALL TERMS IN THIS LEGEND DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SERIES A PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE.

(k) Exchange of Series A Preferred Units . So long as the Company remains the general partner of the Operating Partnership, the Board of Directors of the Company is hereby expressly vested with authority (subject to the restrictions on ownership, transfer and redemption of Series A Preferred Stock set forth in this Section 7 ) to issue, and shall issue to the extent provided in the Partnership Agreement, Series A Preferred Stock in exchange for Series A Preferred Units (as defined in the Partnership Agreement) (the “ Series A Preferred Units ” ).

(l) Reservation of Shares . Pursuant to the obligations of the Company under the Partnership Agreement to issue Series A Preferred Stock in exchange for Series A Preferred Units, the Board of Directors is hereby required to reserve and authorize for issuance a number of authorized but unissued shares of Series A Preferred Stock not less than the number of Series A Preferred Units issued to permit the Company to issue Series A Preferred Stock in exchange for Series A Preferred Units that may be exchanged for or converted into Series A Preferred Stock as provided in the Partnership Agreement.

(m) Severability . If any provision of this Section 7 or any application of any such provision is determined to be invalid by any Federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

(n) NYSE . Nothing in this Section 7 shall preclude the settlement of any transaction entered into through the facilities of the NYSE. The shares of Series A preferred Stock that are the subject of such transaction shall continue to be subject to the provisions of this Section 7 after such settlement.

(o) Applicability of Section 7 . The provisions set forth in this Section 7 shall apply to the Series A Preferred Stock notwithstanding any contrary provisions of the Series A Preferred Stock provided for elsewhere in these Articles Supplementary.

Section 8. No Conversion Rights . The holders of the Series A Preferred Stock shall not have any rights to convert such shares into shares of any other class or series of stock or into any other securities of, or interest in, the Company.

Section 9. No Sinking Fund . No sinking fund shall be established for the retirement or redemption of Series A Preferred Stock.

Section 10. No Preemptive Rights . No holder of the Series A Preferred Stock of the Company shall, as such holder, have any preemptive rights to purchase or subscribe for additional shares of stock of the Company or any other security of the Company which it may issue or sell.

FIFTH : The Series A Preferred Stock have been classified and designated by the Board of Directors under the authority contained in the Charter.

SIXTH : These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.

SEVENTH : The undersigned Vice President of the Company acknowledges these Articles Supplementary to be the corporate act of the Company and, as to all matters or facts required to be verified under oath, the undersigned Vice President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its Senior Vice President and attested to by its Secretary on this 5 ^th day of March, 2004.

KILROY REALTY CORPORATION

By: /s/ Tyler H. Rose

Name: Tyler H. Rose

Title: Senior Vice President

[SEAL]

ATTEST:

/s/ Richard E. Moran, Jr.

Richard E. Moran, Jr.

Secretary

[SIGNATURE PAGE FOR ARTICLES SUPPLEMENTARY]

EXHIBIT II

6.875% Series G Cumulative Redeemable Preferred Stock

II- 29

II- 1

KILROY REALTY CORPORATION

ARTICLES SUPPLEMENTARY

4,600,000 SHARES

6.875% SERIES G CUMULATIVE REDEEMABLE PREFERRED STOCK

Kilroy Realty Corporation, a Maryland corporation (the “ Corporation ”), certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Corporation (the “ Board of Directors ”) by Article IV of the Articles of Amendment and Restatement of the Corporation, as amended, supplemented and restated (the “ Charter ”), and the Maryland General Corporation Law (the “ MGCL ”), the Board of Directors, by resolutions duly adopted on February 23, 2012, generally authorized and approved the classification and designation of up to all of the authorized but unissued shares of preferred stock of the Corporation, par value $.01 per share (“ Preferred Stock ”), as one or more separate classes or series of Preferred Stock, and the issuance of up to all of such shares of such classes or series, and pursuant to the powers contained in the bylaws of the Corporation, as amended and restated (the “ Bylaws ”), and the MGCL, ratified the appointment of a committee of the Board of Directors (the “ Pricing Committee ”) and delegated to the Pricing Committee, to the fullest extent permitted by the MGCL and the Charter and Bylaws of the Corporation, all powers of the Board of Directors with respect to classifying, designating and setting the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption and other terms and conditions of such separate classes or series of Preferred Stock, and determining the number of shares of each such class or series of Preferred Stock to be classified and issued and the consideration and other terms and conditions upon which such shares of each such class or series of Preferred Stock are to be issued.

Pursuant to the authority conferred upon the Pricing Committee as aforesaid, the Pricing Committee has, by resolutions duly adopted on March 16, 2012, classified and designated, and authorized the issuance of, 4,600,000 shares of authorized but unissued Preferred Stock as a separate class of Preferred Stock to be designated as 6.875% Series G Cumulative Redeemable Preferred Stock, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, which upon any restatement of the Charter of the Corporation shall be made a part of, or incorporated by reference into, the Charter of the Corporation, with any necessary or appropriate renumbering or relettering of the sections or subsections hereof:

6.875% Series G Cumulative Redeemable Preferred Stock

A. Designation and Number . A class of preferred stock of Kilroy Realty Corporation, a Maryland corporation (the “ Corporation ”), par value $.01 per share (“ Preferred Stock ”), designated the 6.875% Series G Cumulative Redeemable Preferred Stock (the “ Series G Preferred Stock ”), is hereby established. The number of shares of the Series G Preferred Stock shall be 4,600,000.

B. Maturity . The Series G Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption.

C. Rank . The Series G Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation, (i) senior to all classes and series of common stock of the Corporation, par value $.01 per share (the “ Common Stock ”), and senior to all other classes or series of stock of the Corporation other than classes and series of stock referred to in clauses (ii)

and (iii) of this sentence; (ii) on a parity with the Corporation's 7.45% Series A Cumulative Redeemable Preferred Stock, par value $.01 per share (the “ Series A Preferred Stock ”), the Corporation's 7.80% Series E Cumulative Redeemable Preferred Stock, par value $.01 per share (the “ Series E Preferred Stock ”), and the Corporation's 7.50% Series F Cumulative Redeemable Preferred Stock, par value $.01 per share (the “ Series F Preferred Stock ”), and with all classes and series of stock of the Corporation the terms of which specifically provide that such classes and series of stock rank on a parity with the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation; and (iii) junior to all classes and series of stock of the Corporation the terms of which specifically provide that such classes and series of stock rank senior to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation.

D. Dividends .

(1) Holders of shares of the Series G Preferred Stock are entitled to receive, when, as, and if authorized by the Board of Directors of the Corporation (the “ Board of Directors ”) and declared by the Corporation, out of funds of the Corporation legally available for the payment of dividends, cumulative cash dividends at the rate of 6.875% of the $25.00 per share liquidation preference per annum (equivalent to an annual rate of $1.71875 per share). Dividends on the Series G Preferred Stock shall accrue daily, shall accrue and be cumulative from and including March 27, 2012 (the “ Original Issue Date ”) and shall be payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each a “ Dividend Payment Date ”), commencing May 15, 2012; provided that if any Dividend Payment Date is not a Business Day (as defined below), then the dividend which would otherwise have been payable on such Dividend Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Dividend Payment Date and no interest, additional dividends or other sum shall accrue on the amount so payable for the period from and after such Dividend Payment Date to such next succeeding Business Day. The period from and including the Original Issue Date to but excluding the first Dividend Payment Date, and each subsequent period from and including a Dividend Payment Date to but excluding the next succeeding Dividend Payment Date, is hereafter called a “ Dividend Period .” Any dividend payable on the Series G Preferred Stock, including dividends payable for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable Dividend Record Date (as defined below), which, unless designated otherwise by the Board of Directors with respect to any dividend, shall be the last day of the calendar month immediately preceding the month in which the applicable Dividend Payment Date falls, whether or not a Business Day (each, a “ Dividend Record Date ”). Notwithstanding any provision to the contrary contained in these terms of the Series G Preferred Stock, each outstanding share of Series G Preferred Stock shall be entitled to receive, and shall receive, a dividend with respect to any Dividend Record Date equal to the greatest amount payable as a dividend with respect to any other share of Series G Preferred Stock which is outstanding on such date. The dividends payable on any Dividend Payment Date shall include dividends accrued to but excluding such Dividend Payment Date.

(2) All references herein to “accrued and unpaid” dividends or “accumulated and unpaid” dividends on the Series G Preferred Stock (and all references of like import) shall include, unless otherwise expressly stated or the context otherwise requires, both accrued dividends and accumulated dividends, if any, on the Series G Preferred Stock; and all references herein to “accrued and unpaid” dividends or “accumulated and unpaid” dividends on any other class or series of stock of the Corporation shall include, if (and only if) such class or series of stock provides for cumulative dividends and unless otherwise expressly stated or the context otherwise requires, accumulated dividends, if any, on such class or series of stock.

(3) “ Business Day ” shall mean any day, other than a Saturday or Sunday, that is not a day on which banking institutions in The City of New York are authorized or required by law, regulation or executive order to close.

(4) No dividends on shares of Series G Preferred Stock shall be authorized by the Board of Directors or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such authorization, payment or setting apart for payment or provide that such authorization, payment or setting apart for payment would constitute a breach

of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.

(5) Anything in these terms of the Series G Preferred Stock to the contrary notwithstanding, dividends on the Series G Preferred Stock will accrue and be cumulative from the Original Issue Date, whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. No interest, or sum in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series G Preferred Stock which may be in arrears, and holders of the Series G Preferred Stock will not be entitled to any dividends, whether payable in cash, securities or other property, in excess of full cumulative dividends described above. Any dividend payment made on the Series G Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to the Series G Preferred Stock.

(6) If, for any taxable year, the Corporation elects to designate as a “capital gain dividend” (as defined in Section 857 of the Internal Revenue Code of 1986, as amended (the “ Code ”)) any portion (the “ Capital Gains Amount ”) of the dividends (as determined for federal income tax purposes) paid or made available for that year to holders of all classes of the Corporation's stock, then, except as otherwise required by applicable law, the portion of the Capital Gains Amount that shall be allocable to the holders of Series G Preferred Stock shall be in proportion to the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series G Preferred Stock for the year bears to the total dividends paid or made available for that year to all holders of all classes of the Corporation's stock. In addition, except as otherwise required by applicable law, the Corporation will make a similar allocation with respect to any undistributed long-term capital gains of the Corporation which are to be included in its stockholders' long-term capital gains, based on the allocation of the Capital Gains Amount which would have resulted if such undistributed long-term capital gains had been distributed as “capital gains dividends” by the Corporation to its stockholders.

(7) Except as provided in the immediately following paragraph, unless full cumulative dividends for all past Dividend Periods on the Series G Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment, no dividends (other than in shares of Common Stock or shares of any other class or series of stock of the Corporation ranking junior to the Series G Preferred Stock as to dividends and as to the distribution of assets upon liquidation, dissolution and winding up of the Corporation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made on the Common Stock or any other class or series of stock of the Corporation ranking junior to or on a parity with the Series G Preferred Stock as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation nor shall any shares of Common Stock or shares of any other class or series of stock of the Corporation ranking junior to or on a parity with the Series G Preferred Stock as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation be redeemed, purchased or otherwise acquired for any consideration (or any amounts be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for shares of Common Stock or shares of any other class or series of stock of the Corporation ranking junior to the Series G Preferred Stock as to dividends and as to the distribution of assets upon liquidation, dissolution and winding up of the Corporation and except for purchases of Series G Preferred Stock of the Corporation pursuant to Paragraph I(4) of these terms of the Series G Preferred Stock for the purpose of preserving the Corporation's qualification as a REIT (as defined below) for federal and/or state income tax purposes, or pursuant to comparable provisions of the Articles of Amendment and Restatement of the Corporation, as amended, supplemented and restated from time to time (the “ Charter ”) with respect to other classes or series of the Corporation's stock). With respect to the Series G Preferred Stock, all references herein to “past Dividend Periods” shall mean, as of any date, Dividend Periods ending on or prior to such date, and with respect to shares of any other class or series of stock ranking on a parity as to dividends with the Series G Preferred Stock, “past dividend periods” shall mean, as of any date, dividend periods with respect to such other class or series of stock ending on or prior to such date.

(8) When full cumulative dividends for all past Dividend Periods are not paid in full (or a sum sufficient for such full payment is not set apart) upon the Series G Preferred Stock and when full cumulative dividends for all past dividend periods are not paid in full (or a sum sufficient for such full payment is not set apart) upon the shares of any other class or series of stock of the Corporation ranking on a parity as to dividends with the Series G

Preferred Stock, then:

(a) so long as any shares of Series F Preferred Stock are outstanding, all dividends declared on shares of Series G Preferred Stock and any other outstanding classes or series of stock of the Corporation ranking on a parity as to dividends with the Series G Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series G Preferred Stock and such other classes or series of stock ranking on a parity as to dividends with the Series G Preferred Stock shall in all cases bear to each other the same ratio that the sum of the liquidation preference plus accumulated and unpaid dividends per share on the Series G Preferred Stock and such other classes or series of stock ranking on a parity as to dividends with the Series G Preferred Stock (which, in the case of any such other class or series of stock ranking on a parity as to dividends with the Series G Preferred Stock, shall not include any accumulation in respect of unpaid dividends for past dividend periods if such other class or series of stock ranking on a parity as to dividends with the Series G Preferred Stock does not have a cumulative dividend) bear to each other; and

(b) from and after such time as no shares of Series F Preferred Stock are outstanding, all dividends declared on shares of Series G Preferred Stock and any other outstanding classes or series of stock of the Corporation ranking on a parity as to dividends with the Series G Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on the Series G Preferred Stock and such other classes or series of stock of the Corporation ranking on a parity as to dividends with the Series G Preferred Stock shall in all cases bear to each other the same ratio that accumulated and unpaid dividends per share on the Series G Preferred Stock and such other classes or series of stock ranking on a parity as to dividends with the Series G Preferred Stock (which, in the case of any such other class or series of stock ranking on a parity as to dividends with the Series G Preferred Stock, shall not include any accumulation in respect of unpaid dividends for past dividend periods if such other class or series of stock ranking on a parity as to dividends with the Series G Preferred Stock does not have a cumulative dividend) bear to each other.

E. Liquidation Preference .

(1) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of Series G Preferred Stock shall be entitled to receive and to be paid out of the assets of the Corporation legally available for distribution to its stockholders a liquidation preference of $25.00 per share (the “ Liquidation Preference ”), plus an amount equal to any accrued and unpaid dividends thereon to but excluding the date of payment, before any distribution or payment is made to holders of Common Stock or any other class or series of stock of the Corporation that ranks junior to the Series G Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up of the Corporation, but subject to the preferential rights of the holders of shares of any class or series of stock of the Corporation ranking senior to the Series G Preferred Stock with respect to such distribution of assets upon liquidation, dissolution or winding up of the Corporation. If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available therefor are insufficient to pay the full amount of liquidating distributions payable on all outstanding shares of Series G Preferred Stock and the full amount of the liquidating distributions payable on all outstanding shares of any other classes or series of stock of the Corporation ranking on a parity with the Series G Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up of the Corporation, then the holders of the Series G Preferred Stock and all other such classes or series of stock will share ratably in any such distribution of assets in proportion to the full liquidating distributions (including, if applicable, accrued and unpaid dividends) to which they would otherwise respectively be entitled.

(2) After payment to the holders of the Series G Preferred Stock of the full liquidating distributions to which they are entitled, the holders of the Series G Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Corporation. If liquidating distributions shall have been made in full to all holders of Series G Preferred Stock, the remaining assets of the Corporation shall be distributed among the holders of any other classes or series of stock of the Corporation ranking junior to the Series G Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation, according to their respective rights and preferences.

(3) For purposes of these terms of the Series G Preferred Stock, neither the consolidation or merger

of the Corporation with or into any other company, trust or other entity, nor the sale, lease, transfer or conveyance of all or substantially all of the property or business of the Corporation, shall be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

(4) In determining whether a distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation) by dividend, redemption or other acquisition of shares of stock of the Corporation or otherwise is permitted under the MGCL (as defined below), no effect shall be given to amounts that would be needed, if the Corporation would be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Series G Preferred Stock.

F. Redemption .

(1) The Series G Preferred Stock is not redeemable prior to March 27, 2017 except as set forth in Subparagraph F(2) of these terms of the Series G Preferred Stock; provided that the foregoing shall not prevent or limit the right of the Corporation to redeem Series G Preferred Stock pursuant to these terms of the Series G Preferred Stock in order to preserve the qualification of the Corporation as a REIT for federal and/or state income tax purposes as provided in Subparagraph I(4) of these terms of the Series G Preferred Stock. On and after March 27, 2017, the Corporation may, at its option, upon not less than 30 nor more than 60 days' written notice, redeem shares of the Series G Preferred Stock, in whole or in part, at any time or from time to time, for cash (a) at a redemption price of $25.00 per share, plus, (b) subject to the provisions set forth in the first sentence of Subparagraph F(5) of these terms of the Series G Preferred Stock, accrued and unpaid dividends thereon to but excluding the date fixed for redemption. If the Corporation elects to redeem any shares of Series G Preferred Stock as described in this paragraph, the Corporation may use any available cash to pay the redemption price, and the Corporation will not be required to pay the redemption price only out of the proceeds from the issuance of other classes and series of the Corporation's stock or any other specific source.

(2) Upon the occurrence of a Change of Control (as defined below), the Corporation may, at its option, upon not less than 30 nor more than 60 days' written notice, redeem shares of the Series G Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at (a) a redemption price of $25.00 per share, plus, (b) subject to the provisions set forth in the first sentence of Subparagraph F(5) of these terms of the Series G Preferred Stock, accrued and unpaid dividends thereon to but excluding the date fixed for redemption. If, prior to the Change of Control Conversion Date (as defined below), the Corporation has provided or provides notice of its election to redeem some or all of the shares of Series G Preferred Stock (whether pursuant to Subparagraph F(1) of these terms of the Series G Preferred Stock or this Subparagraph F(2) ), the holders of Series G Preferred Stock shall not have the Change of Control Conversion Right (as defined below) set forth in Paragraph H of these terms of the Series G Preferred Stock with respect to the shares called for redemption. If the Corporation elects to redeem any shares of Series G Preferred Stock as described in this paragraph, the Corporation may use any available cash to pay the redemption price, and the Corporation will not be required to pay the redemption price only out of the proceeds from the issuance of other classes and series of the Corporation's stock or any other specific source.

(3) A “ Change of Control ” is when, after the Original Issue Date, the following have occurred and are continuing:

(a) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the Corporation entitling that person to exercise more than 50% of the total voting power of all stock of the Corporation entitled to vote generally in the election of the Corporation's directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

(b) following the closing of any transaction referred to in (i) above, neither the Corporation

nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (the “ NYSE ”), the NYSE Amex Equities (the “ NYSE Amex ”), or the NASDAQ Stock Market (“ NASDAQ ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ.

(4) Holders of Series G Preferred Stock to be redeemed shall surrender certificates representing such Series G Preferred Stock at the place designated in such notice (or, in the case of shares of Series G Preferred Stock held in book-entry form through a Depositary (as defined below), shall deliver the shares to be redeemed through the facilities of such Depositary) and shall thereafter be entitled to receive the redemption price and any accrued and unpaid dividends payable upon such redemption. If notice of redemption of any shares of Series G Preferred Stock has been given and if the funds necessary for such redemption have been irrevocably set aside by the Corporation, separate and apart from its other funds, in trust for the benefit of the holders of the shares of Series G Preferred Stock so called for redemption, then from and after the redemption date (unless default shall be made by the Corporation in providing for the payment of the redemption price plus accrued and unpaid dividends, if any, payable upon redemption), dividends will cease to accrue on such shares of Series G Preferred Stock, such shares of Series G Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price plus accrued and unpaid dividends, if any, payable upon redemption. In the event that any redemption date shall not be a Business Day, then payment of the redemption price plus, if applicable, accrued and unpaid dividends, if any, payable upon redemption need not be made on such redemption date but may be made on the next succeeding Business Day with the same force and effect as if made on such redemption date and no interest, additional dividends or other sums shall accrue on the amount so payable for the period from and after such redemption date to such next succeeding Business Day. If less than all of the outstanding shares of Series G Preferred Stock are to be redeemed, the shares of Series G Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation that will not result in the automatic transfer of any shares of Series G Preferred Stock to a Trust (as hereinafter defined) pursuant to Paragraph I of these terms of the Series G Preferred Stock.

(5) Anything herein to the contrary notwithstanding, and except as otherwise required by law, the persons who were the holders of record of shares of Series G Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payable on the corresponding Dividend Payment Date notwithstanding the redemption of those shares after such Dividend Record Date and on or prior to such Dividend Payment Date or the default by the Corporation in the payment of the dividend due on that Dividend Payment Date, in which case the amount payable upon redemption of such shares of Series G Preferred Stock will not include such dividend, and the full amount of the dividend payable for the applicable Dividend Period shall instead be paid on such Dividend Payment Date to the holders of record at the close of business on such Dividend Record Date as aforesaid. Except as provided in this paragraph and except to the extent that accrued and unpaid dividends are payable upon redemption pursuant to the foregoing provisions of this Paragraph F, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series G Preferred Stock called for redemption.

(6) Unless full cumulative dividends for all past Dividend Periods on all outstanding shares of Series G Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment, no shares of Series G Preferred Stock shall be redeemed unless all outstanding shares of Series G Preferred Stock are simultaneously redeemed; provided , however , that the foregoing shall not prevent the purchase or acquisition by the Corporation of shares of Series G Preferred Stock pursuant to Paragraph I(4) of these terms of the Series G Preferred Stock in order to preserve the qualification of the Corporation as a REIT for federal and/or state income tax purposes or pursuant to a purchase or exchange offer made on the same terms to the holders of all outstanding shares of Series G Preferred Stock. In addition, unless full cumulative dividends for all past Dividend Periods on all outstanding shares of Series G Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment, the Corporation shall not purchase or otherwise acquire, directly or indirectly, any shares of Series G Preferred Stock (except by conversion into or exchange for stock of the Corporation ranking junior to the Series G Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution and winding up of the Corporation); provided , however , that the foregoing shall not prevent the purchase or acquisition by the Corporation of shares of Series G Preferred Stock pursuant to Paragraph I(4) of these terms of the Series G Preferred Stock in order

to preserve the qualification of the Corporation as a REIT for federal and/or state income tax purposes or pursuant to a purchase or exchange offer made on the same terms to the holders of all outstanding shares of Series G Preferred Stock. Subject to the limitations set forth in the Charter (including these terms of the Series G Preferred Stock), the Corporation shall be entitled at any time and from time to time to repurchase shares of Series G Preferred Stock in open-market transactions, by tender or by private agreement, in each case as duly authorized by the Board of Directors and effected in compliance with applicable laws.

(7) Notice of redemption will be furnished by the Corporation and will be mailed, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the holders of record of the Series G Preferred Stock to be redeemed at their addresses as they appear on the stock transfer records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series G Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series G Preferred Stock to be redeemed; (iii) the redemption price and whether or not accrued and unpaid dividends will be payable to holders surrendering shares of Series G Preferred Stock or to the persons who were holders of record at the close of business on the relevant Dividend Record Date; (iv) the place or places where certificates for the Series G Preferred Stock are to be surrendered for payment of the redemption price; (v) the procedures that the holders of Series G Preferred Stock must follow to surrender the certificates for redemption, including whether the certificates shall be properly endorsed or assigned for transfer; (vi) that dividends on the shares to be redeemed will cease to accumulate on such redemption date; (vii) whether such redemption is being made pursuant to Subparagraph F(1) or Subparagraph F(2) of these terms of the Series G Preferred Stock, (viii) if applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of the transaction or transactions constituting such Change of Control; and (ix) if such redemption is being made in connection with a Change of Control, that the holders of the shares of Series G Preferred Stock being so called for redemption will not be able to tender such shares of Series G Preferred Stock for conversion in connection with the Change of Control and that each share of Series G Preferred Stock tendered for conversion that is called, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date. If less than all of the shares of Series G Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series G Preferred Stock to be redeemed from such holder and, upon redemption, to the extent the shares of Series G Preferred Stock are represented by certificates, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof.

(8) Upon surrender, in accordance with such notice, of the certificates representing any shares of Series G Preferred Stock to be so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state) (or, in the case of shares of Series G Preferred Stock held in book-entry form through a Depositary, upon delivery of such shares in accordance with such notice and the procedures of such Depositary), such shares of Series G Preferred Stock shall be redeemed by the Corporation at the redemption price plus, except as provided in the first sentence of Subparagraph F(5) of these terms of the Series G Preferred Stock, accrued and unpaid dividends, if any. In case fewer than all the shares of Series G Preferred Stock represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares of Series G Preferred Stock without cost to the holder thereof.

G. Voting Rights .

(1) Holders of the Series G Preferred Stock will not have any voting rights, except as set forth below.

(2) Whenever dividends on any shares of Series G Preferred Stock shall be in arrears for six or more Dividend Periods, whether or not such Dividend Periods are consecutive, the number of directors then constituting the Board of Directors shall be automatically increased by two (if not already increased by two by reason of the election of directors by the holders of any other class or series of Parity Preferred Stock (as defined below) upon which like voting rights have been conferred and are exercisable and with which the Series G Preferred Stock is entitled to vote as a class with respect to the election of such two directors) and the holders of Series G Preferred Stock (voting separately as a class with all other classes or series of Parity Preferred Stock upon which like voting rights have been

conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of such two directors) will be entitled to vote for the election of such two additional directors to the Board of Directors at a special meeting called by the Corporation at the request of the holders of record of at least 10% of the outstanding shares of Series G Preferred Stock or by the holders of any other class or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of such two directors (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of stockholders, in which case such vote for such two directors shall be held at such next annual or special meeting of stockholders), and at each subsequent annual meeting of stockholders until all dividends accumulated on the Series G Preferred Stock for all past Dividend Periods shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment, whereupon the right of the holders of Series G Preferred Stock to elect such two directors shall cease and (unless there are one or more other classes or series of Parity Preferred Stock of the Corporation upon which like voting rights have been conferred and are exercisable) the term of office of the two directors so elected as directors shall automatically terminate and the authorized number of directors constituting the Board of Directors shall thereupon be reduced accordingly, but subject always to the same provisions for the reinstatement and divestment of the right to elect such two additional directors in the case of any such future dividend arrearage.

(3) “ Parity Preferred Stock ” shall mean any class or series of Preferred Stock ranking on a parity with the Series G Preferred Stock as to dividends and as to the distribution of assets upon liquidation, dissolution and winding up of the Corporation, including, without limitation, the Series E Preferred Stock, Series F Preferred Stock and, if and when issued, Series A Preferred Stock.

(4) For purposes of Subparagraph G(2) of these terms of the Series G Preferred Stock, it is hereby confirmed that the Series A Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock are each a class of Parity Preferred Stock of the Corporation upon which like voting rights have been conferred and which are entitled, during such time as such voting rights are exercisable pursuant to the terms of the Series A Preferred Stock, the Series E Preferred Stock or the Series F Preferred Stock (as the case may be) as set forth in the Charter, to vote as a class with the Series G Preferred Stock with respect to the election of the two directors described above.

(5) In the case of any such request for a special meeting (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of stockholders), such meeting shall be held on the earliest practicable date at the place within the United States designated by the holders of Series G Preferred Stock requesting such meeting or, if none, at a place within the United States designated by the Secretary of the Corporation, upon notice similar to that required for an annual meeting of stockholders. If such special meeting is not called by an officer of the Corporation within 30 days after such request, then the holders of record of at least 10% of the outstanding shares of Series G Preferred Stock may designate in writing a holder of Series G Preferred Stock to call such meeting at the expense of the Corporation and such meeting may be called by the holder so designated upon notice similar to that required for annual meetings of stockholders and shall be held at the place within the United States designated by the holder calling such meeting. At all times that the voting rights conferred by Subparagraph G(2) of these terms of the Series G Preferred Stock are exercisable, the holders of Series G Preferred Stock shall have reasonable access to the preferred stock transfer records of the Corporation. The Corporation shall pay all reasonable costs and expenses of calling and holding any meeting and of electing directors pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock, including, without limitation, the cost of preparing, reproducing and mailing the notice of such meeting, the cost of renting a room for such meeting to be held, and the cost of collecting and tabulating votes.

(6) The provisions of this Subparagraph G supersede anything inconsistent contained in the Charter or bylaws of the Corporation, as amended and restated from time to time (the “ Bylaws ”), applicable to the Series G Preferred Stock.

(7) If, at any time when the voting rights conferred upon the Series G Preferred Stock pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock are exercisable, any vacancy in the office of a director elected pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock shall occur, then such vacancy may be filled only by the remaining such director or by vote of the holders of record of the outstanding Series G Preferred Stock and any other classes or series of Parity Preferred Stock of the Corporation upon which like voting

rights have been conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of directors pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock. Any director elected or appointed pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock may be removed only by the affirmative vote of holders of the outstanding Series G Preferred Stock and any other classes or series of Parity Preferred Stock of the Corporation upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election of directors pursuant to Subparagraph G(2) of these terms of the Series G Preferred Stock, such removal to be effected by the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding Series G Preferred Stock and any such other classes or series of Parity Preferred Stock, and may not be removed by the holders of the Common Stock.

(8) So long as any shares of Series G Preferred Stock remain outstanding, the Corporation shall not, without the consent or the affirmative vote of the holders of at least two-thirds of the shares of the Series G Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (with the Series G Preferred Stock voting separately as a class), (i) authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of stock of the Corporation ranking senior to the Series G Preferred Stock with respect to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation, or reclassify any authorized stock of the Corporation into any such shares, or create, authorize or issue any obligation or security convertible into, exchangeable or exercisable for, or evidencing the right to purchase, any such shares or (ii) amend, alter or repeal any of the provisions of the Charter, including without limitation, any of these terms of the Series G Preferred Stock, so as to materially and adversely affect any right, preference, privilege or voting power of the Series G Preferred Stock or (iii) enter into any share exchange that affects shares of Series G Preferred Stock, or consolidate with or merge into any other entity, or permit any other entity to consolidate with or merge into the Corporation, unless in each such case described in this clause (iii) each share of Series G Preferred Stock then outstanding remains outstanding without a material adverse change to its terms and rights or is converted into or exchanged for preferred stock of the surviving or resulting entity having preferences, conversion and other rights, dividends, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption substantially identical to, and in any event without any material adverse change to, those of the Series G Preferred Stock; provided , however , that any amendment to the Charter to increase the number of authorized shares of stock or the creation or issuance of any other class or series of Preferred Stock or any increase in the number of authorized or outstanding shares of Series G Preferred Stock or any other class or series of stock, in each case ranking on a parity with or junior to the Series G Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution and winding up of the Corporation, shall not be deemed to materially and adversely affect any right, preference, privilege or voting power of the Series G Preferred Stock. For purposes of this paragraph, the filing in accordance with applicable law of articles supplementary or any similar document setting forth or changing the designations, preferences, conversion or other rights, voting powers, restrictions, limitation as to dividends and other distributions, qualifications or other terms of any class or series of stock of the Corporation shall be deemed an amendment to the Charter.

(9) The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Series G Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been irrevocably deposited in trust to effect such redemption in accordance with the provisions of Subparagraph F(4) of these terms of the Series G Preferred Stock.

(10) Except as expressly stated in these terms of the Series G Preferred Stock, the Series G Preferred Stock will not have any relative, participating, optional or other special voting rights or powers, and the consent of the holders thereof shall not be required for the taking of any corporate action.

(11) On each matter submitted to a vote of the holders of Series G Preferred Stock or on which the holders of Series G Preferred Stock are otherwise entitled to vote, including any action by written consent, each share of Series G Preferred Stock shall be entitled to one vote, except that when shares of any other class or series of Preferred Stock of the Corporation have the right to vote with the Series G Preferred Stock as a single class on any matter, the Series G Preferred Stock and the shares of each such other class or series will have one vote for each $50.00 of liquidation preference (excluding accrued and unpaid dividends), resulting in each share of Series G Preferred Stock

being entitled to one-half of a vote.

H. Conversion . The shares of Series G Preferred Stock are not convertible into or exchangeable for any other property or securities of the Corporation, except as provided in this Paragraph H.

(1) Upon the occurrence of a Change of Control, each holder of Series G Preferred Stock shall have the right (unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem some or all of the shares of Series G Preferred Stock held by such holder pursuant to Subparagraph F(1) or F(2) of these terms of the Series G Preferred Stock, in which case such holder shall have the right only with respect to shares of Series G Preferred Stock that are not called for redemption) to convert some or all of the Series G Preferred Stock held by such holder (the “ Change of Control Conversion Right ”) on the Change of Control Conversion Date into a number of shares of Common Stock per share of Series G Preferred Stock (the “ Common Stock Conversion Consideration ”) equal to the lesser of:

(a) the quotient obtained by dividing (i) the sum of the $25.00 Liquidation Preference per share of Series G Preferred Stock plus the amount of any accrued and unpaid dividends thereon to but excluding the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accrued and unpaid dividends will be included in such sum) by (ii) the Common Stock Price (as defined below) (such quotient, the “ Conversion Rate ”) and

(b) 1.0975 (the “ Share Cap ”).

(2) Anything in these terms of the Series G Preferred Stock to the contrary notwithstanding and except as otherwise required by law, the persons who are the holders of record of shares of Series G Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payable on the corresponding Dividend Payment Date notwithstanding the conversion of those shares after such Dividend Record Date and on or prior to such Dividend Payment Date and, in such case, the full amount of such dividend shall be paid on such Dividend Payment Date to the persons who were the holders of record at the close of business on such Dividend Record Date.

(3) The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of the Common Stock), subdivisions or combinations (in each case, a “ Share Split ”) with respect to the Common Stock as follows: the adjusted Share Cap as the result of a Share Split shall be the number of shares of Common Stock that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after giving effect to such Share Split and the denominator of which is the number of shares of Common Stock outstanding immediately prior to such Share Split.

(4) For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of shares of Common Stock (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable or deliverable, as applicable, in connection with the exercise of the Change of Control Conversion Right shall not exceed 4,390,000 shares of Common Stock (or equivalent Alternative Conversion Consideration, as applicable), subject to proportionate increase to the extent the underwriters' overallotment option to purchase additional shares of Series G Preferred Stock in the initial public offering of Series G Preferred Stock is exercised, not to exceed 5,048,500 shares of Common Stock in total (or equivalent Alternative Conversion Consideration, as applicable) (the “ Exchange Cap ”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap, and shall be increased on a pro rata basis with respect to any additional shares of Series G Preferred Stock designated and authorized for issuance pursuant to any subsequent articles supplementary.

(5) In the case of a Change of Control pursuant to which Common Stock is or will be converted into cash, securities or other property or assets (including any combination thereof) (the “ Alternative Form Consideration ”), a holder of Series G Preferred Stock shall receive upon conversion of such Series G Preferred Stock the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to

receive upon the Change of Control had such holder held a number of shares of Common Stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control (the “ Alternative Conversion Consideration ”; the Common Stock Conversion Consideration or the Alternative Conversion Consideration, whichever shall be applicable to a Change of Control, is referred to herein as the “ Conversion Consideration ”).

(6) If the holders of Common Stock have the opportunity to elect the form of consideration to be received in the Change of Control, the Conversion Consideration in respect of such Change of Control will be deemed to be the kind and amount of consideration actually received by holders of a majority of the outstanding shares of Common Stock that made or voted for such an election (if electing between two types of consideration) or holders of a plurality of the outstanding shares of Common Stock that made or voted for such an election (if electing between more than two types of consideration), as the case may be, and will be subject to any limitations to which all holders of Common Stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in such Change of Control.

(7) The Corporation will not issue fractional shares of Common Stock upon the conversion of Series G Preferred Stock in connection with a Change of Control. Instead, the Corporation will make, and the holders of Series G Preferred Stock shall be entitled to receive, a cash payment equal to the value of such fractional shares based upon the Common Stock Price used in determining the Common Stock Conversion Consideration for such Change of Control.

(8) Within 15 days following the occurrence of a Change of Control, the Corporation will provide to holders of Series G Preferred Stock a notice of the occurrence of the Change of Control that describes the resulting Change of Control Conversion Right, which notice shall be delivered to the holders of record of the shares of Series G Preferred Stock at their addresses as they appear on the Corporation's share transfer records and notice shall also be provided to the Corporation's transfer agent. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the conversion of any share of Series G Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series G Preferred Stock may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Stock Price; (v) the Change of Control Conversion Date; (vi) that if, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem all or any shares of the Series G Preferred Stock, the holders will not be able to convert the shares of Series G Preferred Stock called for redemption and such shares of Series G Preferred Stock shall be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of Series G Preferred Stock; (viii) the name and address of the paying agent, transfer agent and conversion agent for the Series G Preferred Stock; (ix) the procedures that the holders of Series G Preferred Stock must follow to exercise the Change of Control Conversion Right (including procedures for surrendering shares for conversion through the facilities of a Depositary (as defined below)), including the form of conversion notice to be delivered by such holders as described below; and (x) the last date on which holders of Series G Preferred Stock may withdraw shares surrendered for conversion and the procedures such holders must follow to effect such a withdrawal.

(9) The Corporation shall issue a press release containing such notice for publication on Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), and post notice on the Corporation's website, in any event prior to the opening of business on the first Business Day following any date on which the Corporation provides notice pursuant to Subparagraph H(8) of these terms of the Series G Preferred Stock to the holders of Series G Preferred Stock.

(10) To exercise the Change of Control Conversion Right, the holders of shares of Series G Preferred Stock shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) representing the shares of Series G Preferred Stock to be converted, duly endorsed for transfer (or,

in the case of any shares of Series G Preferred Stock held in book-entry form through a Depositary, to deliver, on or before the close of business on the Change of Control Conversion Date, the shares of Series G Preferred Stock to be converted through the facilities of such Depositary), together with a written conversion notice in the form provided by the Corporation, duly completed, to the Corporation's transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of shares of Series G Preferred Stock to be converted; and (iii) that the shares of Series G Preferred Stock are to be converted pursuant to the applicable terms of the Series G Preferred Stock.

(11) The “ Change of Control Conversion Date ” is the date the Series G Preferred Stock is to be converted, which will be a Business Day selected by the Corporation that is no fewer than 20 days nor more than 35 days after the date on which the Corporation provides the notice to holders of Series G Preferred Stock pursuant to Subparagraph H(8) of these terms of the Series G Preferred Stock.

(12) The “ Common Stock Price ” shall be (a) if the consideration to be received in the Change of Control by the holders of Common Stock is solely cash, the amount of cash consideration per share of Common Stock or (b) if the consideration to be received in the Change of Control by holders of Common Stock is other than solely cash (x) the average of the closing sale prices per share of Common Stock (or, if no closing sale price is reported, the average of the closing bid and ask prices per share or, if more than one in either case, the average of the average closing bid and the average closing ask prices per share) for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred as reported on the principal U.S. securities exchange on which the Common Stock is then traded, or (y) the average of the last quoted bid prices for the Common Stock in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred, if the Common Stock is not then listed for trading on a U.S. securities exchange.

(13) Holders of Series G Preferred Stock may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Corporation's transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal delivered by any holder must state: (a) the number of withdrawn shares of Series G Preferred Stock; (b) if certificated shares of Series G Preferred Stock have been surrendered for conversion, the certificate numbers of the withdrawn shares of Series G Preferred Stock; and (c) the number of shares of Series G Preferred Stock, if any, which remain subject to the holder's conversion notice.

(14) Notwithstanding the foregoing, if any Series G Preferred Stock is held in book-entry form through The Depository Trust Company or a similar depositary (each, a “ Depositary ”), the conversion notice and/or the notice of withdrawal as applicable shall comply with applicable procedures, if any, of the applicable Depositary.

(15) Shares of Series G Preferred Stock as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem some or all of the shares of Series G Preferred Stock as described under Subparagraph F(1) or F(2) of these terms of the Series G Preferred Stock, in which case only the shares of Series G Preferred Stock properly surrendered for conversion and not properly withdrawn that are not called for redemption will be converted as aforesaid. If the Corporation elects to redeem shares of Series G Preferred Stock that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such shares of Series G Preferred Stock shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date the redemption price set forth in Subparagraph F(1) or F(2) of these terms of the Series G Preferred Stock, as applicable.

(16) The Corporation will deliver all securities, cash (including, without limitation, cash in lieu of fractional shares of Common Stock) and any other property owing upon conversion no later than the third Business Day following the Change of Control Conversion Date. Notwithstanding the foregoing, the persons entitled to receive any shares of Common Stock or other securities delivered upon conversion will be deemed to have become the holders of record thereof as of the Change of Control Conversion Date.

(17) In connection with the exercise of any Change of Control Conversion Right, the Corporation will comply with all federal and state securities laws and stock exchange rules in connection with any conversion of Series G Preferred Stock into shares of Common Stock or other property. Notwithstanding any other provision contained in these terms of the Series G Preferred Stock, no holder of shares of Series G Preferred Stock will be entitled to convert such shares of Series G Preferred Stock into shares of Common Stock to the extent that receipt of such shares of Common Stock would cause such holder (or any other person) to have Beneficial Ownership or Constructive Ownership (each as defined in Article IV, Section E.1 of the Charter or in Subparagraph I(1) of these terms of the Series G Preferred Stock, as applicable) in excess of the Ownership Limit (as defined in Article IV, Section E.1 of the Charter or in Subparagraph I(1) of these terms of the Series G Preferred Stock, as applicable).

(18) The Corporation has reserved and will reserve and keep available at all times, free of any preemptive rights arising by operation of law, under the Charter or Bylaws, under any agreement or instrument to which the Corporation or any of its subsidiaries is a party or otherwise, out of its authorized but unissued shares the maximum number of shares of Common Stock issuable upon conversion of the outstanding shares of Series G Preferred Stock until such time as all of the outstanding shares of Series G Preferred Stock shall have been converted, repurchased and retired or redeemed and retired. The Corporation covenants that all Common Stock, if any, issued upon conversion of the Series G Preferred Stock will upon issue be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.

I Restrictions on Ownership and Transfer to Preserve Tax Benefit .

(1) Definitions . For the purposes of this Paragraph I of these terms of the Series G Preferred Stock, the following terms shall have the following meanings:

“ Beneficial Ownership ” shall mean ownership of Series G Preferred Stock by a Person who is or would be treated as an owner of such Series G Preferred Stock either actually or constructively through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3)of the Code. The terms “ Beneficial Owner ,” “ Beneficially Own ,” “ Beneficially Owns ” and “ Beneficially Owned ” shall have correlative meanings.

“ Charitable Beneficiary ” shall mean one or more beneficiaries of a Trust, as determined pursuant to Subparagraph I(3)(f) of these terms of the Series G Preferred Stock, each of which shall be an organization described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended. All section references to the Code shall include any successor provisions thereof as may be adopted from time to time.

“ Constructive Ownership ” shall mean ownership of Series G Preferred Stock by a Person who is or would be treated as an owner of such Series G Preferred Stock either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “ Constructive Owner ,” “ Constructively Own ,” “ Constructively Owns ” and “ Constructively Owned ” shall have correlative meanings.

“ Individual ” means an individual, a trust qualified under Section 401(a) or 501(c)(17) of the Code, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, or a private foundation within the meaning of Section 509(a) of the Code, provided that a trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code shall be excluded from this definition.

“ IRS ” means the United States Internal Revenue Service.

“ Market Price ” shall mean the last reported sales price reported on the New York Stock Exchange of the Series G Preferred Stock on the trading day immediately preceding the relevant date, or if the Series G Preferred Stock is not then traded on the New York Stock Exchange, the last reported sales price of the Series G Preferred Stock on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which the Series G Preferred Stock may be traded, or if the Series G Preferred Stock is not then traded over any exchange or quotation system, then the market price of the Series G Preferred Stock on the relevant date as determined

in good faith by the Board of Directors.

“ MGCL ” shall mean the Maryland General Corporation Law, as amended from time to time, and any successor statute hereafter enacted.

“ Ownership Limit ” shall mean 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding Series G Preferred Stock. The number of shares and value of the outstanding Series G Preferred Stock shall be determined by the Board of Directors in good faith, which determination shall be conclusive for all purposes hereof absent manifest error.

“ Person ” shall mean an Individual, corporation, partnership, limited liability company, estate, trust, joint stock company or other entity; but does not include an underwriter acting in a capacity as such in a public offering of shares of Series G Preferred Stock, provided that the ownership of such shares of Series G Preferred Stock by such underwriter would not result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise result in the Corporation failing to qualify as a REIT.

“ Purported Beneficial Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph I(2)(b) of these terms of the Series G Preferred Stock, the Purported Record Transferee, unless the Purported Record Transferee would have acquired or owned shares of Series G Preferred Stock for another Person who is the beneficial transferee or owner of such shares, in which case the Purported Beneficial Transferee shall be such other Person.

“ Purported Record Transferee ” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph I(2)(b) of these terms of the Series G Preferred Stock, the record holder of the Series G Preferred Stock if such Transfer had been valid under Subparagraph I(2)(a) of these terms of the Series G Preferred Stock.

“ REIT ” shall mean a real estate investment trust under Sections 856 through 860 of the Code, and, for purposes of taxation of the Corporation under applicable state law, comparable provisions of the law of such state.

“ Restriction Termination Date ” shall mean the first day after the date hereof on which the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT.

“ Transfer ” shall mean any sale, issuance, transfer, gift, assignment, devise or other disposition of Series G Preferred Stock, as well as any other event that causes any Person to Beneficially Own or Constructively Own Series G Preferred Stock, including (a) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Series G Preferred Stock or (b) the sale, transfer, assignment or other disposition of any securities (or rights convertible into or exchangeable for Series G Preferred Stock), whether voluntary or involuntary, whether such transfer has occurred of record or through a change in beneficial ownership, Beneficial Ownership or Constructive Ownership (including but not limited to transfers of interests in other entities which result in changes in Beneficial or Constructive Ownership of Series G Preferred Stock), and whether such transfer has occurred by operation of law or otherwise.

“ Trust ” shall mean each of the trusts provided for in Subparagraph I(3) of these terms of the Series G Preferred Stock.

“ Trustee ” shall mean any Person unaffiliated with the Corporation, a Purported Beneficial Transferee or a Purported Record Transferee, that is appointed by the Corporation to serve as trustee of a Trust.

(2) Restriction on Ownership and Transfers .

(a) Prior to the Restriction Termination Date:

(i) except as provided in Subparagraph I(9) of these terms of the Series G Preferred Stock, no Person shall Beneficially Own Series G Preferred Stock in excess of the Ownership Limit;

(ii) except as provided in Subparagraph I(9) of these terms of the Series G Preferred Stock, no Person shall Constructively Own Series G Preferred Stock in excess of the Ownership Limit;

(iii) no Person shall Beneficially or Constructively Own Series G Preferred Stock which, taking into account any other stock of the Corporation Beneficially or Constructively Owned by such Person, would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT for federal income tax purposes or, at the election of the Board of Directors, comparable provisions of any applicable state law (including but not limited to Beneficial or Constructive Ownership that would result in the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation (either directly or indirectly through one or more subsidiaries) from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).

(b) If prior to the Restriction Termination Date, any Transfer (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE) or other event occurs that, if effective, would result in any Person Beneficially or Constructively Owning Series G Preferred Stock in violation of Subparagraph I(2)(a) of these terms of the Series G Preferred Stock, (1) then that number of shares of Series G Preferred Stock that otherwise would cause such Person to violate Subparagraph I(2)(a) of these terms of the Series G Preferred Stock (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Subparagraph I(3) of these terms of the Series G Preferred Stock, effective as of the close of business on the Business Day prior to the date of such Transfer or other event, and such Purported Beneficial Transferee shall thereafter have no rights in such shares or (2) if, for any reason, the transfer to the Trust described in clause (1) of this sentence is not automatically effective as provided therein to prevent any Person from Beneficially or Constructively Owning Series G Preferred Stock in violation of Subparagraph I(2)(a) of these terms of the Series G Preferred Stock, then the Transfer of that number of shares of Series G Preferred Stock that otherwise would cause any Person to violate Subparagraph I(2)(a) of these terms of the Series G Preferred Stock shall be void ab initio , and the Purported Beneficial Transferee shall have no rights in such shares.

(c) Notwithstanding any other provisions contained herein, prior to the Restriction Termination Date, any Transfer of Series G Preferred Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE) that, if effective, would result in the stock of the Corporation being beneficially owned by less than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio , and the intended transferee shall acquire no rights in such Series G Preferred Stock.

(3) Transfers of Series G Preferred Stock in Trust .

(a) Upon any purported Transfer or other event described in Subparagraph I(2)(b) of these terms of the Series G Preferred Stock, such Series G Preferred Stock shall be deemed to have been automatically transferred to the Trustee in his capacity as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in a transfer to the Trust pursuant to Subparagraph I(2)(b) of these terms of the Series G Preferred Stock. The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation, any Purported Beneficial Transferee, or any Purported Record Transferee. Each Charitable Beneficiary shall be designated by the Corporation as provided in Subparagraph I(3)(f) of these terms of the Series G Preferred Stock.

(b) Series G Preferred Stock held by the Trustee shall be issued and outstanding Series G Preferred Stock of the Corporation. The Purported Beneficial Transferee or Purported Record Transferee shall have no rights in the shares of Series G Preferred Stock held by the Trustee. The Purported Beneficial Transferee or Purported

Record Transferee shall not benefit economically from ownership of any shares held in trust by the Trustee, shall have no rights to dividends and shall not possess any rights to vote or other rights attributable to the shares of Series G Preferred Stock held in the Trust.

(c) The Trustee shall have all voting rights and rights to dividends with respect to Series G Preferred Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or distribution paid to the Purported Record Transferee after the deemed transfer of shares of Series G Preferred Stock, but prior to the discovery by the Corporation that such shares of Series G Preferred Stock have been transferred, to the Trustee shall be paid by such Purported Record Transferee to the Trustee upon demand (and, if any such dividend or distribution has not been paid to the Trustee prior to the distribution of net sale proceeds to the Purported Record Transferee from the sale of such shares by the Trustee pursuant to Subparagraph I(3)(d) or Subparagraph I(3)(e) of these terms of the Series G Preferred Stock, the Trustee shall be permitted to reduce the amount of such net sale proceeds paid to the Purported Record Transferee by the amount of any such dividend or distribution which has not been paid to the Trustee as aforesaid), and any dividend or distribution declared but unpaid shall be paid when due to the Trustee with respect to such Series G Preferred Stock. Any dividends or distributions so paid over to the Trustee shall be held in trust for the Charitable Beneficiary.

The Purported Record Transferee and Purported Beneficial Transferee shall have no voting rights with respect to the Series G Preferred Stock held in the Trust and, subject to Maryland law, effective as of the date the Series G Preferred Stock has been transferred to the Trust, the Trustee shall have the authority (at the Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported Record Transferee with respect to such Series G Preferred Stock prior to the discovery by the Corporation that the Series G Preferred Stock has been transferred to the Trust and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary; provided , however , that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding any other provision of these terms of the Series G Preferred Stock to the contrary, until the Corporation has received written notification that the Series G Preferred Stock has been transferred into a Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of stockholders.

(d) Within 20 days of receiving notice from the Corporation that shares of Series G Preferred Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares of Series G Preferred Stock held in the Trust to a Person, designated by the Trustee, whose ownership of the shares of Series G Preferred Stock will not violate the ownership limitations set forth in Subparagraph I(2)(a) of these terms of the Series G Preferred Stock. Upon such sale, the interest of the Charitable Beneficiary in the shares of Series G Preferred Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and to the Charitable Beneficiary as provided in this Subparagraph I(3)(d) of these terms of the Series G Preferred Stock. The Purported Record Transferee shall receive the lesser of (1) the price paid by the Purported Record Transferee or Purported Beneficial Transferee, as the case may be, for the shares of Series G Preferred Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Series G Preferred Stock for fair value, the Market Price of such shares of Series G Preferred Stock on the day of the event which resulted in the transfer of such shares of Series G Preferred Stock to the Trust) and (2) the price per share received by the Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares of Series G Preferred Stock held in the Trust. Any net sales proceeds in excess of the amount payable to the Purported Record Transferee shall be immediately paid to the Charitable Beneficiary together with any dividends or other distributions thereon. If, prior to the discovery by the Corporation that shares of such Series G Preferred Stock have been transferred to the Trust, such shares of Series G Preferred Stock are sold by a Purported Record Transferee then (i) such shares of Series G Preferred Stock shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the Purported Record Transferee or Purported Beneficial Transferee, as the case may be, received an amount for such shares of Series G Preferred Stock that exceeds the amount that such Purported Record Transferee or Purported Beneficial Transferee, as the case may be, was entitled to receive pursuant to this Subparagraph I(3)(d) , such excess shall be paid by such Purported Record Transferee or Purported Beneficial Transferee to the Trustee upon demand.

(e) Series G Preferred Stock transferred to the Trust shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price paid by the Purported Record Transferee or Purported Beneficial Transferee, as the case may be, for the shares of Series G Preferred Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Series G Preferred Stock for fair value, the Market Price of such shares of Series G Preferred Stock on the day of the event which resulted in the transfer of such shares of Series G Preferred Stock to the Trust) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer until the Trustee has sold the shares of Series G Preferred Stock held in the Trust pursuant to Subparagraph I(3)(d) of these terms of the Series G Preferred Stock. Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares of Series G Preferred Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and any dividends or other distributions held by the Trustee with respect to such Series G Preferred Stock shall thereupon be paid to the Charitable Beneficiary.

(f) By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that the Series G Preferred Stock held in the Trust would not violate the restrictions set forth in Subparagraph I(2)(a) of these terms of the Series G Preferred Stock in the hands of such Charitable Beneficiary. Neither the failure of the Corporation to make such designation nor the failure of the Corporation to appoint the Trustee before the automatic transfer provided for in Subparagraph I(2)(b) of these terms of the Series G Preferred Stock shall make such transfer ineffective, provided that the Corporation thereafter makes such designation and appointment.

(4) Remedies for Breach . If the Board of Directors or, if permitted by the MGCL, a committee thereof or other designees shall at any time determine in good faith that a Transfer or other event has taken place in violation of Subparagraph I(2)(a) or (c) of these terms of the Series G Preferred Stock or that a Person intends to acquire, has attempted to acquire or may acquire beneficial ownership (determined without reference to any rules of attribution), Beneficial Ownership or Constructive Ownership of any shares of Series G Preferred Stock of the Corporation in violation of Subparagraph I(2)(a) or (c) of these terms of the Series G Preferred Stock, the Board of Directors or, if permitted by the MGCL, a committee thereof or other designees, shall take such action as it deems necessary or advisable to refuse to give effect or to prevent such Transfer or to preserve the Corporation's status as a REIT, including, but not limited to, causing the Corporation to redeem shares of Series G Preferred Stock for cash at a redemption price of $25.00 per share plus (except as otherwise provided in the first sentence of Subparagraph F(5) of these terms of the Series G Preferred Stock) accrued and unpaid dividends thereon to the date fixed for redemption, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer; provided , however , that any Transfers (or, in the case of events other than a Transfer, ownership or Constructive Ownership or Beneficial Ownership) in violation of Subparagraph I(2)(a) of these terms of the Series G Preferred Stock shall automatically result in the transfer to a Trust as described in Subparagraph I(2)(b) of these terms of the Series G Preferred Stock and any Transfer in violation of Subparagraph I(2)(c) of these terms of the Series G Preferred Stock shall automatically be void ab initio irrespective of any action (or non-action) by the Board of Directors.

(5) Notice of Restricted Transfer . Any Person who acquires or attempts or intends to acquire shares of Series G Preferred Stock in violation of Subparagraph I(2)(a) or (c) of these terms of the Series G Preferred Stock, or any Person who is a Purported Beneficial Transferee such that an automatic transfer to a Trust results under Subparagraph I(2)(b) of these terms of the Series G Preferred Stock, shall immediately give notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Corporation's status as a REIT.

(6) Owners Required to Provide Information . Prior to the Restriction Termination Date each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of Series G Preferred Stock and each Person (including the shareholder of record) who is holding Series G Preferred Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall provide to the Corporation such information that the Corporation may request, in good faith, in order to determine the Corporation's status as a REIT.

(7) Remedies Not Limited . Nothing contained in these terms of the Series G Preferred Stock (but

subject to Subparagraph I(13) of these terms of the Series G Preferred Stock) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its shareholders by preservation of the Corporation's status as a REIT.

(8) Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Paragraph I of these terms of the Series G Preferred Stock, including any definition contained in Subparagraph I(1) of these terms of the Series G Preferred Stock, the Board of Directors shall have the power to determine the application of the provisions of this Paragraph I with respect to any situation based on the facts known to it (subject, however, to the provisions of Subparagraph I(13) of these terms of the Series G Preferred Stock). In the event this Paragraph I requires an action by the Board of Directors and these terms of the Series G Preferred Stock fail to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of this Paragraph I. Absent a decision to the contrary by the Board of Directors (which the Board of Directors may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Subparagraph I(2) of these terms of the Series G Preferred Stock) acquired Beneficial or Constructive Ownership of Series G Preferred Stock in violation of Subparagraph I(2)(a) of these terms of the Series G Preferred Stock, such remedies (as applicable) shall apply first to the shares of Series G Preferred Stock which, but for such remedies, would have been actually owned by such Person, and second to shares of Series G Preferred Stock which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such shares of Series G Preferred Stock based upon the relative number of the shares of Series G Preferred Stock held by each such Person.

(9) Exceptions .

(a) Subject to Subparagraph I(2)(a)(iii) of these terms of the Series G Preferred Stock, the Board of Directors, in its sole discretion, may exempt (prospectively or retroactively) a Person from the limitation on a Person Beneficially Owning shares of Series G Preferred Stock in violation of Subparagraph I(2)(a)(i) of these terms of the Series G Preferred Stock if the Board of Directors determines that such exemption will not jeopardize the Corporation's status as a REIT under the Code and the Board of Directors otherwise decides the action would be in the Corporation's best interests.

(b) Subject to Subparagraph I(2)(a)(iii) of these terms of the Series G Preferred Stock, the Board of Directors, in its sole discretion, may exempt (prospectively or retroactively) a Person from the limitation on a Person Constructively Owning shares of Series G Preferred Stock in violation of Subparagraph I(2)(a)(ii) of these terms of the Series G Preferred Stock if the Board of Directors determines that such exemption will not jeopardize the Corporation's status as a REIT under the Code and the Board of Directors otherwise decides the action would be in the Corporation's best interests.

(c) Prior to granting an exception to any Person pursuant to Subparagraph I(9)(a) or (b) of these terms of the Series G Preferred Stock, the Board of Directors may, as it may deem necessary or advisable in order to determine or ensure the Corporation's status as a REIT, (i) require such Person to make such representations or undertakings as are necessary to ascertain that such Person's Beneficial Ownership or Constructive Ownership, as the case may be, will not violate Subparagraph I(2)(a)(i) or (ii) of these terms of the Series G Preferred Stock, as the case may be, or agree that any violation or attempted violation of such representations or undertakings (or other action that is contrary to the restrictions contained in Subparagraph I(2)(a) of these terms of the Series G Preferred Stock) will result in the Series G Preferred Stock being transferred to a Trust in accordance with Subparagraph I(2)(b) of these terms of the Series G Preferred Stock; and/or (ii) require a ruling from the Internal Revenue Service and/or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors in its sole discretion.

(d) A committee of the Board of Directors (the “ Pricing Committee ”) has been delegated, and may exercise, all powers of the Board of Directors under this Subparagraph I(9).

(10) Legends . Each certificate for Series G Preferred Stock shall bear substantially the following legends:

Classes of Stock

Restriction on Ownership and Transfer

THE SHARES OF 6.875% SERIES G CUMULATIVE REDEEMABLE PREFERRED STOCK (THE “SERIES G PREFERRED STOCK”) REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION'S SERIES G PREFERRED STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING SERIES G PREFERRED STOCK OF THE CORPORATION; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S SERIES G PREFERRED STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING SERIES G PREFERRED STOCK OF THE CORPORATION; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES G PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE CORPORATION BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN THE CORPORATION BEING “CLOSELY HELD” UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY TRANSFER SERIES G PREFERRED STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES G PREFERRED STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES G PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP REFERRED TO IN CLAUSE (i), (ii) OR (iii) ABOVE ARE VIOLATED, THE SERIES G PREFERRED STOCK REPRESENTED HEREBY IN EXCESS OF SUCH RESTRICTIONS WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED IN THE TERMS OF THE SERIES G PREFERRED STOCK AND AS OTHERWISE SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO . ALL TERMS IN THIS LEGEND WHICH ARE DEFINED IN

THE CHARTER OF THE CORPORATION SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SERIES G PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.

(11) Severability . Without limitation to Subparagraph J(5) of these terms of the Series G Preferred Stock, if any provision of this Paragraph I or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, then, to the extent permitted by law, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

(12) NYSE . Nothing in this Paragraph I shall preclude the settlement of any transaction entered into through the facilities of the NYSE. The shares of Series G Preferred Stock that are the subject of such transaction shall continue to be subject to the provisions of this Paragraph I after such settlement

(13) Applicability of Paragraph I . The provisions set forth in this Paragraph I shall apply to the Series G Preferred Stock notwithstanding any contrary provisions of the Series G Preferred Stock provided for elsewhere in these terms of the Series G Preferred Stock.

J. Miscellaneous .

(1) Conversion . Except as provided in Paragraph H , the Series G Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation.

(2) Preemptive Rights . No holder of shares of Series G Preferred Stock, as such, shall have any preemptive or preferential right to subscribe for or to purchase any additional shares of any class or series of stock of the Corporation or any securities convertible into or exercisable or exchangeable for shares of any class or series of stock of the Corporation.

(3) Office or Agency . The Corporation will at all times maintain an office or agency in one of the 48 contiguous States of the United States of America where shares of Series G Preferred Stock may be surrendered for payment (including upon redemption), registration of transfer or exchange.

(4) Status of Redeemed, Converted and Reacquired Series G Preferred Stock . In the event any shares of Series G Preferred Stock shall be redeemed, converted as provided in Paragraph H or otherwise reacquired by the Corporation, the shares so redeemed, converted or reacquired shall become authorized but unissued shares of Series G Preferred Stock, available for future issuance and reclassification by the Corporation.

(5) Severability . If any preference, conversion or other right, voting power, restriction, limitation as to dividends or other distributions, qualification, term or condition of redemption or other term of the Series G Preferred Stock is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, then, to the extent permitted by law, all other preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms or conditions of redemption and other terms of the Series G Preferred Stock which can be given effect without the invalid, unlawful or unenforceable preference, conversion or other right, voting power, restriction, limitation as to dividends or other distributions, qualification, term or condition of redemption or other term of the Series G Preferred Stock shall remain in full force and effect and shall not be deemed dependent upon any other such preference, conversion or other right, voting power, restriction, limitation as to dividends or other distributions, qualification, term or condition of redemption or other term of the Series G Preferred Stock unless so expressed herein; provided that Paragraph I shall be governed by Subparagraph I(11) of these terms of the Series G Preferred Stock and not this Subparagraph J(5) .

(6) Terms of the Series G Preferred Stock . All references to the “ terms ” of the Series G Preferred

Stock (and all similar references) shall include all of the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and provisions set forth in Paragraphs A through J , inclusive, of these terms of the Series G Preferred Stock.

SECOND: The Series G Preferred Stock has been classified and designated by the Board of Directors, or a duly authorized committee thereof, under the authority contained in the Charter.

THIRD: These Articles Supplementary have been approved by the Board of Directors or a duly authorized committee thereof in the manner and by the vote required by law.

FOURTH: The undersigned Executive Vice President, Chief Financial Officer and Secretary and Senior Vice President, Chief Accounting Officer and Controller of the Corporation each acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, acknowledges that to the best of his or her knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, KILROY REALTY CORPORATION has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its Executive Vice President, Chief Financial Officer and Secretary and its Senior Vice President, Chief Accounting Officer and Controller, and attested to by its Vice President and Treasurer and Vice President, Corporate Counsel and Assistant Secretary on this 23 ^rd day of March, 2012.

KILROY REALTY CORPORATION

By: /s/ Tyler H. Rose

Tyler H. Rose

Executive Vice President, Chief Financial

Officer and Secretary

Attest:

By: /s/ Michelle Ngo

Michelle Ngo

Vice President and Treasurer

By: /s/ Heidi R. Roth

Heidi R. Roth

Senior Vice President,

Chief Accounting Officer and Controller

Attest:

By: /s/ Joseph Magri

Joseph Magri

Vice President, Corporate Counsel and

Assistant Secretary

[SEAL]

Exhibit 4.1

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT , as the same may be amended from time to time (this “ Agreement ”) is made and entered into as of the 31 ^st day of July, 2012 (the “ Effective Date ”) by and among KILROY REALTY CORPORATION , a Maryland corporation (the “ Company ”) and and each of the persons and entities made a party to this Agreement pursuant to a written joinder agreement that references this Agreement (each, a “ Unitholder ”).

RECITALS

WHEREAS, pursuant to that certain Purchase Agreement effective as of February 14, 2012, as amended (the “ Purchase Agreement ”), among each Unitholder and the other tenant-in-common owners identified therein (collectively, “ Seller ”), as “Seller,” and KILROY REALTY, L.P., a Delaware limited partnership (the “ Operating Partnership ”), as “Buyer,” on and as of the Effective Date, (a) the Company is acquiring all right, title and interest of Seller in and to certain real property and related rights commonly known as “Sunset Media Tower” in Los Angeles, California, as more particularly described therein, and (b) each Unitholder is receiving Common Partnership Units (as defined below) in the Operating Partnership and being admitted as a Common Limited Partner (as defined below) under the Limited Partnership Agreement (as defined below), all as more particularly described in the Purchase Agreement and in the other documents and instruments executed and delivered by the applicable parties in connection therewith (collectively, the “ Transactions ”); and

WHEREAS, it is a condition to the “Closing” (as defined in the Purchase Agreement) of the Transactions that the Company enter into this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. The following capitalized terms, as used in this Agreement, have the following meanings:

“Agreement” shall have the meaning ascribed to it in the preamble to this Agreement.

“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized by law to close.

“Common Partnership Units” means Common Partnership Units of the Operating Partnership issued pursuant to the Purchase Agreement, which may be redeemed with shares of Common Stock pursuant to the Limited Partnership Agreement.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock, par value $0.01 per share, of the Company.

“Company” has the meaning set forth in the preamble to this Agreement.

“Effective Date” has the meaning set forth in the preamble to this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Shares” means the shares of Common Stock issued or issuable upon redemption of the Common Partnership Units.

“Existing Shelf Registration Statement” means the Company's registration statement on Form S-3, Commission File No. 333-153583.

“Holder” means any Person (including each Unitholder) who is the record or beneficial owner of any Registrable Security or any assignee or transferee of such Registrable Security (including assignments or transfers of Registrable Securities to such assignees or transferees as a result of the foreclosure on any loans secured by such Registrable Securities).

“Limited Partnership Agreement” means the Sixth Amended and Restated Agreement of Limited Partnership of the Company, dated as of March 27, 2012, as the same may be further amended, modified, supplemented or restated from time to time, including, with respect to any Protected Partner and/or Guaranty Partner, pursuant to such Person's Joinder Agreement.

“Operating Partnership” has the meaning set forth in the recitals to this Agreement.

“Person” means an individual or a corporation, partnership, limited liability company, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof .

“Purchase Agreement ” has the meaning set forth in the recitals to this Agreement.

“Registration Deadline” has the meaning set forth in Section 2.1.

“Registration Expenses” has the meaning set forth in Section 3.3.

“Registrable Security” or “Registrable Securities” means Exchange Shares and any shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Exchange Shares, unless and until such Exchange Shares or shares of Common Stock (i) have been sold or transferred by a Holder to another Person pursuant to an effective registration statement, (ii) have been sold by a Holder to another Person pursuant to the provisions of Rule 144, (iii) may be sold pursuant to Rule 144, or (iv) have been otherwise transferred in a transaction that would constitute a sale under the Securities Act and, in each such case, such shares may be resold without volume, manner of sale or other restrictions or conditions without subsequent registration under the Securities Act.

“Resale Prospectus” has the meaning set forth in Section 3.4.

“Resale Registration Statement” means any registration statement of the Company

pursuant to which Registrable Securities held by the Holders may be offered and sold pursuant to the Securities Act under Rule 415 (or any successor provision) on a continuous and delayed basis, including the Existing Shelf Registration Statement. Resale Registration Statement shall include any prospectus or prospectus supplement that is part of such Resale Registration Statement and any document incorporated by reference therein.

“Rule 144” means Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulagated by the Commission.

“Rule 415” means Rule 415 under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulagated by the Commission .

“Securities Act” means the Securities Act of 1933, as amended.

“Selling Holder” means a Holder who holds Registrable Securities that may be offered and sold pursuant to a Resale Registration Statement.

“Unitholder ” has the meaning set forth in the preamble to this Agreement.

ARTICLE II.

FILING OF PROSPECTUS SUPPLEMENT

Section 2.1 Prospectus Supplement to Existing Shelf Registration Statement . Subject to the provisions of Article III hereof, the Company will use commercially reasonable efforts to file with the Commission, not later than ten business days after the first (1 ^st ) anniversary of the Effective Date (the “ Registration Deadline ”), a prospectus supplement, or such supplemental materials as are then required by the rules and regulations of the Commission, to register the offer and sale by the Holders of all Registrable Securities pursuant to the Existing Shelf Registration Statement, and, if the Company, following use of its commercially reasonable efforts has been unable to file such supplement and/or materials by the Registration Deadline, then the Company shall continue to use its commercially reasonable efforts to file such supplement and/or materials until they have been filed with the Commission. Subject to the provisions of Article III hereof, the Company will use commercially reasonable efforts to cause the Existing Shelf Registration Statement to be continuously effective from the Registration Deadline until the first date on which all of the Registrable Securities cease to be Registrable Securities.

Section 2.2 New Resale Registration Statement. In the event the Company is unable to register the offer and sale by the Holders of all Registrable Securities pursuant to the Existing Shelf Registration Statement pursuant to Section 2.1 above, then, subject to the provisions of Article III hereof, the Company shall use commercially reasonable efforts to file as promptly as possible, a new Resale Registration Statement registering the offer and sale by the Holders of all Registrable Securities. The Company shall use its commercially reasonable efforts to cause such Resale Registration Statement to become effective as soon as practicable following its filing with the Commission. Subject to the provisions of Article III hereof, the Company will use commercially reasonable efforts to cause such Resale Registration Statement to be continuously effective from the date such Resale Registration Statement is declared effective until the first date on which all of the Registrable Securities cease to be Registrable Securities.

ARTICLE III.

REGISTRATION

Section 3.1 Registration Procedures. In connection with any Resale Registration Statement covering Registrable Securities:

(a) Each Holder agrees to provide within 10 days after receipt of a written request pursuant to Section 4.3 by the Company such information regarding the proposed distribution by such Holder of the Registrable Securities and all other information reasonably requested by the Company. If a Holder fails to deliver to the Company any such the requested information within such 10 day period, such Holder will not be entitled to the benefits of Section 2.1.

(b) Subject to Section 3.2 hereof, the Company will use commercially reasonable efforts to prepare and file with the Commission such amendments, supplements and additional Resale Registration Statements as may be necessary to comply with its obligations under Section 2.1.

(c) The Company will, if requested by any of the Holders, prior to filing any such Resale Registration Statement or prospectus, or any amendment or supplement thereto, furnish to each Selling Holder of the Registrable Securities covered thereby copies of such Resale Registration Statement or prospectus or amendment or supplement thereto as proposed to be filed and such other documents as such Selling Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder.

(d) The Company will promptly notify each Selling Holder of Registrable Securities covered by a Resale Registration Statement of any stop order issued or threatened by the Commission and take such commercially reasonable actions as may be required to prevent the entry of such stop order or to remove it if entered.

(e) The Company will use commercially reasonable efforts to register or qualify the Registrable Securities under such securities or blue sky laws of those jurisdictions in the United States (where an exemption is not available) as any Selling Holder reasonably (in light of the Selling Holder's intended plan of distribution) requests and will promptly notify any such requested Selling Holder of any stop order issued or threatened by any applicable state securities regulator or administrator and take such commercially reasonable actions as may be required to prevent the entry of any such stop order or to remove any such stop order if entered; provided , however , that the Company will not be required to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction.

(f) The Company will use commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed.

(g) The Company will promptly notify each Selling Holder of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus, as amended and supplemented, so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a

material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances then existing, not misleading and promptly make available to each Selling Holder a reasonable number of copies of any such supplement or amendment.

Section 3.2 Material Developments; Suspension of Offering.

(a) Notwithstanding the provisions of Section 2.1 or any other provisions of this Agreement to the contrary, the Company shall not be required to file a Resale Registration Statement or prospectus, or any amendment or supplement thereto, or to keep any Resale Registration Statement effective if the negotiation or consummation of a transaction by the Company or any of its subsidiaries is pending or an event has occurred, which negotiation, consummation or event would require additional disclosure by the Company in the Resale Registration Statement of material information which the Company (in the judgment of management of the Company) has a bona fide business purpose for keeping confidential and the nondisclosure of which in the Resale Registration Statement could reasonably cause the Resale Registration Statement to fail to comply with applicable disclosure requirements; provided , however , that the Company (i) will promptly notify the Holders of Registrable Securities otherwise entitled to registration of the foregoing and (ii) may not delay, suspend or withdraw the Resale Registration Statement for such reason more than twice in any twelve (12) month period or three times in any twenty-four (24) month period or for more than ninety (90) days at any time. Upon receipt of any notice from the Company of the happening of any event during the period in which the Resale Registration Statement is effective which is of a type specified in the preceding sentence or as a result of which the Resale Registration Statement or related prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made not misleading, Holders agree that they will immediately discontinue offers and sales of the Registrable Securities under the Resale Registration Statement until they receive copies of a supplemental or amended prospectus that corrects the misstatements or omissions and receive notice that any post-effective amendment has become effective or until advised in writing by the Company that the prospectus, or any amendment or supplement thereto, may be used. If so directed by the Company, Holders will deliver to the Company or confirm in writing the destruction of any copies of the prospectus covering the Registrable Securities in their possession at the time of receipt of such notice.

(b) If all reports required to be filed by the Company pursuant to the Exchange Act have not been filed by the required date without regard to any extension, or if the consummation of any business combination by the Company has occurred or is probable for purposes of Rule 3‑05 or Article 11 of Regulation S‑X under the Securities Act, upon written notice thereof by the Company to the Holders, the rights of the Holders to sell or distribute any Registrable Securities pursuant to any Resale Registration Statement or to require the Company to take action with respect to the registration of any Registrable Securities pursuant to this Agreement shall be suspended until the date on which the Company has filed such reports or obtained and filed the financial information required by Rule 3‑05 or Article 11 of Regulation S‑X to be included or incorporated by reference, as applicable, in any Resale Registration Statement and the Company shall notify the Holders as promptly as practicable when such suspension is no longer required. The Company's rights to suspend its obligations under this Section 3.2(b) shall be in additional to its rights under Section 3.2(a).

(c) Each Holder agrees to keep confidential the fact that the Company has exercised its rights under this Section 3.2 and all material facts and circumstances relating to such exercise until such information is made public by the Company; provided, however, a Holder may disclose any such material facts and circumstances if ordered to do so by a court of competent jurisdiction.

Section 3.3 Registration Expenses .

In connection with any registration of Registrable Securities required hereunder, the Company shall pay all the following registration expenses in connection with the registration (the “ Registration Expenses ” ): (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws, (iii) printing expenses, (iv) internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing of the Registrable Securities on each securities exchange on which the Common Stock is then listed, (vi) fees and disbursements of counsel for the Company and the independent public accountants of the Company, and (vii) the fees and expenses of any experts retained by the Company in connection with such registration. The Holders shall be responsible for the payment of any and all other expenses incurred by them in connection with the registration and sale of Registrable Securities, including, without limitation, brokerage and sales commissions, placement agent fees, discounts and commissions attributable to the Registrable Securities, fees and disbursements of counsel engaged by the Holders, and any transfer taxes relating to the sale or disposition of the Registrable Securities.

Section 3.4 Indemnification by the Company.

The Company agrees to indemnify and hold harmless each Holder, its partners, members, officers, directors, employees, representatives, and agents, and each Person, if any, who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and the officers, directors, agents and employees of each such controlling person, from and against any and all losses, claims, actions, damages, liabilities (joint or several), costs and expenses (including, without limitation, but subject to the provisions of Section 3.6 hereof, reasonable attorneys' fees and disbursements), to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, actions, damages, liabilities costs or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Resale Registration Statement or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus contained in a Resale Registration Statement (a “ Resale Prospectus ”), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by (i) any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Selling Holder or on such Selling Holder's behalf expressly for inclusion therein, or (ii) by the Selling Holder's breach of its obligations set forth in Section 3.1(a) or 3.2 of this Agreement; provided further , however , that the Company will not be liable in any case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission contained in a Resale Prospectus which was corrected in a supplement or amendment thereto if such claim is brought by a purchaser of Registrable Securities from the Selling Holder and the Selling Holder failed to deliver to such purchaser the supplement or amendment to the Resale Prospectus in a timely manner.

Section 3.5 Indemnification by Holders of Registrable Securities; Underwriting Agreement.

Each Selling Holder of Registrable Securities covered by a Registration Statement agrees to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in Section 3.4 from the Company to Selling Holders, but only to the extent that such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such Selling Holder furnished in writing by such Selling Holder or on such Selling Holder's behalf expressly for use in any Resale Registration Statement or Resale Prospectus or any amendment or supplement thereto. Each Holder also agrees to indemnify and hold harmless any underwriters of the Registrable Securities, their

officers and directors and each Person who controls such underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act on the same basis as that of the indemnification of the Company provided in this Section 3.5 or as otherwise provided pursuant to the terms of any underwriting agreement entered into by the Company and the Selling Holders. If request by the Company, each Selling Holder agrees that the right to include any of such Selling Holder's Registrable Securities in the Resale Registration Statement shall be contingent upon such Selling Holder entering into an underwriting agreement in customary form with one or more underwriters selected by the Company.

Section 3.6 Conduct of Indemnification Proceedings.

Each indemnified party shall give reasonably prompt notice to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify the indemnifying party (i) shall not relieve the indemnifying party from any liability which it may have under the indemnity agreement provided in Section 3.4 or 3.5 above, unless and to the extent it did not otherwise learn of such action and the lack of notice by the indemnified party adversely effects the rights and defenses available to the indemnifying party, and (ii) shall not, in any event, relieve the indemnifying party from any obligations to the indemnified party other than the indemnification obligation provided under Section 3.4 or 3.5 above. If the indemnifying party so elects within a reasonable time after receipt of notice, the indemnifying party may assume the defense of the action or proceeding at the indemnifying party's own expense with counsel chosen by the indemnifying party and approved by the indemnified party, which approval shall not be unreasonably withheld; provided , however , that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and the indemnified party reasonably determines, based upon advice of legal counsel experienced in such matters, that there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party, then the indemnified party shall be entitled to separate counsel at the indemnifying party's expense, which counsel shall be chosen by the indemnified party and approved by the indemnifying party, which approval shall not be unreasonably withheld or delayed; provided further , that it is understood that the indemnifying party shall not be liable for the fees, charges and disbursements of more than one separate firm for all Holders with respect to a particular action or proceeding. If the indemnifying party does not assume the defense, after having received the notice referred to in the first sentence of this Section 3.6, the indemnifying party will pay the reasonable fees and expenses of counsel for the indemnified party; in that event, however, the indemnifying party will not be liable for any settlement effected without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. If an indemnifying party assumes the defense of an action or proceeding in accordance with this Section 3.6, the indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified party incurred thereafter in connection with that action or proceeding except as set forth in the second sentence of this Section 3.6. Unless and until a final judgment is rendered that an indemnified party is not entitled to the costs of defense under the provisions of this Section, the indemnifying party shall reimburse, promptly as they are incurred, the indemnified party's reasonable costs of defense.

Section 3.7 Contribution.

(a) If the indemnification provided for in Section 3.4 or 3.5 hereof is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by indemnified party as a result of such losses, claims, damages or liabilities as between the Company on the one hand and each indemnifying Selling Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each indemnifying Selling Holder in connection with such statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of each indemnifying Selling Holder on the other shall be determined by reference to, among other things,

whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such indemnifying Selling Holder, and the Company's and the indemnifying Selling Holder's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and whether the indemnifying Selling Holder breached this Agreement.

(b) The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 3.7(a). The amount paid or payable by an indemnifying party as a result of the losses, claims, damages or liabilities referred to in Sections 3.4 and 3.5 hereof shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

ARTICLE IV.

MISCELLANEOUS

Section 4.1 Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligation of any other party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction.

Section 4.2 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented without the prior written consent of the Company and the Holders holding at least fifty-one percent (51%) of the then outstanding Registrable Securities. Any waiver or consents to the departure from the provisions of this Agreement must be in writing signed by the party against whom enforcement of such waiver or consent to departure is sought. No failure or delay by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon any breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.

Section 4.3 Notices. All notices, demands, consents, approvals, requests or other communications given or made in connection with this Agreement shall be in writing and shall be deemed to have been given (a) if delivered by hand on the date of delivery or on the date delivery was refused by the addressee or (b) if delivered by certified mail or by overnight courier, on the date of delivery as established by the return receipt or courier service confirmation (or the date on which the return receipt or courier service confirms that acceptance of delivery was refused by the addressee), in each case as follows:

If to the Company , addressed to it at:

Kilroy Realty, L.P.

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Mr. Jeffrey C. Hawken

Facsimile No.: (310) 481-6540

Telephone No.: (310) 481-8400

and to:

Latham & Watkins LLP

355 South Grand Avenue

Los Angeles, CA 90071-1560

Facsimile No: (213) 891 - 8763

Telephone No : (213) 891 - 8739

Attention: J. Scott Hodgkins

If to a Unitholder or Holder , addressed to it at at such address or fax number as such Unitholder or Holder shall have furnished to the Company in writing.

Section 4.4 Successors and Assigns. A Holder may transfer or assign, in whole or from time to time in part, to one or more Persons its rights hereunder in connection with the transfer of Registrable Securities by such Holder to such Person, provided that such Holder complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected and the assignee executes a counterpart to this Agreement assuming all rights and obligations of a Holder hereunder.

Section 4.5 Counterparts; Electronic Signatures. This Agreement may be executed in two or more counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one Agreement. In order to expedite the execution and delivery of this Agreement by the parties hereto, signatures transmitted via facsimile or other electronic means may be used in place of original signatures on this Agreement. Each of the parties hereto intend to be bound by any signatures delivered via facsimile or other electronically transmitted means, and are aware that the other party will rely on any such facsimile or electronically transmitted signatures, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of signature.

Section 4.6 Governing Law. This Agreement, and the rights and obligations of the parties hereunder, shall be governed by, and construed and enforced in accordance with, the laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of California.

Section 4.7 WAIVER OF JURY TRIAL . SUBJECT TO THE MANDATORY ARBITRATION PROVISIONS OF SECTION 4.8, EACH OF THE PARTIES ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES AND THE STATE OF CALIFORNIA. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CONTROVERSY, DISPUTE OR CLAIM WHATSOEVER, (i) ARISING UNDER THIS AGREEMENT (OR ANY OTHER TRANSACTION DOCUMENT) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE TO THE EXTENT NOT COVERED BY THE MANDATORY ARBITRATION PROVISIONS IN SECTION 4.8 AND WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH PARTY HEREBY AGREES AND

CONSENTS THAT ANY SUCH CONTROVERSY, DISPUTE OR CLAIM WHATSOEVER TO THE EXTENT NOT COVERED BY THE MANDATORY ARBITRATION PROVISIONS IN SECTION 4.8 SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

Section 4.8 ARBITRATION .

(a) EXCEPT AS PROVIDED IN SECTION 4.8(b) BELOW, ANY CONTROVERSY, DISPUTE OR CLAIM OF WHATSOEVER NATURE ARISING OUT OF, IN CONNECTION WITH, OR IN RELATION TO THE INTERPRETATION, PERFORMANCE OR BREACH OF THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, INCLUDING ANY CLAIM BASED ON CONTRACT, TORT OR STATUTE, SHALL BE DETERMINED BY FINAL, BINDING AND CONFIDENTIAL ARBITRATION CONDUCTED BEFORE A SINGLE ARBITRATOR AND ADMINISTERED BY JAMS, INC. OR ITS SUCCESSOR (“ JAMS ”) PURSUANT TO JAMS' STREAMLINED ARBITRATION RULES AND PROCEDURES IF THE AMOUNT IN CONTROVERSY IS $500,000 OR LESS, AND JAMS' COMPREHENSIVE ARBITRATION RULES AND PROCEDURES, IF THE AMOUNT IN CONTROVERSY IS MORE THAN $500,000, AND THE SOLE ARBITRATOR SHALL BE SELECTED IN ACCORDANCE WITH SUCH APPLICABLE RULES. ANY ARBITRATION HEREUNDER SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT, 9 U.S.C. 1-16 (OR ANY SUCCESSOR LEGISLATION THERETO), AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF. NEITHER THE PARTIES NOR THE ARBITRATOR SHALL DISCLOSE THE EXISTENCE, CONTENT OR RESULTS OF ANY ARBITRATION HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF ALL PARTIES; PROVIDED, HOWEVER, THAT ANY PARTY MAY DISCLOSE THE EXISTENCE, CONTENT OR RESULTS OF ANY SUCH ARBITRATION TO ITS PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS AND ACCOUNTANTS AND TO ANY OTHER PERSON TO WHOM DISCLOSURE IS REQUIRED BY APPLICABLE LAW, INCLUDING PURSUANT TO AN ORDER OF A COURT OF COMPETENT JURISDICTION. UNLESS OTHERWISE AGREED BY THE PARTIES, ANY ARBITRATION HEREUNDER SHALL BE HELD AT A NEUTRAL LOCATION SELECTED BY THE ARBITRATOR IN LOS ANGELES, CALIFORNIA. THE COST OF THE ARBITRATOR AND THE EXPENSES RELATING TO THE ARBITRATION (EXCLUSIVE OF ATTORNEYS' FEES AND COSTS) SHALL BE BORNE EQUALLY BY THE PARTIES TO SUCH CONTROVERSY, DISPUTE OR CLAIM UNLESS OTHERWISE SPECIFIED IN THE AWARD OF THE ARBITRATOR.

(b) THE PROVISIONS OF THIS SECTION 4.8 SHALL NOT APPLY TO ANY REQUEST OR APPLICATION FOR AN ORDER OR DECREE GRANTING ANY PROVISIONAL OR ANCILLARY REMEDY (SUCH AS A TEMPORARY RESTRAINING ORDER OR INJUNCTION) WITH RESPECT TO ANY RIGHT OR OBLIGATION OF A PARTY, AND ANY PRELIMINARY DETERMINATION OF THE UNDERLYING CONTROVERSY, DISPUTE, QUESTION OR ISSUE AS IS REQUIRED TO DETERMINE WHETHER OR NOT TO GRANT SUCH RELIEF. A FINAL AND BINDING DETERMINATION OF SUCH UNDERLYING CONTROVERSY, DISPUTE, QUESTION OR ISSUE SHALL BE MADE BY AN ARBITRATION CONDUCTED PURSUANT TO THIS SECTION 4.8 AFTER AN APPROPRIATE TRANSFER OR REFERENCE TO THE ARBITRATOR SELECTED PURSUANT TO THIS SECTION 4.8 UPON MOTION OR APPLICATION OF ANY PARTY TO HERETO. ANY ANCILLARY OR PROVISIONAL RELIEF WHICH IS GRANTED PURSUANT TO THIS CLAUSE (ii) SHALL CONTINUE IN EFFECT PENDING AN ARBITRATION DETERMINATION AND ENTRY OF JUDGMENT THEREON PURSUANT TO THIS SECTION 4.8.

Section 4.9 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

Section 4.10 Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter of this Agreement.

Section 4.11 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision of this Agreement.

Section 4.12 Selling Holders Become Party to this Agreement. By asserting or participating in the benefits of registration of Registrable Securities pursuant to this Agreement, each Holder agrees that it or he will be deemed a party to this Agreement and be bound by each of its terms.

Section 4.13 Rule 144. The Company covenants that it will use commercially reasonable efforts to file any reports required to be filed by it under the Securities Act and the Exchange Act to the extent required from time to time to enable Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemptions provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has filed such reports.

[Signatures follow on next page]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of Effective Date set forth above.

“ COMPANY ”

KILROY REALTY CORPORATION. , a Maryland corporation

By:

Name:

Title:

By:

Name:

Title:

“ UNITHOLDERs ”

[ See Separate Joinders ]

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: August 2, 2012

Exhibit 31.2

Certification of Chief Financial Officer

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

I, Tyler H. Rose, certify that:


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


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make 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/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Date: August 2, 2012

Exhibit 31.3

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, L.P. ;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make 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

Kilroy Realty Corporation, sole general partner of

Kilroy Realty, L.P.

Date: August 2, 2012

Exhibit 31.4

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of

2002

I, Tyler H. Rose, certify that:


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


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make 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/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Kilroy Realty Corporation, sole general partner of

Kilroy Realty, L.P.

Date: August 2, 2012

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 quarter ended June 30, 2012 (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.

/s/ John B. Kilroy, Jr.

John B. Kilroy, Jr.

President and Chief Executive Officer

Date: August 2, 2012

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of the Company or Kilroy Realty, L.P. under the Securities Act of 1933, as amended, or the Securities 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 the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification of Chief Financial Officer


(i)	the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012 (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.

/s/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Date: August 2, 2012

Exhibit 32.3

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 sole general partner of Kilroy Realty, L.P. (the "Operating Partnership"), hereby certifies, to his knowledge, that:


(i)	the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended June 30, 2012 (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 Operating Partnership.

/s/ John B. Kilroy, Jr.

John B. Kilroy, Jr.

President and Chief Executive Officer

Kilroy Realty Corporation, sole general partner of

Kilroy Realty, L.P.

Date: August 2, 2012

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of 1933, as amended, or the Securities 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 the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.4

Certification of Chief Financial Officer


(i)	the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended June 30, 2012 (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 Operating Partnership.

/s/ Tyler H. Rose

Tyler H. Rose

Executive Vice President and

Chief Financial Officer

Kilroy Realty Corporation, sole general partner of

Kilroy Realty, L.P.

Date: August 2, 2012

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, is not being filed as part of the Report or as a separate disclosure document, and is not being incorporated by reference into any filing of Kilroy Realty Corporation or the Operating Partnership under the Securities Act of 1933, as amended, or the Securities 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 the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.