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 September 30, ~~2013~~2015



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 October 2823, ~~2013~~2015, 8292,~~113~~220,~~491~~367 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 September 30, ~~2013~~2015 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 September 30, ~~2013~~2015, the Company owned an approximate 9798.81% common general partnership interest in the Operating Partnership. The remaining approximate 21.29% 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~~that 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 generally 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 isgenerally ~~required~~contributes to ~~contribute to~~ the Operating Partnership in exchange for units of partnership ~~units~~interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, ~~property dispositions,~~ by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership ~~units~~interest.

Noncontrolling interests inand ~~the Operating Partnership,~~ 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, to the extent not held by the Company, 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., a Delaware limited partnership (the “Finance Partnership”). This noncontrolling interest represents the Company’s 1% indirect general partnership interest in ~~Kilroy~~the ~~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~~Operating Partnership’s noncontrolling interest in ~~Kilroy~~the ~~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 58, ~~Secured~~Stockholders’ ~~and~~Equity ~~Unsecured Debt~~ of the ~~Operating Partnership~~Company;

◦ Note 69, ~~Noncontrolling~~Partners’ ~~Interests~~Capital onof the ~~Company’s~~Operating ~~Consolidated Financial Statements~~Partnership;

◦ Note 7, Stockholders’ Equity of the Company;

◦ Note 813, ~~Partners’~~Net ~~Capital~~Income Available to Common Stockholders Per Share of the ~~Operating Partnership~~Company; and

◦ Note 1314, Net Income ~~(Loss)~~ Available to Common ~~Stockholders~~Unitholders Per ~~Share~~Unit of the ~~Company;~~Operating ~~and~~Partnership;

◦• ~~Note~~“Item ~~14,~~2. ~~Net~~Management’s ~~Income~~Discussion ~~(Loss)~~and ~~Available~~Analysis toof ~~Common~~Financial ~~Unitholders~~Condition ~~Per~~and ~~Unit~~Results of ~~the Operating Partnership;~~Operations

•◦ ~~“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 or Rule 15d-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 NINE MONTHS ENDED SEPTEMBER 30, ~~2013~~2015

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION	1
	Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	1
	Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	1
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2013 and 2012 (unaudited)	2
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2015 and 2014 (unaudited)	2
	Consolidated Statements of Equity for the Nine Months ended September 30, 2013 and 2012 (unaudited)	3
	Consolidated Statements of Equity for the Nine Months ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014 (unaudited)	4
Item 1.	FINANCIAL STATEMENTS OF KILROY REALTY, L.P.	6
	Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	6
	Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	6
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2013 and 2012 (unaudited)	7
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2015 and 2014 (unaudited)	7
	Consolidated Statements of Equity for the Nine Months ended September 30, 2013 and 2012 (unaudited)	8
	Consolidated Statements of Capital for the Nine Months ended September 30, 2015 and 2014 (unaudited)	8
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 (unaudited)	9
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014 (unaudited)	9
	Notes to Consolidated Financial Statements	11
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	MANAGEMENT'’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3127
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5654
Item 4.	CONTROLS AND PROCEDURES (KILROY REALTY CORPORATION AND KILROY REALTY, L.P.)	5755
	PART II – OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	5856
Item 1A.	RISK FACTORS	5856
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5956
Item 3.	DEFAULTS UPON SENIOR SECURITIES	5956
Item 4.	MINE SAFETY DISCLOSURES	5956
Item 5.	OTHER INFORMATION	5956
Item 6.	EXHIBITS	6057
SIGNATURES		6158

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2013			December 31, 2012
	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS	(unaudited)
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	612,843		$	612,714
Land and improvements	$	850,280		$	877,633
Buildings and improvements (Note 2)	3,527,729			3,335,026
Buildings and improvements	4,028,044			4,059,639
Undeveloped land and construction in progress (Note 2)	~~907~~1,~~959~~475,718			~~809~~1,~~654~~120,660
Total real estate held for investment	5,048,531			4,757,394
Total real estate assets held for investment	6,354,042			6,057,932
Accumulated depreciation and amortization	(~~781~~999,~~580~~557		)	(~~756~~947,~~515~~664		)
Total real estate assets held for investment, net ($119,262 and $319,770 of VIE, respectively, Note 1)	4,266,951			4,000,879
Total real estate assets held for investment, net ($176,947 and $211,755 of VIE, respectively, Note 1)	5,354,485			5,110,268
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (NOTE 12)	239,411			—
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET	—			8,211
CASH AND CASH EQUIVALENTS	~~197~~567,~~150~~940			1623,~~700~~781
RESTRICTED CASH (Note 1)	178,~~931~~130			~~247~~75,~~544~~185
MARKETABLE SECURITIES (Note 11)	9,192			7,435
MARKETABLE SECURITIES (Note 12)	12,638			11,971
CURRENT RECEIVABLES, NET (Note 4)	11,769			9,220
CURRENT RECEIVABLES, NET (Note 5)	11,533			7,229
DEFERRED RENT RECEIVABLES, NET (Note 4)	121,659			115,418
DEFERRED RENT RECEIVABLES, NET (Note 5)	183,352			156,416
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	190,085			189,968
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 4)	173,457			201,926
DEFERRED FINANCING COSTS, NET	1718,~~809~~709			18,~~971~~374
PREPAID EXPENSES AND OTHER ASSETS, NET	1723,~~319~~148			920,~~949~~375
TOTAL ASSETS	$	56,~~089~~353,~~276~~392		$	45,~~616~~633,~~084~~736
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt (Notes 2, 5 and 11)	$	563,898		$	561,096
Secured debt (Notes 6 and 12)	$	475,923		$	546,292
Exchangeable senior notes, net (Notes 5 and 11)	167,236			163,944
Unsecured debt, net (Notes 6 and 12)	2,181,382			1,783,121
Unsecured debt, net (Notes 5 and 11)	1,431,048			1,130,895
Unsecured line of credit (Notes 6 and 12)	—			140,000
Unsecured line of credit (Notes 5 and 11)	—			185,000
Accounts payable, accrued expenses and other liabilities	249,980			225,830
Accounts payable, accrued expenses and other liabilities	210,111			154,734
Accrued distributions (Note 15)	34,993			32,899
Accrued distributions (Note 15)	31,479			28,924
Deferred revenue and acquisition-related intangible liabilities, net (Note 4)	127,473			132,239
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	102,991			117,904
Rents received in advance and tenant security deposits	46,579			49,363
Rents received in advance and tenant security deposits	41,668			37,654
Liabilities of real estate assets held for sale	—			56
Liabilities and deferred revenue of real estate assets held for sale (Note 12)	16,751			—
Total liabilities	3,116,330			2,909,800
Total liabilities	2,565,182			2,380,151
COMMITMENTS AND CONTINGENCIES (Note 11)
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Stockholders’ Equity (Note 7):
Stockholders’ Equity (Note 8):
Preferred stock, $.01 par value, 30,000,000 shares authorized:
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference)	96,155			96,155
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference)	96,256			96,256
Common stock, $.01 par value, 150,000,000 shares authorized, 82,113,491 and 74,926,981 shares issued and outstanding, respectively	821			749
Common stock, $.01 par value, 150,000,000 shares authorized, 92,220,367 and 86,259,684 shares issued and outstanding, respectively	922			863
Additional paid-in capital	23,~~476~~042,~~424~~330			2,~~126~~635,~~005~~900
Distributions in excess of earnings	(~~201~~62,~~048~~850		)	(~~129~~162,~~535~~964		)
Total stockholders’ equity	23,~~468~~172,~~608~~813			2,~~189~~666,~~630~~210
Noncontrolling interests:
Noncontrolling Interests:
Common units of the Operating Partnership (Note 6)	50,601			46,303
Common units of the Operating Partnership (Note 7)	57,913			51,864
Noncontrolling interest in consolidated subsidiary (Notes 2 and 6)	4,885			—
Noncontrolling interest in consolidated subsidiary (Note 1)	6,336			5,862
Total noncontrolling interests	5564,~~486~~249			4657,~~303~~726
Total equity	23,~~524~~237,~~094~~062			2,~~235~~723,~~933~~936
TOTAL LIABILITIES AND EQUITY	$	56,~~089~~353,~~276~~392		$	45,~~616~~633,~~084~~736

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(~~unaudited,~~Unaudited; in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	2015			2014			2015			2014
REVENUES:
REVENUES
Rental income	$	~~104~~129,~~939~~510		$	90115,~~828~~221		$	~~308~~391,~~931~~892		$	~~253~~338,~~599~~911
Tenant reimbursements	911,~~656~~681			811,~~022~~346			2840,~~503~~280			2133,~~867~~399
Other property income (Note 10)	1,102			135			7,062			961
Other property income	362			2,457			1,690			7,650
Total revenues	~~115~~141,~~697~~553			98129,~~985~~024			~~344~~433,~~496~~862			~~276~~379,~~427~~960
EXPENSES:
EXPENSES
Property expenses	2526,~~123~~684			2125,~~016~~801			7178,~~728~~264			5575,~~531~~448
Real estate taxes	1012,~~295~~087			811,~~746~~008			2937,~~707~~232			2332,~~668~~728
Provision for bad debts	~~124~~—			—58			~~219~~289			258
Ground leases	~~929~~862			~~859~~771			2,~~665~~451			2,~~276~~306
General and administrative expenses	10,~~226~~799			811,~~727~~138			2936,~~750~~200			2633,~~745~~806
Acquisition-related expenses	~~568~~4			~~556~~431			~~1,387~~397			31,~~897~~268
Depreciation and amortization	4749,~~569~~422			4150,~~724~~032			~~141~~152,~~814~~567			~~109~~148,~~780~~647
Total expenses	9499,~~834~~858			8199,~~628~~239			~~277~~307,~~270~~400			~~221~~294,~~899~~261
OTHER (EXPENSES) INCOME:
OTHER (EXPENSES) INCOME
Interest income and other net investment gains (Note 11)	673			330			1,084			703
Interest income and other net investment (loss) gain (Note 12)	(694		)	(9		)	177			587
Interest expense (Note 5)	(18,853		)	(19,854		)	(58,021		)	(60,172		)
Interest expense (Note 6)	(12,819		)	(16,608		)	(44,561		)	(49,880		)
Total other (expenses) income	(1813,~~180~~513		)	(1916,~~524~~617		)	(5644,~~937~~384		)	(5949,~~469~~293		)
INCOME (LOSS) FROM CONTINUING OPERATIONS	2,683			(2,167		)	10,289			(4,941		)
INCOME FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE	28,182			13,168			82,078			36,406
DISCONTINUED OPERATIONS (Note 12)
Gain on sale of land (Note 3)	—			—			17,268			3,490
Income from discontinued operations (Note 10)	6,344			4,689			10,806			15,603
Gains on sales of depreciable operating properties (Note 3)	78,522			—			109,950			—
Net gain on dispositions of discontinued operations	—			—			423			72,809
INCOME FROM CONTINUING OPERATIONS	106,704			13,168			209,296			39,896
Total income from discontinued operations	6,344			4,689			11,229			88,412
DISCONTINUED OPERATIONS (Note 1)
NET INCOME	9,027			2,522			21,518			83,471
Income from discontinued operations	—			548			—			2,091
Net (income) loss attributable to noncontrolling common units of the Operating Partnership	(131		)	67			(266		)	(1,708		)
Gains on dispositions of discontinued operations	—			5,587			—			110,391
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	8,896			2,589			21,252			81,763
Total income from discontinued operations	—			6,135			—			112,482
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
NET INCOME	106,704			19,303			209,296			152,378
Distributions to noncontrolling cumulative redeemable preferred units of the Operating Partnership	—			(747		)	—			(3,541		)
Net income attributable to noncontrolling common units of the Operating Partnership	(1,945		)	(321		)	(3,850		)	(3,011		)
Preferred dividends	(3,312		)	(2,533		)	(9,938		)	(7,254		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	104,759			18,982			205,446			149,367
Original issuance costs of redeemed preferred stock	—			(2,062		)	—			(6,980		)
PREFERRED DIVIDENDS	(3,313		)	(3,313		)	(9,938		)	(9,938		)
Total preferred distributions and dividends	(3,312		)	(5,342		)	(9,938		)	(17,775		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	101,446		$	15,669		$	195,508		$	139,429
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	5,584		$	(2,753	)	$	11,314		$	63,988
Income from continuing operations available to common stockholders per common share – basic (Note 13)	$	1.10		$	0.11		$	2.18		$	0.34
Loss from continuing operations available to common stockholders per common share - basic (Note 13)	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from continuing operations available to common stockholders per common share – diluted (Note 13)	$	1.09		$	0.11		$	2.17		$	0.33
Loss from continuing operations available to common stockholders per common share - diluted (Note 13)	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Net income available to common stockholders per share – basic (Note 13)	$	1.10		$	0.18		$	2.18		$	1.67
Net income (loss) available to common stockholders per share - basic (Note 13)	$	0.07		$	(0.04	)	$	0.13		$	0.92
Net income available to common stockholders per share – diluted (Note 13)	$	1.09		$	0.18		$	2.17		$	1.63
Net income (loss) available to common stockholders per share - diluted (Note 13)	$	0.07		$	(0.04	)	$	0.13		$	0.92
Weighted average common shares outstanding – basic (Note 13)	92,150,341			83,161,323			89,077,012			82,525,033
Weighted average common shares outstanding - basic (Note 13)	76,768,893			71,889,475			75,750,822			67,975,309
Weighted average common shares outstanding – diluted (Note 13)	92,639,065			85,110,456			89,593,261			84,622,622
Weighted average common shares outstanding - diluted (Note 13)	76,768,893			71,889,475			75,750,822			67,975,309
Dividends declared per common share	$	0.35		$	0.35		$	1.05		$	1.05

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

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

				Common Stock										TotalStock-holders’Equity			~~Noncontrol-ling~~Noncontrolling Interests~~- CommonUnits of theOperatingPartnership~~			TotalEquity
	PreferredStock			Number ofShares		CommonStock		AdditionalPaid-inCapital			Distributionsin Excess ofEarnings
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
BALANCE AS OF DECEMBER 31, 2013	$	192,411		82,153,944		$	822	$	2,478,975		$	(210,896	)	$	2,461,312		$	54,848		$	2,516,160
Net income											81149,~~763~~367			81149,~~763~~367			13,~~708~~011			83152,~~471~~378
Issuance of Series G and Series H Preferred stock	192,411													192,411						192,411
Issuance of common stock				370,700		4		22,132						22,136						22,136
Redemption of Series E and Series F Preferred stock	(121,582		)								(4,918		)	(126,500		)				(126,500		)
Issuance of share-based compensation awards								1,281						1,281						1,281
Redemption of Series A Preferred units											(2,062		)	(2,062		)				(2,062		)
Noncash amortization of share-based compensation								10,345						10,345						10,345
Issuance of common stock				15,813,189		159		662,212						662,371						662,371
Exercise of stock options				482,000		4		20,533						20,537						20,537
Issuance of share-based compensation awards				62,137				957						957						957
Repurchase of common stock, stock options and restricted stock units				(48,017	)			(2,861		)				(2,861		)				(2,861		)
Noncash amortization of share-based compensation								6,182						6,182						6,182
Settlement of restricted stock units for shares of common stock				108,529				—						—						—
Repurchase of common stock and restricted stock units				(22,312	)			(603		)				(603		)				(603		)
Common shares issued in connection with early exchange of 4.25% Exchangeable Notes				431,270		4		219						223						223
Settlement of restricted stock units for shares of common stock				5,208				(133		)				(133		)				(133		)
Common shares received in connection with capped call option transactions				(111,206	)									—						—
Exercise of stock options				5,000				129						129						129
Exchange of common units of the Operating Partnership				1,000				28						28			(28		)	—
Issuance of common units																	5,604			5,604
Adjustment for noncontrolling interest								(370		)				(370		)	370			—
Exchange of common units of the Operating Partnership				10,000				231						231			(231		)	—
Contribution by noncontrolling interest in consolidated subsidiary																	336			336
Adjustment for noncontrolling interest								(3,198		)				(3,198		)	3,198			—
Preferred dividends											(9,938		)	(9,938		)				(9,938		)
Preferred dividends and distributions											(10,795		)	(10,795		)				(10,795		)
Dividends declared per common share and common unit ($1.05 per share/unit)											(88,332		)	(88,332		)	(1,896		)	(90,228		)
Dividends declared per common share and common unit ($1.05 per share/unit)											(75,303		)	(75,303		)	(1,843		)	(77,146		)
BALANCE AS OF SEPTEMBER 30, 2014	$	192,411		83,388,220		$	834	$	2,530,282		$	(159,799	)	$	2,563,728		$	56,641		$	2,620,369
BALANCE AS OF SEPTEMBER 30, 2012	$	192,411		74,692,939		$	747	$	2,114,774		$	(288,765	)	$	2,019,167		$	42,201		$	2,061,368

			Common Stock											TotalStock-holders’Equity			~~Non-Controlling~~Noncontrolling Interests			TotalEquity
	PreferredStock			Number ofShares		CommonStock		AdditionalPaid-inCapital			Distributionsin Excess ofEarnings
BALANCE AS OF DECEMBER 31, 2012	$	192,411		74,926,981		$	749	$	2,126,005		$	(129,535	)	$	2,189,630		$	46,303		$	2,235,933
BALANCE AS OF DECEMBER 31, 2014	$	192,411		86,259,684		$	863	$	2,635,900		$	(162,964	)	$	2,666,210		$	57,726		$	2,723,936
Net income											21205,~~252~~446			21205,~~252~~446			~~266~~3,850			21209,~~518~~296
Issuance of common stock (Note 7)				7,215,838		72		349,879						349,951						349,951
Issuance of common stock (Note 8)				5,640,033		56		387,453						387,509						387,509
Issuance of share-based compensation awards (Note 9)				—				1,075						1,075						1,075
Issuance of share-based compensation awards								1,268						1,268						1,268
Noncash amortization of share-based compensation (Note 9)								7,096						7,096						7,096
Noncash amortization of share-based compensation								13,621						13,621						13,621
Repurchase of common stock and restricted stock units (Note 9)				(34,164	)			(1,803		)				(1,803		)				(1,803		)
Exercise of stock options (Note 10)				265,000		3		11,289						11,292						11,292
Settlement of restricted stock units for shares of common stock (Note 9)				4,363				(10		)				(10		)				(10		)
Repurchase of common stock, stock options and restricted stock units				(39,317	)			(3,121		)				(3,121		)				(3,121		)
Exercise of stock options				473				128						128						128
Settlement of restricted stock units for shares of common stock				78,937				—						—						—
Adjustment for noncontrolling interest								(5,946		)				(5,946		)	5,946			—
Exchange of common units of the Operating Partnership				16,030				467						467			(467		)	—
Contribution by noncontrolling interest in consolidated subsidiary (Note 2)																	4,885			4,885
Adjustment for noncontrolling interest								(4,547		)				(4,547		)	4,547			—
Preferred dividends and distributions											(9,938		)	(9,938		)				(9,938		)
Contribution by noncontrolling interest in consolidated subsidiary																	474			474
Dividends declared per common share and common unit ($1.05 per share/unit)											(82,827		)	(82,827		)	(1,914		)	(84,741		)
Preferred dividends											(9,938		)	(9,938		)				(9,938		)
BALANCE AS OF SEPTEMBER 30, 2013	$	192,411		82,113,491		$	821	$	2,476,424		$	(201,048	)	$	2,468,608		$	55,486		$	2,524,094
Dividends declared per common share and common unit ($1.05 per share/unit)											(95,394		)	(95,394		)	(1,881		)	(97,275		)
BALANCE AS OF SEPTEMBER 30, 2015	$	192,411		92,220,367		$	922	$	3,042,330		$	(62,850	)	$	3,172,813		$	64,249		$	3,237,062

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~unaudited,~~Unaudited; in thousands)

	Nine Months Ended September 30,
	2013			2012
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	21209,~~518~~296		$	83152,~~471~~378
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	~~148~~150,~~982~~531			~~122~~148,~~754~~878
Increase (decrease) in provision for bad debts	196			(192		)
Increase in provision for bad debts	289			58
Depreciation of furniture, fixtures and equipment	12,~~363~~036			~~896~~1,731
Noncash amortization of share-based compensation awards	611,~~454~~272			58,~~544~~817
Noncash amortization of deferred financing costs and debt discounts and premiums	41,~~047~~412			73,~~078~~563
Noncash amortization of net below market rents (Note 3)	(6,015		)	(4,616		)
Noncash amortization of net below market rents (Note 4)	(6,769		)	(6,216		)
Net gain on dispositions of discontinued operations (Note 12)	(423		)	(72,809		)
Gain on sale of land (Note 3)	(17,268		)	(3,490		)
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,585		)	(6,851		)
Gains on sales of depreciable operating properties (Note 3)	(109,950		)	—
Straight-line rents	(18,188		)	(16,433		)
Gains on dispositions of discontinued operations (Note 1)	—			(110,391		)
Net change in other operating assets	(6,435		)	(2,529		)
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(9,957		)	(7,695		)
Net change in other operating liabilities	42,844			31,965
Straight-line rents	(35,530		)	(15,245		)
Insurance proceeds received for property damage	(448		)	(951		)
Net change in other operating assets	(9,356		)	(795		)
Net cash provided by operating activities	186,310			147,327
Net change in other operating liabilities	16,606			25,671
Net cash provided by operating activities	202,612			197,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(202,682		)	(393,133		)
Expenditures for development and redevelopment properties and undeveloped land	(311,916		)	(292,803		)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(13,269		)	(163,271		)
Expenditures for acquisition of development properties (Note 2)	(130,609		)	(97,727		)
Expenditures for operating properties	(8371,~~991~~756		)	(6093,~~967~~977		)
Expenditures for development and redevelopment properties and undeveloped land	(222,192		)	(52,937		)
Expenditures for acquisition of operating properties	—			(106,125		)
Net proceeds received from dispositions of operating properties	14,409			141,810
Net proceeds received from dispositions of land and operating properties (Note 3)	319,639			368,381
Insurance proceeds received for property damage	448			951
Decrease in acquisition-related deposits	3,200			1,000
Increase in acquisition-related deposits	(4,000		)	(8,250		)
Issuance of note receivable	(3,000		)	—
Decrease (increase) in restricted cash (Note 1)	229,613			(5,526		)
Decrease in restricted cash (Note 1)	57,776			32,293
Net cash used in investing activities	(~~281~~136,~~664~~666		)	(~~541~~188,~~323~~958		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock (Note 7)	349,951			662,371
Net proceeds from issuance of common stock (Note 8)	387,509			22,136
Net proceeds from issuance of Series G and Series H preferred stock	—			192,411
Borrowings on unsecured revolving credit facility	250,000			365,000
Redemption of Series E and Series F preferred stock	—			(126,500		)
Repayments on unsecured revolving credit facility	(390,000		)	(410,000		)
Redemption of Series A preferred units	—			(75,000		)
Principal payments on secured debt (Note 6)	(67,335		)	(7,315		)
Borrowings on unsecured line of credit	10,000			418,000
Net proceeds from the issuance of unsecured debt (Note 6)	397,776			395,528
Repayments on unsecured line of credit	(195,000		)	(573,000		)
Repayments of unsecured debt	—			(83,000		)
Proceeds from issuance of secured debt	—			97,000
Repayments for early redemption of exchangeable senior notes	—			(37,092		)
Principal payments on secured debt	(91,298		)	(104,578		)
Financing costs	(4,534		)	(8,043		)
Proceeds from the issuance of unsecured debt (Note 5)	299,901			150,000
Repurchase of common stock and restricted stock units	(3,121		)	(2,861		)
Repayments of exchangeable senior notes	—			(148,000		)
Proceeds from exercise of stock options (Note 10)	11,292			20,537
Financing costs	(3,975		)	(5,396		)
Contributions from noncontrolling interests in consolidated subsidiary	474			336
Repurchase of common stock and restricted stock units (Note 9)	(1,813		)	(736		)
Dividends and distributions paid to common stockholders and common unitholders	(93,910		)	(88,540		)
Proceeds from exercise of stock options	128			129
Dividends and distributions paid to preferred stockholders and preferred unitholders	(9,938		)	(9,938		)
Dividends and distributions paid to common stockholders and common unitholders	(82,152		)	(70,517		)
Net cash provided by financing activities	478,213			156,748
Dividends and distributions paid to preferred stockholders and preferred unitholders	(9,938		)	(10,852		)
Net increase in cash and cash equivalents	544,159			165,054
Net cash provided by financing activities	275,804			405,332
Cash and cash equivalents, beginning of period	23,781			35,377
Net increase in cash and cash equivalents	180,450			11,336
Cash and cash equivalents, end of period	$	567,940		$	200,431
Cash and cash equivalents, beginning of period	16,700			4,777
Cash and cash equivalents, end of period	$	197,150		$	16,113

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(~~unaudited,~~Unaudited; in thousands)

	Nine Months Ended September 30,
	2013		2012
	2015		2014
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $23,573 and $11,531 as of September 30, 2013 and 2012, respectively	$	47,107	$	49,378
Cash paid for interest, net of capitalized interest of $37,010 and $33,533 as of September 30, 2015 and 2014, respectively	$	45,678	$	42,633
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	7989,~~866~~009	$	892,~~299~~693
Tenant improvements funded directly by tenants	$	512,~~750~~944	$	1623,~~303~~069
Assumption of secured debt in connection with property acquisitions (Notes 2 and 5)	$	95,496	$	177,678
Assumption of other liabilities in connection with development acquisitions	$	5,070	$	2,300
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 2)	$	422	$	11,667
Release of holdback funds to third party	$	9,279	$	—
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 2)	$	4,885	$	—
NONCASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders	$	2933,~~378~~353	$	2630,~~782~~258
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders	$	1,~~692~~656	$	1,~~693~~656
Grant date fair value of share-based compensation awards (Note 9)	$	10,347	$	30,929
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$	467	$	28
Issuance of common units in the Operating Partnership in connection with an operating property acquisition	$	—	$	5,604
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$	—	$	231

See accompanying notes to consolidated financial statements.

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

KILROY REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

	September 30, 2013			December 31, 2012
	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS	(unaudited)
ASSETS
REAL ESTATE ASSETS:
Land and improvements (Note 2)	$	612,843		$	612,714
Land and improvements	$	850,280		$	877,633
Buildings and improvements (Note 2)	3,527,729			3,335,026
Buildings and improvements	4,028,044			4,059,639
Undeveloped land and construction in progress (Note 2)	~~907~~1,~~959~~475,718			~~809~~1,~~654~~120,660
Total real estate held for investment	5,048,531			4,757,394
Total real estate assets held for investment	6,354,042			6,057,932
Accumulated depreciation and amortization	(~~781~~999,~~580~~557		)	(~~756~~947,~~515~~664		)
Total real estate assets held for investment, net ($119,262 and $319,770 of VIE, respectively, Note 1)	4,266,951			4,000,879
Total real estate assets held for investment, net ($176,947 and $211,755 of VIE, respectively, Note 1)	5,354,485			5,110,268
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (NOTE 12)	239,411			—
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET	—			8,211
CASH AND CASH EQUIVALENTS	~~197~~567,~~150~~940			1623,~~700~~781
RESTRICTED CASH (Note 1)	178,~~931~~130			~~247~~75,~~544~~185
MARKETABLE SECURITIES (Note 11)	9,192			7,435
MARKETABLE SECURITIES (Note 12)	12,638			11,971
CURRENT RECEIVABLES, NET (Note 4)	11,769			9,220
CURRENT RECEIVABLES, NET (Note 5)	11,533			7,229
DEFERRED RENT RECEIVABLES, NET (Note 4)	121,659			115,418
DEFERRED RENT RECEIVABLES, NET (Note 5)	183,352			156,416
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3)	190,085			189,968
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 4)	173,457			201,926
DEFERRED FINANCING COSTS, NET	1718,~~809~~709			18,~~971~~374
PREPAID EXPENSES AND OTHER ASSETS, NET	1723,~~319~~148			920,~~949~~375
TOTAL ASSETS	$	56,~~089~~353,~~276~~392		$	45,~~616~~633,~~084~~736
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt (Notes 2, 5 and 11)	$	563,898		$	561,096
Secured debt (Notes 6 and 12)	$	475,923		$	546,292
Exchangeable senior notes, net (Notes 5 and 11)	167,236			163,944
Unsecured debt, net (Notes 6 and 12)	2,181,382			1,783,121
Unsecured debt, net (Notes 5 and 11)	1,431,048			1,130,895
Unsecured line of credit (Notes 6 and 12)	—			140,000
Unsecured line of credit (Notes 5 and 11)	—			185,000
Accounts payable, accrued expenses and other liabilities	249,980			225,830
Accounts payable, accrued expenses and other liabilities	210,111			154,734
Accrued distributions (Note 15)	34,993			32,899
Accrued distributions (Note 15)	31,479			28,924
Deferred revenue and acquisition-related intangible liabilities, net (Note 4)	127,473			132,239
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3)	102,991			117,904
Rents received in advance and tenant security deposits	46,579			49,363
Rents received in advance and tenant security deposits	41,668			37,654
Liabilities of real estate assets held for sale	—			56
Liabilities and deferred revenue of real estate assets held for sale (Note 12)	16,751			—
Total liabilities	3,116,330			2,909,800
Total liabilities	2,565,182			2,380,151
COMMITMENTS AND CONTINGENCIES (Note 11)
COMMITMENTS AND CONTINGENCIES (Note 10)
CAPITAL:
Partners’ Capital (Note 8):
Partners’ Capital (Note 9):
6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,155			96,155
6.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,256			96,256
Common units, 82,113,491 and 74,926,981 held by the general partner and 1,821,503 and 1,826,503 held by common limited partners issued and outstanding, respectively	2,323,341			2,040,243
Common units, 92,220,367 and 86,259,684 held by the general partner and 1,788,170 and 1,804,200 held by common limited partners issued and outstanding, respectively	3,034,341			2,521,900
Total partners’ capital	23,~~515~~226,752			2,~~232~~714,~~654~~311
Noncontrolling interests in consolidated subsidiaries (Notes 2 and 6)	8,342			3,279
Noncontrolling interests in consolidated subsidiaries (Note 1)	10,310			9,625
Total capital	23,~~524~~237,~~094~~062			2,~~235~~723,~~933~~936
TOTAL LIABILITIES AND CAPITAL	$	56,~~089~~353,~~276~~392		$	45,~~616~~633,~~084~~736

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(~~unaudited,~~Unaudited; in thousands, except unit and per unit data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	2015			2014			2015			2014
REVENUES:
REVENUES
Rental income	$	~~104~~129,~~939~~510		~~90,828~~$	115,221		$	~~308~~391,~~931~~892		$	~~253~~338,~~599~~911
Tenant reimbursements	911,~~656~~681			811,~~022~~346			2840,~~503~~280			2133,~~867~~399
Other property income (Note 10)	1,102			135			7,062			961
Other property income	362			2,457			1,690			7,650
Total revenues	~~115~~141,~~697~~553			98129,~~985~~024			~~344~~433,~~496~~862			~~276~~379,~~427~~960
EXPENSES:
EXPENSES
Property expenses	2526,~~123~~684			2125,~~016~~801			7178,~~728~~264			5575,~~531~~448
Real estate taxes	1012,~~295~~087			811,~~746~~008			2937,~~707~~232			2332,~~668~~728
Provision for bad debts	~~124~~—			—58			~~219~~289			258
Ground leases	~~929~~862			~~859~~771			2,~~665~~451			2,~~276~~306
General and administrative expenses	10,~~226~~799			811,~~727~~138			2936,~~750~~200			2633,~~745~~806
Acquisition-related expenses	~~568~~4			~~556~~431			~~1,387~~397			31,~~897~~268
Depreciation and amortization	4749,~~569~~422			4150,~~724~~032			~~141~~152,~~814~~567			~~109~~148,~~780~~647
Total expenses	9499,~~834~~858			8199,~~628~~239			~~277~~307,~~270~~400			~~221~~294,~~899~~261
OTHER (EXPENSES) INCOME:
OTHER (EXPENSES) INCOME
Interest income and other net investment gains (Note 11)	673			330			1,084			703
Interest income and other net investment (loss) gain (Note 12)	(694		)	(9		)	177			587
Interest expense (Note 5)	(18,853		)	(19,854		)	(58,021		)	(60,172		)
Interest expense (Note 6)	(12,819		)	(16,608		)	(44,561		)	(49,880		)
Total other (expenses) income	(1813,~~180~~513		)	(1916,~~524~~617		)	(5644,~~937~~384		)	(5949,~~469~~293		)
INCOME (LOSS) FROM CONTINUING OPERATIONS	2,683			(2,167		)	10,289			(4,941		)
INCOME FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE	28,182			13,168			82,078			36,406
DISCONTINUED OPERATIONS (Note 12)
Gain on sale of land (Note 3)	—			—			17,268			3,490
Income from discontinued operations (Note 10)	6,344			4,689			10,806			15,603
Gains on sales of depreciable operating properties (Note 3)	78,522			—			109,950			—
Net gain on dispositions of discontinued operations	—			—			423			72,809
INCOME FROM CONTINUING OPERATIONS	106,704			13,168			209,296			39,896
Total income from discontinued operations	6,344			4,689			11,229			88,412
DISCONTINUED OPERATIONS (Note 1)
NET INCOME	9,027			2,522			21,518			83,471
Income from discontinued operations	—			548			—			2,091
Net income attributable to noncontrolling interests in consolidated subsidiaries	(47		)	(48		)	(178		)	(144		)
Gains on dispositions of discontinued operations	—			5,587			—			110,391
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	8,980			2,474			21,340			83,327
Total income from discontinued operations	—			6,135			—			112,482
Preferred distributions	(3,312		)	(3,280		)	(9,938		)	(10,795		)
NET INCOME	106,704			19,303			209,296			152,378
Original issuance costs of redeemed preferred units	—			(2,062		)	—			(6,980		)
Net income attributable to noncontrolling interests in consolidated subsidiaries	(64		)	(59		)	(211		)	(201		)
Total preferred distributions	(3,312		)	(5,342		)	(9,938		)	(17,775		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	106,640			19,244			209,085			152,177
NET INCOME (LOSS) AVAILABLE TO COMMON UNITHOLDERS	$	5,668		$	(2,868	)	$	11,402		$	65,552
PREFERRED DISTRIBUTIONS	(3,313		)	(3,313		)	(9,938		)	(9,938		)
Loss from continuing operations available to common unitholders per common unit - basic (Note 14)	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS	$	103,327		$	15,931		$	199,147		$	142,239
Loss from continuing operations available to common unitholders per common unit - diluted (Note 14)	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from continuing operations available to common unitholders per unit – basic (Note 14)	$	1.10		$	0.11		$	2.18		$	0.34
Net income (loss) available to common unitholders per unit - basic (Note 14)	$	0.07		$	(0.04	)	$	0.13		$	0.92
Income from continuing operations available to common unitholders per unit – diluted (Note 14)	$	1.09		$	0.11		$	2.17		$	0.33
Net income (loss) available to common unitholders per unit - diluted (Note 14)	$	0.07		$	(0.04	)	$	0.13		$	0.92
Net income available to common unitholders per unit – basic (Note 14)	$	1.10		$	0.18		$	2.18		$	1.67
Weighted average common units outstanding - basic (Note 14)	78,590,396			73,680,259			77,574,907			69,717,834
Net income available to common unitholders per unit – diluted (Note 14)	$	1.09		$	0.18		$	2.17		$	1.63
Weighted average common units outstanding - diluted (Note 14)	78,590,396			73,680,259			77,574,907			69,717,834
Weighted average common units outstanding – basic (Note 14)	93,938,783			84,965,523			90,869,696			84,329,317
Dividends declared per common unit	$	0.35		$	0.35		1.05			1.05
Weighted average common units outstanding – diluted (Note 14)	94,427,507			86,914,656			91,385,945			86,426,906
Dividends declared per common unit	$	0.35		$	0.35		$	1.05		$	1.05

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(~~unaudited,~~Unaudited; in thousands, except unit and per unit data)

	Partners’Capital								TotalPartners’ Capital			NoncontrollingInterestsin ConsolidatedSubsidiaries
	Partners’ Capital								TotalPartners’ Capital			Noncontrolling Interests in Consolidated Subsidiaries
	PreferredUnits			Number ofCommonUnits		CommonUnits								TotalCapital
BALANCE AS OF DECEMBER 31, 2011	$	121,582		60,537,848		$	1,203,259		$	1,324,841		$	2,641	$	1,327,482
BALANCE AS OF DECEMBER 31, 2013	$	192,411		83,959,144		$	2,315,361		$	2,507,772		$	8,388	$	2,516,160
Net income						83152,~~327~~177			83152,~~327~~177			~~144~~201		83152,~~471~~378
Issuance of Series G and Series H Preferred units	192,411								192,411					192,411
Issuance of common units				370,700		22,136			22,136					22,136
Redemption of Series E and Series F Preferred units	(121,582		)			(4,918		)	(126,500		)			(126,500		)
Issuance of share-based compensation awards						1,281			1,281					1,281
Redemption of Series A Preferred units						(2,062		)	(2,062		)			(2,062		)
Noncash amortization of share-based compensation						10,345			10,345					10,345
Issuance of common units				15,813,189		662,371			662,371					662,371
Exercise of stock options				482,000		20,537			20,537					20,537
Issuance of common units in connection with an operating property acquisition				118,372		5,604			5,604					5,604
Repurchase of common units, stock options and restricted stock units				(48,017	)	(2,861		)	(2,861		)			(2,861		)
Issuance of share-based compensation awards				62,137		957			957					957
Settlement of restricted stock units				108,529		—			—					—
Noncash amortization of share-based compensation						6,182			6,182					6,182
Common units issued in connection with early exchange of 4.25% Exchangeable Senior Notes				431,270		223			223					223
Repurchase/redemption of common units and restricted stock units				(22,312	)	(603		)	(603		)			(603		)
Common units received in connection with capped call option transactions				(111,206	)									—
Settlement of restricted stock units				5,208		(133		)	(133		)			(133		)
Contribution by noncontrolling interest in consolidated subsidiary												336		336
Exercise of stock options				5,000		129			129					129
Preferred distributions						(9,938		)	(9,938		)			(9,938		)
Preferred distributions						(10,795		)	(10,795		)			(10,795		)
Distributions declared per common unit ($1.05 per unit)						(90,228		)	(90,228		)			(90,228		)
Distributions declared per common unit ($1.05 per unit)						(77,146		)	(77,146		)			(77,146		)
BALANCE AS OF SEPTEMBER 30, 2014	$	192,411		85,192,420		$	2,419,033		$	2,611,444		$	8,925	$	2,620,369
BALANCE AS OF SEPTEMBER 30, 2012	$	192,411		76,519,442		$	1,866,172		$	2,058,583		$	2,785	$	2,061,368

	Partners’Capital							TotalPartners’ Capital			NoncontrollingInterestsin ConsolidatedSubsidiaries
	Partners’ Capital							TotalPartners’ Capital			Noncontrolling Interests in Consolidated Subsidiaries
	PreferredUnits		Number ofCommonUnits		CommonUnits								TotalCapital
BALANCE AS OF DECEMBER 31, 2012	$	192,411	76,753,484		$	2,040,243		$	2,232,654		$	3,279	$	2,235,933
BALANCE AS OF DECEMBER 31, 2014	$	192,411	88,063,884		$	2,521,900		$	2,714,311		$	9,625	$	2,723,936
Net income					21209,~~340~~085			21209,~~340~~085			~~178~~211		21209,~~518~~296
Issuance of common units (Note 8)			7,210,838		349,951			349,951					349,951
Issuance of common units (Note 9)			5,640,033		387,509			387,509					387,509
Issuance of share-based compensation awards (Note 9)			—		1,075			1,075					1,075
Issuance of share-based compensation awards					1,268			1,268					1,268
Noncash amortization of share-based compensation (Note 9)					7,096			7,096					7,096
Noncash amortization of share-based compensation					13,621			13,621					13,621
Repurchase of common units and restricted stock units (Note 9)			(34,164	)	(1,803		)	(1,803		)			(1,803		)
Exercise of stock options (Note 10)			265,000		11,292			11,292					11,292
Settlement of restricted stock units (Note 9)			4,363		(10		)	(10		)			(10		)
Repurchase of common units, stock options and restricted stock units			(39,317	)	(3,121		)	(3,121		)			(3,121		)
Exercise of stock options, net			473		128			128					128
Settlement of restricted stock units			78,937		—			—					—
Contribution by noncontrolling interest in consolidated subsidiary (Note 2)											4,885		4,885
Contribution by noncontrolling interest in consolidated subsidiary											474		474
Preferred distributions					(9,938		)	(9,938		)			(9,938		)
Distributions declared per common unit ($1.05 per unit)					(8497,~~741~~275		)	(8497,~~741~~275		)			(8497,~~741~~275		)
BALANCE AS OF SEPTEMBER 30, 2013	$	192,411	83,934,994		$	2,323,341		$	2,515,752		$	8,342	$	2,524,094
BALANCE AS OF SEPTEMBER 30, 2015	$	192,411	94,008,537		$	3,034,341		$	3,226,752		$	10,310	$	3,237,062

See accompanying notes to consolidated financial statements.

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~unaudited,~~Unaudited; in thousands)

	Nine Months Ended September 30,
	2013			2012
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	21209,~~518~~296		$	83152,~~471~~378
Adjustments to reconcile net income to net cash provided by operating activities including discontinued operations):
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	~~148~~150,~~982~~531			~~122~~148,~~754~~878
Increase (decrease) in provision for bad debts	196			(192		)
Increase in provision for bad debts	289			58
Depreciation of furniture, fixtures and equipment	12,~~363~~036			~~896~~1,731
Noncash amortization of share-based compensation awards	611,~~454~~272			58,~~544~~817
Noncash amortization of deferred financing costs and debt discounts and premiums	41,~~047~~412			73,~~078~~563
Noncash amortization of net below market rents (Note 3)	(6,015		)	(4,616		)
Noncash amortization of net below market rents (Note 4)	(6,769		)	(6,216		)
Net gain on dispositions of discontinued operations (Note 12)	(423		)	(72,809		)
Gain on sale of land (Note 3)	(17,268		)	(3,490		)
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(7,585		)	(6,851		)
Gains on sales of depreciable operating properties (Note 3)	(109,950		)	—
Straight-line rents	(18,188		)	(16,433		)
Gains on dispositions of discontinued operations (Note 1)	—			(110,391		)
Net change in other operating assets	(6,435		)	(2,529		)
Noncash amortization of deferred revenue related to tenant-funded tenant improvements	(9,957		)	(7,695		)
Net change in other operating liabilities	42,844			31,965
Straight-line rents	(35,530		)	(15,245		)
Insurance proceeds received for property damage	(448		)	(951		)
Net change in other operating assets	(9,356		)	(795		)
Net cash provided by operating activities	186,310			147,327
Net change in other operating liabilities	16,606			25,671
Net cash provided by operating activities	202,612			197,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for acquisition of operating properties (Note 2)	(202,682		)	(393,133		)
Expenditures for development and redevelopment properties and undeveloped land	(311,916		)	(292,803		)
Expenditures for acquisition of development and redevelopment properties (Note 2)	(13,269		)	(163,271		)
Expenditures for acquisition of development properties (Note 2)	(130,609		)	(97,727		)
Expenditures for operating properties	(8371,~~991~~756		)	(6093,~~967~~977		)
Expenditures for development and redevelopment properties and undeveloped land	(222,192		)	(52,937		)
Expenditures for acquisition of operating properties	—			(106,125		)
Net proceeds received from dispositions of operating properties	14,409			141,810
Net proceeds received from dispositions of land and operating properties (Note 3)	319,639			368,381
Insurance proceeds received for property damage	448			951
Decrease in acquisition-related deposits	3,200			1,000
Increase in acquisition-related deposits	(4,000		)	(8,250		)
Issuance of note receivable	(3,000		)	—
Decrease (increase) in restricted cash (Note 1)	229,613			(5,526		)
Decrease in restricted cash (Note 1)	57,776			32,293
Net cash used in investing activities	(~~281~~136,~~664~~666		)	(~~541~~188,~~323~~958		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common units (Note 8)	349,951			662,371
Net proceeds from issuance of common stock (Note 8)	387,509			22,136
Net proceeds from issuance of Series G and Series H preferred units	—			192,411
Borrowings on unsecured revolving credit facility	250,000			365,000
Redemption of Series E and Series F preferred units	—			(126,500		)
Repayments on unsecured revolving credit facility	(390,000		)	(410,000		)
Redemption of Series A preferred units	—			(75,000		)
Principal payments on secured debt (Note 6)	(67,335		)	(7,315		)
Borrowings on unsecured line of credit	10,000			418,000
Net proceeds from the issuance of unsecured debt (Note 6)	397,776			395,528
Repayments on unsecured line of credit	(195,000		)	(573,000		)
Repayments of unsecured debt	—			(83,000		)
Proceeds from issuance of secured debt	—			97,000
Repayments for early redemptions of exchangeable senior notes	—			(37,092		)
Principal payments on secured debt	(91,298		)	(104,578		)
Financing costs	(4,534		)	(8,043		)
Proceeds from the issuance of unsecured debt (Note 5)	299,901			150,000
Repurchase of common stock and restricted stock units	(3,121		)	(2,861		)
Repayments of exchangeable senior notes	—			(148,000		)
Proceeds from exercise of stock options (Note 10)	11,292			20,537
Financing costs	(3,975		)	(5,396		)
Contributions from noncontrolling interests in consolidated subsidiary	474			336
Repurchase of common units and restricted stock units (Note 9)	(1,813		)	(736		)
Dividends and distributions paid to common unitholders	(93,910		)	(88,540		)
Proceeds from exercise of stock options	128			129
Dividends and distributions paid to preferred unitholders	(9,938		)	(9,938		)
Distributions paid to common unitholders	(82,152		)	(70,517		)
Net cash provided by financing activities	478,213			156,748
Distributions paid to preferred unitholders	(9,938		)	(10,852		)
Net increase in cash and cash equivalents	544,159			165,054
Net cash provided by financing activities	275,804			405,332
Cash and cash equivalents, beginning of period	23,781			35,377
Net increase in cash and cash equivalents	180,450			11,336
Cash and cash equivalents, end of period	$	567,940		$	200,431
Cash and cash equivalents, beginning of period	16,700			4,777
Cash and cash equivalents, end of period	$	197,150		$	16,113

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(~~unaudited,~~Unaudited; in thousands)

	Nine Months Ended September 30,
	2013		2012
	2015		2014
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $23,573 and $11,531 as of September 30, 2013 and 2012, respectively	$	47,107	$	49,378
Cash paid for interest, net of capitalized interest of $37,010 and $33,533 as of September 30, 2015 and 2014, respectively	$	45,678	$	42,633
NONCASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties	$	7989,~~866~~009	$	892,~~299~~693
Tenant improvements funded directly by tenants	$	512,~~750~~944	$	1623,~~303~~069
Assumption of secured debt in connection with property acquisitions (Notes 2 and 5)	$	95,496	$	177,678
Assumption of other liabilities in connection with development acquisitions	$	5,070	$	2,300
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 2)	$	422	$	11,667
Release of holdback funds to third party	$	9,279	$	—
Contribution of land, net of related liabilities, by noncontrolling interest to consolidated subsidiary (Note 2)	$	4,885	$	—
NONCASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders	$	29,378	$	26,782
Accrual of dividends and distributions payable to common unitholders	$	33,353	$	30,258
Accrual of distributions payable to preferred unitholders	$	1,692	$	1,693
Accrual of dividends and distributions payable to preferred unitholders	$	1,656	$	1,656
Grant date fair value of share-based compensation awards (Note 9)	$	10,347	$	30,929
Issuance of common units in connection with an operating property acquisition	$	—	$	5,604

See accompanying notes to consolidated financial statements.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and Nine~~ Months Ended September 30, 2015 ~~2013~~ and ~~2012~~ 2014

(unaudited)

1. Organization and Basis of Presentation

Organization

Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, 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 generally 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.

Our stabilized portfolio of operating properties was comprised of the following office properties at September 30, ~~2013~~2015:

	Number ofBuildings	RentableSquare Feet	Number ofTenants	Percentage Occupied
Stabilized Office Properties (1)	103	12,536,495	654	92.2	%
Stabilized Office Properties	101	13,050,947	509	95.6	%

~~______________~~Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently under construction or committed for construction, “lease-up” properties, real estate assets held for sale and undeveloped land. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. As of September 30, 2015, we had no redevelopment properties. We define “lease-up” properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. As of September 30, 2015, we had one development project in the “lease-up” phase.

~~(1)~~As ~~Excludes~~of 13September ~~properties located in San Diego~~30, ~~California and one property in Anaheim~~ 2015, ~~California~~the ~~that~~following properties were ~~held~~excluded ~~for~~from ~~sale~~our atstabilized ~~September 30, 2013 (see Note 12 “Discontinued Operations”).~~portfolio:

Our stabilized portfolio includes all of our properties with the exception of properties held for sale, undeveloped land, development and redevelopment properties currently under construction or committed for construction, and “lease-up” properties. As of September 30, 2013, our stabilized portfolio of operating properties excluded the 14 properties that were classified as held for sale as of that date. (See Note 12 for additional information). 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 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. As of September 30, 2013, the following properties were excluded from our stabilized portfolio:



	Number of Properties/Projects	Estimated Rentable Square Feet
Development projects in “lease-up”	1	108,539
Development projects under construction ⁽¹⁾	7	2,322,000

	Number of Properties	Estimated Rentable Square Feet
Properties Held for Sale (1)	14	1,159,185
Development properties under construction (2)	5	1,516,000
Lease-up properties	2	508,000

________________________

~~_______________~~(1) Estimated rentable square feet upon completion.

~~(1)~~Our ~~Includes~~stabilized 13portfolio ~~properties~~also ~~located~~excludes inour ~~San~~near-term ~~Diego~~and future development pipeline, ~~California~~which ~~and~~as ~~one~~of ~~property~~September in30, 2015 ~~Anaheim~~was comprised of ten development sites, ~~California~~representing ~~(see~~approximately ~~Note~~106 ~~12)~~gross acres of undeveloped land.

~~(2) Estimated~~As ~~rentable~~of ~~square~~September ~~feet~~30, 2015, ~~upon~~all ~~completion~~of our stabilized portfolio properties and development projects were owned and all of our business was conducted in the state of California with the exception of twelve office properties and a recently acquired development opportunity located in the state of Washington. All of our properties and development projects are 100% owned, excluding a development project owned by Redwood City Partners, LLC (“Redwood LLC”), a consolidated subsidiary.

As of September 30, ~~2013~~2015, ~~all~~the ofCompany ~~our~~owned ~~properties~~an ~~and~~approximate ~~development~~98.1% ~~and~~common ~~redevelopment~~general ~~projects~~partnership ~~are~~interest ~~owned~~in ~~and~~the ~~all~~Operating ofPartnership. The ~~our~~remaining ~~business~~approximate is1.9% ~~currently~~common ~~conducted~~limited partnership interest in the ~~state~~Operating Partnership as of ~~California~~September ~~with~~30, 2015 ~~the~~was ~~exception~~owned by non-affiliated investors and certain of ~~11 office~~our ~~properties~~executive ~~located~~officers inand ~~the~~directors ~~state~~(see ofNote ~~Washington~~7). Both the general

As of September 30, 2013, the Company owned a 97.8% common general partnership interest in the Operating Partnership. The remaining 2.2% common limited partnership interest in the Operating Partnership as of September 30, 2013 was owned by non-affiliated investors and certain of our executive officers and directors (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

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all 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 Seventh Amended and Restated Agreement of Limited Partnership, (as amended, the “Partnership Agreement”) (see Note 6 7).

Kilroy Realty Finance, Inc., which is a wholly- owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. Kilroy Services, LLC (“KSLLC”), which is a wholly- owned subsidiary of the Operating Partnership, is the entity through which we generally conduct substantially all of our development activities. With the exception of the Operating Partnership and Redwood ~~City Partners,~~ LLC ~~(see Note 2)~~, all of our subsidiaries are wholly- owned.

Basis of Presentation

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

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, ~~2013~~2015. 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, ~~2012~~2014.

Certain amounts in the consolidated statements of operations for prior periods have been reclassified to reflect the activity of discontinued operations disposed of prior to the Company's adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-08 (“ASU 2014-08”). Properties classified as held for sale and/or disposed of prior to January 1, 2015 are presented as discontinued operations for all periods presented.

~~Partially Owned Entities and~~ Variable Interest Entities

~~Our~~At ~~accounting~~September ~~policy~~30, 2015, isthe toconsolidated ~~consolidate~~financial ~~entities~~statements inof ~~which~~the weCompany ~~have a controlling financial interest~~ and ~~significant decision making control over~~ the ~~entities~~Operating ~~operations. In~~Partnership ~~determining~~included ~~whether~~one wevariable ~~have~~interest aentity ~~controlling~~(“VIE”), ~~financial interest~~ in awhich ~~partially~~we ~~owned~~were ~~entity~~deemed ~~and~~to be the ~~requirement~~primary tobeneficiary. The ~~consolidate~~VIE, ~~the~~Redwood ~~accounts~~LLC, ofwas ~~that~~established ~~entity,~~in wethe ~~consider~~second ~~factors~~quarter ~~such~~of as2013 ~~ownership~~in ~~interest,~~connection ~~board~~with ~~representation,~~an ~~management~~undeveloped ~~representation,~~land ~~size~~acquisition. The impact of ~~our~~consolidating ~~investment~~the ~~(including~~VIE ~~loans),~~increased ~~authority~~the toCompany’s ~~control~~total ~~decisions~~assets, liabilities and ~~contractual~~noncontrolling ~~and~~interests ~~substantive~~by ~~participating~~approximately ~~rights~~$180.7 million (of ~~the~~which ~~members~~$176. In9 million ~~addition~~related to ~~evaluating~~real ~~control~~estate ~~rights,~~held wefor ~~also~~investment ~~consolidate~~on ~~entities~~our inconsolidated ~~which~~balance ~~the~~sheet), ~~other~~approximately ~~member~~$43.5 million ~~has~~and noapproximately ~~substantive~~$6.3 million, ~~kick-out~~respectively, ~~rights to remove the Company~~ as ~~the~~of ~~managing~~September ~~member~~30, 2015.

WeAs ~~also~~of ~~evaluate~~December 31, 2014, ~~whether~~the consolidated financial statements of the ~~entity~~Company isand athe ~~variable~~Operating ~~interest~~Partnership ~~entity~~included ~~(“VIE”)~~two ~~and~~VIEs, ~~whether~~in which we ~~are~~were deemed to be the primary beneficiary. One of the VIEs ~~are~~was ~~entities~~Redwood inLLC ~~which~~and the ~~equity~~remaining ~~investors~~VIE dowas ~~not~~established ~~have~~during ~~sufficient~~the ~~equity~~fourth atquarter ~~risk~~of 2014 to ~~finance~~facilitate ~~their~~potential ~~endeavors~~Section ~~without~~1031 ~~additional~~Exchanges. During ~~financial~~the ~~support~~three ormonths ~~that~~ended ~~the~~March ~~holders~~31, of2015, the ~~equity~~Section ~~investment~~1031 atExchange ~~risk~~was dosuccessfully ~~not~~completed ~~have~~and athe ~~controlling~~VIE ~~financial~~was ~~interest~~terminated. WeAs ~~are~~a ~~deemed~~result, to$59.2 bemillion ~~the~~of ~~primary~~our ~~beneficiary~~restricted ofcash abalance ~~VIE~~at ~~when~~December 31, 2014, wewhich ~~have~~related ~~the~~to ~~power~~prior period disposition proceeds that were set aside to ~~direct~~facilitate the ~~activities~~Section of1031 ~~the~~Exchange, ~~VIE~~was ~~that~~released ~~most~~from ~~significantly~~escrow. The impact of consolidating the VIEs ~~economic~~increased ~~performance~~the Company’s total assets, liabilities and ~~the~~noncontrolling ~~obligation~~interests by approximately $219.6 million (of which $211.8 million related to ~~absorb~~real ~~losses~~estate orheld ~~receive~~for ~~benefits~~investment ~~that~~on ~~could~~our ~~potentially~~consolidated bebalance ~~significant~~sheet), toapproximately ~~the~~$23.4 million ~~VIE~~and approximately $5.9 million, respectively, as of December 31, 2014.

If the requirements for consolidation are not met, the Company would account for investments under the equity method of accounting if we have the ability to exercise significant influence over the entity. Equity method investments would be initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. The Company did not have any equity method investments at September 30, 2013 or December 31, 2012.

As of September 30, 2013, the consolidated financial statements of the Company and the Operating Partnership included two VIEs, in which we were deemed to be the primary beneficiary. One of the VIEs was established on June 27, 2013 (see Note 2 for additional information), and the second VIE was established during the third quarter of 2013 to facilitate a potential like-kind exchange pursuant to Section 1031 of the Code (“Section 1031 Exchanges”) to defer taxable gains on dispositions for federal and state income tax purposes. To realize the tax deferral available under a Section 1031 Exchange, the Company must complete the Section 1031 Exchanges, if any, and complete the sale of the to-be-exchanged properties within 180 days of the acquisition date

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~(see~~Adoption ~~Note 2). The VIE established during the third quarter~~ of ~~2013~~New ~~will~~Accounting be terminated upon the completion of the Section 1031 Exchanges or the expiration of the 180 day period, as applicable. The impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests by approximately $135.3 million (of which $119.3 million is related to real estate held for investment on our consolidated balance sheet), $4.1 million and $4.9 million, respectively, at September 30, 2013.Pronouncements

AsEffective ofJanuary ~~December 31~~1, ~~2012~~ 2015, the ~~consolidated~~Company ~~financial~~adopted ~~statements~~FASB ofASU ~~the~~2014-08, ~~Company~~which ~~and~~changed the ~~Operating~~criteria ~~Partnership~~for ~~included~~reporting ~~two VIEs,~~discontinued inoperations ~~which~~while weenhancing ~~were~~disclosures ~~deemed~~in tothis bearea. Under the ~~primary~~new ~~beneficiary. The~~guidance, ~~VIEs~~only ~~were~~disposals ~~established~~representing ~~during~~a ~~2012~~strategic toshift ~~facilitate~~that ~~potential~~has ~~Section~~(or ~~1031~~will ~~Exchanges~~have) toa ~~defer~~major ~~taxable~~effect ~~gains~~ on ~~dispositions~~an ~~for~~entity's ~~federal~~operations and ~~state~~final ~~income~~results, ~~tax~~such ~~purposes. During~~as ~~the~~a ~~year~~major ~~ended~~line ~~December 31~~of business, ~~2012,~~ ~~one operating~~a ~~property~~major ~~and~~geographical ~~one development~~area ~~project~~or ~~were~~a ~~acquired~~major inequity ~~two separate~~investment, ~~transactions~~should ~~and~~be ~~transferred~~presented toas discontinued operations. The Company adopted and applied the ~~two special~~new ~~purpose~~guidance ~~VIEs~~on toa ~~facilitate~~prospective ~~potential~~basis ~~Section 1031~~as ~~Exchanges~~required by ASU 2014-08. ~~The~~ ~~impact~~Therefore, real estate assets classified as held for sale and/or disposed of ~~consolidating~~subsequent ~~the~~to ~~VIEs~~January ~~increased~~1, ~~the~~2015 ~~Company’s~~that ~~total~~do ~~assets~~not ~~and~~represent ~~liabilities~~a bystrategic ~~approximately~~shift ~~$337.0 million~~will ~~(of~~be ~~which~~presented ~~$319.8 million~~in iscontinuing ~~related~~operations tofor ~~real~~all ~~estate~~periods presented. Properties classified as held for ~~investment~~sale onand/or ~~our~~disposed ~~consolidated~~of ~~balance~~prior ~~sheet)~~to ~~and~~January ~~$111.~~1 ~~million~~, ~~respectively,~~2015 atwill ~~December 31, 2012~~continue to be presented in discontinued operations for prior periods presented. ~~During~~ In ~~the~~accordance ~~three months~~with ~~ended~~this ~~March 31~~guidance, ~~2013,~~ the ~~Section 1031~~operations ~~Exchanges~~of ~~were~~the ~~completed~~ten ~~and~~properties sold during the ~~VIEs~~nine ~~were~~months ~~terminated. As~~ended aSeptember ~~result~~30, ~~$228.3~~ ~~million~~2015 ofare ~~restricted~~presented ~~cash~~in ~~set~~continuing ~~aside~~operations atfor ~~December~~the nine months ended September 30, 312015. For the nine months ended September 30, ~~2012~~2014, todiscontinued ~~facilitate~~operations includes the ~~Section 1031~~income ~~Exchanges~~and ~~was~~gains ~~released~~on ~~from~~all ~~escrow~~of the properties sold in 2014.

2.Recently Issued Accounting Pronouncements ~~Acquisitions~~

~~Operating~~On ~~Properties~~August 12, 2015, the FASB issued ASU No. 2015-14 (“ASU 2015-14”) to defer the effective date of ASU No. 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and notes that lease contracts with customers are a scope exception. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on our consolidated financial statements and notes to our consolidated financial statements.

~~During~~On ~~the~~April ~~nine~~7, ~~months~~2015, ~~ended~~the ~~September 30, 2013,~~FASB weissued ~~acquired~~ASU ~~the~~No. ~~four~~2015-03 ~~operating~~(“ASU ~~office~~2015-03”) ~~properties,~~to ~~listed~~amend ~~below,~~the inaccounting ~~two~~guidance ~~transactions~~for ~~from~~the ~~unrelated~~presentation ~~third~~of ~~parties~~debt issuance costs. The ~~January~~standard ~~2013~~requires ~~acquisition~~that ~~was~~debt ~~funded~~issuance ~~with~~costs related to a ~~portion~~recognized ofdebt liability be presented in the ~~remaining~~balance ~~proceeds~~sheet as a direct deduction from the ~~sale~~carrying amount of ~~our~~that ~~industrial~~debt ~~portfolio~~liability, consistent with debt discounts. On August 18, 2015, the FASB also issued ASU No. 2015-15 (“ASU 2015-15”) to address the presentation of debt issuance costs specifically related to line-of-credit arrangements. The standard clarifies that ~~was~~an ~~included~~entity inmay ~~restricted~~defer ~~cash~~and atpresent ~~December 31, 2012~~debt issuance costs as an asset and amortize the ~~assumption~~costs ratably over the term of ~~existing~~the ~~mortgage~~line-of-credit ~~debt~~arrangement, ~~(see~~regardless ~~Note 5)~~of whether there are an outstanding borrowings on the line-of credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for public business entities for fiscal years beginning after December 15, 2015 and retrospective application is required. Early adoption of the guidance is permitted. The ~~September~~Company ~~2013~~expects ~~acquisition~~to ~~was~~adopt ~~funded~~the ~~with~~guidance ~~proceeds~~effective ~~from~~January 1, 2016 and the guidance will not have any impact on our ~~September~~consolidated ~~2013~~statements ~~equity~~of ~~offering~~operations, ~~(see~~equity/capital, ~~Note~~or 7)cash flows.

Property	Date of Acquisition	Number ofBuildings	Rentable SquareFeet	Occupancy as of September 30, 2013	PurchasePrice(in millions) (1)
320 Westlake Ave. N. and 321 Terry Ave. N. (2)(3)
Seattle, WA	January 16, 2013	2	320,398	100.0%	$	170.0
12780 and 12790 El Camino Real (4)
San Diego, CA	September 19, 2013	2	218,940	100.0%	126.4
Total		4	539,338		$	296.4

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently assessing the impact of the guidance on our consolidated financial statements and notes to our consolidated financial statements.

_______________

(1) Excludes acquisition-related costs and includes assumed tenant improvements.

(2) We acquired these properties through a new special purpose entity wholly owned by the Finance Partnership.

(3) In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.9 million that was recorded at fair value on the acquisition date, resulting in a premium of approximately $11.6 million (see Note 5).

(4) As of September 30, 2013, these properties, together the “Heights of Del Mar” project, are temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges (see Note 1). The $126.4 million purchase price includes $9.4 million for 4.2 acres of undeveloped land the Company acquired in connection with this acquisition.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~The related assets, liabilities, and results of operations of the acquired properties are included in the consolidated financial statements as of the date of acquisition~~2. ~~The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:~~ Acquisitions

	Total 2013 Acquisitions (1)
	(in thousands)
Assets
Land and improvements	$	53,790
Buildings and improvements (2)	218,211
Undeveloped land and construction in progress (3)	9,360
Deferred leasing costs and acquisition-related intangible assets (4)	30,789
Total assets acquired	312,150
Liabilities
Deferred revenue and acquisition-related intangible liabilities (5)	4,190
Secured debt (6)	95,496
Accounts payable, accrued expenses and other liabilities	422
Total liabilities assumed	100,108
Net assets and liabilities acquired (7)	$	212,042

Development Project Acquisitions

~~_______________~~During the nine months ended September 30, 2015, we acquired the development opportunities listed below from unrelated third parties. The acquisitions were funded with proceeds from various sources, including the Company’s unsecured revolving credit facility, at-the-market stock offering program (see Note 8) and prior year disposition proceeds. As of September 30, 2015, the underlying assets were included as undeveloped land and construction in progress in our consolidated balance sheets.

(1) The purchase price of the two acquisitions completed during the nine months ended September 30, 2013 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of September 30, 2013.



Project	Date of Acquisition	City/Submarket	Type	Purchase Price (in millions)
333 Dexter ⁽¹⁾	February 13, 2015	South Lake Union, WA	Land	$	49.5
100 Hooper⁽²⁾	July 7, 2015	San Francisco, CA	Land	78.0
Total Acquisitions				$	127.5

~~(2) Represents buildings, building improvements and tenant improvements.~~________________________

(31) InAcquisition ~~connection~~comprised ~~with~~of ~~one~~four ofadjacent parcels in the ~~acquisitions~~South Lake Union submarket of Seattle, weWashington ~~acquired~~located ~~undeveloped~~at ~~land~~330 ofDexter ~~approximately~~Avenue 4North, 333 Dexter Avenue North, 401 Dexter Avenue North, and 400 Aurora Avenue North.2 ~~acres~~In ~~that~~connection ~~was~~with ~~added~~this toacquisition, ~~the~~we ~~Company’s~~also ~~future~~assumed ~~development~~$2.4 ~~pipeline~~million ~~upon~~in accrued liabilities and acquisition costs that are not included in the purchase price above.

(42) ~~Represents~~In ~~in-place~~connection ~~leases~~with ~~(approximately~~this acquisition, we assumed $194.61 million ~~with~~in aaccrued ~~weighted~~liabilities ~~average~~and ~~amortization~~acquisition ~~period~~costs ofthat ~~4.7~~are ~~years),~~not ~~above-market~~included ~~leases~~in ~~(approximately~~the $3purchase price above.2 ~~million~~The ~~with~~Company aexpects ~~weighted~~to ~~average~~develop ~~amortization~~and ~~period~~own oftwo ~~6.1~~buildings ~~years),~~on ~~and~~the ~~leasing~~site ~~commissions~~encompassing ~~(approximately~~office ~~$7.9~~and ~~million~~production ~~with~~design aand ~~weighted~~repair ~~average~~space ~~amortization~~totaling ~~period~~approximately of400,000 ~~5.9~~square ~~years)~~feet.

~~(5) Represents below-market leases (approximately $4~~3.~~2 million with a weighted average amortization period of 7.7 years).~~ Dispositions

~~(6)~~Operating ~~Represents~~Property ~~the mortgage loan, which includes an unamortized premium of approximately $11.6 million at the date of acquisition, assumed in connection with the properties acquired in January 2013 (see Note 5).~~Dispositions

~~(7)~~The ~~Reflects~~following table summarizes the ~~purchase~~operating ~~price~~properties ~~net~~sold ofduring ~~assumed~~the ~~secured~~nine ~~debt~~months ~~and~~ended ~~other~~September ~~lease-related~~30, 2015: ~~obligations.~~

Undeveloped Land/Formation of New Consolidated Subsidiary



Location	Property Type	Month of Disposition	Number of Buildings	Rentable Square Feet
15050 NE 36th Street, Redmond, WA	Office	April	1	122,103
San Diego Properties - Tranche 1 ⁽¹⁾	Office	April	3	384,468
San Diego Properties - Tranche 2 ⁽²⁾	Office	July	6	539,823
Total Dispositions			10	1,046,394

~~On June~~________________________ 27, 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood City Partners, LLC. In connection with this transaction, the Company acquired a 0.35 acre land site, completing the first phase of the land assemblage for its plans to develop an approximate 300,000 square foot office project (the “Crossing 900” project) in Redwood City, California. The related assets, liabilities, and noncontrolling interest acquired in connection with this transaction are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Assets
Undeveloped land and construction in progress	$	11,222
Total assets	11,222
Liabilities
Secured debt (1)	1,750
Accounts payable, accrued expenses and other liabilities	1,952
Total liabilities	3,702
Noncontrolling interest in consolidated subsidiary	4,885
Net assets and liabilities acquired	$	2,635


(1)	The San Diego Properties - Tranche 1 include the following: 10770 Wateridge Circle, 6200 Greenwich Drive, and 6220 Greenwich Drive.

~~_______________~~(2) The San Diego Properties - Tranche 2 include the following: 6260 Sequence Drive, 6290 Sequence, Drive, 6310 Sequence Drive, 6340 Sequence Drive, 6350 Sequence Drive, and 4921 Directors Place.

(The ten buildings encompassing 1~~) This~~,046,394 ~~note~~rentable ~~was~~square ~~repaid~~feet aswere sold for a gross sales price of ~~September 30~~$309.2 million, ~~2013~~ resulting in a gain on sale of $110.0 million.

InLand October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the Crossing 900 project (see Note 15 for additional information). Disposition

During the nine months ended September 30, 2015, the Company sold a land parcel located at 17150 Von Karman in Irvine, California for a gross sales price of $26.0 million, resulting in a gain on sale of $17.3 million.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

34. Deferred Leasing Costs and Acquisition-~~related~~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 September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

	September 30, 2013			December 31, 2012
	September 30, 2015			December 31, 2014
	(in thousands)
Deferred Leasing Costs and Acquisition-related Intangible Assets, net:
Deferred Leasing Costs and Acquisition-Related Intangible Assets, net:
Deferred leasing costs	$	~~170~~201,~~609~~605		$	~~168~~216,~~087~~102
Accumulated amortization	(5974,~~943~~997		)	(6174,~~443~~904		)
Deferred leasing costs, net	~~110~~126,~~666~~608			~~106~~141,~~644~~198
Above-market operating leases	2811,~~842~~026			2720,~~977~~734
Accumulated amortization	(146,~~038~~380		)	(1213,~~180~~952		)
Above-market operating leases, net	144,~~804~~646			156,~~797~~782
In-place leases	~~108~~74,~~612~~071			~~101~~97,~~061~~250
Accumulated amortization	(4432,~~476~~331		)	(3443,~~019~~773		)
In-place leases, net	6441,~~136~~740			6753,~~042~~477
Below-market ground lease obligation	490			~~690~~490
Accumulated amortization	(1127		)	(~~205~~21		)
Below-market ground lease obligation, net	~~479~~463			~~485~~469
Total deferred leasing costs and acquisition-related intangible assets, net	$	~~190~~173,~~085~~457		$	~~189~~201,~~968~~926
Acquisition-related Intangible Liabilities, net: (1)
Acquisition-Related Intangible Liabilities, net: (1)
Below-market operating leases	$	7055,~~966~~136		$	7068,~~486~~051
Accumulated amortization	(2426,~~074~~632		)	(1730,~~555~~620		)
Below-market operating leases, net	4628,~~892~~504			5237,~~931~~431
Above-market ground lease obligation	6,320			6,320
Accumulated amortization	(~~198~~399		)	(~~122~~324		)
Above-market ground lease obligation, net	65,~~122~~921			65,~~198~~996
Total acquisition-related intangible liabilities, net	$	5334,~~014~~425		$	5943,~~129~~427

~~_______________~~________________________


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

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles, ~~including amounts attributable to discontinued operations,~~ for the three and nine months ended September 30, ~~2013~~2015 and ~~2012~~2014, including amounts attributable to discontinued operations for 2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	2015			2014			2015			2014
	(in thousands)
Deferred leasing costs (1)	$	6,~~945~~932		$	57,~~238~~132		$	20,~~882~~847		$	1420,~~126~~683
Above-market operating leases (2)	~~1,417~~487			1,~~459~~305			42,~~214~~135			4,~~205~~230
In-place leases (1)	73,~~677~~073			65,~~479~~169			2211,~~546~~710			1417,~~858~~090
Below-market ground lease obligation (3)	2			522			6			~~153~~6
Below-market operating leases (4)	(32,~~355~~228		)	(32,~~487~~940		)	(108,~~229~~905		)	(810,~~821~~054		)
Above-market ground lease obligation (5)	(2526		)	(2526		)	(76		)	(6076		)
Total	$	128,~~661~~240		$	910,~~716~~642		$	3725,~~343~~717		$	2431,~~461~~879

~~_______________~~________________________

(1) The amortization of deferred leasing costs related to lease incentives is recorded to rental income and other 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 UNAUDITED 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 September 30, ~~2013~~2015 for future periods:

Year	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 2013	$	6,384	$	1,367	$	6,549	$	2	$	(3,201	)	$	(25	)
Remaining 2015	$	6,740	$	399	$	2,800	$	2	$	(2,044	)	$	(25	)
2014	23,533		4,837		19,053		8		(11,903		)	(101		)
2016	25,662		1,499		10,449		8		(7,638		)	(101		)
2015	19,669		3,035		12,676		8		(9,385		)	(101		)
2017	22,661		1,241		9,113		8		(7,017		)	(101		)
2016	16,920		2,007		9,445		8		(7,195		)	(101		)
2018	19,023		831		6,373		8		(5,735		)	(101		)
2017	14,468		1,690		7,744		8		(6,127		)	(101		)
2019	15,150		643		4,714		8		(3,597		)	(101		)
Thereafter	2937,~~692~~372		~~1,868~~33		8,~~669~~291		~~445~~429		(92,~~081~~473		)	(5,~~693~~492		)
Total	$	~~110~~126,~~666~~608	$	144,~~804~~646	$	6441,~~136~~740	$	~~479~~463	$	(4628,~~892~~504	)	$	(65,~~122~~921	)

~~_______________~~________________________


(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.

45. 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 September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

	September 30, 2013 (1)			December 31, 2012
	September 30, 2015			December 31, 2014 (1)
	(in thousands)
Current receivables	$	1413,~~301~~372		$	119,~~801~~228
Allowance for uncollectible tenant receivables	(21,~~532~~839		)	(21,~~581~~999		)
Current receivables, net	$	11,~~769~~533		$	97,~~220~~229

~~_______________~~________________________

(1) Excludes current receivables, net related to properties held for sale atas ~~September~~of 30December 31, ~~2013~~2014.

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

	September 30, 2013 (1)			December 31, 2012
	September 30, 2015			December 31, 2014
	(in thousands)
Deferred rent receivables	$	~~123~~185,~~632~~468		$	~~118~~158,~~025~~405
Allowance for deferred rent receivables	(12,~~973~~116		)	(21,~~607~~989		)
Deferred rent receivables, net	$	~~121~~183,~~659~~352		$	~~115~~156,~~418~~416

_______________

(1) Excludes deferred rent receivables, net related to properties held for sale at September 30, 2013.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

56. Secured and Unsecured Debt of the Operating Partnership

Secured Debt

The following table sets forth the composition of our secured debt as of September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

Type of Debt	Annual Stated Interest Rate (1)	GAAP Effective Rate (1)(2)	Maturity Date	September 30, ~~2013~~2015 (3)		December 31, ~~2012~~2014 (3)
				(in thousands)
Mortgage note payable	4.27%	4.27%	February 2018	$	~~133~~128,~~689~~937	$	~~135~~130,~~000~~767
Mortgage note payable (4)	4.48%	4.48%	July 2027	9796,~~000~~743		97,000
Mortgage note payable (4)(5)	6.05%	3.50%	June 2019	93,306		—
Mortgage note payable (4)	6.05%	3.50%	June 2019	86,737		89,242
Mortgage note payable (6)	6.37%	3.55%	April 2013	—		83,116
Mortgage note payable	6.51%	6.51%	February 2017	65,841		66,647
Mortgage note payable	6.51%	6.51%	February 2017	67,907		68,615
Mortgage note payable (4) (5)	5.23%	3.50%	January 2016	51,431		52,793
Mortgage note payable (4)	5.23%	3.50%	January 2016	55,007		56,302
Mortgage note payable (4) (5)	5.57%	3.25%	February 2016	39,188		40,258
Mortgage note payable (4)	5.57%	3.25%	February 2016	41,999		43,016
Mortgage note payable (6)	5.09%	3.50%	August 2015	—		34,311
Mortgage note payable (4)	5.09%	3.50%	August 2015	34,979		35,379
Mortgage note payable (6)	4.94%	4.00%	April 2015	—		26,285
Mortgage note payable (4)	4.94%	4.00%	April 2015	27,970		28,941
Mortgage note payable	7.15%	7.15%	May 2017	4,649		6,568
Mortgage note payable	7.15%	7.15%	May 2017	9,546		11,210
Other	Various	Various	Various	2,397		2,421
Other	Various	Various	Various	2,495		2,517
Total				$	475,923	$	546,292
Total				$	563,898	$	561,096

~~______________~~________________________


(1)	All interest rates presented are fixed-rate interest rates.


(2)	This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.

(3) Amounts reported include the amounts of unamortized debt premiums of $7.2 million and ~~discounts~~$10.3 ~~for~~million ~~the~~as ~~periods~~of ~~presented~~September 30, 2015 and December 31, 2014, respectively.


(4)	The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

(5) InThese ~~January~~mortgage ~~2013,~~notes inpayable ~~connection~~were ~~with~~repaid ~~the acquisition of two office buildings~~ in ~~Seattle,~~October ~~Washington,~~2015 ~~we assumed a mortgage loan that is secured by the project. The assumed mortgage had a principal balance of $83.9 million~~ at ~~the acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $11~~par.~~6 million. The loan requires monthly principal and interest payments based on a 6.4 year amortization period.~~

(6) InThese ~~January~~mortgage ~~2013,~~notes wepayable were repaid ~~this~~during ~~loan~~the ~~prior~~nine tomonths ~~the~~ended ~~stated~~September ~~maturity~~30, ~~date~~2015 at par.

Although our 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.

~~and~~Unsecured ~~environmental~~Senior ~~liabilities.~~ Notes

In September 2015, the Operating Partnership issued $400.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of issuance discount of $2.2 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on October 1, 2025, require semi-annual interest payments each April and October based on a stated annual interest rate of 4.25375%. The ~~Exchangeable~~Company will use the net proceeds to repay the 5.000% Unsecured Senior Notes upon maturity in November 2015 and other general corporate purposes, including the repayment of debt and funding development expenditures.

The following table ~~below~~ summarizes the balance and significant terms of the ~~Company’s~~registered ~~4.25% Exchangeable~~unsecured ~~Notes~~senior ~~due~~notes ~~November 2014~~issued (by the ~~“4.25% Exchangeable~~Operating ~~Notes”)~~Partnership ~~outstanding~~ as of September 30, ~~2013~~ 2015 and December 31, ~~2012.~~2014:

	4.25% Exchangeable Notes
	September 30, 2013			December 31, 2012
	(in thousands)
Principal amount	$	172,500		$	172,500
Unamortized discount	(5,264		)	(8,556		)
Net carrying amount of liability component	$	167,236		$	163,944
Carrying amount of equity component	$19,835
Issuance date	November 2009
Maturity date	November 2014
Stated coupon rate (1)	4.25%
Effective interest rate (2)	7.13%
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)	27.8307
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 15th and November 15th of each year.

(2) The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(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.



					Principal Amount as of
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate⁽¹⁾	September 30, 2015			December 31, 2014
					(in thousands)
4.375% Unsecured Senior Notes ⁽²⁾	September 2015	October 2025	4.375%	4.440%	$	400,000		$	—
Unamortized discount					$	(2,215	)	$	—
Net carrying amount					$	397,785		$	—

4.250% Unsecured Senior Notes ⁽³⁾	July 2014	August 2029	4.250%	4.350%	$	400,000		$	400,000
Unamortized discount					(4,124		)	(4,348		)
Net carrying amount					$	395,876		$	395,652

3.800% Unsecured Senior Notes ⁽⁴⁾	January 2013	January 2023	3.800%	3.804%	$	300,000		$	300,000
Unamortized discount					(72		)	(79		)
Net carrying amount					$	299,928		$	299,921

4.800% Unsecured Senior Notes ^{(4) (5)}	July 2011	July 2018	4.800%	4.827%	$	325,000		$	325,000
Unamortized discount					(209		)	(265		)
Net carrying amount					$	324,791		$	324,735

6.625% Unsecured Senior Notes ⁽⁶⁾	May 2010	June 2020	6.625%	6.743%	$	250,000		$	250,000
Unamortized discount					(994		)	(1,154		)
Net carrying amount					$	249,006		$	248,846

5.000% Unsecured Senior Notes ⁽⁷⁾	November 2010	November 2015	5.000%	5.014%	$	325,000		$	325,000
Unamortized discount					(4		)	(33		)
Net carrying amount					$	324,996		$	324,967

The 4.25% Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events. During the three and nine months ended September 30, 2013, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three month period ending December 31, 2013, the 4.25% Exchangeable Notes are exchangeable at the exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods.________________________

~~For~~(1) ~~the~~This ~~three~~represents ~~and nine months ended September 30, 2013 and 2012,~~ the ~~per~~rate ~~share~~at ~~average~~which ~~trading~~interest ~~price~~expense ofis ~~the~~recorded ~~Company’s~~for ~~common~~financial ~~stock~~reporting onpurposes, ~~the~~which ~~NYSE~~reflects ~~was higher than~~ the ~~$35.93~~amortization ~~exchange~~of ~~price~~initial ~~for~~issuance ~~the 4.25% Exchangeable Notes~~discounts, asexcluding ~~presented~~debt ~~below:~~issuance costs.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Per share average trading price of the Company’s common stock	$51.57	$47.56	$52.42	$45.74


(2)	Interest on these notes is payable semi-annually in arrears on April 1st and October 1st of each year.

~~The~~(3) ~~4.25% Exchangeable~~Interest ~~Notes~~on ~~were~~these ~~exchangeable~~notes asis ofpayable ~~September 30, 2013,~~semi-annually ~~and~~in ~~were~~arrears ~~not~~on ~~exchangeable~~February as15th ofand ~~September 30, 2012. If~~August ~~the~~15th ~~Exchangeable Notes were exchangeable for all periods presented, the approximate fair value~~ of ~~the~~each ~~shares upon exchangeable at September 30, 2013 and 2012, using the per share average trading price presented in the table above, would have been as follows:~~year.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(in thousands)
Approximate fair value of shares upon conversion	$	245,200	$	225,100	$	248,000	$	218,600
Principal amount of the 4.25% Exchangeable Notes	172,500		172,500		172,500		172,500
Approximate fair value in excess amount of principal amount	$	72,700	$	52,600	$	75,500	$	46,100


(4)	Interest on these notes is payable semi-annually in arrears on January 15th and July 15th of each year.

~~See~~(5) ~~Notes 13~~In ~~and~~October 142015, certain common limited partners in the Operating Partnership that previously contributed their interests in the property at 6255 W. Sunset Blvd., Los Angeles, California to the Operating Partnership entered into an agreement with the Company. Pursuant to this agreement, such common limited partners will reimburse the Company for a ~~discussion~~portion of any amounts the ~~impact~~Company may be required to pay pursuant to its guarantee of the Operating Partnership’s 4.25800% ~~Exchangeable~~ Senior Notes ondue ~~our~~2018 ~~diluted~~or ~~earnings~~that ~~per~~the ~~share~~Company ~~and~~may ~~unit~~otherwise ~~calculations~~become ~~for~~required ~~the~~to ~~periods~~pay ~~presented.~~under applicable law with respect to such notes.

(6) Interest ~~Expense~~on ~~for~~these ~~the~~notes ~~Exchangeable~~is ~~Notes~~payable semi-annually in arrears on June 1st and December 1st of each year.

~~The~~(7) ~~unamortized~~Interest ~~discount~~ on ~~the~~these ~~4.25% Exchangeable~~notes ~~Notes and the 3.25% Exchangeable Notes due April 2012 (the “3.25% Exchangeable Notes” and together with the 4.25% Exchangeable Notes, the “Exchangeable Notes”)~~ is ~~accreted~~payable assemi-annually 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 4.25% Exchangeable Notes and attributable to the 3.25% Exchangeable Notes (which were repaid upon maturity in ~~April 2012),~~arrears ~~in each case based~~ on ~~the~~May ~~respective~~3rd ~~effective~~and ~~interest~~November ~~rates,~~3rd ~~before the effect~~ of ~~capitalized~~each ~~interest, for the three and nine months ended September 30, 2013 and 2012:~~ year.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(in thousands)
Contractual interest payments (1)	$	1,833	$	1,833	$	5,498	$	6,888
Amortization of discount (1)	1,116		1,041		3,291		3,993
Interest expense attributable to the Exchangeable Notes (1)	$	2,949	$	2,874	$	8,789	$	10,881

Unsecured Revolving Credit Facility and Term Loan Facility

~~_______________~~The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2015 and December 31, 2014:

(1) The Company repaid the 3.25% Exchangeable Notes in April 2012. Interest payments and discount amortization for the three and nine months ended September 30, 2013 and three months ended September 30, 2012 are solely attributable to the 4.25% Exchangeable Notes.



	September 30, 2015			December 31, 2014
	(in thousands)
Outstanding borrowings	$	—		$	140,000
Remaining borrowing capacity	600,000			460,000
Total borrowing capacity ⁽¹⁾	$	600,000		$	600,000
Interest rate ⁽²⁾	—		%	1.41		%
Facility fee-annual rate ⁽³⁾	0.200		%	0.250		%
Maturity date	July 2019

________________________


(1)	We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $311.0 million under an accordion feature under the terms of the unsecured revolving credit facility and term loan facility.


(2)	Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.050% and LIBOR plus 1.250% as of September 30, 2015 and December 31, 2014, respectively.


(3)	Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2015, $4.9 million of deferred financing costs remains to be amortized through the maturity date of our unsecured revolving credit facility.

The Company intends to borrow amounts under the unsecured revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Capped~~The ~~Call~~following ~~Transactions~~table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2015 and December 31, 2014:

In connection with the offering of the 4.25% Exchangeable Notes, we entered into capped call option transactions (“capped calls”) to mitigate the dilutive impact of the potential exchange of the 4.25% Exchangeable Notes. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of September 30, 2013 and December 31, 2012.



	September 30, 2015			December 31, 2014
	(in thousands)
Outstanding borrowings	$	150,000		$	150,000
Interest rate ⁽¹⁾	1.35		%	1.56		%
Maturity date	July 2019

________________________

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


(1)	Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.150% and LIBOR plus 1.400% as of September 30, 2015 and December 31, 2014, respectively.

~~The~~Additionally, ~~capped calls are expected to terminate upon~~ the ~~earlier~~Company ofhas ~~the~~a ~~maturity~~$39.0 ~~date~~million ofunsecured ~~the~~term ~~4.25% Exchangeable~~loan ~~Notes~~outstanding orwith ~~upon~~an ~~the~~annual ~~date~~interest ~~upon~~rate ~~which~~of ~~the~~LIBOR 4plus 1.25150% ~~Exchangeable~~ and ~~Notes~~LIBOR ~~are~~plus ~~no longer outstanding resulting from an exchange or repurchase by us~~1. ~~The~~400% ~~initial~~as ~~cost~~ of ~~capped~~September ~~calls~~30, 2015 ~~were~~and ~~recorded~~December 31, 2014, asrespectively, athat ~~reduction~~matures ~~to additional paid-~~in ~~capital~~July 2019.

Unsecured Senior Notes

In January 2013, the Operating Partnership issued unsecured senior notes in a public offering with an aggregate principal balance of $300.0 million, which is included in unsecured debt, net on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on January 15, 2023, require semi-annual interest payments each January and July based on a stated annual interest rate of 3.80%. The unsecured senior notes are shown net of the initial issuance discount of $0.1 million on the consolidated balance sheets. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings under the Operating Partnership’s revolving credit facility.

Unsecured Revolving Credit Facility

The following table summarizes the balance and terms of our revolving credit facility as of September 30, 2013 and December 31, 2012, respectively:

	September 30, 2013		December 31, 2012
	(in thousands)
Outstanding borrowings	$	—	$	185,000
Remaining borrowing capacity	500,000		315,000
Total borrowing capacity (1)	$	500,000	$	500,000
Interest rate (2)			1.66		%
Facility fee-annual rate (3)	0.300%
Maturity date (4)	April 2017

_______________

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

(2) The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of both September 30, 2013 and December 31, 2012. No interest rate is shown as of September 30, 2013 because no borrowings were outstanding.

(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, from 2010 to 2012 we incurred debt origination and legal costs totaling approximately $10.2 million that are currently being amortized through the maturity date of the revolving credit facility.

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

The Company intends to borrow amounts under the revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt.

Debt Covenants and Restrictions

The unsecured revolving credit facility, the unsecured term loan facility, the unsecured term loan, 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 September 30, ~~2013~~2015.

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 September 30, ~~2013~~2015:

Year	(in thousands)
Remaining 2013	$	2,387
Remaining 2015	$	327,768
2014	265,346
2016	99,431
2015	395,104
2016	249,431
2017	71,748
Thereafter	1,169,742
2018	451,728
Total (1)	$	2,153,758
2019	265,370
Thereafter	1,441,643
Total (1)	$	2,657,688

________________________

(1) Includes gross principal balance of outstanding debt before impact of net unamortized ~~premiums~~discounts totaling approximately $80.4 million.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and nine months ended September 30, ~~2013~~2015 and ~~2012~~2014. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	2015			2014			2015			2014
	(in thousands)
Gross interest expense	$	27,~~942~~386		$	2429,~~843~~936		$	8382,322		$	7385,~~326~~740
Capitalized interest	(9,089		)	(4,989		)	(25,301		)	(13,154		)
Capitalized interest and loan fees	(14,567		)	(13,328		)	(37,761		)	(35,860		)
Interest expense	$	1812,~~853~~819		$	1916,~~854~~608		$	5844,~~021~~561		$	6049,~~172~~880

~~6. Noncontrolling~~ ~~Interests on the Company’s Consolidated Financial Statements~~19

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

7. Noncontrolling Interests on the Company’s Consolidated Financial Statements

Common Units of the Operating Partnership

The Company owned aan 97approximate 98.81%, 9798.60% and 97.69% common general partnership interest in the Operating Partnership as of September 30, ~~2013~~ 2015, December 31, ~~2012,~~2014 and September 30, ~~2012~~ 2014, respectively. The remaining 2approximate 1.29%, 2.40% and 2.41% common limited partnership interest as of September 30, ~~2013~~ 2015, December 31, ~~2012~~2014 and September 30, ~~2012~~ 2014, 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,~~821~~788,~~503~~170, 1,~~826~~804,~~503~~200 and 1,~~826~~804,~~503~~200 common units outstanding held by these investors, executive officers and directors as of September 30, ~~2013~~ 2015, December 31, ~~2012~~2014 and September 30, ~~2012~~ 2014, respectively.

The noncontrolling common units may be redeemed by unitholders for cash. WeExcept under certain circumstances, 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~~If 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 redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $92118.30 million and $85126.48 million as of September 30, 2015 ~~2013~~ and December 31, ~~2012~~2014, 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.

~~Noncontrolling~~8. Stockholders’ ~~Interest~~Equity inof ~~Consolidated~~the ~~Subsidiary~~Company

At-The-Market ~~noncontrolling~~Stock ~~interest~~Offering ~~in consolidated subsidiary represents the third party equity interest in Redwood City Partners, LLC (see Note 2). This noncontrolling interest was $4.9 million at September 30, 2013.~~ Program

Under our current at-the-market stock offering program, which commenced in December 2014, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $300.0 million from time to time in “at-the-market” offerings. Since commencement of the program through September 30, 2015, we have sold 2,007,767 shares of common stock having an aggregate gross sales price of $150.1 million. As of September 30, 2015, shares of common stock having an aggregate gross sales price of up to $149.9 million remain available to be sold under this program. No shares of common stock were sold under this program during the three months ended September 30, 2015. 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.

The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the nine months ended September 30, 2015:



	Nine months ended September 30, 2015
	(in millions, except share and per share data)
Shares of common stock sold during the period	1,866,267
Weighted average price per common share	$	75.06
Aggregate gross proceeds	$	140.1
Aggregate net proceeds after sales agent compensation	$	138.2

Common Stock Issuance

On July 1, 2015, the Company completed the sale of and issued 3,773,766 shares of its common stock at a price of $66.19 per share for aggregate gross proceeds of $249.8 million and aggregate net proceeds after offering costs of $249.6 million through a registered direct placement with an institutional investor.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

79. ~~Stockholders~~Partners’ ~~Equity~~Capital of the ~~Company~~Operating Partnership

Issuance of Common Stock

In September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and commissions and offering expenses, were approximately $295.9 million. The net proceeds will be used for general corporate purposes, which may include acquiring properties (including office properties and undeveloped land), funding development and redevelopment projects, and repaying indebtedness, which may include borrowings under the operating partnership’s revolving credit facility and term loan facility.

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. The following table sets forth information regarding sales of our common stock under our at-the-market offering program for the three and nine months ended September 30, 2013:

	Three Months Ended September 30, 2013		Nine Months Ended September 30, 2013
	(in millions, except share and per share data)
Common shares sold during the period	226,430		1,040,838
Weighted average price per common share	$	51.12	$	53.11
Aggregate gross proceeds	$	11.6	$	55.3
Aggregate net proceeds after sales agent compensation	$	11.4	$	54.4

The proceeds from the sales were used to fund development and redevelopment expenditures and general corporate purposes. Since commencement of the program, we have sold 2,183,261 shares of common stock having an aggregate gross sales price of $105.3 million. As of September 30, 2013, shares of common stock having an aggregate gross sales price of up to $94.7 million remain available to be sold under this program. Actual future sales will 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.

8. Partners’ Capital of the Operating Partnership

Issuance of Common Units

In September 2013, the Company completed an underwritten public offering of 6,175,000 shares of its common stock (see Note 7. The net offering proceeds of approximately $295.9 million were contributed by the Company to the Operating Partnership in exchange for 6,175,000 common units.

During the three and nine months ended September 30, 2013, the Company utilized its at-the-market stock offering program to issue 226,430 and 1,040,838 shares of common stock, respectively (see Note 7. The net offering proceeds for the three and nine months ended September 30, 2013 of approximately $11.4 million and $54.4 million, respectively, were contributed by the Company to the Operating Partnership in exchange for 226,430 and 1,040,838 common units, respectively.

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliate investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

	September 30, 2013		December 31, 2012		September 30, 2012
	September 30, 2015		December 31, 2014		September 30, 2014
Company owned common units in the Operating Partnership	8292,~~113~~220,~~491~~367		7486,~~926~~259,~~981~~684		7483,~~692~~388,~~939~~220
Company owned general partnership interest	9798.81	%	9798.60	%	97.69	%
Noncontrolling common units of the Operating Partnership	1,~~821~~788,~~503~~170		1,~~826~~804,~~503~~200		1,~~826~~804,~~503~~200
Ownership interest of noncontrolling interest	21.29	%	2.40	%	2.41	%

For a further discussion of the noncontrolling common units as of September 30, ~~2013~~2015 and December 31, ~~2012~~2014, refer to Note 67.

10. Share-Based Compensation

Stockholder Approved Equity Compensation Plans

As of September 30, 2015, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). As of September 30, 2015, 1,724,324 shares were available for grant under the 2006 Plan. The calculation of shares available for grant includes a reserve for a sufficient number of shares to cover the vesting and payment of performance-based vesting awards at the target levels for either performance and/or market conditions with outstanding performance periods. At our Annual Meeting of Stockholders held on May 21, 2015, stockholders approved an amendment and restatement of the 2006 Plan, which included an increase in the share limit to 8,320,000 shares.

2015 Share-Based Compensation Grants

On January 27, 2015, the Executive Compensation Committee of the Company’s Board of Directors awarded 212,468 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 127,657 RSUs (at the target level of performance), or 60%, that are subject to market and performance-based vesting requirements (the “2015 Performance-Based RSUs”) and 84,811 RSUs, or 40%, that are subject to time-based vesting requirements (the “2015 Time-Based RSUs”).

2015 Performance-Based RSU Grant

The 2015 Performance-Based RSUs are scheduled to vest at the end of a three-year period based upon the achievement of pre-set FFO per share goals (the “performance condition”) for the year ending December 31, 2015 and also based upon the average annual relative total stockholder return ranking for the Company compared to an established comparison group of companies (the “market condition”) for the three-year period ending December 31, 2017. The 2015 Performance-Based RSUs are also subject to a three-year service vesting provision and are scheduled to cliff vest at the end of the three-year period. The number of 2015 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2015 Performance-Based RSUs granted based upon the levels of achievement for both the performance condition and the market condition. The estimate of the number of 2015 Performance-Based RSUs earned are evaluated quarterly during the 2015 performance period based on our estimate as to the 2015 FFO per share performance measured against the applicable goals. As of September 30, 2015, 168,788 2015 Performance-Based RSUs are estimated to be earned based on the Company’s estimate of 2015 FFO per share performance measured against the applicable goals, and the compensation cost recorded to date for this program was based on that revised estimate. Compensation expense for the 2015 Performance-Based RSU grant will be recorded on a straight-line basis over the three-year period.

Each 2015 Performance-Based RSU represents the right to receive one share of our common stock in the future. The total fair value of the 2015 Performance-Based RSU grant was $10.1 million at January 27, 2015 and was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The determination of the fair value of the 2015 Performance-Based RSU grant takes into consideration the likelihood of achievement of both the performance condition and the market condition discussed above. For the nine months ended September 30, 2015, we recorded compensation expense based

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9upon the $78. ~~Share-Based~~55 ~~Compensation~~fair value at January 27, 2015. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:

Stockholder Approved Equity Compensation Plans



	Fair Value Assumptions
Fair value per share at January 27, 2015	$78.55
Expected share price volatility	20.00%
Risk-free interest rate	0.92%
Remaining expected life	2.9 years

AsThe computation of ~~September 30, 2013,~~expected wevolatility ~~maintained~~is ~~one share-~~based ~~incentive~~on ~~compensation~~a ~~plan,~~blend of the ~~Kilroy~~historical ~~Realty~~volatility ~~2006 Incentive~~of ~~Award~~our ~~Plan~~shares of common stock over approximately six years, as ~~amended~~that (is expected to be most consistent with future volatility and equates to a time period twice as long as the ~~“2006~~approximate ~~Plan”). As~~three-year remaining performance period of ~~September 30, 2013,~~the ~~28,355 shares~~RSUs ~~were~~and ~~available~~implied ~~for~~volatility ~~grant~~data ~~under~~based on the ~~2006 Plan. The~~observed ~~number~~pricing of six month publicly-traded options on our shares ~~that~~of ~~remains~~common ~~available~~stock. The ~~for~~risk-free ~~grant~~interest rate is ~~calculated~~based ~~using~~on the ~~weighted~~yield ~~share~~curve ~~counting~~on ~~provisions~~zero-coupon ~~set~~U.S. ~~forth~~Treasury STRIP securities in ~~the~~effect ~~2006~~at ~~Plan~~January 27, ~~which~~2015. The ~~are~~expected ~~based~~dividend onyield is estimated by examining the ~~type~~average of ~~awards~~the ~~that~~historical ~~are~~dividend ~~granted~~yield levels over the remaining 2. ~~The~~9 ~~maximum~~year ~~number~~term of ~~shares~~the ~~available~~RSUs ~~for~~and ~~grant~~our ~~subject~~current toannualized ~~full~~dividend ~~value~~yield ~~awards~~as ~~(which~~of ~~generally~~January ~~include~~27, ~~equity~~2015. The ~~awards~~expected ~~other~~life ~~than~~of ~~options~~the ~~and~~RSUs ~~stock~~is ~~appreciation~~equal ~~rights)~~to ~~was~~the remaining 2.9~~,711 shares~~ asyear ofvesting ~~September 30~~period at January 27, ~~2013~~2015.

On2015 April 4, 2013, the Executive Compensation Committee of the Company’s Board of Directors granted 19,084 RSUs to the Company’s Chief Operating Officer as part of his modified employment agreement. FiftyTime-~~percent~~Based ofRSU the RSUs granted are scheduled to vest in six equal annual installments beginning on December 31, 2013 through December 31, 2018. The grant date fair value of these time-based RSUs was $0.5 million, which was based on the $53.05 closing share price of the Company’s common stock on the New York Stock Exchange on the grant date. Compensation expense will be recognized on a straight-line basis over the service vesting period for these time-based RSUs. The remaining 50% of the RSUs granted are scheduled to vest in six equal annual installments for each calendar year during 2013 through 2018 based on the achievement of certain absolute or relative total shareholder return goals measured annually or, if neither of the shareholder return hurdles are achieved for an applicable year during the performance period, those RSUs will remain eligible to vest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal. The grant date fair value of these market measure-based RSUs was $0.4 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 six 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.Grant

The ~~computation~~2015 ofTime-Based ~~expected~~RSUs ~~volatility~~are isscheduled ~~based~~to onvest ain ~~blend~~three ofequal ~~the~~installments ~~historical~~beginning ~~volatility~~on ofJanuary 5, 2016 ~~our~~through ~~shares~~January 5, 2018. Compensation ofexpense ~~common~~for ~~stock~~the ~~over~~2015 12Time-Based ~~years as~~RSUs ~~that~~will ~~is expected to~~ be ~~most~~recognized ~~consistent~~on ~~with future volatility and equates to~~ a ~~time~~straight-line ~~period~~basis ~~twice~~over ~~as long as~~ the ~~six~~ three-year ~~term~~service ofvesting ~~the~~period. Each ~~RSUs~~2015 ~~and~~Time-Based ~~implied~~RSU ~~volatility~~represents ~~data~~the ~~based~~right onto ~~the~~receive ~~observed~~one ~~pricing~~share of ~~six month publicly-traded options on~~ our ~~shares of~~ common stock~~. The~~ ~~risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities~~ in ~~effect at~~ the ~~grant date~~future. The ~~expected~~total ~~dividend~~fair ~~yield~~value ~~is estimated by examining the average~~ of the ~~historical~~2015 ~~dividend~~Time-Based ~~yield~~RSU ~~levels~~grant ~~over~~was ~~the six~~$6.4 ~~year~~million, ~~term~~which ofwas ~~the~~based ~~RSUs~~on ~~and our current annualized dividend yield as of~~ the ~~grant date~~$75. ~~The~~34 ~~expected~~closing ~~life~~share price of the ~~RSUs~~Company’s iscommon ~~equal~~stock toon the ~~six~~NYSE ~~year~~on ~~vesting~~January ~~period~~27, 2015.

	April 2013 Market-Measure based RSU Grant
Grant date fair value per share	$44.55
Expected share price volatility	27.00%
Risk-free interest rate	0.90%
Dividend yield	3.60%
Expected life	6 years

Share-Based Award Activity

OnDuring ~~April~~the 4,nine ~~2013,~~months ~~the~~ended ~~terms~~September of30, 2015, 61265,~~327~~000 ~~time~~non-~~based~~qualified ~~RSUs~~stock ~~granted~~options ~~to certain officers of the Company in January 2013~~ were ~~modified~~exercised ~~to include market~~ and ~~performance-based~~issued ~~vesting~~at ~~requirements~~an ~~based~~exercise onprice ~~certain total shareholder return and FFO~~ per share ~~targets. The RSUs will vest in five~~ equal ~~annual~~to ~~installments~~$42.61. As ~~over the five-years requisite service period based on the achievement~~ of ~~certain~~September ~~absolute or relative total shareholder return goals measured annually or~~30, ~~if neither of the shareholder return hurdles are achieved for an applicable year during the performance period~~ 2015, ~~those~~we ~~RSUs~~had ~~will remain eligible to vest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal~~687,000 ~~as well as (in each case) continued employment through the applicable vesting date. The Company’s closing~~ stock ~~price~~options ~~on the date of modification was $53~~outstanding.~~05.~~ ~~The compensation expense related to the modified RSUs will be recognized using the accelerated attribution expense method through the remainder of the five-year requisite service period.~~

OnShare-Based ~~March 30, 2012, the Executive~~ Compensation ~~Committee~~Cost ofRecorded ~~the~~During ~~Company’s Board of Directors granted 103,239 RSUs to~~ the Company’s Chief Executive Officer. The RSUs granted vest in seven equal annual installments for each calendar year during 2012 through 2018 based on the achievement of certain absolute or relative total shareholder return goals measured annually or, if neither of the shareholder return hurdles are achieved for an applicable year during the performance period, those RSUs will remain eligible to vest in a subsequent year (ending in 2018) based on the achievement of a cumulative total shareholder return goal, as well as (in each case) continued employment through the applicable vesting date.Period

The 22total compensation cost for all share-based compensation programs was $4.3 million and $4.0 million for the three months ended September 30, 2015 and 2014, respectively, and $13.6 million and $10.3 million for the nine months ended September 30, 2015 and 2014, respectively. Of the total share-based compensation costs, $0.7 million and $0.6 million was capitalized as part of real estate assets for the three months ended September 30, 2015 and 2014, respectively, and $2.3 million and $1.5 million was capitalized as part of real estate assets for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, there was approximately $35.2 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 2.1 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2015.

~~KILROY~~11. Commitments ~~REALTY~~and ~~CORPORATION AND KILROY REALTY, L.P.~~Contingencies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

Summary of Market-Measure Based RSUs

A summary of our market-measure based RSU activity from January 1, 2013 through September 30, 2013 is presented below:

	Nonvested RSUs			Vested RSUs	Total RSUs
	Amount	Weighted-AverageGrant Date Fair ValuePer Share
Outstanding at January 1, 2013	88,491	$	41.20	14,748	103,239
Granted	9,542	44.55		—	9,542
Vested	—	—		—	—
Settled	—			—	—
Issuance of dividend equivalents	—			—	—
Modified from time based (1)	61,327	53.05		—	61,327
Canceled				—	—
Outstanding as of September 30, 2013	159,360	$	45.96	14,748	174,108

_______________

(1) On April 4, 2013 the terms of time-based RSU’s granted to certain officers of the Company in January were modified to include market-measure and performance-based vesting requirements.

A summary of our market-measure based RSU activity for the nine months ended September 30, 2013 and 2012 is presented below:

	RSUs Granted			RSUs Vested
Nine months ended September 30,	Non-Vested RSUs Issued	Weighted-Average Grant DateFair ValuePer Share		Vested RSUs	Total Vest-Date Fair Value(in thousands)
2013	9,542	$	44.55	—	$	—
2012	103,239	41.20		—	—

Summary of Time-Based RSUs

A summary of our time-based RSU activity from January 1, 2013 through September 30, 2013 is presented below:

	Nonvested RSUs				Vested RSUs		Total RSUs
	Amount		Weighted-AverageGrant Date Fair ValuePer Share
Outstanding at January 1, 2013	279,102		$	41.30	769,761		1,048,863
Granted, net of forfeitures	173,758		49.45		—		173,758
Vested	(73,574	)	38.80		73,574		—
Settled (1)					(10,342	)	(10,342	)
Issuance of dividend equivalents (2)					20,421		20,421
Modified to market-measure based (3)	(61,327	)	53.05		—		(61,327	)
Canceled (1)(4)					(3,800	)	(3,800	)
Outstanding as of September 30, 2013	317,959		$	46.13	849,614		1,167,573

_______________

(1) Represents vested RSUs that are settled in cash or shares of the Company’s common stock.

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

(3) During the second quarter the terms of time-based RSUs granted to certain officers of the Company in January were modified to include market-measure based vesting requirements.

(4) We accept the return of RSUs, at the current quoted closing share price of the Company’s common stock, to satisfy minimum statutory tax-withholding requirements related to either the issuance, vesting or settlement of RSUs in accordance with the terms of the 2006 Plan.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

A summary of our time-based RSU activity for the nine months ended September 30, 2013 and 2012 is presented below:

	RSUs Granted			RSUs Vested
Nine months ended September 30,	Non-Vested RSUs Issued	Weighted-Average Grant DateFair ValuePer Share		Vested RSUs		Total Vest-Date Fair Value (1)(in thousands)
2013	173,758	$	49.45	(73,574	)	$	3,677
2012	204,829	44.34		(58,940	)	2,420

(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 Restricted Stock

A summary of our nonvested restricted stock activity from January 1, 2013 through September 30, 2013 is presented below:

	Non-VestedRestricted Stock		Weighted-AverageGrant DateFair ValuePer Share
Outstanding at January 1, 2013	95,241		$	40.42
Granted	—		—
Vested (1)	(47,291	)	39.12
Outstanding as of September 30, 2013	47,950		$	41.71

_______________

(1) The total shares vested include 20,880 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested. We accept the return of shares at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.

A summary of our nonvested and vested restricted stock activity for the nine months ended September 30, 2013 and 2012 is presented below:

	Shares Granted			Shares Vested
Nine months ended September 30,	Non-Vested Shares Issued	Weighted-Average Grant DateFair ValuePer Share		Vested Shares		Total Fair Value at Vest Date(1)(in thousands)
2013	—	$	—	(47,291	)	$	2,290
2012	62,137	41.84		(35,623	)	1.388

(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

A summary of our stock option activity from January 1, 2013 through September 30, 2013 is presented below:

	Number of Options		Exercise Price		Remaining Contractual Term (years)
Outstanding at January 1, 2013	1,540,000		$	42.61
Granted	—		—
Exercised	(3,000	)	42.61
Forfeited	(12,000	)	42.61
Outstanding at September 30, 2013 (1)(2)	1,525,000		$	42.61	8.4

_______________

(1) As of September 30, 2013, 305,000 of the outstanding stock options were exercisable.

(2) The total intrinsic value of options outstanding at September 30, 2013 was $11.2 million.

Share-based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $2.5 million and $2.4 million for the three months ended September 30, 2013 and 2012, respectively, and $7.2 million and $6.2 million for the nine months ended September 30, 2013 and 2012, respectively. Of the total share-based compensation costs, $0.2 million and $0.2 million was capitalized as part of real estate assets for the three months ended September 30, 2013 and 2012, respectively, and $0.6 million and $0.7 million for the

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013, there was approximately $27.9 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 2.3 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2013.

10. Commitments and Contingencies

General

As of September 30, ~~2013~~2015, we had commitments of approximately $~~447~~481.72 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and redevelopment properties. However, this amount includes the $27.5 million that we expect to pay during the fourth quarter of 2013 upon the closing of the purchase of the land underlying the ground lease at 360 Third Street in San Francisco, California. We exercised an option to acquire the land during the fourth quarter of 2012.

Environmental Matters

We follow the policy of monitoring all of our properties, both acquisition and existing stabilized portfolio properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to ~~the~~our stabilized portfolio properties that would have a material adverse effect on our financial condition, results of operations, and cash flow~~. Further~~, ~~we are not aware of any environmental liability~~ or ~~any unasserted claim or assessment with respect to an environmental liability~~ that we believe would require additional disclosure or the recording of a loss contingency.

~~Property~~ ~~Damage Settlement~~22

~~During~~KILROY ~~the~~REALTY ~~nine months~~CORPORATION ~~ended~~AND ~~September 30, 2013,~~KILROY ~~we settled an outstanding matter related to property damage at one of our properties. In connection with this settlement~~REALTY, ~~we received a cash payment of $5~~L.~~2 million and recognized this amount in other property income during the nine months ended September 30, 2013~~P.

~~Settlement~~NOTES ~~with~~TO ~~Prior~~UNAUDITED ~~Tenant~~CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~During~~As ~~the~~of ~~three months ended~~ September 30, ~~2013~~2015, we ~~settled~~had anaccrued ~~outstanding~~environmental ~~matter~~remediation ~~with~~liabilities aof ~~prior~~approximately ~~tenant~~$19.4 atmillion ~~one~~recorded ofon ~~the~~our ~~properties~~consolidated ~~disposed~~balance ofsheets in ~~December~~connection ~~2012~~with certain of our recent development acquisitions and related development activities. InIt ~~connection~~is ~~with~~possible ~~this~~that ~~settlement,~~ we ~~received~~could aincur ~~net~~additional ~~cash~~environmental ~~payment~~remediation ofcosts $3in connection with these recent development acquisitions.~~7 million~~ However, ~~which~~given iswe ~~presented~~are in ~~Income~~the ~~from~~very ~~discontinued~~early ~~operations~~stages inof ~~our~~development, ~~consolidated~~possible ~~statements~~additional ofenvironmental ~~operations~~costs ~~for~~are ~~the~~not ~~three~~reasonably ~~and~~estimable ~~nine months~~at ~~ended~~this ~~September 30, 2013~~time.

1112. Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets we record at fair value on ~~a recurring basis on~~ our consolidated financial statements are the marketable securities related to our ~~deferred~~Deferred ~~compensation~~Compensation ~~plan~~Plan. The following table sets forth the fair value of our marketable securities as of September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

	Fair Value (Level 1) (1)
	September 30, 2013		December 31, 2012
	September 30, 2015		December 31, 2014
Description	(in thousands)
Marketable securities (2)	$	912,~~192~~638	$	711,~~435~~971

________________________


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


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

We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment ~~gains~~gain in the consolidated statements of operations. We also adjust the related ~~deferred~~Deferred ~~compensation~~Compensation ~~plan~~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 25following table sets forth the net (loss) gain on marketable securities recorded during the three and nine months ended September 30, 2015 and 2014:

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Description	(in thousands)						(in thousands)
Net (loss) gain on marketable securities	$	(681	)	$	(39	)	$	(171	)	$	507

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

The following table sets forth the net gain on marketable securities recorded during the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Description	(in thousands)
Net gain on marketable securities	$	669	$	315	$	995	$	595

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 September 30, ~~2013~~2015 and December 31, ~~2012~~2014:

	September 30, 2013				December 31, 2012
	September 30, 2015				December 31, 2014
	CarryingValue		FairValue		CarryingValue		FairValue
	(in thousands)
Liabilities
Secured debt (1)	$	~~563~~475,~~898~~923	$	~~574~~487,~~661~~563	$	~~561~~546,~~096~~292	$	~~591~~559,~~993~~483
Exchangeable senior notes, net (1)	167,236		178,379		163,944		181,223
Unsecured debt, net (2)	2,181,382		2,228,225		1,783,121		1,858,492
Unsecured debt, net (2)	1,431,048		1,522,228		1,130,895		1,254,047
Unsecured line of credit (1) (3)	—		—		140,000		145,051
Unsecured line of credit (1)	—		—		185,000		185,049

________________________

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

(2) Fair value calculated using Level I and Level II inputs. Level I inputs are based on quoted prices for identical instruments in active markets. The carrying value and fair value of the Level I instruments was $~~841~~2.90 ~~million~~billion and $~~932.~~2.0 ~~million~~billion, respectively, as of September 30, ~~2013~~2015. The carrying value and fair value of the Level I instruments atas of December 31, ~~2012~~2014, was $~~573~~1.3 ~~million~~billion and $~~653~~1.03 ~~million~~billion, respectively. The carrying value and fair value of the Level II instruments was $~~589~~189.20 million and $~~590~~189.0 million, respectively, as of September 30, ~~2013~~2015. The carrying value and fair value of the Level II instruments atas of December 31, ~~2012~~2014, was $~~557~~513.67 million and $~~601~~536.03 million, respectively.

~~12. Discontinued~~(3) ~~Operations~~There was no outstanding balance on the unsecured line of credit as of September 30, 2015.

~~Dispositions~~ 23

The following table summarizes the property sold during the nine months ended September 30, 2013:

Location

Property Type

Month of Disposition

Number of Buildings

Rentable Square Feet

Sales Price(in millions)

26541 Agoura Road, Calabasas, CA

Office

June

90,156

14.7

Properties Held for Sale

As of September 30, 2013, the following properties were classified as held for sale:

Location	City/Submarket	Property Type	Number of Buildings	Rentable Square Feet
San Diego Properties, San Diego, CA (1)	I-15 Corridor/Sorrento Mesa	Office	13	1,099,395
8101 Kaiser Boulevard, Anaheim, CA (2)	Anaheim	Office	1	59,790
Total properties held for sale			14	1,159,185

(1) The San Diego Properties included the following: 4910 Directors Place, 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science.

(2) We closed on the disposition of this property on October 2, 2013. The sales price was $9.6 million.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Real estate assets and other assets held for sale	(in thousands)
Land and improvements	$	54,273
Buildings and improvements	236,792
Undeveloped land and construction in progress	1,441
Total real estate held for sale	292,506
Accumulated depreciation	(70,084		)
Total real estate held for sale, net	222,422
Current receivables, net	303
Deferred rent receivables, net	9,062
Deferred leasing costs and acquisition-related intangible assets, net	6,643
Prepaid expenses and other assets, net	981
Real estate and other assets held for sale, net	$	239,411
Liabilities and deferred revenue of real estate assets held for sale
Accounts payable and other liabilities	$	2,554
Deferred revenue and acquisition-related intangible liabilities, net	12,785
Rents received in advance and tenant security deposits	1,412
Liabilities and deferred revenue of real estate assets held for sale	$	16,751

13. Net Income Available to Common Stockholders Per Share of the Company

~~Discontinued~~The ~~Operations~~following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2015 and 2014:

For the three and nine months ended September 30, 2013 and 2012, discontinued operations included the income of all properties sold and classified as held for sale during the nine months ended September 30, 2013. For the three and nine months ended September 30, 2012, discontinued operations also included the income of seven office buildings and our industrial portfolio that were sold in 2012. The following table summarizes the revenue and expense components that comprise Income from discontinued operations for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands, except share and per share amounts)
Numerator:
Income from continuing operations	$	106,704		$	13,168		$	209,296		$	39,896
Income from continuing operations attributable to noncontrolling common units of the Operating Partnership	(1,945		)	(193		)	(3,850		)	(635		)
Preferred dividends	(3,313		)	(3,313		)	(9,938		)	(9,938		)
Allocation to participating securities ⁽¹⁾	(367		)	(432		)	(1,200		)	(1,285		)
Numerator for basic and diluted income from continuing operations available to common stockholders	101,079			9,230			194,308			28,038
Income from discontinued operations ⁽²⁾	—			6,135			—			112,482
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership ⁽²⁾	—			(128		)	—			(2,376		)
Numerator for basic and diluted net income available to common stockholders	$	101,079		$	15,237		$	194,308		$	138,144
Denominator:
Basic weighted average vested shares outstanding	92,150,341			83,161,323			89,077,012			82,525,033
Effect of dilutive securities	488,724			1,949,133			516,249			2,097,589
Diluted weighted average vested shares and common share equivalents outstanding	92,639,065			85,110,456			89,593,261			84,622,622
Basic earnings per share:
Income from continuing operations available to common stockholders per share	$	1.10		$	0.11		$	2.18		$	0.34
Income from discontinued operations per common share ⁽²⁾	—			0.07			—			1.33
Net income available to common stockholders per share	$	1.10		$	0.18		$	2.18		$	1.67
Diluted earnings per share:
Income from continuing operations available to common stockholders per share	$	1.09		$	0.11		$	2.17		$	0.33
Income from discontinued operations per common share ⁽²⁾	—			0.07			—			1.30
Net income available to common stockholders per share	$	1.09		$	0.18		$	2.17		$	1.63

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)
Revenues:
Rental income	$	6,604		$	10,522		$	18,334		$	33,105
Tenant reimbursements	892			1,639			2,331			5,296
Other property income	4,610			229			4,617			884
Total revenues	12,106			12,390			25,282			39,285
Expenses:
Property expenses	2,020			2,044			3,920			6,287
Real estate taxes	684			1,301			2,048			3,719
Provision for bad debts	(23		)	(194		)	(23		)	(194		)
Depreciation and amortization	3,081			4,550			8,531			13,870
Total expenses	5,762			7,701			14,476			23,682
Income from discontinued operations before net gain on dispositions of discontinued operations	6,344			4,689			10,806			15,603
Net gain on dispositions of discontinued operations	—			—			423			72,809
Total income from discontinued operations	$	6,344		$	4,689		$	11,229		$	88,412

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

13. Net Income (Loss) 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 income (loss) available to common stockholders for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands, except share and per share amounts)
Numerator:
Income (loss) from continuing operations	$	2,683		$	(2,167	)	$	10,289		$	(4,941	)
Loss (income) from continuing operations attributable to noncontrolling common units of the Operating Partnership	14			179			(8		)	564
Preferred distributions and dividends	(3,312		)	(5,342		)	(9,938		)	(17,775		)
Allocation to participating securities (1)	(450		)	(408		)	(1,292		)	(1,225		)
Numerator for basic and diluted loss from continuingoperations available to common stockholders	(1,065		)	(7,738		)	(949		)	(23,377		)
Income from discontinued operations	6,344			4,689			11,229			88,412
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership	(145		)	(112		)	(258		)	(2,272		)
Numerator for basic and diluted net income (loss) available to common stockholders	$	5,134		$	(3,161	)	$	10,022		$	62,763
Denominator:
Basic weighted average vested shares outstanding	76,768,893			71,889,475			75,750,822			67,975,309
Effect of dilutive securities – contingently issuable shares and stock options	—			—			—			—
Diluted weighted average vested shares and common share equivalents outstanding	76,768,893			71,889,475			75,750,822			67,975,309
Basic earnings per share:
Loss from continuing operations available to common stockholders per share	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from discontinued operations per common share	0.08			0.06			0.14			1.26
Net income (loss) available to common stockholders per share	$	0.07		$	(0.04	)	$	0.13		$	0.92
Diluted earnings per share:
Loss from continuing operations available to common stockholders per share	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from discontinued operations per common share	0.08			0.06			0.14			1.26
Net income (loss) available to common stockholders per share	$	0.07		$	(0.04	)	$	0.13		$	0.92

________________________

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market- measure-based RSUs.

(2) The ~~impact~~Company ofadopted ~~the~~ASU ~~contingently~~2014-08 ~~issuable~~effective ~~shares,~~January ~~which consist of 159~~1,~~360~~ ~~market~~2015 ~~measure-based~~(see ~~RSUs,~~Note ~~the 4~~1).~~25% Exchangeable~~ ~~Notes~~As ~~and~~a 1result,~~525,000~~ ~~stock~~properties ~~options,~~classified ~~were~~as ~~not~~held ~~considered in our diluted earnings per share calculation~~ for ~~the~~sale ~~three~~ and/or ~~nine~~disposed ~~months~~of ~~ended~~subsequent ~~September 30, 2013 because we reported a loss from continuing operations attributable~~ to ~~common~~January stockholders in the respective period and the effect was anti-dilutive. The impact of the contingently issuable shares, which consisted of 103,238 market measure-based RSUs, the Exchangeable Notes and 1,~~540,000~~ ~~stock~~2015 ~~options~~that ~~was~~do not ~~considered~~represent ~~in our diluted earnings per share calculation for the three and nine months ended September 30, 2012 because we reported~~ a ~~loss~~strategic ~~from~~shift ~~continuing~~are ~~operations~~no ~~attributable~~longer topresented ~~common~~as ~~stockholders~~discontinued ~~and the effect was anti-dilutive~~operations. ~~See Note 5 for additional information regarding the Exchangeable Notes and Note 9 for additional information regarding the outstanding market measure-based RSUs and stock options.~~

Share-based 28payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common shares, including stock options, RSUs and other securities are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2015 and 2014, because we reported income from continuing operations attributable to common stockholders in the respective periods and the effect was dilutive. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2015 and 2014 as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 10 “Share-Based Compensation” for additional information regarding stock options and other share-based compensation.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. Net Income ~~(Loss)~~ 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 income ~~(loss)~~ available to common unitholders for the three and nine months ended September 30, ~~2013~~2015 and ~~2012~~2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	2015			2014			2015			2014
	(in thousands, except unit and per unit amounts)
Numerator:
Income (loss) from continuing operations	$	2,683		$	(2,167	)	$	10,289		$	(4,941	)
Income from continuing operations	$	106,704		$	13,168		$	209,296		$	39,896
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries	(4764		)	(4859		)	(~~178~~211		)	(~~144~~188		)
Preferred distributions	(3,~~312~~313		)	(53,~~342~~313		)	(9,938		)	(179,~~775~~938		)
Allocation to participating securities (1)	(~~450~~367		)	(~~408~~432		)	(1,~~292~~200		)	(1,~~225~~285		)
Numerator for basic and diluted loss from continuingoperations available to common unitholders	(1,126		)	(7,965		)	(1,119		)	(24,085		)
Numerator for basic and diluted income from continuing operations available to common unitholders	102,960			9,364			197,947			28,485
Income from discontinued operations	6,344			4,689			11,229			88,412
Income from discontinued operations (2)	—			6,135			—			112,482
Numerator for basic and diluted net income (loss) available to common unitholders	$	5,218		$	(3,276	)	$	10,110		$	64,327
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership (2)	—			—			—			(13		)
Numerator for basic and diluted net income available to common unitholders	$	102,960		$	15,499		$	197,947		$	140,954
Denominator:
Basic weighted average vested units outstanding	7893,~~590~~938,~~396~~783			7384,~~680~~965,~~259~~523			7790,~~574~~869,~~907~~696			6984,~~717~~329,~~834~~317
Effect of dilutive securities - contingently issuable shares and stock options	—			—			—			—
Effect of dilutive securities	488,724			1,949,133			516,249			2,097,589
Diluted weighted average vested units and common unit equivalents outstanding	7894,~~590~~427,~~396~~507			7386,~~680~~914,~~259~~656			7791,~~574~~385,~~907~~945			6986,~~717~~426,~~834~~906
Basic earnings per unit:
Loss from continuing operations available to common unitholders per unit	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from continuing operations available to common unitholders per unit	$	1.10		$	0.11		$	2.18		$	0.34
Income from discontinued operations per common unit	0.08			0.06			0.14			1.26
Income from discontinued operations per common unit (2)	—			0.07			—			1.33
Net income (loss) available to common unitholders per unit	$	0.07		$	(0.04	)	$	0.13		$	0.92
Net income available to common unitholders per unit	$	1.10		$	0.18		$	2.18		$	1.67
Diluted earnings per unit:
Loss from continuing operations available to common unitholders per unit	$	(0.01	)	$	(0.10	)	$	(0.01	)	$	(0.34	)
Income from continuing operations available to common unitholders per unit	$	1.09		$	0.11		$	2.17		$	0.33
Income from discontinued operations per common unit	0.08			0.06			0.14			1.26
Income from discontinued operations per common unit (2)	—			0.07			—			1.30
Net income (loss) available to common unitholders per unit	$	0.07		$	(0.04	)	$	0.13		$	0.92
Net income available to common unitholders per unit	$	1.09		$	0.18		$	2.17		$	1.63

________________________

(1) Participating securities include nonvested shares, certain time-based RSUs and vested market- measure-based RSUs.

(2) The ~~impact~~Company ofadopted ~~the~~ASU ~~contingently~~2014-08 ~~issuable~~effective ~~units,~~January ~~which consist of 159~~1,~~360~~ ~~market~~2015 ~~measure-based~~(see ~~RSUs,~~Note ~~the 4~~1).~~25% Exchangeable~~ ~~Notes~~As ~~and~~a 1result,~~525,000~~ ~~stock~~properties ~~options,~~classified ~~were~~as ~~not~~held ~~considered in our diluted earnings per unit calculation~~ for ~~the~~sale ~~three~~ and/or ~~nine~~disposed ~~months~~of ~~ended~~subsequent ~~September 30, 2013 because the Operating Partnership reported a loss from continuing operations attributable~~ to ~~common~~January ~~unitholders in the respective periods and the effect was anti-dilutive. The impact of the contingently issuable units, which consisted of 103,238 market measure-based RSUs, the Exchangeable Notes and~~ 1,~~540,000~~ ~~stock~~2015 ~~options~~that ~~was~~do not ~~considered~~represent ~~in our diluted earnings per unit calculation for the three and nine months ended September 30, 2012 because the Operating Partnership reported~~ a ~~loss~~strategic ~~from~~shift ~~continuing~~are ~~operations~~no ~~attributable~~longer topresented ~~common~~as ~~unitholders~~discontinued ~~and the effect was anti-dilutive~~operations. ~~See Note 5 for additional information regarding the Exchangeable Notes and Note 9 for additional information regarding the outstanding market measure-based RSUs and stock options.~~

Share-based 29payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common units, including stock options, RSUs and other securities are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2015 and 2014, because we reported income from continuing operations attributable to common unitholders in the respective periods and the effect was dilutive. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2015 and 2014 as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 10 “Share-Based Compensation” for additional information regarding stock options and other share-based compensation.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15. Subsequent Events

On October 16 14, ~~2013~~2015, aggregate dividends, distributions, and dividend equivalents of $2933.83 million were paid to common stockholders and common unitholders of record on September 30, ~~2013~~2015 and RSU holders of record on the payment date.

InOn October ~~2013,~~ we9 ~~sold~~and ~~one~~22, of2015, ~~our~~the ~~office~~Company ~~properties~~repaid ~~that~~two ~~was~~secured ~~held~~mortgages ~~for~~at ~~sale~~par astotaling ofapproximately ~~September 30, 2013 for~~ $990.6 1 million.

In October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the Crossing 900 project located in Redwood City, California.26

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~~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. 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, 2012 and their respective other filings with the SEC. All forward-looking statements are based on information that was available and speak only as of the date on which they are made. 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.Statements

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,” “targets,” “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. 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, 2014 and their respective other filings with the SEC. All forward-looking statements are based on information that was available and speak only as of the date on which they are made. 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 premier office submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our properties through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. We owned aan 97approximate 98.81%, 9798.60% and 97.69% general partnership interest in the Operating Partnership as of September 30, ~~2013~~2015, December 31, ~~2012~~2014 and September 30, ~~2012~~2014, respectively. All of our properties are held in fee except for the 11eleven office buildings that are held subject to long-term ground leases for the land.

Factors That May Influence Future Results of Operations

Development Acquisitions. During the nine months ended September 30, ~~2013~~2015, we acquired two future development opportunities, one in Greater Seattle for a cash purchase price of approximately $49.5 million and one in San Francisco for a cash purchase price of approximately $78.0 million. The project in Greater Seattle is comprised of four ~~office~~ ~~buildings~~parcels located at 330, 333, 401 Dexter Avenue North and 400 Aurora Avenue North, aggregating approximately 2.4 acres in the South Lake Union submarket of Seattle. The project in San Francisco is a ~~land~~3.3-acre site, ~~that~~located at 100 Hooper Street, and is fully designed and entitled for anthe ~~additional~~development 75of a low-rise,~~000~~ ~~square~~mixed-~~foot~~use ~~office~~creative ~~building~~campus inthat ~~two transactions~~will ~~for~~consist of approximately ~~$296~~450,000 square feet.4 ~~million~~We ~~(see~~presently ~~Note 2~~intend to ~~our~~use ~~consolidated~~this ~~financial~~land ~~statements~~site ~~included~~to indevelop, ~~this~~own ~~report~~and ~~for~~manage ~~more~~a ~~information~~project of up to approximately 400,000 square feet of office and production, distribution and repair (“PDR”) space, in accordance with existing zoning requirements. As part of the transaction, the land will be sub-divided and an additional approximately 50,000 square feet of stand-alone PDR space is expected to be owned and managed by a non-profit entity. During ~~2012~~2014, we acquired 14 five office buildings in ~~seven~~ two transactions ~~with~~for an aggregate purchase price of approximately $~~674~~206.06 million and ~~six development~~three ~~and~~undeveloped ~~redevelopment~~land ~~projects~~sites, including two adjacent land sites, in ~~six~~ three transactions with an aggregate purchase price of approximately $~~340~~166.30 million. We generally finance our acquisitions through proceeds from the ~~issuance of debt and equity securities, borrowings under our revolving credit facility, proceeds from our capital recycling program and the assumption of existing debt.~~

As a key component of our growth strategy, we continually evaluate acquisition opportunities (including undeveloped land, development and redevelopment opportunities and office properties) 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 the filing of this report, we were in negotiations to acquire additional undeveloped land parcels. We cannot provide assurance that we will complete these acquisitions. In the future, we may enter into agreements to acquire additional properties or undeveloped land, 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 properties or undeveloped land or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. Costs associated with acquisitions accounted for as business 27

issuance 31of debt and equity securities, borrowings under our unsecured revolving credit facility, proceeds from our capital recycling program, the assumption of existing debt and cash flows from operations.

~~combinations~~As ~~are~~a ~~expensed~~component asof ~~incurred,~~our ~~and~~growth strategy, we ~~may~~continue ~~be unable~~ to ~~complete~~evaluate anvalue-add acquisition ~~after~~opportunities ~~making~~and remain a ~~nonrefundable~~disciplined ~~deposit~~buyer orof ~~incurring~~development ~~acquisition-related~~opportunities ~~costs~~and operating properties. InWe ~~addition,~~continue ~~acquisitions~~to ~~are~~focus ~~subject~~on tovalue-add ~~various~~opportunities ~~other~~in ~~risks~~West ~~and~~Coast ~~uncertainties. During~~markets ~~the~~populated ~~three~~by knowledge and ~~nine months~~creative ~~ended~~based ~~September 30, 2013,~~tenants wein ~~expensed~~a ~~approximately~~variety ~~$0.6 million~~of ~~and~~industries, ~~$1.4 million~~including technology, ~~respectively~~media, ofhealthcare, ~~third-party~~entertainment ~~acquisition~~and ~~costs,~~professional ~~and~~services. weWe ~~anticipate~~cannot provide assurance that we will complete additional future acquisitions. In the future, we may ~~incur~~enter into agreements to acquire additional ~~third-party~~properties ~~acquisition~~or ~~costs~~undeveloped ~~during~~land, either as wholly owned properties or through joint ventures, and those agreements typically will be subject to the ~~remainder~~satisfaction of ~~2013~~closing conditions. We ~~expect~~cannot provide assurance that we will ~~continue~~enter tointo ~~focus~~any onagreements ~~the~~to ~~acquisition~~acquire ofproperties, or undeveloped land, ~~and~~or ~~development~~that ~~and~~the ~~redevelopment~~potential ~~opportunities~~acquisitions ~~during~~contemplated ~~the~~by ~~remainder~~any ~~2013~~agreements ~~and~~we may enter into in ~~early~~the ~~2014.~~future will be completed.

~~Undeveloped~~Costs ~~Land~~associated /with ~~Formation~~acquisitions ofaccounted ~~New~~for ~~Consolidated~~as ~~Subsidiary. In~~business ~~June 2013,~~combinations ~~the~~are ~~Company~~expensed ~~entered~~as ~~into~~incurred, anand ~~agreement~~we ~~with~~may anbe ~~unaffiliated~~unable ~~third~~to ~~party~~complete ~~and~~an ~~formed~~acquisition after making a ~~new~~nonrefundable ~~consolidated~~deposit ~~subsidiary, Redwood~~or ~~City~~incurring ~~Partners, LLC~~acquisition-related costs. In ~~connection~~addition, ~~with~~acquisitions ~~this~~are ~~transaction,~~subject ~~the~~to ~~Company~~various ~~acquired~~other arisks 0and uncertainties.~~35 acre~~ We ~~land~~expect ~~site,~~that ~~completing~~during the ~~first~~remainder ~~phase~~ of ~~the~~2015 ~~land~~we ~~assemblage~~will ~~for~~continue ~~its plans~~ to ~~develop~~pursue anand ~~approximate~~evaluate ~~300,000 square~~value-add ~~foot~~property ~~office~~and ~~project~~undeveloped ~~(the~~land ~~“Crossing~~acquisitions ~~900”~~that ~~project)~~we inexpect ~~Redwood City, California. (See Note 2~~ to ~~our~~either ~~consolidated~~add ~~financial~~immediate ~~statements~~Net ~~included~~Operating inIncome ~~this~~to ~~report~~our ~~for~~portfolio ~~more~~or ~~information). In~~play ~~October 2013, the Company acquired~~ a ~~2.0 acre~~strategic ~~undeveloped~~role ~~land~~in ~~parcel~~our ~~for~~future ~~$17~~growth.~~0 million, completing the final phase of the land assemblage for this project.~~

~~Capital~~In-Process, ~~Recycling~~Near-Term ~~Program. As part of our current~~ and ~~ongoing~~Future ~~strategy,~~Development wePipeline. We ~~continuously~~believe ~~evaluate~~that ~~opportunities~~a ~~for~~significant ~~the~~portion ~~potential disposition~~ of ~~properties and undeveloped land in~~ our ~~portfolio~~long-term ~~with~~future ~~the~~growth ~~intent~~will ofcome ~~recycling the proceeds generated~~ from the ~~disposition~~completion of ~~non-strategic~~our ~~properties~~under orconstruction ~~lower~~and ~~return~~in-process ~~assets~~development ~~into~~projects ~~capital~~as ~~used~~well toas ~~fund~~executing ~~new~~on ~~operating~~our near-term and future development ~~acquisitions~~pipeline, toincluding ~~finance~~expanding ~~development and redevelopment expenditures~~entitlements, subject to ~~repay~~market ~~long-term~~conditions. ~~debt~~Over ~~and~~the ~~for~~past ~~other~~several ~~general~~years, ~~corporate~~we ~~purposes. As~~increased ~~part of~~ our ~~capital~~focus ~~recycling~~on ~~strategy,~~development weopportunities ~~intend,~~and ~~when~~expanded ~~practical,~~our tonear-term ~~enter~~and ~~into~~future ~~Section 1031~~development ~~Exchanges~~pipeline tothrough ~~defer~~targeted ~~some~~acquisitions ~~or all~~ of ~~the~~development ~~taxable~~opportunities ~~gains~~ on the ~~sales,~~West ~~if any, for federal and state income tax purposes~~Coast.

InWe ~~connection~~have ~~with~~a ~~this~~proactive ~~strategy,~~planning ~~during~~process ~~the~~by ~~second~~which ~~quarter of 2013,~~ we ~~completed~~continually evaluate the ~~sale~~size, oftiming, ~~one~~costs ~~office~~and ~~building~~scope toof anour ~~unaffiliated~~development ~~third~~program ~~party.~~and, ~~Gross~~as ~~sales proceeds totaled approximately $14.7 million~~necessary, ~~resulting~~scale inactivity ato ~~gain~~reflect onthe ~~sale~~economic ofconditions ~~approximately~~and ~~$0.4 million~~the ~~(see~~real ~~Note 12~~estate tofundamentals ~~our~~that ~~consolidated~~exist ~~financial statements included~~ in ~~this~~our ~~report for additional information)~~submarkets. InWe ~~addition,~~expect asto ofexecute ~~September 30, 2013,~~on weour ~~classified~~development ~~13 properties~~program ~~located~~with inprudence ~~San Diego, California~~ and ~~one property~~will ~~located~~be inpursuing ~~Anaheim, California~~opportunities aswith ~~properties~~attractive ~~held~~economic ~~for~~returns ~~sale and included the results for these properties~~ in ~~discontinued~~strategic ~~operations~~locations inwith ~~our~~proximity ~~consolidated~~to ~~financial~~public ~~statements~~transportation ~~for~~or ~~all~~transportation ~~periods~~access ~~presented. In~~and ~~October~~retail ~~2013,~~amenities weand ~~completed the sale of the property located~~ in ~~Anaheim, California~~markets ~~for~~with astrong ~~sales~~fundamentals ~~price~~and ofvisible $9demand.6 ~~million.~~ We ~~anticipate~~plan ~~the~~to ~~remaining~~develop ~~transactions~~in ~~will~~phases ~~close~~as ~~during~~appropriate ~~the~~and ~~fourth~~we ~~quarter~~generally offavor ~~2013,~~starting ~~subject~~projects tothat ~~customary~~are ~~closing conditions~~pre-leased.

~~The~~As ~~timing~~ of ~~any~~September ~~potential~~30, 2015, ~~future~~we ~~disposition~~had ~~transactions~~one ~~will~~development ~~depend~~project onin ~~market~~the ~~conditions~~“lease-up” ~~and other factors~~phase, ~~including~~of ~~but~~which ~~not~~the ~~limited~~office tospace ~~our~~was ~~capital~~100% ~~needs~~occupied, and ~~our~~seven ~~ability~~projects toin ~~defer~~our ~~some~~in-process ordevelopment ~~all~~pipeline ~~of the taxable gains on the sales. We cannot assure~~ that wewere ~~will~~under ~~dispose~~construction ~~of any additional properties or that future acquisitions~~ and~~/or~~ ~~dispositions,~~56% ifpre-leased ~~any,~~at ~~will~~September ~~qualify as Section~~30, ~~1031 Exchanges~~2015.

~~Leasing~~Projects ~~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 for our stabilized portfolio during the three and nine months ended September 30, 2013.“Lease-Up”

• 32Columbia Square Phase 1 - Historic, Hollywood, California, which we acquired in September 2012 and is located in the heart of Hollywood, California, two blocks from the corner of Sunset Boulevard and Vine Street. This project is comprised of two buildings totaling 108,539 rentable square feet with a total estimated investment of $80.0 million and the office space is fully leased to NeueHouse, a private workspace collective. The project was completed in the third quarter of 2015 and is expected to be stabilized in the fourth quarter of 2015.

Projects Under Construction

•

The Exchange on 16th, Mission Bay, San Francisco, California, was acquired in May 2014 and we commenced construction in June 2015. This project encompasses approximately 700,000 gross rentable square feet in four buildings and represents a total estimated investment of approximately $485 million. Construction is currently in process and is expected to be completed in the second half of 2017. This project is currently 0% pre-leased.

•

350 Mission Street, SOMA, San Francisco, California, which we acquired in October 2012. This development project, which is 100% pre-leased to salesforce.com, Inc., has a total estimated investment of approximately $285 million and will encompass approximately 450,000 rentable square feet upon completion. The building core and shell were completed in the third quarter of 2015, tenant improvements are in process, and the tenant is currently expected to take possession in phases throughout the first half of 2016.


•	333 Brannan Street, SOMA, San Francisco, California, which we acquired in July 2012. This development project is 100% pre-leased to Dropbox, has a total estimated investment of approximately $105 million and will encompass 185,000

rentable square feet upon completion. The building core and shell were completed in the third quarter of 2015, tenant improvements are in process, and the tenant is expected to take possession in the second quarter of 2016.

•

Crossing/900, Redwood City, California, which we acquired in June 2013 with a local partner. This development project is 100% pre-leased to Box, Inc., has a total estimated investment of approximately $190 million and will encompass approximately 339,000 rentable square feet upon completion. Construction is expected to be completed and this project is expected to be stabilized during the fourth quarter of 2015. In October 2015, we completed and delivered the first of two buildings encompassing 226,000 rentable square feet to Box, Inc.

•

Columbia Square Office Phase 2, Hollywood, California, which we acquired in September 2012. During 2013, we commenced development on this phase comprising approximately 370,000 rentable square feet with an estimated investment of $220 million. The project, which is currently 58% pre-leased, is expected to be completed in the first quarter of 2016, and the project is expected to be stabilized in the first quarter of 2017.

The third phase, the residential component of the project, which will encompass approximately 205,000 square feet upon completion, will be a mix of high-end long-term rentals and extended stay apartment homes and has an estimated investment of approximately $140 million. It will be the first luxury extended stay property to be located in the heart of Hollywood. Construction of this project is currently expected to be completed in the first quarter of 2016, and the project is expected to be stabilized in phases through the first quarter of 2017.


•	The Heights at Del Mar, Del Mar, California, which we acquired in September 2013. The project is a 73,000 square foot office project and has a total estimated investment of approximately $45 million. Construction on this project is currently in process and is expected to be completed in the fourth quarter of 2015.

Near-Term and Future Development Pipeline

As of September 30, 2015, our near-term development pipeline included four additional undeveloped land holdings located in various submarkets in San Diego County, San Francisco Bay Area, Greater Seattle and Los Angeles with an aggregate cost basis of approximately $376.2 million at September 30, 2015, at which we believe we could develop approximately 2.5 million rentable square feet at a total estimated investment of over $1.5 billion, depending on successfully obtaining entitlements and market conditions. These holdings include two development opportunities acquired in 2015, one in February 2015 in Greater Seattle for a cash purchase price of $49.5 million and one in July 2015 in San Francisco for a cash purchase price of $78.0 million.

The following table sets forth information about our near-term development pipeline as of the date of this filing.



Near-Term Development Pipeline ⁽¹⁾	Location	Potential Start Date ⁽²⁾	Approx. Developable Square Feet	Total Estimated Investment		Total Costs as of 9/30/2015 ⁽³⁾

100 Hooper ⁽⁴⁾	San Francisco	2016	400,000	$	250	$	84.0
Academy Project	Hollywood	2016	500,000	300		58.3
333 Dexter ⁽⁵⁾	South Lake Union	2016	700,000	375		56.0
One Paseo	Del Mar	2016	TBD	TBD		177.9
Total Near-Term Development Pipeline						$	376.2

________________________


(1)	Project timing, costs, developable square feet and scope could change materially from estimated data provided due to one of more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new office supply, regulatory and entitlement processes, and project design.


(2)	Potential start dates assume successfully obtaining all entitlements and approvals necessary to commence construction. Actual commencement is subject to extensive consideration of market conditions and economic factors. 100 Hooper is fully-entitled with Proposition M allocation.


(3)	Represents cash paid and costs incurred as of September 30, 2015.

(4)

In July 2015, the Company closed on a fully-entitled 3.3 acre site for approximately $78.0 million in cash and approximately $4.1 million in accrued liabilities and acquisition costs in the south of market area of San Francisco. The Company will develop and own two buildings on the site totaling approximately 400,000 square feet consisting of office space and production, distribution and repair space.


(5)	In February 2015, the Company closed on four adjacent parcels in the South Lake Union district for a total purchase price of $49.5 million in cash and approximately $2.4 million in transaction costs and accrued liabilities.

As of September 30, 2015, our longer term future development pipeline included additional undeveloped land holdings located in various submarkets in San Diego County and San Francisco Bay Area with an aggregate cost basis of approximately $217.8 million at September 30, 2015, at which we believe we could develop more than 2.5 million rentable square feet, depending on successfully obtaining entitlements and market conditions.

Increases in our development activities could continue to cause an increase in the average development asset balances qualifying for interest and other carry cost capitalization in future periods. For the three and nine months ended September 30, 2015, we capitalized $14.6 million and $37.8 million, respectively, of interest to our qualifying development projects. For the three and nine months ended September 30, 2014, we capitalized, $13.3 million and $35.9 million, respectively, of interest to our qualifying development projects. For the three and nine months ended September 30, 2015, we capitalized $3.2 million and $10.4 million, respectively, of internal costs to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2014, we capitalized, $2.6 million and $7.9 million respectively, of internal costs to our qualifying redevelopment and development projects.

Capital Recycling Program. We continuously evaluate opportunities for the potential disposition of properties and undeveloped land in our portfolio. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information regarding our capital recycling strategy.

In connection with our capital recycling strategy, during the nine months ended September 30, 2015, we completed the sale of one property located in Redmond, Washington, nine properties located in San Diego, California, and one land parcel in Irvine, California to unaffiliated third parties for gross sales proceeds of $335.2 million. The land parcel was classified as held for sale as of December 31, 2014. During 2014, we completed the sale of 17 properties and one undeveloped land parcel to unaffiliated third parties in six separate transactions for gross sales proceeds totaling approximately $432.6 million.

The timing of any potential future disposition 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 any acquisitions and/or dispositions will qualify as Section 1031 Exchanges. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information.

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 for our stabilized portfolio during the nine months ended September 30, 2015.

Information on Leases Commenced and Executed

For Leases Commenced ~~(1)~~

	1st & 2nd Generation (2)				2nd Generation (2)
	1st & 2nd Generation (1)				2nd Generation (1)
	Number ofLeases (3)		RentableSquare Feet (3)		TI/LC perSq. Ft. (4)		Changes inRents (5)(6)		Changes inCash Rents (7)		Retention Rates (8)		Weighted Average Lease Term (in months)
	Number of Leases (2)		Rentable Square Feet (2)		TI/LC perSq. Ft. (3)		Changes inRents (4)(5)		Changes inCash Rents (6)		Retention Rates (7)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
Three Months Ended September 30, 2013	34	27	358,367	269,354	$	45.76	24.8	%	5.2	%	58.3	%	84
Three Months Ended September 30, 2015	25	14	252,216	134,126	$	41.66	40.1	%	26.9	%	26.7	%	73
Nine Months Ended September 30, 2013	76	66	736,934	855,596	36.53		19.7	%	8.9	%	52.1	%	72
Nine Months Ended September 30, 2015	64	50	697,212	390,114	43.33		32.4	%	21.0	%	40.4	%	71

For Leases Executed (18)~~(9)~~

	1st & 2nd Generation (2)				2nd Generation (2)
	1st & 2nd Generation (1)				2nd Generation (1)
	Number of Leases (3)		Rentable Square Feet (3)		TI/LC per Sq. Ft. (4)		Changes inRents (5)(6)		Changes inCash Rents (7)		Weighted Average Lease Term (in months)
	Number of Leases (2)		Rentable Square Feet (2)		TI/LC per Sq. Ft. (3)		Changes inRents (4)(5)		Changes inCash Rents (6)		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal
Three Months Ended September 30, 2013	36	27	240,497	269,354	$	32.84	21.4	%	6.7	%	69
Three Months Ended September 30, 2015	21	14	250,900	134,126	$	43.29	53.0	%	39.2	%	74
Nine Months Ended September 30, 2013	89	60	675,753	793,902	26.59		18.1	%	9.8	%	60
Nine Months Ended September 30, 2015	61	50	640,248	394,763	42.12		36.3	%	25.4	%	68

_______________________

(1) Includes leases commenced and executed for properties held for sale at September 30, 2013.

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

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

(4) Amounts exclude tenant-funded tenant improvements.

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

(6) Excludes commenced and executed leases of approximately 325,000 and 293,000 rentable square feet, respectively, for the nine months ended September 30, 2013, 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 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.

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

(9) For the three months ended September 30, 2013, 17 new leases totaling 134,000 rentable square feet were signed but not commenced as of September 30, 2013. For the nine months ended September 30, 2013, 26 new leases totaling 331,000 rentable square feet were signed but not commenced as of September 30, 2013.

As of September 30, 2013, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operating properties are slightly under 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, market rental rates increased in the majority 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 our stabilized portfolio for the remainder of 2013 and the next five years.

Lease Expirations (1)(2)

Year of Lease Expiration	Number ofExpiringLeases	Total Square Feet	% of Total Leased Sq. Ft.		Annualized Base Rent (3)		% of Total Annualized Base Rent (3)		Annualized Base Rent per Sq. Ft. (3)
Remainder of 2013	15	44,269	0.4	%	$	1,690	0.5	%	$	38.17
2014	106	1,142,743	10.1	%	32,193		8.6	%	28.17
2015	107	1,710,566	15.1	%	50,029		13.4	%	29.25
2016	82	841,732	7.4	%	23,143		6.2	%	27.49
2017	88	1,692,186	15.0	%	55,074		14.8	%	32.55
2018	53	1,521,971	13.5	%	62,368		16.8	%	40.98
Total	451	6,953,467	61.5	%	$	224,497	60.3	%	$	32.29

________________________

(1) ~~Excludes~~First ~~lease~~generation ~~expirations~~leasing ~~for~~includes ~~properties~~space ~~held~~where ~~for~~we ~~sale~~have atmade ~~September~~capital ~~30,~~expenditures ~~2013~~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) ~~The~~Represents ~~information presented for all lease expiration activity reflects~~ leasing activity ~~through September 30, 2013~~ for ~~our stabilized portfolio. For~~ leases that ~~have~~commenced ~~been renewed early~~ or ~~space~~signed ~~that~~during ~~has~~the ~~been re-leased to a new tenant~~period, ~~the~~including ~~expiration~~first ~~date~~ and ~~annualized~~second ~~base~~generation ~~rent information presented takes into consideration the renewed or re-leased lease terms. Excludes~~ space, ~~leased~~net ~~under~~of month-to-month leases,. ~~intercompany~~Excludes ~~leases,~~leasing ~~vacant~~on ~~space,~~new ~~and lease renewal options not executed as of September 30, 2013~~construction.

(3) ~~Annualized~~Tenant ~~base~~improvements ~~rent includes the impact of straight-lining rent escalations~~ and ~~the~~leasing ~~amortization~~commissions ofper ~~free~~square ~~rent~~foot ~~periods~~exclude ~~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~~. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement 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(4) ~~addition~~Calculated toas the ~~1.0 million rentable~~change ~~square~~between ~~feet,~~GAAP orrents ~~7.8%,~~for ofnew/renewed ~~currently available space in our stabilized portfolio,~~ leases ~~representing approximately 0.4%~~ and ~~10.1% of~~ the ~~occupied~~expiring ~~square~~GAAP ~~footage~~rents offor ~~our stabilized portfolio are scheduled to expire during~~ the ~~remainder~~same ~~of 2013 and in 2014, respectively~~space. ~~The~~ ~~leases~~Excludes scheduled to expire during the remainder of 2013 and in 2014 represent approximately 1.2 million rentable square feet or 9.1% of our total annualized base rental revenue. We believe that the weighted average cash rental rates are slightly under the current average market rental rates for leases scheduled to expire during the remainder of 2013 and 2014, 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~~which ~~submarkets may be above, below, or at~~ the ~~average cash rental rate of our overall portfolio. Our ability to re-lease available~~ space ~~depends~~was ~~upon~~vacant ~~both~~longer ~~general~~than ~~market~~one ~~conditions~~year ~~and~~or ~~the~~vacant ~~market~~when ~~conditions in~~ the ~~specific~~property ~~regions~~was ~~in which individual properties are located~~acquired.

~~Redevelopment~~(5) ~~Projects~~Excludes commenced and executed leases of approximately 31,026 and 84,940 square feet, respectively, for the three months ended September 30, 2015 and 198,731 and 140,679 rentable square feet, respectively, for the nine months ended September 30, 2015, 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.

We(6) ~~believe~~Calculated ~~that~~as athe ~~portion~~change ofbetween ~~our~~stated ~~potential~~rents ~~long-term~~for ~~future~~new/renewed ~~growth~~leases ~~will~~and ~~continue~~the toexpiring ~~come~~stated ~~from~~rents ~~redevelopment~~for ~~opportunities~~the ~~both~~same ~~through acquired properties and within our existing portfolio~~space. ~~Redevelopment~~ ~~opportunities~~Excludes ~~are~~leases ~~those~~for ~~projects in~~ which wethe ~~spend~~space ~~significant~~was ~~development~~vacant ~~and~~longer ~~construction~~than ~~costs~~one onyear ~~existing~~ or ~~acquired~~vacant ~~buildings~~when ~~pursuant to a formal plan,~~ the ~~intended result of which is a higher economic return on the~~ property~~. As~~ ofwas ~~September 30, 2013, we had two redevelopment projects in lease-up~~acquired.

•(7) ~~3880~~Calculated ~~Airport~~as ~~Way, Long Beach, submarket of Los Angeles, California on which we commenced redevelopment in~~ the ~~third~~percentage ~~quarter~~ of ~~2011.~~space ~~This~~either ~~lease-up~~renewed ~~property,~~or ~~encompassing~~expanded ~~approximately~~into ~~98,000~~by ~~rentable~~existing ~~square~~tenants ~~feet,~~or ~~was~~subtenants ~~50%~~at leased prior to the commencement of redevelopment which was completed in two phases. Redevelopment on the first half, which was leased, was completed during the second quarter of 2012, and redevelopment on the second half was completed in the fourth quarter of 2012. This project is expected to be added to the stabilized portfolio during the fourth quarter of 2013 because the project will have reached one year from completion of redevelopment. The lease~~-up~~ ~~project will have a total estimated investment of approximately $20~~expiration.~~1 million upon completion, including the $6.3 million net carrying value of the project at the commencement of redevelopment.~~

•(8) ~~360~~For ~~Third~~the ~~Street,~~three ~~South~~months ofended ~~Market~~September ~~Area~~30, ~~submarket of San Francisco~~2015, ~~California~~11 onleases ~~which~~totaling ~~we commenced redevelopment in the fourth quarter of 2011. Redevelopment for this project was completed in the first quarter of 2013. The lease-up project~~188,268 ~~which encompasses approximately 410,000~~ rentable square feet, ~~will~~were ~~have~~signed abut ~~total~~not ~~estimated~~commenced ~~investment~~as of ~~approximately~~September ~~$185.8 million at completion~~30, ~~including the $88~~2015.5 ~~million~~For ~~net carrying value of~~ the ~~project~~nine atmonths ~~the~~ended ~~commencement~~September of30, ~~redevelopment~~2015, ~~plus~~15 ~~$27.5~~new ~~million~~leases tototaling ~~acquire~~236,987 ~~the~~rentable ~~land~~square ~~(currently~~feet ~~subject~~were tosigned abut ~~ground~~not ~~lease)~~commenced inas ~~the fourth quarter~~ of ~~2013. As of~~ September 30, ~~2013, the project is 85% leased and 78% occupied~~2015.

As 34of September 30, 2015, we believe that the weighted average cash rental rates for our stabilized portfolio, including recently acquired operating properties, are approximately 15% below 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, market rental rates have continued to increase in the majority of our submarkets over the last several quarters. Our rental rates and occupancy are impacted by general economic conditions and regional market fundamentals, 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-~~Process~~leased at rental rates equal to or above the current market rates. Additionally, decreased demand and ~~Future~~other ~~Development~~negative ~~Pipeline~~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.

We believe that a portion of our long-term future growth will also come from the completion of our under construction and in-process projects as well as executing on our future development pipeline, subject to market conditions. During 2012 and 2013, we increased our focus on value-add and highly accretive development opportunities and expanded our future development pipeline through targeted acquisitions of development opportunities on the West Coast.31

WeScheduled ~~have~~Lease aExpirations. The ~~proactive~~following ~~planning~~table ~~process~~sets byforth ~~which~~certain weinformation ~~continually~~regarding ~~evaluate~~our ~~the~~lease ~~size,~~expirations ~~timing,~~for ~~costs and scope of~~ our ~~development~~stabilized ~~program~~portfolio ~~and,~~for ~~as necessary, scale activity to reflect~~ the ~~economic~~remainder ~~conditions~~of 2015 and the ~~real~~next ~~estate~~five ~~fundamentals that exist in our strategic submarkets~~years. We expect to proceed in our development program with discipline and will be pursuing opportunities with attractive economic returns, in locations with transportation and retail amenities and in markets with strong fundamentals and visible demand. We plan to develop in phases as appropriate and we strongly favor starting projects that are pre-leased.

AsLease ofExpirations ~~September~~(1) ~~30, 2013, our near-term development pipeline consisted of the following five projects under construction and the projects that we may commence construction on in the fourth quarter of 2013.~~

• 690 E. Middlefield Road, Mountain View, California, which we acquired in May 2012. We acquired the project for $84.0 million, 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, which is 100% pre-leased to Synopsys, Inc., has a total estimated investment of approximately $197.6 million and is expected to encompass approximately 341,000 rentable square feet upon completion. Construction is currently in process and is expected to be completed in the first quarter of 2015.



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⁾
					(in thousands)
Remainder of 2015	19	276,227	2.3	%	$	8,016	1.8	%	$	29.02
2016	92	786,793	6.5	%	24,647		5.3	%	31.33
2017	108	1,786,634	14.6	%	62,059		13.4	%	34.74
2018	75	1,355,837	11.1	%	54,481		11.8	%	40.18
2019	84	1,502,427	12.3	%	54,718		11.8	%	36.42
2020	87	1,867,302	15.3	%	68,886		14.9	%	36.89
Total	465	7,575,220	62.1	%	$	272,807	59.0	%	$	36.01

• 331 Fairchild Drive, Mountain View, California, which we acquired in December 2012 and is 100% pre-leased. We acquired the project for $18.9 million plus $2.9 million of development costs reimbursed to the seller and are developing an approximately 88,000 square foot building for Audience, Inc. The development project has a total estimated investment of approximately $45.2 million. In October 2013, the project was substantially complete and the tenant took possession of the building.________________________

•(1) ~~350~~The ~~Mission~~information ~~Street,~~presented ~~South~~for ofall ~~Market~~lease ~~Financial~~expiration ~~District,~~activity ~~San~~reflects ~~Francisco,~~leasing ~~California,~~activity ~~which~~through weSeptember ~~acquired in October 2012. Shortly after acquisition~~30, we2015 ~~pre-leased~~for ~~the~~our ~~entire~~stabilized ~~project to salesforce~~portfolio.~~com,~~ ~~inc.~~For ~~and~~leases ~~are~~that ~~currently~~have inbeen ~~the~~renewed ~~process~~early ofor ~~developing~~space ~~an approximately 400,000 square foot, 27 story office tower~~ that ~~adapts~~has ~~our~~been ~~open~~re-~~plan~~leased ~~workspace concepts~~ to a ~~high-rise~~new ~~office environment. The property is expected to be LEED platinum certified~~tenant, the ~~first~~expiration ~~ground~~date upand ~~development~~annualized ~~property~~base inrent ~~the~~information ~~city~~presented ~~expected~~takes tointo ~~receive~~consideration ~~this~~the ~~designation.~~renewed ~~The~~or ~~development~~re-leased ~~project~~lease ~~has a total estimated investment of approximately $254~~terms.4 ~~million.~~Excludes Wespace ~~are~~leased ~~currently~~under ~~pursuing entitlements~~ month-to ~~increase this project to a 30~~-~~story~~month ~~office tower~~leases, ~~which~~intercompany ~~would~~leases, ~~increase~~vacant ~~the~~space ~~estimated rentable square feet~~ and ~~total~~lease ~~estimated~~renewal ~~investment.~~options ~~Construction~~not isexecuted ~~currently~~as inof ~~process~~September ~~and~~30, ~~is expected to be completed in the first quarter of~~ 2015.

•(2) ~~555-599~~Annualized N.base ~~Mathilda~~rent ~~Avenue,~~includes ~~Sunnyvale,~~the ~~California,~~impact ~~which~~of westraight-lining ~~acquired~~rent inescalations ~~December~~and ~~2012.~~the ~~The~~amortization ~~project,~~of ~~which~~free isrent ~~comprised~~periods ofand ~~one~~excludes ~~operating~~the ~~property~~impact ~~and~~of athe ~~future~~following: ~~development~~amortization ~~site,~~of isdeferred ~~100%~~revenue ~~pre~~related tenant-~~leased.~~funded ~~Our~~tenant ~~plan~~improvements, atamortization ~~this~~of ~~project~~above/below ismarket torents, ~~continue~~amortization ~~operating~~for ~~the~~lease incentives due under existing ~~building~~leases and ~~develop~~expense anreimbursement ~~approximately~~revenue. ~~587~~Additionally,~~000~~ ~~square~~the ~~foot~~underlying ~~office~~leases ~~complex~~contain ~~for~~various ~~LinkedIn,~~expense ~~Inc.,~~structures ~~the~~including ~~tenant~~full inservice ~~the~~gross, ~~current~~modified ~~existing~~gross ~~building.~~and ~~The~~triple ~~development~~net. ~~project~~Percentages ~~has~~represent apercentage of total ~~estimated~~portfolio ~~investment~~annualized ofcontractual ~~approximately~~base ~~$314.5~~rental ~~million~~revenue. ~~Construction~~For isadditional ~~currently~~information inon ~~process~~tenant improvement and isleasing ~~expected~~commission tocosts beincurred ~~completed~~by inthe Company for the ~~third~~current ~~quarter~~reporting ofperiod, ~~2014~~please see further discussion under the caption “Information on Leases Commenced and Executed.”

•In ~~Columbia~~addition ~~Square,~~to inthe ~~Hollywood~~0.6 million rentable square feet, ~~California~~or 4.4%, ~~which~~of wecurrently ~~acquired~~available space in ~~September~~our ~~2012.~~stabilized ~~The~~portfolio, ~~project~~leases isrepresenting aapproximately ~~historical~~2.3% ~~media~~and ~~campus~~6.5% ~~located~~of in the ~~heart~~occupied square footage of ~~Hollywood,~~our ~~two~~stabilized ~~blocks~~portfolio ~~from~~are ~~the~~scheduled ~~corner~~to ofexpire ~~Sunset~~during ~~Boulevard~~2015 and ~~Vine~~2016, ~~Street~~respectively. The ~~site~~leases isscheduled ~~fully~~to ~~entitled~~expire ~~for~~during the ~~development~~remainder of an2015 ~~875,000~~and ~~rentable~~in ~~square~~2016 ~~foot~~represent ~~office,~~approximately ~~retail~~1.1 million ~~and~~rentable ~~multi-family~~square ~~mixed~~feet ~~use~~or ~~project~~7.1% ~~under~~of aour ~~15-year~~total ~~development~~annualized ~~agreement~~base ~~that~~rental ~~includes three existing buildings~~revenue. We ~~During~~believe that the ~~second~~weighted ~~quarter~~average ofcash ~~2013,~~rental werates ~~commenced~~are ~~redevelopment~~approximately of10% below the ~~three~~current ~~existing~~average ~~historical~~market ~~buildings,~~rental ~~which~~rates ~~encompass~~for ~~approximately~~leases ~~100,000~~scheduled ~~rentable~~to ~~square~~expire ~~feet.~~during ~~Additionally,~~the weremainder ~~are~~of ~~planning~~2015 toand ~~develop~~in ~~approximately 575~~2016,~~000~~ ~~square~~although ~~feet~~individual ofproperties ~~office,~~within ~~retail~~any ~~and~~particular ~~residential~~submarket ~~space~~presently ~~that~~may webe ~~plan~~leased oneither ~~completing~~above, inbelow, ~~multiple~~or ~~phases.~~at Wethe ~~currently~~current ~~expect~~quoted tomarket ~~invest~~rates anwithin ~~additional~~that ~~$295~~submarket, -and ~~$305~~the ~~million~~average ~~for~~rental arates ~~total~~for ~~estimated~~individual ~~investment~~submarkets ofmay ~~approximately~~be ~~$380~~above, -below, ~~$390~~or ~~million.~~at ~~Our~~the ~~plan~~average iscash torental ~~create~~rate aof ~~mixed-use~~our ~~campus~~overall ~~that~~portfolio. Our ~~preserves~~ability ~~the~~to ~~historical~~re-lease ~~character~~available ~~while~~space ~~establishing~~depends aupon ~~new~~both ~~center~~general ~~for~~market ~~entertainment~~conditions and ~~media~~the ~~companies.~~market Weconditions ~~currently~~in ~~expect~~the tospecific ~~begin~~regions ~~construction on Phase II~~ in ~~the~~which ~~fourth~~individual ~~quarter~~properties ofare ~~2013~~located.

Incentive 35Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for our executive officers. For 2015, the annual cash bonus program was structured to allow the Executive Compensation Committee to evaluate a variety of key quantitative and qualitative metrics at the end of the year and make a determination based on the Company’s and management’s overall performance. Our Executive Compensation Committee also grants equity incentive awards from time to time that include performance-based or market-measure based vesting requirements and/or time-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future awards may be affected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.

•As ~~333~~of ~~Brannan~~September 30, ~~Street~~2015, ~~South~~there ofwas ~~Market~~approximately ~~Area,~~$35.2 million ~~San~~of ~~Francisco,~~total ~~California,~~unrecognized ~~which~~compensation wecost ~~acquired~~related into ~~July~~outstanding ~~2012.~~nonvested Inshares ~~the~~of ~~third~~restricted ~~quarter~~common ~~of 2013~~stock, weRSUs ~~obtained~~and ~~full~~stock ~~entitlements~~options toissued ~~develop~~under anshare-based ~~approximately~~compensation ~~170,000~~arrangements. Those ~~rentable~~costs ~~square~~are ~~foot~~expected ~~LEED~~to ~~platinum~~be ~~certified~~recognized ~~office~~over ~~building~~a onweighted-average ~~this~~period ~~site~~of ~~that~~2.1 years. The ~~will~~$35.2 million ~~include~~of ~~all~~unrecognized ~~the~~compensation ~~features,~~cost ~~amenities~~does ~~and~~not ~~systems~~reflect ~~that~~the ~~tech~~future ~~and~~compensation ~~media~~cost ~~tenants~~for ~~need.~~any Wepotential ~~currently~~share-based ~~expect~~awards tothat ~~invest~~may anbe ~~additional $73~~issued.1 Share-based ~~$78.1~~compensation ~~million~~expense for apotential ~~total~~future ~~estimated~~awards ~~investment~~could ofbe ~~approximately~~affected ~~$95~~by -our ~~$100~~operating ~~million.~~and Wedevelopment ~~currently~~performance, ~~expect~~financial toresults, ~~begin~~stock ~~construction~~price, onperformance ~~333~~against ~~Brannan~~applicable ~~Street~~performance-based investing ~~the~~goals, ~~fourth~~market ~~quarter~~conditions ofand ~~2013~~other factors.

• Crossing 900, in Redwood City, California, which we entered into an agreement on June 27, 2013 with a local partner and acquired a 0.35 acre land site, completing the first phase of the land assemblage for our plans to develop an approximate 300,000 square foot office project. We currently expect a total estimated investment for the project of $175 - $180 million and currently expect to begin construction in the fourth quarter of 2013. In October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the project.

In the future, we may also enter into agreements to acquire other development or redevelopment opportunities, either as wholly-owned properties or through joint ventures and those agreements typically will be subject to the satisfaction of closing conditions. In addition, as of September 30, 2013, we had additional undeveloped land holdings, located primarily in various submarkets in San Diego County with an aggregate cost basis of approximately $304.6 million.

This increase in our development and redevelopment activities will continue to cause an increase in the average development asset balances qualifying for interest and other carry cost capitalization in future periods. During the three and nine months ended September 30, 2013, we capitalized interest on in process development projects, redevelopment projects in lease-up, and development pipeline projects with an aggregate cost basis balance of approximately $902.6 million at September 30, 2013, as it was determined these projects qualified for interest and other carry cost capitalization under GAAP. For the three and nine months ended September 30, 2013, we capitalized $9.1 million and $25.3 million, respectively, of interest to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2012, we capitalized $5.0 million and $13.2 million, respectively, of interest to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2013, we capitalized $1.8 million and $5.2 million, respectively, of internal costs to our qualifying redevelopment and development projects. For the three and nine months ended September 30, 2012, we capitalized $0.6 million and $1.5 million, respectively, of internal costs to our qualifying redevelopment and development 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. For 2013 the annual cash bonus program is structured to allow the Executive Compensation Committee to evaluate a variety of key quantitative and qualitative factors 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. We expect that any future equity incentive awards to executives will be subject to a time-based vesting schedule with a portion of the awards subject to both time-based vesting and performance-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future incentive compensation awards may be affected by our operating and development performance, financial results, total shareholder return, market conditions or 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 September 30, 2013, there was approximately $27.9 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 2.3 years. The $27.9 million of unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued. 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 September 30, ~~2013~~2015, our stabilized portfolio was comprised of ~~103~~101 office properties encompassing an aggregate of approximately 1213.51 million rentable square feet. Our stabilized portfolio includes all of our properties with the exception of ~~undeveloped land,~~ development and redevelopment properties currently under construction or committed for construction, “lease-up” properties, real ~~and~~estate ~~properties~~assets held- for- sale~~. We~~ ~~define lease-up properties as properties recently developed or redeveloped that have not yet reached 95% occupancy~~ and ~~are~~undeveloped ~~within one year following cessation of major construction activities~~land. We define redevelopment properties as those ~~projects~~properties 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. Our stabilized portfolio also excludes our future development pipeline, which is comprised of 11 potential development sites, representing 124.9 gross acres of undeveloped land.

At ~~September 30, 2013, our stabilized portfolio excluded 14 properties held for sale, two “lease-up” properties and five development properties currently under construction.~~32

~~The~~spend ~~following~~significant ~~table~~development ~~reconciles~~and construction costs on the ~~changes~~existing inor acquired buildings pursuant to a formal plan, the ~~rentable~~intended ~~square~~result ~~feet~~of which is a higher economic return on the property. As of September 30, 2015, we had no redevelopment properties. We define “lease-up” properties as properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. As of September 30, 2015 we had one development project in ~~our~~the “lease-up” phase. Our stabilized portfolio also excludes our near-term and future development pipeline, which as of ~~operating~~the ~~properties~~date ~~from~~of this filing was comprised of ten development sites, representing approximately 106 gross acres of undeveloped land on which we believe we have the potential to develop over 5.0 million square feet of office space, depending upon economic conditions.

~~September 30, 2012~~As toof September 30, ~~2013:~~2015, the following properties were excluded from our stabilized portfolio:

	Number ofBuildings			RentableSquare Feet
	Number of Properties/Projects		Estimated Rentable Square Feet
Total as of September 30, 2012	111			12,656,542
Development projects in “lease-up”	1		108,539
Acquisitions (1)	6			766,177
Development projects under construction (1)	7		2,322,000
Completed redevelopment properties placed in-service	2			410,046
Property moved to the development pipeline	(1	)		(45,195	)
Dispositions and properties held for sale	(15	)		(1,249,341	)
Remeasurement				(1,734	)
Total as of September 30, 2013	103			12,536,495

________________________


(1)	Estimated rentable square feet upon completion.

The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from September 30, 2014 to September 30, 2015:



	Number of Buildings		Rentable Square Feet
Total as of September 30, 2014	105		13,486,006
Acquisitions ⁽¹⁾	4		266,982
Completed development projects added to stabilized portfolio	2		340,913
Dispositions	(10	)	(1,046,394	)
Remeasurement	—		3,440
Total as of September 30, 2015	101		13,050,947

________________________


(1)	Excludes redevelopment and development property acquisitions.

Occupancy Information

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

Stabilized Portfolio Occupancy

Region	~~Number ofBuildings~~	Number ofBuildings	~~Rentable Square Feet~~	Rentable Square Feet	~~Occupancy at (1)~~	Occupancy at (1)
					9/30/2013			6/30/2013			12/31/2012
						9/30/2015			6/30/2015			12/31/2014
Los Angeles and Ventura Counties	26	27	~~3,397,673~~	3,505,514	~~93.2~~	%94.1	%	~~91.9~~	%95.4	%	~~94.0~~	%92.8	%
Orange County	3	1	~~437,603~~	271,556	~~93.3~~	%95.7	%	~~89.3~~	%98.1	%	~~92.0~~	%98.7	%
San Diego	48	37	~~4,364,528~~	3,317,985	~~89.6~~	%96.3	%	~~87.6~~	%95.5	%	~~90.7~~	%90.9	%
San Francisco Bay Area	14	24	~~2,289,054~~	3,889,753	~~92.7~~	%96.8	%	~~91.8~~	%98.5	%	~~95.5~~	%97.3	%
Greater Seattle	12	12	~~2,047,637~~	2,066,139	~~95.2~~	%94.7	%	~~95.7~~	%97.0	%	~~93.3~~	%98.1	%
Total Stabilized Portfolio	~~103~~	101	~~12,536,495~~	13,050,947	~~92.2~~	%95.6	%	~~90.7~~	%96.7	%	~~92.8~~	%94.4	%

	Average Occupancy
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	2015		2014		2015		2014
Stabilized Portfolio(1)	9195.48	%	9094.40	%	9095.9	%	9093.42	%
Same Store Portfolio(2)	9195.72	%	9394.28	%	9195.85	%	9394.28	%

~~__________________________________~~________________________

(1) Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented, and excludes occupancy percentages of properties held for sale as of September 30, 2014.

(2) Occupancy percentages reported are based on office properties owned and stabilized as of January 1, ~~2012~~2014 and still owned and stabilized as of September 30, ~~2013~~2015. See discussion under “Results of Operations” for additional information.

3733

Our stabilized portfolio was 95.6% occupied as of September 30, 2015 with 276,227 square feet scheduled to expire during the remainder of 2015.

Significant Tenants

The following table sets forth information about our fifteen largest tenants, ~~excluding tenants from our properties held for sale, as of the date of filing this quarterly report,~~ based upon annualized rental revenues as of September 30, ~~2013~~2015.

Tenant Name	Annualized Base Rental Revenue ($ in thousands)		~~RentableSquare~~Rentable Square Feet	Percentage ~~ofTotal~~of Total Annualized Base Rental Revenue		Percentage ~~ofTotal~~of ~~RentableSquare~~Total Rentable Square Feet
DIRECTV, LLC	$	23,683	663,262	6.4	%	5.3	%
LinkedIn Corporation (1)	$	28,344	663,239	6.1	%	5.1	%
Bridgepoint Education, Inc.	15,066		322,994	4.1	%	2.6	%
DIRECTV, LLC	22,467		667,852	4.9	%	5.1	%
Intuit, Inc.	13,489		465,812	3.6	%	3.7	%
Synopsys, Inc.	15,492		340,913	3.3	%	2.6	%
Delta Dental of California	10,960		217,629	2.9	%	1.7	%
Bridgepoint Education, Inc.	15,066		322,342	3.3	%	2.5	%
AMN Healthcare, Inc.	8,341		175,672	2.2	%	1.4	%
Intuit, Inc.	13,489		465,812	2.9	%	3.6	%
Group Health Cooperative	6,372		183,422	1.7	%	1.5	%
Delta Dental of California	10,313		188,143	2.2	%	1.4	%
Microsoft Corporation	6,256		215,997	1.7	%	1.7	%
AMN Healthcare, Inc.	9,001		176,075	1.9	%	1.3	%
Fish & Richardson P.C.	6,071		139,538	1.6	%	1.1	%
Concur Technologies	6,562		183,279	1.4	%	1.4	%
Splunk, Inc.	5,413		95,008	1.5	%	0.8	%
Scan Group (2)	6,487		201,782	1.4	%	1.5	%
Wells Fargo (1)	5,302		127,014	1.4	%	1.0	%
Group Health Cooperative	6,372		183,422	1.4	%	1.4	%
Scripps Health	5,199		112,067	1.4	%	0.9	%
Neurocrine Biosciences, Inc.	6,366		140,591	1.4	%	1.1	%
BP Biofuels	5,158		136,908	1.4	%	1.1	%
Institute for Systems Biology	6,207		140,605	1.3	%	1.1	%
Lucile Salter Packard Children's Hospital at Stanford	5,111		137,807	1.4	%	1.1	%
Fish & Richardson, P.C.	6,071		139,547	1.3	%	1.1	%
Adobe Systems, Inc.	4,989		189,131	1.3	%	1.5	%
Pac-12 Enterprises, LLC	5,603		131,749	1.2	%	1.0	%
Epson America, Inc.	4,915		136,026	1.3	%	1.1	%
AppDynamics, Inc.	5,435		83,549	1.2	%	0.6	%
Total Top Fifteen Tenants	$	~~126~~163,~~325~~275	34,~~318~~028,~~287~~900	3335.92	%	2630.58	%

________________________

(1) ~~The~~In ~~Company~~January ~~has~~2015, ~~entered~~Apple ~~into~~subleased ~~leases~~431,000 ~~with~~square ~~various~~feet ~~affiliates~~of office space from LinkedIn for the remaining term of the ~~tenant~~lease (approximately twelve years).


(2)	The Company has entered into leases with various affiliates of the tenant.

Current Regional Information

WeThe ~~have~~West ~~generally~~Coast ~~seen~~real ~~rental~~estate ~~rates~~markets ~~stabilize~~in ~~and~~which ~~start~~we operate continue to ~~improve~~strengthen, indriven ~~many~~by ofimproving ~~our~~economic ~~submarkets. We~~conditions, ~~have~~net ~~also~~positive ~~seen~~job ~~vacancy~~growth ~~rates~~and inrising ~~many~~business ofconfidence ~~our~~and ~~submarkets~~expansion, ~~are~~especially ~~starting~~among tothe ~~decrease~~region’s technology, social media, entertainment, life science and communication industries.

~~Los~~San ~~Angeles~~Francisco Bay Area. In the third quarter of 2015, the San Francisco Bay Area market continued to outperform most U.S. real estate markets and ~~Ventura~~continues ~~Counties~~to be led by the strength in the technology sector. ~~Our~~Rental ~~Los~~growth ~~Angeles~~remains ~~and~~strong ~~Ventura~~as ~~Counties~~supply of large blocks of space remains limited. As of September 30, 2015, our San Francisco Bay Area stabilized portfolio of 3.49 million rentable square feet was 9396.28% occupied with approximately ~~229~~123,~~900~~000 available rentable square feet ~~as of September 30~~, ~~2013~~ compared to 9497.03% occupied with approximately ~~210~~104,~~100~~000 available rentable square feet as of December 31, ~~2012~~2014. ~~The decrease in occupancy is primarily attributable to three lease expirations.~~ As of September 30, ~~2013~~2015, we ~~have~~were 98.6% leased ~~approximately 19,100 rentable square feet~~ in ~~this~~the ~~region~~San ~~that~~Francisco ~~was~~Bay ~~vacant at September 30, 2013 to seven tenants~~Area. ~~The new leases are scheduled to commence at various times throughout the remainder of 2013.~~

As of September 30, ~~2013~~2015, leases representing an aggregate of approximately 3910,~~800~~000 and ~~372~~118,~~500~~000 rentable square feet are scheduled to expire during the remainder of ~~2013~~2015 and in ~~2014~~2016, respectively, in this region. The aggregate rentable square feet under ~~the~~ leases scheduled to expire ~~in this region~~ during the remainder of ~~2013~~2015 and in ~~2014~~2016 represents approximately 31.71% of our occupied rentable square feet and 31.63% of our annualized base rental revenues in our total stabilized portfolio as of September 30, ~~2013~~2015.

~~Orange~~Greater ~~County~~Seattle. ~~Our~~During ~~Orange~~the ~~County~~third ~~stabilized~~quarter ~~portfolio~~ of ~~approximately 437~~2015,~~603~~ ~~rentable~~demand ~~square~~from ~~feet~~technology ~~was~~companies ~~93.3%~~pushed ~~occupied~~asking ~~with~~rents ~~approximately~~in ~~29,200~~Greater ~~available~~Seattle ~~rentable~~to ~~square~~their ~~feet~~highest aslevel in almost a decade. As of September 30, ~~2013~~2015, ~~compared~~our togreater ~~92.0%~~Seattle ~~occupied~~stabilized ~~with~~portfolio ~~approximately~~of ~~37,900~~2.1 million ~~available~~ rentable square feet aswas ~~of December 31, 2012~~94. ~~The~~7% ~~increase~~occupied inwith ~~occupancy~~approximately is110,000 ~~primarily~~available ~~attributable~~rentable tosquare ~~the~~feet, ~~reclassification~~compared ofto ~~one~~98.1% ~~property~~occupied ~~from~~with ~~the~~approximately ~~stabilized~~43,000 ~~portfolio~~available torentable ~~properties~~square ~~held~~feet ~~for sale~~ as of ~~September~~December 3031, ~~2013~~2014. As of September 30, ~~2013~~2015, we ~~have~~were 97.4% leased ~~approximately 6,300 rentable square feet~~ in ~~this region that was vacant at September 30, 2013 to two tenants. The new leases are scheduled to commence at various times throughout~~ the ~~remainder~~Greater ofSeattle ~~2013~~Area.

As of September 30, 2013, leases representing an aggregate of approximately 4,500 and 33,200 rentable square feet are scheduled to expire during the remainder of 2013 and in 2014, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire in 2013 and 2014 represents approximately 0.3% of our occupied rentable square feet and 0.3% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2013.34

As 38of September 30, 2015, leases representing an aggregate of approximately 50,000 and 66,000 rentable square feet are scheduled to expire during the remainder of 2015 and in 2016, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire during the remainder of 2015 and in 2016 represents approximately 0.9% of our occupied rentable square feet and 0.6% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2015.

San Diego County. San Diego continued to show increases in rental rates during the third quarter of 2015 driven by steady business expansion with limited amounts of new commercial space. Our San Diego County stabilized portfolio as of 4September 30, 2015 and December 31, 2014 of 3.43 million and 4.2 million rentable square feet, respectively, was 8996.63% occupied with approximately ~~454~~122,~~900~~000 available rentable square feet as of September 30, ~~2013~~2015 compared to 90.79% occupied with approximately ~~486~~386,~~800~~000 available rentable square feet as of December 31, ~~2012~~2014. The ~~decrease~~increase in occupancy is primarily ~~attributable~~due to ~~six~~the ~~lease~~sale ~~expirations. As~~ of ~~September 30, 2013,~~the weSan ~~have~~Diego ~~leased~~Portfolio ~~approximately~~- ~~129,000~~Tranche ~~rentable~~1 ~~square~~and ~~feet~~Tranche in2 ~~this~~properties ~~region~~during ~~that~~the ~~was~~nine ~~vacant~~months atended September 30, ~~2013 to six tenants~~2015. ~~The~~As ~~new~~of ~~leases~~September ~~are~~30, 2015, ~~scheduled~~we towere ~~commence~~97.4% atleased ~~various~~in ~~times~~San ~~throughout~~Diego ~~the remainder of 2013~~County.

As of September 30, ~~2013~~2015, leases representing an aggregate of approximately ~~472~~168,~~200~~000 and 265,000 rentable square feet are scheduled to expire ~~in 2014, with no leases expiring~~ during the remainder of ~~2013~~2015 and in 2016, respectively, in this region. The aggregate rentable square feet under leases scheduled to expire induring ~~this~~the ~~region~~remainder of 2015 and in ~~2014~~2016 represents approximately 43.16% of our occupied rentable square feet and 2.83% of our annualized base rental revenues in our total stabilized portfolio as of September 30, ~~2013~~2015.

~~San~~Los ~~Francisco~~Angeles ~~Bay~~and ~~Area~~Ventura Counties. AsDuring the third quarter of ~~September 30~~ 2015, ~~2013~~ the Los Angeles market continued to strengthen, ~~our~~particularly ~~San~~in ~~Francisco~~markets ~~Bay~~attractive ~~Area~~to creative services and entertainment, which are seeing the largest rental increases. Our Los Angeles and Ventura Counties stabilized portfolio of 2.3.5 million rentable square feet was 9294.71% occupied with approximately ~~167~~206,~~500~~000 available rentable square feet as of September 30, 2015 compared to 9592.58% occupied with approximately ~~102~~252,~~800~~000 available rentable square feet as of December 31, ~~2012~~2014. ~~The~~Across ~~decrease~~our inLos ~~occupancy~~Angeles isportfolio, ~~primarily~~as ~~attributable to fifteen lease expirations. As~~ of September 30, ~~2013~~2015, we ~~have~~were ~~leased approximately 21,500 rentable square feet in this region that was vacant at September 30, 2013 to six tenants~~95. ~~The~~4% ~~new leases are scheduled to commence at various times throughout the remainder of 2013~~leased.

As of September 30, ~~2013~~2015, leases representing an aggregate of approximately ~~167~~48,000 and 317,000 rentable square feet are scheduled to expire ~~in 2014, with no leases expiring~~ during the remainder of ~~2013~~2015 and in 2016, respectively, in this region. The aggregate rentable square feet under the leases scheduled to expire in this region during the remainder of 2015 and in ~~2014~~2016 represents approximately 13.50% of our occupied rentable square feet and 12.67% of our annualized base rental revenues in our total stabilized portfolio as of September 30, ~~2013~~2015.

Greater Seattle. As of September 30, 2013, our Greater Seattle stabilized portfolio of 2.0 million rentable square feet was 95.2% occupied with approximately 98,600 available rentable square feet, compared to 93.3% occupied with approximately 116,100 available rentable square feet as of December 31, 2012. The increase in occupancy is primarily attributable to the acquisition of two office buildings encompassing approximately 320,400 rentable square feet that were 100.0% occupied as of September 30, 2013. As of September 30, 2013, we have leased approximately 18,300 rentable square feet in this region that was vacant at September 30, 2013 to one tenant.

As of September 30, 2013, leases representing an aggregate of approximately 97,800 rentable square feet are scheduled to expire in 2014, with no leases expiring during the remainder of 2013, in this region. The aggregate rentable square feet under leases scheduled to expire in this region in 2014 represents approximately 0.9% of our occupied rentable square feet and 0.8% of our annualized base rental revenues in our total stabilized portfolio as of September 30, 2013.

Results of Operations

Net Operating Income

Management internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income from continuing operations. 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). As a result of the Company’s adoption of the new discontinued operations accounting guidance (see Note 1 to our consolidated financial statements included in this report for additional information), for the quarter ended September 30, 2015, Net Operating Income from continuing operations includes the Net Operating Income for the ten properties disposed of in 2015. For the quarter ended September 30, 2014, Net Operating income from continuing operations does not include the Net Operating Income for properties held for sale or disposed of in prior years because properties classified as held for sale and/or disposed of prior to January 1, 2015 will continue to be presented in discontinued operations for prior periods presented.

Net Operating Income from continuing operations 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~~noncash 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. Because of 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).

3935

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

• Same Store Properties – which includes the results of all of the office properties that were owned and included in our stabilized portfolio for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, ~~2012~~2014 and still owned and included in the stabilized portfolio as of September 30, ~~2013~~2015;

• ~~Acquisition~~Stabilized Development and Redevelopment Properties – which includes the results, ~~from~~generated ~~the~~by ~~dates of acquisition through~~ the ~~periods presented, for the fourteen office buildings we acquired during 2012 and the four office buildings we acquired during the nine months ended September 30, 2013;~~following:

•◦ ~~Stabilized~~One ~~Redevelopment~~development ~~Properties~~project –comprising ~~which~~three ~~includes the results generated by one~~ office ~~building~~buildings that was ~~moved~~completed ~~into~~and ~~the~~ stabilized ~~portfolio upon completion of redevelopment~~ in the ~~fourth~~third quarter of ~~2012~~2014; ~~and~~

•◦ ~~Other~~One ~~Properties~~development –project ~~which~~consisting ~~includes the results~~ of ~~properties not included in our stabilized portfolio. These properties consist of~~ two office buildings that ~~were~~was completed and stabilized in the ~~“lease-up”~~fourth ~~phase.~~quarter of 2014;

~~The~~◦ ~~following~~One ~~table~~redevelopment ~~sets~~property ~~forth~~that ~~certain~~was ~~information~~stabilized ~~regarding~~in ~~the~~2014 ~~property~~following ~~groups~~its ~~within~~one ~~our~~year ~~stabilized~~“lease-up” ~~portfolio~~period; ~~as of September 30, 2013:~~ and

Group	# of Buildings	Rentable Square Feet
Same Store Properties	84	9,938,826
Acquisition Properties	18	2,298,941
Stabilized Redevelopment Properties	1	298,728
Total Stabilized Portfolio	103	12,536,495


•	Acquisition Properties – which includes the results, from the dates of acquisition through the periods presented, for the five office buildings we acquired during 2014;

~~Comparison~~• ofDisposition and Other Properties – which includes the ~~Three~~results ~~Months~~for ~~Ended~~both ~~September 30, 2013~~periods topresented of the ~~Three~~ten ~~Months~~properties ~~Ended~~disposed ~~September 30~~of in 2015 and expenses for certain of our in-process, ~~2012~~ near-term and future development projects.

The following table ~~reconciles~~sets ~~our~~forth ~~Net~~certain ~~Operating~~information ~~Income,~~regarding asthe ~~defined,~~property togroups within our ~~net~~stabilized ~~income~~portfolio ~~for~~as ~~the~~of ~~three months ended~~ September 30, ~~2013~~2015: ~~and 2012.~~

	Three Months Ended September 30,						DollarChange			PercentageChange
Group		# of Buildings		Rentable Square Feet
	2013			2012
Same Store Properties		90		11,285,022
	($ in thousands)
Stabilized Development and Redevelopment Properties		6		1,358,338
Reconciliation to Net Income:
Acquisition Properties		5		407,587
Net Operating Income, as defined	$	79,226		$	68,364		$	10,862		15.9	%
Total Stabilized Portfolio		101		13,050,947
Unallocated (expense) income:
General and administrative expenses	(10,226		)	(8,727		)	(1,499		)	17.2
Acquisition-related expenses	(568		)	(556		)	(12		)	2.2
Depreciation and amortization	(47,569		)	(41,724		)	(5,845		)	14.0
Interest income and other net investment gains	673			330			343			103.9
Interest expense	(18,853		)	(19,854		)	1,001			(5.0	)
Income (loss) from continuing operations	2,683			(2,167		)	4,850			(223.8	)
Income from discontinued operations	6,344			4,689			1,655			35.3
Net income	$	9,027		$	2,522		$	6,505		257.9	%

Comparison 40of the Three Months Ended September 30, 2015 to the Three Months Ended September 30, 2014

The following ~~tables~~table ~~summarize~~summarizes ~~the~~our Net Operating Income from continuing operations, as defined, for our total portfolio for the three months ended September 30, ~~2013~~2015 and ~~2012~~2014.

	Three Months Ended September 30,						DollarChange			PercentageChange
	2013														2012
	2015			2014
	Same Store			Acquisitions Properties			Stabilized Redevel-opment			Other			Total		Same Store		Acquisitions Properties		Stabilized Redevel-opment			Other		Total
	($ in thousands)
	(in thousands)														(in thousands)
Reconciliation to Net Income:
Operating revenues:
Net Operating Income, as defined	$	101,920		$	91,386		$	10,534		11.5	%
Rental income	$	80,036		$	18,497		$	2,611		$	3,795		$	104,939	$	77,837	$	10,897	$	4		$	2,090	$	90,828
Unallocated (expense) income:
Tenant reimbursements	6,890			2,657			102			7			9,656		6,346		1,626		—			50		8,022
General and administrative expenses	(10,799		)	(11,138		)	339			(3.0	)
Other property income	735			367			—			—			1,102		111		15		—			9		135
Acquisition-related expenses	(4		)	(431		)	427			(99.1	)
Total	87,661			21,521			2,713			3,802			115,697		84,294		12,538		4			2,149		98,985
Depreciation and amortization	(49,422		)	(50,032		)	610			(1.2	)
Property and related expenses:
Interest income and other net investment loss	(694		)	(9		)	(685		)	(7,611.1	)
Property expenses	20,068			3,932			641			482			25,123		17,811		2,536		61			608		21,016
Interest expense	(12,819		)	(16,608		)	3,789			(22.8	)
Real estate taxes	7,543			1,818			203			731			10,295		7,174		1,102		—			470		8,746
Gains on sales of depreciable operating properties	78,522			—			78,522			100.0
Provision for bad debts	129			12			—			(17		)	124		—		—		—			—		—
Income from continuing operations	106,704			13,168			93,536			710.3
Ground leases	396			311			4			218			929		417		303		(2		)	141		859
Income from discontinued operations (1)	—			6,135			(6,135		)	(100.0	)
Total	28,136			6,073			848			1,414			36,471		25,402		3,941		59			1,219		30,621
Net income	$	106,704		$	19,303		$	87,401		452.8	%
Net Operating Income (Loss), as defined	$	59,525		$	15,448		$	1,865		$	2,388		$	79,226	$	58,892	$	8,597	$	(55	)	$	930	$	68,364

	Three Months Ended September 30, 2013 as compared to the Three Months Ended September 30, 2012
	Same Store					Acquisition Properties				Stabilized Redevelopment				Other					Total
	Dollar Change			Percent Change		Dollar Change		Percent Change		Dollar Change		Percent Change		Dollar Change			Percent Change		Dollar Change		Percent Change
	($ in thousands)
Operating revenues:
Rental income	$	2,199		2.8	%	$	7,600	69.7	%	$	2,607	65,175.0	%	$	1,705		81.6	%	$	14,111	15.5	%
Tenant reimbursements	544			8.6		1,031		63.4		102		100.0		(43		)	(86.0	)	1,634		20.4
Other property income	624			562.2		352		2,346.7		—		—		(9		)	(100.0	)	967		716.3
Total	3,367			4.0		8,983		71.6		2,709		67,725.0		1,653			76.9		16,712		16.9
Property and related expenses:
Property expenses	2,257			12.7		1,396		55.0		580		950.8	%	(126		)	(20.7	)	4,107		19.5
Real estate taxes	369			5.1		716		65.0		203		100.0		261			55.5		1,549		17.7
Provision for bad debts	129			—		12		—		—		—		(17		)	—		124		—
Ground leases	(21		)	(5.0	)	8		2.6		6		(300.0	)	77			54.6		70		8.1
Total	2,734			10.8		2,132		54.1		789		1,337.3		195			16.0		5,850		19.1
Net Operating Income, as defined	$	633		1.1	%	$	6,851	79.7	%	$	1,920	(3,490.9	)%	$	1,458		156.8	%	$	10,862	15.9	%

________________________

~~Net~~(1) ~~Operating~~The ~~Income~~Company ~~increased~~adopted ~~$10.9 million,~~ASU or2014-08 ~~15.9%~~effective January 1, 2015 (see Note 1 to our consolidated financial statements included in this report for ~~the~~additional ~~three~~information). ~~months~~As ~~ended~~a ~~September 30~~result, ~~2013~~results of operations for properties classified as ~~compared~~held for sale and/or disposed of subsequent to ~~the~~January ~~three~~1, ~~months~~2015 ~~ended~~are ~~September 30~~presented in continuing operations. Prior to January 1, ~~2012~~2015, ~~primarily~~properties ~~resulting~~classified ~~from:~~as held for sale and/or disposed of are presented in discontinued operations.

• ~~An increase of $6.9 million attributable to the Acquisition Properties;~~36

•The Anfollowing ~~increase~~tables ofsummarize ~~$0.6~~our ~~million~~Net ~~attributable~~Operating toIncome, as defined, for our total portfolio for the ~~Same~~three ~~Store~~months ~~Properties~~ended ~~primarily~~September ~~resulting~~30, 2015 ~~from:~~and 2014.

• An increase in rental income of $2.2 million primarily due to new leases at higher rates and increased parking income at a number of properties;



	Three Months Ended September 30,
	2015										2014
	Same Store		Stabilized Develop-ment & Redevel-opment		Acquisition Properties		2015 Dispositi-ons & Other		Total		Same Store			Stabilized Develop-ment & Redevel-opment		Acquisition Properties		2015 Dispositi-ons & Other		Total
	(in thousands)
Operating revenues:
Rental income	$	107,438	$	16,720	$	3,907	$	1,445	$	129,510	$	101,893		$	6,489	$	1,897	$	4,942	$	115,221
Tenant reimbursements	8,346		2,198		767		370		11,681		10,101			364		111		770		11,346
Other property income	358		—		—		4		362		2,456			1		—		—		2,457
Total	116,142		18,918		4,674		1,819		141,553		114,450			6,854		2,008		5,712		129,024
Property and related expenses:
Property expenses	24,733		1,443		287		221		26,684		24,000			842		54		905		25,801
Real estate taxes	9,093		2,191		333		470		12,087		9,530			708		44		726		11,008
Provision for bad debts	—		—		—		—		—		(43		)	96		—		5		58
Ground leases	862		—		—		—		862		771			—		—		—		771
Total	34,688		3,634		620		691		39,633		34,258			1,646		98		1,636		37,638
Net Operating Income, as defined	$	81,454	$	15,284	$	4,054	$	1,128	$	101,920	$	80,192		$	5,208	$	1,910	$	4,076	$	91,386

• An increase in tenant reimbursements of $0.5 million primarily due to higher reimbursable property expenses and real estate taxes;



	Three Months Ended September 30, 2015 as compared to the Three Months Ended September 30, 2014
	Same Store					Stabilized Development & Redevelopment					Acquisition Properties				2015 Dispositions & Other					Total
	Dollar Change			Percent Change		Dollar Change			Percent Change		Dollar Change		Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change
	($ in thousands)
Operating revenues:
Rental income	$	5,545		5.4	%	$	10,231		157.7	%	$	2,010	106.0	%	$	(3,497	)	(70.8	)%	$	14,289		12.4	%
Tenant reimbursements	(1,755		)	(17.4	)	1,834			503.8		656		591.0		(400		)	(51.9	)	335			3.0
Other property income	(2,098		)	(85.4	)	(1		)	(100.0	)	—		—		4			100.0		(2,095		)	(85.3	)
Total	1,692			1.5		12,064			176.0		2,666		132.8		(3,893		)	(68.2	)	12,529			9.7
Property and related expenses:
Property expenses	733			3.1		601			71.4		233		431.5		(684		)	(75.6	)	883			3.4
Real estate taxes	(437		)	(4.6	)	1,483			209.5		289		656.8		(256		)	(35.3	)	1,079			9.8
Provision for bad debts	43			100.0		(96		)	(100.0	)	—		—		(5		)	(100.0	)	(58		)	(100.0	)
Ground leases	91			11.8		—			—		—		—		—			—		91			11.8
Total	430			1.3

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