Edgar Filing: KILROY REALTY CORP

Definitive Proxy Statement

United States Securities and Exchange Commission

Washington, DC 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934

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KILROY REALTY CORPORATION

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KILROY REALTY CORPORATION

12200 W. OLYMPIC BOULEVARD, SUITE 200

LOS ANGELES, CALIFORNIA 90064

April 10, 2007

Dear Stockholder:

You are cordially invited to attend the 2007 annual meeting of stockholders of KILROY REALTY CORPORATION to be held on May 17, 2007, at 9:00 a.m. (local time) at our corporate offices located at 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.

Information about the meeting and the various matters on which the stockholders will act is included in the Notice of Annual Meeting of Stockholders and Proxy Statement that follow. Also included is a Proxy Card and postage-paid return envelope.

It is important that your shares be represented at the meeting. Whether or not you plan to attend, we hope that you will complete and return your Proxy Card in the enclosed envelope as promptly as possible.

Sincerely,

LOGO

Richard E. Moran Jr.

Executive Vice President,

Chief Financial Officer and Secretary

KILROY REALTY CORPORATION

12200 W. OLYMPIC BOULEVARD, SUITE 200

LOS ANGELES, CALIFORNIA 90064

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 17, 2007

To the Stockholders of Kilroy Realty Corporation:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the “Annual Meeting”) of Kilroy Realty Corporation, a Maryland corporation (the “Company”), will be held at the Company’s principal executive offices located at 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064 on May 17, 2007, at 9:00 a.m. (local time), for the following purposes:

1. To elect one director to the Company’s Board of Directors (the “Board”) to serve until the annual meeting of stockholders in the year 2010 and until his successor is duly elected and qualifies; and

2. To transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof.

The Company’s Board has fixed the close of business on March 12, 2007 as the record date for determining the stockholders entitled to receive notice of and to vote at the Annual Meeting or any adjournment(s) or postponement(s) thereof.

The enclosed proxy card is solicited by the Board of the Company, which recommends that stockholders vote FOR the election of the Board’s nominee named therein. Please refer to the attached Proxy Statement, which forms a part of this Notice and is incorporated herein by reference, for further information with respect to the business to be transacted at the Annual Meeting.

STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.

By Order of the Board of Directors,

LOGO

Richard E. Moran Jr.

Executive Vice President,

Chief Financial Officer and Secretary

April 10, 2007

Los Angeles, California

KILROY REALTY CORPORATION

12200 W. OLYMPIC BOULEVARD, SUITE 200

LOS ANGELES, CALIFORNIA 90064

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 17, 2007

PROXY STATEMENT

INTRODUCTION

General

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of Kilroy Realty Corporation, a Maryland corporation (the “Company”), of proxies from the holders of the Company’s issued and outstanding shares of common stock, par value $.01 per share (the “Common Stock”), to be exercised at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 17, 2007 at the Company’s principal executive offices located at 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064 at 9:00 a.m. (local time), including any adjournment(s) or postponement(s), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.

At the Annual Meeting, the stockholders of the Company will be asked to consider and vote upon the following proposals (the “Proposals”):

1. To elect one director to the Company’s Board to serve until the annual meeting of stockholders in the year 2010 and until his successor is duly elected and qualifies; and

2. To transact such other business as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.

Only the holders of record of the shares of Common Stock at the close of business on March 12, 2007 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote on each matter voted on at the meeting. As of the Record Date, 32,698,554 shares of Common Stock were outstanding. This Proxy Statement and enclosed form of proxy are first being mailed to the stockholders of the Company on or about April 16, 2007.

A majority of the shares of Common Stock outstanding must be represented at the Annual Meeting in person or by proxy to constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by proxies that reflect abstentions or “broker non-votes” will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In order to be elected as a director, a nominee must receive a plurality of all the votes cast at the Annual Meeting at which a quorum is present. For purposes of calculating votes cast in the election of the director, abstentions or broker non-votes will not be counted as votes cast and will have no effect on the result of the vote on the Proposal regarding the election of the director.

The shares of Common Stock represented by all properly executed proxies returned to the Company will be voted at the Annual Meeting as indicated or, if no instruction is given, will be voted FOR the election of the director nominee named in this Proxy Statement. As to any other business that may properly come before the Annual Meeting, all properly executed proxies will be voted by the persons named in the proxy card, at their discretion. The Company does not presently know of any other business that may come before the Annual

Meeting. Any person giving a proxy has the right to revoke it at any time before it is exercised (i) by filing with the Secretary of the Company a duly signed revocation or a proxy bearing a later date or (ii) by electing to vote in person at the Annual Meeting. Mere attendance at the Annual Meeting will not revoke a proxy.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ON BEHALF OF THE COMPANY WITH RESPECT TO THE PROPOSALS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

The Company’s principal executive offices are located at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, telephone (310) 481-8400, and the Company’s website is www.kilroyrealty.com. References herein to the “Company” refer to Kilroy Realty Corporation and its subsidiaries, unless the context otherwise requires.

The date of this Proxy Statement is April 10, 2007.

PROPOSAL 1: ELECTION OF DIRECTOR

Pursuant to the Company’s articles of incorporation, as amended and supplemented (the “Charter”), the Company’s bylaws, as amended (the “Bylaws”), and resolutions adopted by the Company’s Board, the Board presently consists of seven directors and is divided into three classes serving staggered three-year terms. Pursuant to the Charter, at each annual meeting the successors to the class of directors whose terms expire at such meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The terms of two of the directors, Messrs. D’Eathe and Dickey, will expire at the Annual Meeting. As previously disclosed in our public filings, Mr. D’Eathe advised the Company that he has decided to retire from the Board upon completion of his existing term. Accordingly, if elected at the Annual Meeting, Mr. Dickey will hold office for a term of three years until the annual meeting of stockholders to be held in the year 2010, and until his successor is duly elected and qualifies. One Board seat will remain vacant while the Nominating/Corporate Governance Committee is conducting a search to identify a qualified director candidate.

Except as otherwise instructed, proxies solicited by this Proxy Statement will be voted for the election of the nominee to the Board listed below. The nominee has consented to be named in this Proxy Statement and to serve as a director if elected. The information below relating to the nominee for election as director and to each of the other directors whose terms of office continue after the Annual Meeting has been furnished to the Company by the respective individuals.

The Board recommends a vote FOR the election of William P. Dickey, to serve until the annual meeting of stockholders to be held in the year 2010 and until his successor is duly elected and qualifies.

Nominees for Director

The following table sets forth certain current information with respect to the nominee for director to the Board of the Company:


Name	Age	Director Since	Position With The Company
William P. Dickey	64	1997	Director

The following is a biographical summary of the experience of the nominee for director to the Board of the Company:

William P. Dickey has been a member of the Company’s Board since the completion of its initial public offering in January 1997. Mr. Dickey has served as the President of The Dermot Company, Inc., a real estate investment and management company since 1990. From 1986 to 1990, Mr. Dickey was a Managing Director of Real Estate for the First Boston Corporation. Prior to 1986, Mr. Dickey was a partner at the New York law firm of Cravath, Swaine & Moore, where he started as an associate beginning in 1974. Mr. Dickey is on the board of directors of Vera Institute of Justice, a non-profit organization. Mr. Dickey received his undergraduate degree from the United States Air Force Academy, his Masters Degree from Georgetown University and his Juris Doctor Degree from Columbia Law School.

Vote Required

The election of the director requires the plurality of the votes cast by the holders of the shares of Common Stock entitled to vote, either present in person or by proxy at the Annual Meeting.

The Board recommends a vote FOR the election of William P. Dickey, to serve until the annual meeting of stockholders to be held in the year 2010 and until his successor is duly elected and qualifies.

Directors Continuing in Office

Information concerning the other directors of the Company whose terms do not expire at the Annual Meeting is set forth below.


Name	Age	Position With The Company	Term Expiration
John B. Kilroy, Sr.	84	Chairman of the Board	2008
John B. Kilroy, Jr.	58	President, Chief Executive Officer and Director	2009
Edward F. Brennan, Ph.D.	55	Director	2008
Dale F. Kinsella	58	Director	2009
Matthew J. Hart	54	Director	2008

John B. Kilroy, Sr. has served as the Company’s Chairman of the Board since its incorporation in September 1996. In 1947, Mr. Kilroy founded the businesses that were incorporated in 1952 as the entity known as Kilroy Industries (“KI”). Mr. Kilroy served as KI’s President from 1952 until 1981 and from 1997 through the present, and has served as the Chairman of its Board of Directors since 1954. Mr. Kilroy is a nationally recognized member of the real estate community, providing the Company with strategic leadership and a broad based network of relationships. Mr. Kilroy is the father of John B. Kilroy, Jr., the Company’s President and Chief Executive Officer.

John B. Kilroy, Jr. has served as the Company’s President, Chief Executive Officer and Director since its incorporation in September 1996. Prior to joining the Company, Mr. Kilroy served in the same capacity for KI, the predecessor to the Company, and was responsible for the overall management of all facets of KI and its various affiliates since 1981. Mr. Kilroy has been involved in all aspects of commercial and industrial real estate development, construction, acquisition, sales, leasing, financing, and entitlement since 1967 and worked for KI for over 30 years. Mr. Kilroy became President of KI in 1981 and was elected Chief Executive Officer in 1991. Prior to that time, he held positions as Executive Vice President and Vice President—Leasing & Marketing. He is a trustee of the El Segundo Employers Association, and a past trustee of Viewpoint School, the Jefferson Center For Character Education and the National Fitness Foundation. Mr. Kilroy is also Chairman of the Board of The New Majority Los Angeles chapter. Mr. Kilroy attended the University of Southern California. Mr. Kilroy is the son of John B. Kilroy, Sr., the Chairman of the Company’s Board.

Edward F. Brennan, Ph.D. has been a member of the Company’s Board since July 2003. Dr. Brennan is currently President and Chief Executive Officer of CryoCor and has served in that capacity since April 2006. Dr. Brennan is also a member of the board of directors of CryoCor. Dr. Brennan has been a member of the board of directors of HemoSense since 2000 and has served as its Chairman of the board since January 2004. Dr. Brennan was also a managing partner of Perennial Investments, a Seattle-based venture capital firm from 2001 through 2002. Prior to that time, he served as Vice President at Tredegar Investments. He also served on the board of directors of Molecumetrics, Inc., wholly-owned by Tredegar Corp. Dr. Brennan has participated in the development, management and financing of new medical technology ventures for 27 years, including scientific and executive positions with Syntex, Inc., UroSystems, Inc., Medtronic Inc., DepoMed Systems, Inc. and CadioGenesis Corp. Dr. Brennan also serves on the board of several private companies and previously served on the board of the American Heart Association, Santa Clara chapter. Dr. Brennan holds a B.A. degree in chemistry and biology and a Ph.D. in biology from the University of California, Santa Cruz.

Dale F. Kinsella has been a member of the Company’s Board since the completion of its initial public offering in January 1997. Mr. Kinsella is currently a partner with the law firm of Kinsella, Weitzman, Iser, Kump & Aldisert, LLP. Previously, he was a partner with the Los Angeles law firm of Greenberg, Glusker, Fields, Claman, Machtinger & Kinsella, LLP. Prior to that, he had been a partner with the law firm of Kinsella, Boesch, Fujikawa & Towle. Mr. Kinsella received his undergraduate degree from the University of California at Santa Barbara and his Juris Doctor degree from the University of California at Los Angeles.

Matthew J. Hart has been a member of the Company’s Board since the completion of its initial public offering in January 1997. Mr. Hart is President and Chief Operating Officer of Hilton Hotels Corporation. He has responsibility for all operational aspects of the company, including owned and managed hotel operations, franchising, and brand development. Mr. Hart had been Executive Vice President and Chief Financial Officer since joining Hilton in May 1996. Prior to joining Hilton, Mr. Hart was Senior Vice President and Treasurer for the Walt Disney Company. Before joining Disney, Mr. Hart served as Executive Vice President and Chief Financial Officer for the Host Marriott Corporation. He held various financial positions at Marriott Corporation (prior to the formation of Host Marriott), which he joined in 1981. Mr. Hart was a lending officer with Bankers Trust Company in New York from 1976 until 1981. Mr. Hart is on the board of directors of Hilton Hotels Corporation, US Airways Inc., and Heal the Bay, a non-profit organization. He graduated cum laude from Vanderbilt University in 1974 and received his MBA from Columbia University in 1976.

Board of Directors Meetings and Attendance at Board Meetings and Annual Meetings of Stockholders

During the year ended December 31, 2006, the Board held eight meetings. All directors attended 75% or more of the total number of meetings of the Board and meetings of the Board committees on which each director served held during the year. Directors are encouraged to attend in person the annual meeting of stockholders of the Company. All seven directors attended the 2006 annual meeting.

Independent Directors

Each of Messrs. D’Eathe, Dickey, Hart and Kinsella and Dr. Brennan are considered by the Board to be Independent Directors. An Independent Director is a director who (i) is not an employee, officer or affiliate of the Company or any of its subsidiaries or divisions, or a relative of a principal executive officer, and who is not an individual member of an organization acting as an advisor, consultant or legal counsel receiving compensation from the Company in addition to director’s fees and (ii) satisfies the independence standards set forth in the current listing standards of the New York Stock Exchange (“NYSE”). In addition, in accordance with the Company’s corporate governance guidelines, no Independent Director may be a director, officer or affiliate of another entity with which the Company has entered into a transaction or transactions during the preceding fiscal year valued in the aggregate at greater than $100,000.

Non-Management Directors

Each of Messrs. Kilroy, Sr., D’Eathe, Dickey, Hart and Kinsella and Dr. Brennan, are considered by the Board to be Non-Management Directors. Non-Management Directors are all those directors who are not company officers (as that term is defined in Rule 16a-1(f) under the Securities Act of 1933), and includes Mr. Kilroy, Sr. who is not independent because he is the father of John B. Kilroy, Jr., our President and Chief Executive Officer. Meetings of the Non-Management Directors are generally held on the date of each regularly scheduled Board meeting and on an as-needed basis. Mr. Kinsella presides over these meetings.

Board Committees

The Board of the Company has a standing Audit Committee, Executive Compensation Committee, Nominating/Corporate Governance Committee, Independent Committee and Executive Committee.

Audit Committee. The Audit Committee consists of three Independent Directors: Mr. Hart, who serves as its Chairman, and Messrs. D’Eathe and Dickey. These directors satisfy the enhanced independence standards applicable to audit committees pursuant to Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the NYSE listing standards. Each of Messrs. Hart, D’Eathe and Dickey is financially literate and is an “audit committee financial expert” as determined by the Board in accordance with rules promulgated by the Securities and Exchange Commission. As previously disclosed in our public filings, Mr. D’Eathe will retire from the Board upon completion of his existing term, which expires on May 17, 2007, the

date of the Annual Meeting. Following the Annual Meeting, Dr. Brennan will serve as a member of the Audit Committee. Dr. Brennan satisfies the enhanced independence standards applicable to audit committees pursuant to Rule 10A-3(b)(i) under the Exchange Act and the NYSE listing standards and is financially literate as determined by the Board in accordance with rules promulgated by the Securities and Exchange Commission. The Audit Committee’s purpose is to assist the Board in fulfilling its oversight responsibilities regarding the Company’s accounting and system of internal controls, the quality and integrity of the Company’s financial reports and the independence and performance of the Company’s independent public accountants. The Audit Committee is governed by a written charter adopted by the Board, a copy of which is attached as Appendix A to this Proxy Statement. The charter is also available on the Company’s website at http://www.kilroyrealty.com and available in print to any security holder upon request. The Audit Committee held six meetings during 2006. Information regarding the specific functions performed by the Audit Committee is set forth in the “Report of the Audit Committee” below.

Executive Compensation Committee. The Executive Compensation Committee currently consists of the Company’s five Independent Directors. During 2006, the Executive Compensation Committee consisted of three Independent Directors: Dr. Brennan, who served at its Chairman, and Messrs. D’Eathe and Kinsella. The function of the Executive Compensation Committee is to (i) establish, review, modify and adopt remuneration levels for executive officers of the Company, and (ii) implement the Company’s 2006 Incentive Award Plan (the “2006 Plan”) and any other incentive programs. The Executive Compensation Committee is governed by a written charter adopted by the Board, which is available on the Company’s website at http://www.kilroyrealty.com and available in print to any security holder upon request. The Executive Compensation Committee held eleven meetings during 2006.

Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee consists of the Company’s five Independent Directors. Mr. Dickey serves as its Chairman. The purpose of the Nominating/Corporate Governance Committee is to (i) identify individuals qualified to become Board members, (ii) recommend director nominees for the annual meeting of stockholders and fill board vacancies, (iii) oversee the Board’s annual self-assessment procedures and the self-assessment procedures for the committees of the Board; and (iv) provide ongoing guidance and oversight with respect to corporate governance matters. The charter of the Nominating/Corporate Governance Committee, the Company’s Corporate Governance Guidelines and the Company’s Code of Business Conduct and Ethics, each of which was adopted by the Board, are available on the Company’s website at http://www.kilroyrealty.com and are available in print to any security holder upon request. The Nominating/Corporate Governance Committee held two meetings during 2006.

Independent Committee. The Independent Committee consists of the Company’s five Independent Directors. Mr. Kinsella serves as its Chairman. The Independent Committee has the authority to approve transactions between the Company and its affiliates, including its officers and directors, and any of their respective affiliates. The Independent Committee did not hold any meetings during 2006.

Executive Committee. The Executive Committee consists of Mr. Kilroy, Jr., who serves as its Chairman, and Messrs. Kilroy, Sr. and Kinsella. Subject to the Company’s conflict of interest policies, the Executive Committee has authority to acquire and dispose of real property and the power to authorize, on behalf of the full Board, the execution of certain contracts and agreements, including those related to the borrowing of money by the Company (and, consistent with the Agreement of Limited Partnership as amended from time to time of Kilroy Realty, L.P. (the “Operating Partnership”), to cause the Operating Partnership to take such actions). The Executive Committee did not hold any meetings during 2006.

Report of the Audit Committee

The Audit Committee of the Company’s Board is composed of Independent Directors who satisfy the requirements of Section 10A-3(m) of the Exchange Act and Rule 10A-3(b)(i), and the current listing standards of the New York Stock Exchange. The Audit Committee operates pursuant to a written charter adopted by the Board on March 8, 2004.

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. In fulfilling its oversight responsibilities, the Audit Committee approves the selection of the Company’s independent auditors and reviews and discusses the audited financial statements included in the Company’s Annual Report on Form 10-K with management, including the reasonableness of significant judgments and the clarity of disclosures in the financial statements. Management has the primary responsibility for the financial statements and the reporting process, including the Company’s internal control over financial reporting.

The Company’s independent auditors are responsible for performing an audit of the Company’s financial statements and expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles. The Audit Committee reviewed and discussed the audited financial statements of the Company as of and for the year ended December 31, 2006 with management and the Company’s independent auditors. The Audit Committee discussed with the Company’s independent auditors their judgments as to the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards Statement of Auditing Standard Number 61, “Communications with Audit Committees,” as currently in effect. In addition, the Audit Committee received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and it discussed with the Company’s independent auditors their independence from the Company. The Audit Committee also considered the compatibility of the independent auditors’ provision of non-audit services with the auditors’ independence.

The Audit Committee discussed with the Company’s independent auditors the overall scope of their respective audits. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. In the performance of their oversight function, the members of the Audit Committee relied upon the information, opinions, reports and statements presented to them by the Company’s management and by the Company’s independent auditors. The Audit Committee held six meetings during fiscal year 2006.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board approved) that the audited financial statements as of and for the year ended December 31, 2006 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007.

Audit Committee

Matthew J. Hart, Chairman

John R. D’Eathe

William P. Dickey

Qualifications of Director Nominees

The Nominating/Corporate Governance Committee has established Standards for Overall Structure and Composition of the Board and Minimum Director Qualifications as a guideline in considering nominations to the Company’s Board. The criteria include: loyalty, reputation, character, knowledge, experience, education, business judgment, diligence, stock ownership, independence and ability to contribute to Board balance and diversity. The criteria are not exhaustive and the Nominating/Corporate Governance Committee and the Board may consider other qualifications and attributes, which they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board.

Nominating/Corporate Governance Committee’s Process for Identifying and Evaluating Nominees for Director

Prior to each annual meeting of security holders at which directors are to be elected, and whenever there is otherwise a vacancy on the Board, the Nominating/Corporate Governance Committee will consider incumbent Board members and other well-qualified individuals as potential director nominees. The Nominating/Corporate Governance Committee will review each potential candidate’s qualifications in light of the Company’s Standards for Overall Structure and Composition of the Board and Minimum Director Qualifications, described above. The Nominating/Corporate Governance Committee will select the candidate or candidates it believes are the most qualified to recommend to the Board for selection as a director nominee. Candidates recommended by a security holder are evaluated in the same manner as candidates identified by a Nominating/Corporate Governance Committee member.

Manner by which Security Holders May Recommend Director Candidates

The Nominating/Corporate Governance Committee will consider director candidates recommended by security holders of the Company. All recommendations must be directed to the Nominating/Corporate Governance Committee c/o Secretary at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. Recommendations for director nominees to be considered at the 2008 annual meeting of stockholders must be received in writing not later than December 14, 2007. Each security holder recommending a person as a director candidate must provide the Company with the following information for the Committee to determine whether the recommended director candidate is independent from the security holder, or each member of the security holder group, that has recommended the director candidate:

•

If the recommending security holder or any member of the recommending security holder group is a natural person, whether the recommended director candidate is the recommending security holder, a member of the recommending security holder group, or a member of the immediate family of the recommending security holder or any member of the recommending security holder group;

•

If the recommending security holder or any member of the recommending security holder group is an entity, whether the recommended director candidate or any immediate family member of the recommended director candidate is an employee of the recommending security holder or any member of the recommending security holder group or has been at any time during the current or preceding calendar year;

•

Whether the recommended director candidate or any immediate family member of the recommended director candidate has accepted directly or indirectly any consulting, advisory, or other compensatory fees from the recommending security holder or any member of the group of recommending security holders, or any of their respective affiliates during the current or preceding calendar year;

•

Whether the recommended director candidate is an executive officer, director (or person fulfilling similar functions) of the recommending security holder or any member of the recommending security holder group, or any of their respective affiliates; and

•

Whether the recommended director candidate controls the recommending security holder or any member of the recommending security holder group.

The recommending security holder must also provide supplemental information that the Nominating/Corporate Governance Committee may request to determine whether the recommended director candidate (i) is qualified to serve on the Audit Committee, (ii) meets the standards of independence established by the NYSE, and (iii) satisfies the Standards for Overall Structure and Composition of the Board and Minimum Director Qualifications, described above. In addition, the recommending security holder must include the consent of the recommended director candidate and the recommended director candidate must make himself or herself reasonably available to be interviewed by the Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee will consider all recommended director candidates submitted to it

in accordance with these established procedures, though it will only recommend to the Board as potential nominees those candidates it believes are most qualified. However, the Nominating/Corporate Governance Committee will not consider any director candidate if the candidate’s candidacy or, if elected, Board membership, would violate controlling state law or federal law.

Security Holder Communications with the Board

Security holders may send correspondence to the Board c/o Secretary at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. The Secretary will review all correspondence addressed to the Board, or any individual Board member, for any inappropriate correspondence and correspondence more suitably directed to management. The Secretary will summarize all correspondence not forwarded to the Board and make the correspondence available to the Board for its review at the Board’s request. The Secretary will forward security holder communications to the Board prior to the next regularly scheduled meeting of the Board following the receipt of the communication as appropriate.

Interested Party Communications with the Non-Management Directors

Any interested party may send correspondence to the Non-Management Directors as a group, or to Mr. Kinsella directly, c/o Secretary at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. The Secretary will review all correspondence addressed to the Non-Management Directors, or to Mr. Kinsella individually, for any inappropriate correspondence and correspondence more suitably directed to management. The Secretary will summarize all correspondence not forwarded to the Non-Management Directors and make the correspondence available to the Non-Management Directors for their review at the Non-Management Directors’ request. The Secretary will forward interested party communications to the Non-Management Directors promptly following the receipt of the communication as appropriate.

Code of Business Conduct and Ethics

The Company’s Board of Directors has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers (including the Chief Executive Officer, Chief Financial Officer, Controller and other members of senior financial management), employees, agents and consultants. This Code of Business Conduct and Ethics satisfies the requirements of a “code of business conduct and ethics” under the NYSE listing standards and a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and applicable Securities and Exchange Commission rules. This Code of Business Conduct and Ethics is available on the Company’s website at http://www.kilroyrealty.com and a copy will be provided to any person without charge, upon request sent to the Company’s principal executive offices c/o Secretary at 12200 West Olympic Boulevard, Suite 200, Los Angeles, California 90064. Amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics that apply to the Company’s directors or executive officers, including the Chief Executive Officer, Chief Financial Officer, Controller and other members of senior financial management, may be made only by the Board or a Board committee and will be promptly posted on the Company’s website.

CERTAIN INFORMATION WITH RESPECT TO NAMED EXECUTIVE OFFICERS

The following sets forth certain current information with respect to the Company’s named executive officers (the “NEOs”) as defined on page 11:


Name	Age	Position
John B. Kilroy, Jr.	58	President, Chief Executive Officer and Director
Jeffrey C. Hawken	48	Executive Vice President and Chief Operating Officer
Richard E. Moran Jr.	55	Executive Vice President, Chief Financial Officer and Secretary
Steven R. Scott	50	Senior Vice President, San Diego
Tyler H. Rose	46	Senior Vice President and Treasurer

John B. Kilroy, Jr. has served as the President and Chief Executive Officer of the Company since its incorporation in September 1996. Biographical information regarding Mr. Kilroy, Jr. is set forth under “Proposal 1: Election of Director—Directors Continuing in Office.”

Jeffrey C. Hawken has served as Executive Vice President and Chief Operating Officer of the Company since the completion of its initial public offering in January 1997. Prior to that time, Mr. Hawken served in the same capacity for KI and was responsible for the management and operations of KI’s real estate portfolio and served on KI’s acquisitions and executive committees. Mr. Hawken joined KI in 1980, as a Senior Financial Analyst, and has been involved in property and asset management with the Company since May 1983. Since that time, he attained the designation of Real Property Administrator through the Building Owner’s and Manager’s Association (“BOMA”). Mr. Hawken is a director for BOMA, Greater Los Angeles and also participates on the executive committee, the Owners Advisory Council and Political Action Committee. Mr. Hawken is an active member of the Young President’s Organization, Santa Monica Bay Chapter and participates on the executive committee and is currently the Member Forum Chair. He is also a member of the Board of The New Majority Los Angeles chapter and currently serves as membership chairman. Mr. Hawken holds a Bachelor of Science degree in Business Administration from the University of Southern California. Mr. Hawken is a licensed Real Estate Broker in the State of California.

Richard E. Moran Jr. has served as the Company’s Executive Vice President, Chief Financial Officer and Secretary since December 1996. Prior to that time, Mr. Moran was Executive Vice President, Chief Financial Officer and Secretary of Irvine Apartment Communities, Inc. from 1993 to 1996. Prior to that, Mr. Moran was Executive Vice President, Corporate Finance and Treasurer of The Irvine Company, where he was employed from 1977 to 1993. Previously, he was a certified public accountant and was employed by the public accounting firm of Coopers & Lybrand. He is a member of the Urban Land Institute and serves on the Policy Advisory Board for the Center for Real Estate and Urban Economics at the University of California, Berkeley. Mr. Moran received a Master of Business Administration degree from Harvard Business School and a Bachelor of Science degree in Accounting from Boston College.

Steven R. Scott is currently a Senior Vice President of the Company and has served in that capacity since he joined the Company in January 1998. He has more than 20 years of real estate experience. From January 1996 to December 1997, Mr. Scott was Senior Vice President with CB Richard Ellis in San Diego, where he concentrated in corporate services, build-to-suits, and brokerage in the mid-San Diego County markets of Sorrento Mesa, Torrey Pines, University Towne Centre and the I-15 Corridor. Prior to CB Richard Ellis, he was affiliated with the San Diego office of Grubb & Ellis Company for 13 years, most recently as Senior Marketing Consultant. Mr. Scott holds a Bachelor of Science degree in Business Administration from San Diego State University.

Tyler H. Rose was appointed Senior Vice President and Treasurer in March 1997. Mr. Rose was Senior Vice President, Corporate Finance of Irvine Apartment Communities, Inc. from 1995 to 1997, and was appointed Treasurer in 1996. Prior to that, Mr. Rose was Vice President, Corporate Finance of The Irvine Company from 1994 to 1995. From 1986 to 1994, Mr. Rose was employed at J.P. Morgan & Co., serving in its Real Estate Corporate Finance Group until 1992 and as Vice President of its Australia Mergers and Acquisitions Group from 1992 to 1994. Mr. Rose also served for two years as a financial analyst for General Electric Company. Mr. Rose holds a Master of Business Administration degree from The University of Chicago Graduate School of Business and a Bachelor of Arts degree in Economics from the University of California, Berkeley.

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis section discusses the compensation practices for our NEOs. Our NEOs consist of our Chief Executive Officer, our Chief Operating Officer, our Chief Financial Officer (which comprise our three mostly highly paid executive officers) and our two next most highly paid executive officers. Throughout this Proxy Statement, we refer to our (i) Chief Executive Officer, Chief Operating Officer and Chief Financial Officer collectively as our “Executive Management Team,” (ii) two next most highly paid executive officers as our “Senior Managers,” and (iii) Executive Management Team and our Senior Managers, together with our other executive officers as our “executive officers.”

Compensation Committee Interlocks and Insider Participation

Compensation paid to the NEOs is determined at the sole discretion of the Executive Compensation Committee (the “Compensation Committee”). The Compensation Committee is currently composed of the Company’s five Independent Directors. In 2006, the Compensation Committee was composed of three Independent Directors, including Dr. Brennan, who served as its Chairman, and Messrs. D’Eathe and Kinsella. There are no Compensation Committee interlocks, and none of our employees participate on the Compensation Committee.

Role of the Executive Compensation Committee

The Compensation Committee is responsible for:

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Reviewing and approving our compensation philosophy;

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Reviewing and approving corporate goals and objectives relating to the compensation of our Chief Executive Officer, evaluating the performance of our Chief Executive Officer in light of those goals and objectives and reviewing and approving the compensation of our Chief Executive Officer based on such evaluation;

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Reviewing and approving all compensation for our other executive officers, including cash and equity incentive compensation awards, and all executive officers’ employment agreements and severance arrangements;

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Administering, reviewing and approving all annual bonus, long-term incentive compensation, stock option, and other equity-based, employee pension and welfare benefit plans;

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Reviewing and approving our policy with respect to change of control or “parachute” payments; and

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Preparing the Executive Compensation Committee Report.

The Compensation Committee’s Charter, posted on our website at http://www.kilroyrealty.com, reflects these various responsibilities, and the Compensation Committee and Board periodically review and revise the Charter. The Compensation Committee’s membership is determined by the Board and is composed entirely of Independent Directors. There were eleven meetings of the Compensation Committee in 2006, five of which were executive sessions with no Company employees present. The Compensation Committee has the authority to engage the services of outside advisors, experts and others to assist the Compensation Committee. In accordance with the Compensation Committee’s Charter, the Compensation Committee may retain independent compensation and other management consultants, who otherwise do not advise the Company, to assist with, among other things, evaluating our various compensation programs and levels of salary, bonus and other awards payable to our key personnel, as well as to advise the Compensation Committee with respect to the development of performance objectives that will contribute to our short-term and long-term profitability.

Compensation Objectives

We believe that the compensation programs for our executive officers should be closely aligned with the performance of the Company on both a short-term and long-term basis. Our strong performance in 2006

exemplifies our continued achievement of industry-leading results, including creation of value through our development program, strong leasing results, maintenance of high occupancy rates, and a strong balance sheet. In accordance with our goal of linking our executive compensation program to our performance, the compensation paid to our executive officers for fiscal year 2006 reflects our strong results.

Our compensation philosophy for our executive officers is based on the following principles:

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Our compensation programs should help the Company to attract and retain individuals of superior ability and managerial talent;

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Our compensation programs should ensure executive officer compensation is aligned with the Company’s corporate strategies and business objectives and the long-term interests of the Company’s stockholders;

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Our compensation programs should serve to increase the incentive to achieve key strategic and financial performance measures by linking incentive award opportunities to the achievement of performance goals in these areas;

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Our compensation programs should utilize stock-based compensation to reinforce the link between executive compensation and the interests of stockholders; and

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Our compensation programs should be competitive relative to the compensation paid to similarly situated executives of our peer companies.

We believe that compensation should be structured to ensure that a significant portion of compensation opportunity will be directly related to our stock performance and other factors that directly and indirectly influence stockholder value. To that end, the total compensation program for our executive officers may consist of the following components:

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Base salaries;

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Annual incentive cash bonus;

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Annual and long-term vesting equity compensation; and

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Multi-year outperformance incentive award.

In setting compensation, our philosophy is to set goals designed to link each NEO’s compensation to the Company’s performance. Consistent with our performance-based philosophy, each executive officer is provided with a base salary and a significant incentive-based compensation component. For our Executive Management Team, we reserve the largest potential compensation awards for performance- and incentive-based programs. Those programs include annual and long-term vesting awards based on the independent financial performance of the Company. Those programs provide compensation in the form of both cash and equity, to provide incentives to reward both short-term and long-term performance of the Company. The allocation of total compensation between cash and equity compensation is reviewed annually in comparison to the Peer Group (as defined on page 14), while also considering the balance between providing short-term incentives and long-term vesting incentives to align the interests of management with stockholders, in light of the executive officer’s current equity holdings.

Stock Ownership Guidelines

We believe our Executive Management Team should hold a material amount of our stock to link their long-term economic interest directly to that of our stockholders. Accordingly, we have established stock ownership guidelines as follows:


Named Executive	Ownership Requirement as a % of Base Salary		Ownership Requirement Met as of December 31, 2006
John B. Kilroy, Jr.	500	%	Yes
Jeffrey C. Hawken	300	%	Yes
Richard E. Moran Jr.	300	%	Yes

Determination of Compensation Awards

The Compensation Committee retained Strategic Apex Group, independent compensation consultants, to assist it in the review of our compensation programs. The compensation consultants engaged by the Compensation Committee are independent consultants specializing in compensation matters in the REIT and real estate industries. The compensation consultants evaluated the following in recommending the amount of executive compensation relative to the market, as well as the desired mix of base salary, annual incentives and long-term compensation opportunities:

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Our performance as compared to other REITs, with an emphasis on office REITs, and as compared to other publicly traded real estate companies engaged in activities similar to those engaged in by us, with an emphasis on those with significant development activities; and

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The current economic environment of the real estate industry and the markets specific to our properties.

The compensation consultants provided advice to the Compensation Committee with respect to competitive practices, the amounts and nature of compensation paid to executive officers, structuring our various compensation programs and recommending the appropriate levels of salary, bonus and other awards payable to our Executive Management Team. Based upon the compensation consultants’ recommendations, our executive compensation package for our Executive Management Team consists of a fixed base salary and performance-based cash and stock-based incentive awards, with a significant portion weighted towards the performance-based components to ensure that total compensation reflects the overall success or failure of the Company and to motivate our Executive Management Team to meet appropriate performance measures, thereby maximizing total return to stockholders.

To aid the Compensation Committee in reviewing our compensation programs, our President and Chief Executive Officer and our Chief Financial Officer provided recommendations to the Compensation Committee regarding the compensation of all executive officers. The Compensation Committee also reviewed the performance of each member of our Executive Management Team.

Limitation on Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to certain of our executive officers. To qualify for deductibility under Section 162(m), compensation in excess of $1,000,000 per year paid to our NEOs at the end of each fiscal year generally must be “performance-based” compensation as determined under Section 162(m), which includes most stock option and other incentive arrangements, the material terms of which have been approved by stockholders.

Despite the fact that our incentive bonuses are determined based on the evaluation of our performance and take into consideration certain financial and strategic goals, the Compensation Committee does not apply these factors on a strict formulaic basis. As a result, our incentive compensation may not satisfy the requirements of

Section 162(m). We believe that we qualify as a REIT under the Internal Revenue Code and are not subject to Federal income taxes, and that as a result the payment of compensation that does not satisfy the requirements of Section 162(m) does not have a material adverse consequence to us, provided we continue to distribute 90% of our taxable income. The Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible.

Compensation Benchmarking and Peer Group

A comprehensive review of our executive compensation programs was conducted for 2006 to ensure that (1) pay opportunities are competitive with the current market, (2) there is an appropriate link between performance and pay, and (3) the programs support our stated compensation philosophy. In connection with the 2006 review, the independent compensation consultant surveyed the compensation practices of our Peer Group and utilized other well-established executive compensation surveys to assess our competitiveness and advise the Compensation Committee. The “Peer Group” consisted of the following thirteen leading REIT and real estate companies: St. Joe Co, Archstone-Smith Trust, Developers Diversified, Maguire Properties, ProLogis, Catellus Development, SL Green Realty, Mack-Cali Realty, Boston Properties, Arden Realty, Trizec Properties, AMB Property and Vornado Realty. The Peer Group and the compensation surveys are periodically reviewed and updated by the Compensation Committee. We generally set base salary structures and annual incentive targets between the 50^th and 75^th percentile for all our NEOs.

Policies with Respect to Equity Compensation Awards

The Compensation Committee, based upon the recommendations of the independent compensation consultant, evaluates the allocation of equity awards among stock option grants, restricted stock grants, stock appreciation rights, participation units and the various other products available under our 2006 Plan by reference to the Peer Group discussed above. We grant all equity incentive awards based on the fair market value as of the date of grant, or vest restricted stock awards based on the fair market value as of the vesting date. The 2006 Plan provides that the exercise price for stock options and SARs will not be less than fair market value of a share of common stock on the date of grant. Under the 2006 Plan, the fair market value of a share of common stock will generally be equal to the closing price of a share on the NYSE on the date on which the determination is being made.

Restricted stock awards are generally made under the compensation programs discussed above at the first meeting of the Compensation Committee following the applicable fiscal year. We may also make grants of equity incentive awards at the discretion of the Compensation Committee or the Board in connection with the hiring of new executive officers.

2006 Executive Compensation Elements

The principal elements of 2006 compensation for our NEOs were base salary, cash incentive and equity incentives. The allocation of compensation across our compensation elements for 2006 reflects our philosophy of maintaining a strong relationship between performance and pay and is consistent with the practices of our Peer Group and industry surveys.

The allocation of compensation for our Executive Management Team for 2006 was as follows:


Compensation Element (using 2006 target compensation amounts)	John B. Kilroy, Jr.		Jeffrey C. Hawken		Richard E. Moran Jr.
Salary	11	%	14	%	20	%
Cash Incentive	17	%	16	%	16	%
Equity Incentive	73	%	70	%	64	%

The allocation of compensation across our compensation elements for 2006 for our Senior Managers based on actual 2006 compensation was as follows: (i) 10% salary, 13% cash incentive, and 76% equity incentive for Steven R. Scott; and (ii) 20% salary, 24% cash incentive; and 56% equity incentive for Tyler H. Rose. Incentive compensation for our Senior Managers is discretionary. The allocation across compensation elements has remained relatively consistent.

Base Compensation

For 2006 we provided our NEOs with a base salary that is structured between the 50^th and 75^th percentile of the Peer Group. In approving 2006 base salaries for our executive officers, the Compensation Committee reviewed the market data from our Peer Group and relevant compensation surveys. The Compensation Committee also considered the performance of each executive, the performance of the Company, the contribution of each executive to our overall results, input from our Chief Executive Officer, and the desire to retain the executive. No formulaic base salary increases are provided to the NEOs. Upon review of the independently prepared comparison of base salary levels among the Peer Group of companies, we found that the median base salary level had increased. Consistent with our compensation philosophy, the Compensation Committee approved increases to salaries so we could maintain our relative position amongst our Peer Group and better compete to retain top executive talent.

Performance-Based Compensation

Performance Goals

We structure our compensation programs to reward our executive officers based on our performance. This allows our executive officers to receive bonus compensation in the event certain specified corporate performance measures are achieved. In determining the compensation awarded to each executive officer based on performance, we evaluate our performance in a number of areas.

We had two performance-based incentive programs for 2006 for the Executive Management Team: (i) the annual bonus program, which consisted of an annual cash component, a short-term vesting restricted stock component, and a long-term vesting restricted stock component and (ii) the annual long-term incentive award program. The general criteria (with the relative weightings expressed in parentheses) for both programs for evaluating our performance reflected our key financial and strategic priorities for 2006 and included 2006 funds from operations (20%), 2006 total leasing targets (10%), 2006 total revenue targets (20%), and 2006 development and redevelopment starts (50%). We believe that these measures are fundamental to enhancing stockholder value, and we focused on both operational and financial performance measures to reward our Executive Management Team for its contribution to our performance in a cross-section of key areas. We set the target performance levels for each of the performance criteria based on our 2006 business plan and believed that it was likely that the Executive Management Team would achieve the target performance levels. We also believed that it would require exceptional performance by our Executive Management Team and was possible but not likely that our Executive Management Team would achieve the exceptional performance levels.

The amounts paid under each of our programs were determined based upon our actual performance measured against the performance criteria. In the event certain threshold performance levels were exceeded but applicable target levels were not achieved, the Executive Management Team was entitled to earn proportionate awards. Incentive amounts paid under the performance-based programs may be adjusted by the Compensation Committee to account for unusual events such as extraordinary transactions, asset dispositions and purchases, and mergers and acquisitions if, and to the extent, the Compensation Committee does not consider the effect of such events indicative of our performance. Payments under each of the programs were contingent upon continued employment, though pro rata bonus payments would have been paid in the event of death or disability based on actual performance at the date relative to the targeted performance measures for each program.

2006 Annual Bonus Program

The 2006 annual bonus program (the “Annual Bonus Program”) was comprised of a cash component, a short-term vesting restricted stock component and a long-term vesting restricted stock component. Under the Annual Bonus Program, each member of the Executive Management Team was eligible to earn different amounts of incentive compensation depending on the level of performance achieved. The Executive Management Team had to exceed a minimum threshold performance level for each of the performance criteria to earn incentive compensation with respect to each individual performance criterion under this program.

Under this program, upon achieving certain levels of performance, the amount that each member of the Executive Management Team could earn in cash and short-term vesting restricted stock was capped (the “Short-Term Component Cap”). When calculating the total payout for each member of the Executive Management Team under this program, the payout under each of the performance criteria was calculated independently. In the event that the Executive Management Team achieved performance levels such that the calculated total payout would exceed the Short-Term Component Cap, the members of the Executive Management Team were eligible to earn incentive compensation in excess of the Short-Term Component Cap under the long-term vesting restricted stock component in the form of restricted stock.

2006 Annual Bonus Program—Cash Component

Under the cash component of the Annual Bonus Program, our President and Chief Executive Officer was eligible to earn up to 158% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 262% of his 2006 base salary depending on the level of performance achieved for each performance criteria. Our Chief Operating Officer was eligible to earn up to 114% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 152% of his 2006 base salary depending on the level of performance achieved for each performance criteria. Our Chief Financial Officer was eligible to earn up to 82% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 109% of his 2006 base salary depending on the level of performance achieved for each performance criteria. We believe that the payment of this portion of the annual incentive bonus in cash provides incentives necessary to retain executive officers and reward them for short-term company performance.

2006 Annual Bonus Program—Short-Term Vesting Restricted Stock Component

Under the short-term vesting restricted stock component of the Annual Bonus Program, our President and Chief Executive Officer was eligible to earn up to 53% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 66% of his 2006 base salary depending on the level of performance achieved for each performance criteria. Our Chief Operating Officer was eligible to earn up to 38% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 51% of his 2006 base salary depending on the level of performance achieved for each performance criteria. Our Chief Financial Officer was eligible to earn up to 27% of his 2006 base salary in the event target performance levels were achieved for all of the performance criteria and had the ability to earn additional incentive compensation up to a maximum payout of 36% of his 2006 base salary depending on the level of performance achieved for each performance criteria. We believe that the payment of this portion of the annual incentive bonus in restricted stock provides incentives necessary to retain executive officers and reward them for short-term company performance while creating long-term incentives to sustain performance. Individual awards under this component were made under our 2006 Plan and were paid in restricted stock that will vest over a one-year service period ending December 31, 2007 based on continued employment through that date.

2006 Annual Bonus Program—Long-Term Vesting Restricted Stock Component

Under the long-term vesting restricted stock component of the Annual Bonus Program, the members of the Executive Management Team had the ability to earn incentive compensation in excess of the respective Short-Term Component Caps, including an uncapped component, in the event exceptional performance levels were achieved. If exceptional performance levels were achieved for the 2006 funds from operations, 2006 total leasing and 2006 total revenue components, our President and Chief Executive Officer was eligible to earn up to 36% of his 2006 base salary, our Chief Operating Officer was eligible to earn up to 21% of his 2006 base salary and our Chief Financial Officer was eligible to earn up to 15% of his 2006 base salary. If exceptional performance levels were achieved for the 2006 development and redevelopment starts, our President and Chief Executive Officer was eligible to earn up to 36% of his 2006 base salary, our Chief Operating Officer was eligible to earn up to 21% of his 2006 base salary and our Chief Financial Officer was eligible to earn up to 15% of his 2006 base salary. Further, for each additional 100,000 square feet of 2006 development and redevelopment starts in excess of 468,000 square feet, our President and Chief Executive Officer earned an additional 175% of his annual 2006 base salary and our Chief Operating Officer and our Chief Financial Officer each earned an additional 75% of their annual 2006 base salaries. In the event the Short-Term Component Cap was exceeded but the exceptional performance levels were not achieved, the Executive Management Team had the ability to earn proportionate awards. Awards under this component will vest 34% on December 31, 2007, 33% on December 31, 2008 and 33% on December 31, 2009 based on continued employment through the applicable vesting date.

Long-Term Incentive Compensation

We believe that, while the annual incentive program provides awards for positive short-term and mid-term performance, the interests of our stockholders are best served by giving key employees a direct interest in the performance of our common stock through stock-based incentives. We believe that share performance, over the long-term, will reflect executive performance and that such arrangements further reinforce management goals and incentives to enhance total stockholder return. Accordingly, a portion of our executive incentive compensation package is comprised of annual stock-based incentives that motivate executives to increase the total return to our stockholders through both increases in cash available for distribution as well as the quoted market price per share.

In granting stock-based awards, the Compensation Committee takes into account such factors as it determines to be appropriate under the circumstances, including an assessment of the executive’s achieved performance goals and objectives, and the amounts and value of long-term compensation and stock-based compensation received by similarly situated executives at competitor companies. Because the Executive Management Team is primarily responsible for managing our overall performance, annual long-term restricted stock awards are granted to our Executive Management Team based upon the achievement of pre-determined corporate performance targets. For 2006, corporate targets were measured on the basis of achieving targeted funds from operations, revenue, leasing and development and redevelopment starts. Because of their more narrow and focused responsibilities, annual long-term restricted stock awards are granted to our Senior Managers and our other executive officers on a discretionary basis depending upon Company performance, individual performance and current economic and real estate market conditions.

2006 Annual Long-Term Incentive Program

Under this program, based upon the performance criteria set forth above, the Executive Management Team was eligible to earn up to an aggregate of $3.4 million, with our President and Chief Executive Officer eligible to earn up to 211% of his base salary, our Chief Operating Officer eligible to earn up to 191% of his base salary, and our Chief Financial Officer eligible to earn up to 123% of his base salary depending on the level of targeted performance achieved. In the event the threshold was exceeded and the target levels were not achieved, the executive officers were eligible earn a proportionate award. Individual awards under this component were made under the 2006 Plan and were paid in restricted stock. These awards will vest over a two-year service period in two parts, 50% on December 31, 2007 and 50% on December 31, 2008 based on continued employment through the applicable vesting date.

Discretionary Long-Term Vesting Equity Incentive Awards

Our Senior Managers, along with other selected Company employees, are eligible to participate in our annual award of restricted stock grants, which are an important component of the compensation necessary to attract and retain talented executive officers. Discretionary equity grants are made under the 2006 Plan. Guidelines for the number of restricted stock awards granted to each executive officer are determined based upon several factors, including the executive officer’s salary grade, performance and the value of the stock at the time of grant. As a result, additional grants other than the annual award may be made following a significant change in job responsibility or in recognition of a significant achievement.

Equity Compensation Plan Information

The following table provides information as of December 31, 2006 with respect to shares of our common stock that may be issued under our existing equity compensation plans.


Plan Category	Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Options(a)		Weighted- Average Exercise Price of Outstanding Options(b)		Number of Shares of Common Stock Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a)) (c)(1)
Equity Compensation plans approved by stockholders	47,000	(2)	$	24.33	1,535,000
Equity Compensation plans not approved by stockholders	N/A			N/A	N/A

Total	47,000		$	24.33	1,535,000

(1)	Includes shares available for future restricted stock grants under the 2006 Plan.

(2)	Issued under the Company’s 1997 Stock Option and Incentive Plan.

Defined Contribution Plans

We have a Section 401(k) Savings/Retirement Plan (the “401(k) Plan”) to cover our eligible employees and any designated affiliate. The 401(k) Plan permits our eligible employees to defer up to 60% of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code. The employees’ elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan. We currently make matching contributions to the 401(k) Plan in an amount equal to fifty cents for each dollar of participant contributions, up to a maximum of five percent of the participant’s annual salary and subject to certain other limits. Participants vest immediately in the amounts contributed by us. Our employees are eligible to participate in the 401(k) Plan after three months of credited service with us. The 401(k) Plan qualifies under Section 401 of the Internal Revenue Code so that contributions by employees to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan.

Severance and Change in Control Arrangements

Each of John B. Kilroy, Jr., Jeffrey C. Hawken, and Richard E. Moran Jr., has entered into a three-year employment agreement with us. Tyler H. Rose has entered into a one-year employment agreement with us. All of these agreements are subject to automatic one-year renewals if not terminated by either party and provide for severance benefits under certain events.

John B. Kilroy, Jr., Jeffrey C. Hawken, and Richard E. Moran Jr.

The employment agreements of Mr. Kilroy, Mr. Hawken and Mr. Moran provide that in the event that the employment of the executive is terminated without “Cause” or for “Good Reason” (as defined in the applicable

Employment Agreement), such terminated executive is entitled to receive the following payments and benefits (together with the Severance Payment, the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) annual incentive compensation, based on actual performance prior to the date of termination and reasonably anticipated performance through the remainder of the year; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards (excluding outperformance incentive awards) as governed by the applicable plans, programs, and agreements, but with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan; (vi) the settlement of any deferral arrangements in accordance with the plans and programs governing the deferral; and (vii) continuation health coverage for the terminated executive, his spouse and his dependents, as applicable, for three years after the date of termination, at our expense, except that if we cannot secure continuation health coverage for Mr. Moran (or health coverage under a separate health plan) at commercially reasonable rates, as determined in the sole discretion of the Compensation Committee, after the end of the applicable COBRA coverage period, then we shall pay Mr. Moran, in lieu of such health coverage, $50,000 for each of the three years after the date of his termination (the “Moran Health Benefits”). In addition, each executive is entitled to receive a severance payment (the “Severance Payment”) equal to (i) three times annual base salary, and (ii) three times the average of the two highest target annual incentives (e.g., the sum of the annual cash award target and the annual stock target as detailed for each executive above, which sum may be increased for the determination of the Severance Payment only if the Board or the Compensation Committee specifically approves such increase) during the three preceding full performance years, except that the actual annual incentive earned by the executive in 2006 shall be used instead of the 2006 target annual incentive when making such determination and the target annual incentives shall never be less than the annual cash award target and the annual stock target set forth in the applicable employment agreement.

As defined in the Employment Agreements, Good Reason includes the right of the executives to terminate employment with us in the twelfth month following a “Change in Control” of the Company (as defined below). Also, a non-extension by us of the term of the Employment Agreements will be deemed a termination of the relevant executive’s employment without Cause.

In the event that the employment of an executive is terminated due to his retirement or death, such terminated executive is entitled to receive the Termination Benefits, except that (i) his Severance Payment shall equal (a) his annual base salary and (b) the average of his two highest target annual incentives (e.g., the sum of the annual cash award target and the annual stock target as detailed for each executive above, which sum may be increased for the determination of the Severance Payment only if the Board or the Compensation Committee specifically approves such increase) during the three preceding full performance years, except that the actual annual incentive earned by the executive in 2006 shall be used instead of the 2006 target annual incentive when making such determination and the target annual incentives shall never be less than the annual cash award target and the annual stock target set forth in the applicable employment agreement, and (ii) if the executive is Mr. Moran, he will have the opportunity to receive the Moran Health Benefits only upon retirement and not upon death.

In the event that the employment of an executive is terminated due to his disability, such terminated executive is entitled to receive the Termination Benefits, except that his Severance Payment shall equal (i) two times his annual base salary and (ii) two times the average of his two highest target annual incentives (e.g., the sum of the annual cash award target and the annual stock target as detailed for each executive above, which sum may be increased for the determination of the Severance Payment only if the Board or the Compensation Committee specifically approves such increase) during the three preceding full performance years, except that the actual annual incentive earned by the executive in 2006 shall be used instead of the 2006 target annual incentive when making such determination and the target annual incentives shall never be less than the annual cash award target and the annual stock target set forth in the applicable employment agreement.

In the event of a Change in Control of the Company, the executives are generally entitled to receive gross-ups from us for any excise taxes imposed, pursuant to Section 4999 of the Internal Revenue Code, on the payments and benefits that the executives will receive upon such Change in Control under the Employment

Agreements or under any other arrangement with us. We agree to place such gross-ups, payments and benefits in separate rabbi trusts on behalf of each executive within thirty (30) days after the Change in Control.

“Change in Control” is defined in each executive’s Employment Agreement as follows: (i) a transaction or series of transactions (other than an offering of stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company and immediately after such acquisition possesses more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; (ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 8(c)(i) hereof or Section 8(c)(iii) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: (A) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and (B) after which no person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 8(c)(iii)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or (iv) the Company’s stockholders approve a liquidation or dissolution of the Company and all material contingencies to such liquidation or dissolution have been satisfied or waived.

Tyler H. Rose

The employment agreement of Mr. Rose provides that in the event of death, the executive’s estate will receive monthly payments of the executive’s annual salary, plus one-twelfth of any bonus to be received, for a period equal to the lesser of the term remaining under the employment agreement or one year. In addition, in the event of a termination by us without “cause,” a termination of employment resulting from “disability,” or a termination by the executive for “good reason,” the terminated executive will be entitled to (i) severance equal to the sum of two times the executive’s average annual base compensation and two times the highest annual bonus received during the preceding 36-month period and (ii) continued receipt of certain benefits including medical insurance, life and disability insurance and the receipt of other customary benefits established by us for our executive employees for two years following the date of termination.

Steven R. Scott

Mr. Scott is party to an employment arrangement with us whereby if he is terminated for reasons other than his negligence or willful misconduct, Mr. Scott shall be entitled to a severance payment equal to three months of his base compensation.

Other Elements of Compensation and Perquisites

To assist us in attracting and retaining key executives critical to our long-term success, we provide our NEOs with perquisites as follows:

Employee Healthcare Premiums. We, at our sole cost, provide to each executive officer, the executive officer’s spouse and children such health, dental and optical insurance as we may from time to time make available to our other executives of the same level of employment.

Supplemental Healthcare Insurance. We, at our sole cost, provide to each executive officer supplemental healthcare insurance, which consists of an annual benefit per executive officer for reimbursed medical expenses during a calendar year.

Automobile Allowance. We provide each executive officer and certain other employees with an automobile allowance during the term of such employee’s employment with us as we in our sole discretion may from time to time make available to our other employees of the same level of employment.

Automobile Reimbursements. We reimburse our executive officers and certain other employees for certain automobile-related expenses during the term of their employment.

Automobile Lease. We, at our sole cost, lease a car for John B. Kilroy, Jr.

Club Dues. We, at our sole cost, pay certain club dues for John B. Kilroy, Jr. and Jeffrey C. Hawken.

Executive Compensation Committee Report

The Compensation Committee has reviewed and discussed our Compensation Discussion and Analysis section with management, and based on the review and discussions, recommended to the Board that the Compensation Discussion and Analysis section be included in the annual meeting proxy statement on Schedule 14A.

Executive Compensation Committee

Edward F. Brennan, Ph.D., Chairman

John R. D’Eathe

Dale F. Kinsella

Executive Compensation

Summary Compensation Table

The following table sets forth summary information regarding our compensation practices for each of our NEOs for all services rendered to us in all capacities in 2006.


Name & Principal Position	Year	Salary ($)		Stock Awards ($)			Bonus ($)		Option Awards ($)	Non Equity Incentive Plan Compensation ($)		Change in Pension Value & Nonqualified Deferred Compensation ($)	All Other Compensation ($) (6)		Total ($)
(a)	(b)	(c)		(d)			(e)		(f)	(g)		(h)	(i)		(j)
John B. Kilroy, Jr.	2006	$	950,000	$	3,103,916	(1)				$	2,490,000		$	83,292	$	6,627,208
Jeffrey C. Hawken	2006	$	460,000	$	1,235,224	(2)				$	698,250		$	41,830	$	2,435,304
Richard E. Moran Jr.	2006	$	430,000	$	846,663	(3)				$	468,825		$	36,370	$	1,781,858
Steven R. Scott	2006	$	275,000	$	389,071	(4)	$	350,000					$	29,332	$	1,043,403
Tyler H. Rose	2006	$	275,000	$	237,177	(5)	$	325,000					$	26,945	$	864,122

(1)

Includes $20,812 related to restricted stock grants made in 2004 with respect to the 2003 performance period; $249,511 related to restricted stock grants made in 2005 with respect to the 2004 performance period; $810,573 related to restricted stock grants made in 2006 with respect to the 2005 performance period; and $2,023,020 related to restricted stock grants made in 2007 with respect to the 2006 performance period.

(2)

Includes $13,875 related to restricted stock grants made in 2004 with respect to the 2003 performance period; $164,492 related to restricted stock grants made in 2005 with respect to the 2004 performance period; $526,253 related to restricted stock grants made in 2006 with respect to the 2005 performance period; and $530,605 related to restricted stock grants made in 2007 with respect to the 2006 performance period.

(3)

Includes $8,325 related to restricted stock grants made in 2004 with respect to the 2003 performance period; $99,804 related to restricted stock grants made in 2005 with respect to the 2004 performance period; $324,230 related to restricted stock grants made in 2006 with respect to the 2005 performance period; and $414,304 related to restricted stock grants made in 2007 with respect to the 2006 performance period.

(4)

Includes $112,416 related to restricted stock grants made in 2004 with respect to the 2003 performance period; $99,948 related to restricted stock grants made in 2005 with respect to the 2004 performance period; and $176,707 related to restricted stock grants made in 2006 with respect to the 2005 performance period.

(5)

Includes $74,952 related to restricted stock grants made in 2004 with respect to the 2003 performance period; $74,964 related to restricted stock grants made in 2005 with respect to the 2004 performance period; and $87,261 related to restricted stock grants made in 2006 with respect to the 2005 performance period.

(6)	Includes the perquisites identified in the table below and our 401(k) matching contribution.

The following table identifies perquisites provided to our NEOs in 2006.


Executive Officers	Employee Healthcare Premiums		Supplemental Healthcare Insurance		Automobile Allowance		Automobile Reimbursements		Automobile Lease		Telephone Bills		Club Dues		Total Benefits
John B. Kilroy, Jr.	$	2,167	$	8,750	$	19,440	$	18,918	$	8,847	$	6,573	$	8,597	$	73,292
Jeffrey C. Hawken	$	2,167	$	8,750	$	9,000	$	6,316					$	8,097	$	34,330
Richard E. Moran Jr.	$	2,167	$	8,750	$	9,000	$	6,453							$	26,370
Steven R. Scott	$	2,167	$	8,750	$	6,600	$	1,815							$	19,332
Tyler H. Rose	$	2,167	$	8,750	$	6,600	$	1,928							$	19,445

Grants of Plan-Based Awards

The following table sets forth summary information regarding all grants of plan-based awards made to our NEOs for the year ended December 31, 2006.

Grants of Plan-Based Awards

Name

Grant
Date

(1)

Approval
Date

Estimated Future Payouts
Under Non-Equity

Incentive Plan Awards

Estimated Future Payouts
Under Equity

Incentive Plan Awards

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)

All Other
Options
Awards:
Number of
Securities
Underlying
Options (#)

Exercise
or Base
Price of
Option
Awards
($/Sh)

Grant Date
Fair Value

Threshold
($)

Target
($)

Maximum
($)

Threshold
($)

Target
($)

Maximum
($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

John B. Kilroy, Jr.

1/11/2006

(2)

1/11/2006

5,671

375,000

1/11/2006

(3)

1/11/2006

20,110

1,329,866

Jeffrey C. Hawken

1/11/2006

(2)

1/11/2006

3,403

225,000

1/11/2006

(3)

1/11/2006

13,407

886,578

Richard E. Moran Jr.

1/11/2006

(2)

1/11/2006

2,269

150,000

1/11/2006

(3)

1/11/2006

8,044

531,947

Steven R. Scott

2/16/2006

14,254

1,000,000

Tyler H. Rose

2/16/2006

7,127

500,000

(1)

Table excludes shares granted in 2007 for 2006 performance period. For the 2006 performance period, on February 7, 2007, we granted 140,109 shares of restricted stock to John B. Kilroy, Jr., 35,571 shares of restricted stock to Jeffrey C. Hawken, 28,679 shares of restricted stock to Richard E. Moran Jr., 22,656 shares of restricted stock to Steven R. Scott, and 8,496 shares of restricted stock to Tyler H. Rose.

(2)	Granted pursuant to our 2005 annual bonus program.

(3)	Granted pursuant to our 2005 annual long-term incentive program.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth summary information regarding the outstanding equity awards granted to each of our NEOs at December 31, 2006

Outstanding Equity Awards at Fiscal Year-End

Name

Option Awards

Stock Awards

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

Option
Exercise
Price ($)

Option
Expiration
Date

Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) (1)

Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)

Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

John B. Kilroy, Jr.

39,126

3,051,828

Jeffrey C. Hawken

25,707

2,005,146

Richard E. Moran Jr.

15,651

1,220,778

Steven R. Scott

30,383

2,369,874

Tyler H. Rose

18,686

1,457,508

(1)	Calculated based on closing stock price of $78.00 on December 29, 2006.

Option Exercises and Vested Stock

The following table summarizes the option exercises and vesting of stock awards for each of our NEOs for the year ended December 31, 2006.

Option Exercises and Stock Vested


Name	Option Awards			Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
(a)	(b)	(c)		(d)	(e)
John B. Kilroy, Jr.	—	$	—	37,748	$	2,672,824
Jeffrey C. Hawken	—	$	—	24,561	$	1,737,794
Richard E. Moran Jr.	—	$	—	15,099	$	1,069,118
Steven R. Scott	—	$	—	5,647	$	394,897
Tyler H. Rose	—	$	—	3,966	$	277,954

Potential Payments Upon Termination or Change of Control

The information in this section sets forth the value of benefits and payments to each of the NEOs upon the triggering events indicated and is based upon the terms of employment agreements in effect as of the date of this Proxy Statement as described in “Severance and Change in Control Arrangements” above. As required by the SEC rules, these estimated values assume that the triggering event took place on December 29, 2006, the last business day of the fiscal year. The payments and benefits that would be provided to the NEOs in each of these events are more fully described in the Compensation Discussion and Analysis section above.


Summary of Cash Severance Payment	John B. Kilroy, Jr.		Jeffrey C. Hawken		Richard E. Moran Jr.		Steven R. Scott		Tyler H. Rose
Voluntary Termination	$	0	$	0	$	0	$	0	$	0
Involuntary for Cause Termination	$	0	$	0	$	0	$	0	$	0
Involuntary Not-For-Cause Termination or for “good reason”	$	32,637,998	$	10,512,509	$	8,205,672	$	68,750	$	1,073,333
Retirement	$	10,879,333	$	3,504,170	$	2,735,224	$	0	$	0
Death	$	10,879,333	$	3,504,170	$	2,735,224	$	0	$	550,000
Disability	$	21,758,665	$	7,008,339	$	5,470,448	$	0	$	1,073,333

In addition to the payments described in the table above, upon a change in control, (i) Mr. Kilroy would have be entitled to full vesting of his outstanding restricted stock valued at $3,051,828 based on the closing price of our common stock on December 29, 2006; (ii) Mr. Hawken would have been entitled to full vesting of his outstanding restricted stock valued at $2,005,146 based on the closing price of our common stock on December 29, 2006; and (iii) Mr. Moran would have been entitled to full vesting of his outstanding restricted stock valued at $1,220,778 based on the closing price of our common stock on December 29, 2006. Upon certain terminations of employment as set forth in “Severance and Change in Control Arrangements”, (i) Mr. Kilroy would have been entitled to full vesting of his outstanding restricted stock valued at $3,051,828 based on the closing price of our common stock on December 29, 2006, $54,215 in health benefits calculated based on assumptions we use for financial reporting purposes, and the cash and restricted stock awards earned under our 2006 Annual Bonus Program and 2006 Annual Long-Term Incentive Program as set forth in “Performance-Based Compensation”, including the full vesting of such restricted stock awards; (ii) Mr. Hawken would have been entitled to full vesting of his outstanding restricted stock valued at $2,005,146 based on the closing price of our common stock on December 29, 2006, $54,215 in health benefits calculated based on assumptions we use for financial reporting purposes, and the cash and restricted stock awards earned under our 2006 Annual Bonus Program and 2006 Annual Long-Term Incentive Program as set forth in “Performance-Based Compensation”, including the full

vesting of such restricted stock awards; and (iii) Mr. Moran would have been entitled to full vesting of his outstanding restricted stock valued at $1,220,778 based on the closing price of our common stock on December 29, 2006, $54,215 in health benefits calculated based on assumptions we use for financial reporting purposes or the Moran Health Benefits, as applicable, and the cash and restricted stock awards earned under our 2006 Annual Bonus Program and 2006 Annual Long-Term Incentive Program as set forth in “Performance-Based Compensation”, including the full vesting of such restricted stock awards.

Director Compensation

Under the 2006 compensation program, we paid each of our non-employee directors annual cash compensation of $30,000 for services rendered and $1,500 for each Board meeting attended by such director. Each non-employee director also received annual compensation of $5,000 for each committee of which he is a member, with the exception of the members of the Audit Committee who received additional annual cash compensation of $7,500. The Chairman of each committee received additional annual cash compensation of $10,000, with the exception of the Chairman of the Audit Committee who received additional annual cash compensation of $20,000. Effective January 1, 2007, we will pay each of our non-employee directors annual cash compensation of $35,000 for services rendered and $2,000 for each Board meeting attended by such director. Each non-employee director will also receive annual compensation of $1,000 for each committee of which he is a member. The Chairman of each committee will receive additional annual cash compensation of $10,000, with the exception of the Chairman of the Audit Committee and the Chairman of the Compensation Committee who will receive additional annual cash compensation of $20,000. Directors are reimbursed for reasonable expenses incurred to attend director and committee meetings and incident to their service as a director. Our officers who are directors are not paid any directors fees.

In addition, in May 2006, each non-employee director received an annual grant authorized under the 1997 Stock Incentive Plan of restricted shares of Common Stock that vest in equal annual installments over two years. Each non-employee director grant provides that the restricted shares will vest in full in the event of a change of control of the Company (as defined in the 1997 Stock Incentive Plan) or a termination of the non-employee director’s directorship for any reason other than the director’s voluntary resignation or retirement. Effective January 1, 2007, each non-employee director will receive an annual grant authorized under the 2006 Plan of restricted shares of common stock valued at $100,000 that will vest in equal annual installments over two years.

Further, non-employee directors are encouraged to hold significant equity interests in the Company. The Board expects each non-employee director to own or to acquire, within five years of first becoming a director or by February 10, 2009, whichever is later, shares of our common stock having a market value of at least $100,000.

The following table sets forth summary information regarding our compensation practices for each of our directors for 2006.


Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
John B. Kilroy Jr.	$	—	$	—	$	—	$	—	$	—	$	—	$	—
John B. Kilroy Sr.	$	51,500	$	20,000	$	—	$	—	$	—	$	11,400	$	82,900
Edward F. Brennan, Ph.D.	$	71,500	$	27,020	$	—	$	—	$	—	$	—	$	98,520
John R. D'Eathe	$	69,000	$	20,000	$	—	$	—	$	—	$	—	$	89,000
William P. Dickey	$	72,500	$	20,000	$	—	$	—	$	—	$	—	$	92,500
Matthew J. Hart	$	84,000	$	20,000	$	—	$	—	$	—	$	—	$	104,000
Dale F. Kinsella	$	73,500	$	20,000	$	—	$	—	$	—	$	—	$	93,500

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information, as of March 31, 2007, regarding the beneficial ownership of Common Stock (or Common Stock issuable upon the redemption of common limited partnership interests (the “Units”) in the Operating Partnership) for (i) each person or entity known by the Company to be the beneficial owner of five percent or more of the Company’s outstanding Common Stock (or Common Stock issuable, at the Company’s option, upon the redemption of Units) (based on the share ownership of each such person or entity as of December 31, 2006), (ii) each director and each NEO and (iii) the directors and such NEOs of the Company as a group. Except as indicated below, all shares of Common Stock are owned directly, and the indicated person has sole voting and investment power with respect to all of the shares of Common Stock beneficially owned by such person other than restricted stock, as to which a person has sole voting but no dispositive power. In preparing this table, the Company has relied upon information supplied by its officers, directors and certain stockholders in addition to information contained in filings with the Securities and Exchange Commission.


Name of Beneficial Owner(1)	Number of Shares of Common Stock Beneficially Owned(2)		Percentage of Outstanding Shares of Common Stock (2)
Cohen & Steers Capital Management, Inc.	2,889,383	(3)	8.8	%
T. Rowe Price Associates, Inc.	2,564,870	(4)	7.8	%
Stichting Pensioenfonds ABP	2,251,882	(5)	6.9	%
The Vanguard Group, Inc.	1,881,773	(6)	5.8	%
John B. Kilroy, Jr.	1,205,769	(7)	3.6	%
John B. Kilroy, Sr.	653,663	(8)	2.0	%
Richard E. Moran Jr.	188,746	(9)	*
Jeffrey C. Hawken	159,855	(10)	*
Tyler H. Rose	53,618	(11)	*
Steven R. Scott	46,274	(12)	*
Matthew J. Hart	38,141	(13)	*
William P. Dickey	37,141	(14)	*
John R. D’Eathe	32,734	(15)	*
Dale F. Kinsella	23,141	(16)	*
Edward F. Brennan, Ph.D.	2,352	(17)	*
All directors and NEOs as a group (11 persons)			7.3	%

*	Represents less than 1.0% of outstanding shares of Common Stock.

(1)	Unless otherwise indicated, the address for each of the persons listed is c/o Kilroy Realty Corporation, 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064.

(2)

The number of shares of Common Stock beneficially owned is based on Securities and Exchange Commission regulations regarding the beneficial ownership of securities. The number of shares of Common Stock and the percentage of outstanding shares of Common Stock beneficially owned by a person assumes that all Units held by such beneficial owner are, upon redemption, exchanged for shares of Common Stock, that none of the Units held by other persons are so exchanged, that all options exercisable within 60 days of December 31, 2006 by such beneficial owner are exercised and that no options to acquire shares of Common Stock held by other persons are exercised.

(3)

Represents the number of shares of Common Stock beneficially owned as reported on Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007 by Cohen & Steers Capital Management, Inc. (“Cohen & Steers”). The address for Cohen & Steers is 280 Park Avenue, New York, New York, 10017.

(4)

Represents the number of shares of Common Stock beneficially owned as reported on Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007 by T. Rowe Price Associates, Inc. (“T. Rowe Price”). The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland, 21202.

These securities are owned by various individual and institutional investors for which T. Rowe Price serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, T. Rowe Price expressly disclaims that it is the beneficial owner of such securities.

(5)

Represents the number of shares of Common Stock beneficially owned as reported on Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007 by Stichting Pensioenfonds ABP (“Stichting Pensioenfonds”). The address for Stichting Pensioenfonds is Oude Lindestraat 70, Postbus 2889, 6401 DL Heerlen, The Kingdom of the Netherlands.

(6)	Represents the number of shares of Common Stock beneficially owned as reported on Schedule 13G filed with the Securities and Exchange Commission on February 14, 2007 by The Vanguard Group, Inc. (“Vanguard”). The address for Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania, 19355.

(7)

Includes (i) 877,345 shares of Common Stock issuable, at the Company’s option, upon the redemption of Units (including Units beneficially owned by KAICO and Kilroy Technologies and allocated to John B. Kilroy, Jr. as one of its two shareholders), (ii) 178,260 shares of Common Stock held directly and (iii) 150,164 restricted shares of Common Stock held directly.

(8)

Includes (i) 552,885 shares of Common Stock issuable, at the Company’s option, upon the redemption of Units (including Units beneficially owned by KI, Kilroy Airport Imperial Co. (“KAICO”), and Kilroy Technologies Company, LLC, a California limited liability company (“Kilroy Technologies”), and allocated to John B. Kilroy, Sr. as one of its shareholders), (ii) 100,265 shares of Common Stock beneficially owned by John B. Kilroy, Sr., and (iii) 513 restricted shares of Common Stock held directly.

(9)	Includes (i) 156,045 shares of Common Stock held directly and (ii) 32,701 restricted shares of Common Stock held directly.

(10)	Includes (i) 117,581 shares of Common Stock held directly and (ii) 42,274 restricted shares of Common Stock held directly.

(11)	Includes (i) 31,828 shares of Common Stock held directly and (ii) 21,790 restricted shares of Common Stock held directly.

(12)	Includes (i) 1,733 shares of Common Stock held directly and (ii) 44,541 restricted shares of Common Stock held directly.

(13)	Includes (i) 37,628 shares of Common Stock held directly and (ii) 513 restricted shares of Common Stock held directly.

(14)	Includes (i) 11,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 2006, (ii) 25,628 shares of Common Stock beneficially owned by William P. Dickey, (iii) 513 restricted shares of Common Stock held directly.

(15)	Includes (i) 32,221 shares of Common Stock held directly and (ii) 513 restricted shares of Common Stock held directly.

(16)	Includes (i) 16,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 2006, (ii) 6,628 shares of Common Stock held directly and (iii) 513 restricted shares of Common Stock held directly.

(17)	Includes (i) 1,589 shares of Common Stock held directly and (ii) 763 restricted shares of Common Stock held directly.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 2006, no directors or executive officers of the Company, including John B. Kilroy, Sr. and John B. Kilroy, Jr., the Chairman of the Board and the President and Chief Executive Officer, respectively, or security holder of more than five percent of the Company’s outstanding Common Stock, or members of any of their immediate families, had direct or indirect interests in transactions or potential transactions with the Company, the Operating Partnership, Kilroy Services, LLC or any other subsidiary of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of any registered class of the Company’s equity securities (collectively, “Insiders”), to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of the Company’s Common Stock and other equity securities of the Company. Insiders are required by regulation of the Commission to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of reports furnished to the Company or written representations from the Insiders that no other reports were required, during the year ended December 31, 2006, all Insiders complied with all Section 16(a) filing requirements applicable to them.

STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING

A stockholder seeking to have a proposal included in the Company’s proxy statement for the 2008 annual meeting of stockholders must comply with the applicable rules and regulations of the Securities and Exchange Commission, including that any such proposal must be received by the Company’s Secretary at the Company’s principal executive offices by December 14, 2007.

The Company’s bylaws require a stockholder desiring to present a proposal for a vote at the 2008 annual meeting of stockholders to notify the Company’s Secretary in writing. The notice generally must be delivered to or mailed and received at the Company’s principal executive offices (i) not less than 50 days nor more than 75 days prior to the 2008 annual meeting or (ii) if the Company provides less than 65 days public notice of the date of its annual meeting, then not later than the 15th day following the earlier of the day on which public notice of the date for the 2008 annual meeting is published or mailed. Other specifics regarding the notice procedures, including the required content of the notice, can be found in the Company’s bylaws, a copy of which may be obtained without charge by request to the Company’s Secretary at the Company’s principal executive offices.

Stockholders who wish to have a proposal included in the Company’s proxy statement for the 2008 annual meeting or have a proposal properly brought before the 2008 annual meeting for a vote must comply with the above requirements, as applicable. Stockholders that comply with the rules and regulations of the Securities and Exchange Commission to have a proposal included in the Company’s proxy statement for the 2008 annual meeting will be deemed to have complied with the notice requirements contained in the Company’s bylaws. Stockholder proposals submitted to the Company’s Secretary that do not comply with these requirements may be excluded from the Company’s proxy statement and/or may not be brought before the 2008 annual meeting, as applicable.

For specific information with respect to the process for recommending a director candidate, see “Proposal 1: Election of Director—Manner by which Security Holders May Recommend Director Candidates” above.

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) have served as the Company’s independent public accountants since the completion of the Company’s initial public offering in January 1997 and has been selected by the Audit Committee to continue to serve as the Company’s independent public accountants for the first quarter of fiscal year 2007. Consistent with past practice, the Audit Committee will appoint the Company’s independent public accountants for the full current fiscal year at its meeting to be held during the second quarter.

The Audit Committee of the Board has determined that Deloitte is independent with regard to the Company within the meaning of the Exchange Act and the applicable published rules and regulations thereunder in effect on the date of this Proxy Statement. The Audit Committee annually reviews and pre-approves certain audit and non-audit services that may be provided by the independent auditors and establishes a pre-approved aggregate fee level for all these services. Any proposed services not included within the list of pre-approved services or any proposed services that will cause the Company to exceed the pre-approved aggregate amount requires specific pre-approval by the Audit Committee.

Representatives of Deloitte are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Principal Accountant Fees and Services

The aggregate fees billed to the Company by Deloitte for professional services rendered in fiscal years 2006 and 2005 are as follows:


Fees(1)	2006		2005
Audit Fees(2)	$	778,381	$	764,374
Audit-Related Fees(3)		29,800		21,000
Tax Fees(4)		254,818		256,660
All Other Fees(5)		112,468		—

	$	1,185,467	$	1,042,034

(1)

All services rendered for these fees were pre-approved by the Audit Committee in accordance with the Audit Committee’s pre-approval policies and procedures described above. The Audit Committee has concluded that the provision of the non-audit services rendered for the listed fees is compatible with maintaining Deloitte’s independence.

(2)

Includes the aggregate fees billed for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s quarterly reports on Form 10-Q, consultations with Company’s management on technical accounting and regulatory issues, and the audit of internal controls over financial reporting.

(3)	Includes the aggregate fees billed for the audit of the Company’s 401(k) plan.

(4)	Includes the aggregate fees billed for the review and assistance with the preparation of tax returns, the review of quarterly REIT test compliance, review of technical accounting issues, and the coordination of the Company’s property tax correspondence and property tax appeals process.

(5)	Includes fees billed for assistance with the preparation and review of the Company’s registration statement.

PROXY SOLICITATION EXPENSE

The cost of soliciting proxies will be borne by the Company. These costs will include reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation material regarding the Annual Meeting to beneficial owners of the Company’s Common Stock. The Company will use the services of Mellon Investor Services LLC to assist with the mailing of proxies and expects to pay a fee of approximately $15,000 for these services. Proxies may be solicited by directors, officers, and employees of the Company in person or by mail, telephone, email or facsimile transmission, but such persons will not be specifically compensated therefor. The Company may also use the services of a third-party solicitor to solicit proxies for the Annual Meeting, which the Company estimates would cost approximately $10,000.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by the Company may be inspected without charge and copies obtained upon payment of prescribed fees from the Public Reference Room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 (1-800-SEC-0330), or by way of the Securities and Exchange Commission’s Internet address, http://www.sec.gov.

The Company will provide without charge to each person to whom a copy of the Proxy Statement is delivered, upon the written or oral request of any such persons, copies of the Company’s Form 10-K for the period ended December 31, 2006. Requests for such copies should be addressed to: Kilroy Realty Corporation, 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, Attn: Secretary, telephone (310) 481-8400. You may also access additional information about the Company at our Internet address, http://www.kilroyrealty.com.

OTHER MATTERS

The Board does not know of any other matter that will be brought before the Annual Meeting. However, if any other matter properly comes before the Annual Meeting or any adjournment(s) or postponement(s) thereof, which may properly be acted upon, the proxies solicited hereby will be voted at the discretion of the named proxy holders.

You are urged to sign, date and return the enclosed proxy in the envelope provided. No further postage is required if the envelope is mailed within the United States. If you subsequently decide to attend the Annual Meeting and wish to vote your shares at the meeting, you may do so. Your cooperation in giving this matter your prompt attention will be appreciated.

April 10, 2007

By Order of the Board of Directors,

LOGO

Richard E. Moran Jr.

Executive Vice President,

Chief Financial Officer and Secretary

Appendix A

AUDIT COMMITTEE CHARTER

of the Audit Committee

of Kilroy Realty Corporation

This Audit Committee Charter was adopted by the Board of Directors (the “Board”) of Kilroy Realty Corporation (the “Company”) on March 8, 2004.

Purpose

The purpose of the Audit Committee (the “Committee”) is to assist the Board with its oversight responsibilities regarding: (i) the quality and integrity of the Company’s financial statements; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the Company’s accounting and system of internal controls; and (v) the performance of the Company’s internal audit function and independent auditor. The Committee shall prepare the report required by the rules of the Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement.

In addition to the powers and responsibilities expressly delegated to the Committee in this Charter, the Committee may exercise any other powers and carry out any other responsibilities delegated to it by the Board from time to time consistent with the Company’s bylaws. The powers and responsibilities delegated by the Board to the Committee in this Charter or otherwise shall be exercised and carried out by the Committee as it deems appropriate without requirement of Board approval, and any decision made by the Committee (including any decision to exercise or refrain from exercising any of the powers delegated to the Committee hereunder) shall be at the Committee’s sole discretion. While acting within the scope of the powers and responsibilities delegated to it, the Committee shall have and may exercise all the powers and authority of the Board. To the fullest extent permitted by law, the Committee shall have the power to determine which matters are within the scope of the powers and responsibilities delegated to it.

Notwithstanding the foregoing, the Committee’s responsibilities are limited to oversight, and the Committee is not responsible for the completeness or accuracy of the Company’s financial statements or other financial information. Management of the Company is solely responsible for the preparation, presentation, content and integrity of the Company’s financial statements and other publicly disclosed information, including the Company’s earnings press releases and earnings guidance, and other financial information provided to analysts, rating agencies and others. In addition, management of the Company is solely responsible for the Company’s financial reporting process, accounting policies, internal audit function, internal control over financial reporting and disclosure controls and procedures. The independent auditor is responsible for performing an audit of the Company’s annual financial statements, expressing an opinion as to the conformity of such annual financial statements with generally accepted accounting principles, reviewing the Company’s quarterly financial statements and issuing an attestation report on management’s assessment of the Company’s internal control over financial reporting to be filed as part of the Company’s annual report on Form 10-K. It is not the responsibility of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosure are complete and accurate and in accordance with generally accepted accounting principles and applicable laws, rules and regulations. Each member of the Committee shall be entitled to rely on the integrity of those persons within the Company and of the professionals and experts (including the Company’s internal auditor (or others responsible for the internal audit function, including contracted non-employee or audit or accounting firms engaged to provide internal audit services) (the “internal auditor”) and the Company’s independent auditor) from which the Committee receives information and, absent actual knowledge to the contrary, the accuracy of the financial and other information provided to the Committee by such persons, professionals or experts.

Further, auditing literature, particularly Statement of Accounting Standards No. 71, defines the term “review” to include a particular set of required procedures to be undertaken by independent auditors. The members of the Committee are not independent auditors, and the term “review” as used in this Charter is not intended to have that meaning and should not be interpreted to suggest that the Committee members can or should follow the procedures required of auditors performing reviews of financial statements.

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II.

Membership

The Committee shall consist of no fewer than three members of the Board. Each Committee member shall be financially literate as determined by the Board in its business judgment or must become financially literate within a reasonable period of time after his or her appointment to the Committee. Members of the Committee are not required to be engaged in the accounting and auditing profession and, consequently, some members may not be expert in financial matters, or in matters involving auditing or accounting. However, at least one member of the Committee shall have accounting or related financial management expertise as determined by the Board in its business judgment. In addition, either at least one member of the Committee shall be an “audit committee financial expert” within the definition adopted by the SEC or the Company shall disclose in its periodic reports required pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) the reasons why at least one member of the Committee is not an “audit committee financial expert.”

Each Committee member shall satisfy the independence requirements of the New York Stock Exchange and Exchange Act Rule 10A-3(b)(1). No Committee member may simultaneously serve on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and such determination is disclosed in the Company’s annual proxy statement.

The members of the Committee, including the Chairman of the Committee, shall be appointed by the Board on the recommendation of the Nominating/Corporate Governance Committee. Committee members may be removed from the Committee, with or without cause, by the Board.

III.

Meetings and Procedures

The Chairman (or in his or her absence, a member designated by the Chairman) shall preside at each Committee meeting. Agendas for Committee meetings shall be prepared by the Corporate Secretary in consultation with the Committee Chairman. A quorum shall be constituted by a majority of the Committee’s members. The Committee shall have the authority to establish its own rules and procedures for notice and conduct of its meetings so long as they are not inconsistent with any provisions of the Company’s bylaws that are applicable to the Committee.

The Committee shall meet at least once during each fiscal quarter and more frequently as the Committee deems desirable. The Committee shall meet separately, periodically, with management, with the internal auditor and with the independent auditor.

All non-management directors that are not members of the Committee may attend and observe meetings of the Committee, but shall not participate in any discussion or deliberation unless invited to do so by the Committee, and in any event shall not be entitled to vote. The Committee may, at its discretion, include in its meetings members of the Company’s management, representatives of the independent auditor, the internal auditor, any other financial personnel employed or retained by the Company or any other persons whose presence the Committee believes to be necessary or appropriate. Notwithstanding the foregoing, the Committee may also exclude from its meetings any persons it deems appropriate, including, but not limited to, any non-management director that is not a member of the Committee.

Minutes of each meeting are to be prepared by the person acting as secretary of the meeting. The Corporate Secretary will retain a copy of the minutes in the Company’s permanent files.

The Committee may retain any independent counsel, experts or advisors (accounting, financial or otherwise) that the Committee believes to be necessary or appropriate. The Committee may also utilize the services of the Company’s regular legal counsel or other advisors to the Company. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report or performing other audit, review or attest services, for payment of compensation to any advisors employed by the Committee and for ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

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The Committee may conduct or authorize investigations into any matters within the scope of the powers and responsibilities delegated to the Committee.

IV.

Powers and Responsibilities

Interaction with the Independent Auditor

1. Appointment and Oversight. The Committee shall be directly responsible and have sole authority for the appointment, compensation, retention, termination, evaluation and oversight of the work of the independent auditor (including resolution of any disagreements between Company management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for the Company, and the independent auditor shall report directly to the Committee.

2. Pre-Approval of Services. Before the independent auditor is engaged by the Company or its subsidiaries to render audit or non-audit services, the Committee shall pre-approve the engagement. Committee pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Committee regarding the Company’s engagement of the independent auditor, provided the policies and procedures are detailed as to the particular service, the Committee is informed of each service provided and such policies and procedures do not include delegation of the Committee’s responsibilities under the Exchange Act to the Company’s management. The Committee may delegate to one or more designated members of the Committee the authority to grant pre-approvals, provided such approvals are presented to the Committee at a subsequent meeting. If the Committee elects to establish pre-approval policies and procedures regarding non-audit services, the Committee must be informed of each non-audit service provided by the independent auditor. Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within available exceptions established by the SEC.

3. Independence of Independent Auditor. The Committee shall, at least annually, review the independence and quality control procedures of the independent auditor and the experience and qualifications of the independent auditor’s senior personnel that are providing audit services to the Company. In conducting its review:

(i) The Committee shall obtain and review a report prepared by the independent auditor describing (a) the auditing firm’s internal quality-control procedures and (b) any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditing firm, and any steps taken to deal with any such issues.

(ii) The Committee shall discuss with the independent auditor its independence from the Company, and obtain and review a written statement prepared by the independent auditor describing all relationships between the independent auditor and the Company, consistent with Independence Standards Board Standard 1, and consider the impact that any relationships or services may have on the objectivity and independence of the independent auditor.

(iii) The Committee shall confirm with the independent auditor that the independent auditor is in compliance with the partner rotation requirements established by the SEC.

(iv) The Committee shall annually consider whether the Company should adopt a rotation of the audit among independent auditing firms.

(v) The Committee shall, if applicable, consider whether the independent auditor’s provision of any permitted information technology services or other non-audit services to the Company is compatible with maintaining the independence of the independent auditor.

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Annual Financial Statements and Annual Audit

4. Meetings with Management, the Independent Auditor and the Internal Auditor.

(i) The Committee shall meet with management, the independent auditor and the internal auditor in connection with each annual audit to discuss the scope of the audit, the procedures to be followed and the staffing of the audit.

(ii) The Committee shall review and discuss with management and the independent auditor: (A) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (B) any analyses prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including analyses of the effects of alternative GAAP methods on the Company’s financial statements; and (C) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements.

(iii) The Committee shall review and discuss the annual audited financial statements with management and the independent auditor, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

5. Additional Meetings with the Independent Auditor.

(i) The Committee shall review with the independent auditor any problems or difficulties the independent auditor may have encountered during the course of the audit work, including any restrictions on the scope of activities or access to required information or any significant disagreements with management and management’s responses to such matters. Among the items that the Committee should consider reviewing with the Independent Auditor are: (A) any accounting adjustments that were noted or proposed by the auditor but were “passed” (as immaterial or otherwise); (B) any communications between the audit team and the independent auditor’s national office respecting auditing or accounting issues presented by the engagement; (C) the Independent Auditor’s annual attestation report on management’s assessment of the Company’s internal control over financial reporting; and (D) any “management” or “internal control” letter issued, or proposed to be issued, by the independent auditor to the Company. The Committee shall obtain from the independent auditor assurances that Section 10A(b) of the Exchange Act (which specifies how an independent auditor must respond to a discovery, in the course of conducting an audit, that an illegal act has or may have occurred) has not been implicated.

(ii) The Committee shall discuss with the independent auditor the report that such auditor is required to make to the Committee regarding: (A) all accounting policies and practices to be used that the independent auditor identifies as critical; (B) all alternative treatments within GAAP for policies and practices related to material items that have been discussed among management and the independent auditor, including the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (C) all other material written communications between the independent auditor and management of the Company, such as any management letter, management representation letter, reports on observations and recommendations on internal controls, independent auditor’s engagement letter, independent auditor’s independence letter, schedule of unadjusted audit differences and a listing of adjustments and reclassifications not recorded, if any.

(iii) The Committee shall discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as then in effect.

6. Recommendation to Include Financial Statements in Annual Report. The Committee shall, based on the review and discussions in paragraphs 4(iii) and 5(iii) above, and based on the disclosures received from the

A-4

independent auditor regarding its independence and discussions with the auditor regarding such independence pursuant to subparagraph 3(ii) above, determine whether to recommend to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year subject to the audit.

Quarterly Financial Statements

7. Review of Quarterly Financial Statements. The Committee shall review the quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Internal Audit

8. Appointment. The Committee shall review the appointment and replacement of the internal auditor.

9. Separate Meetings with the Internal Auditor. The Committee shall meet periodically with the Company’s internal auditor to discuss the responsibilities, budget and staffing of the Company’s internal audit function and any issues that the internal auditor believes warrant audit committee attention. The Committee shall discuss with the internal auditor any significant reports to management prepared by the internal auditor and any responses from management.

Other Powers and Responsibilities

10. The Committee shall discuss with management and the independent auditor the types and presentation of the information contained in the Company’s earnings press releases as well as the types and presentation of financial information and earnings guidance provided to analysts and rating agencies. The Committee’s discussion in this regard may be general in nature (i.e. discussion of the types of information to be disclosed and the type of presentation to be made) and need not take place in advance of each earnings release or each instance in which the Company may provide earnings guidance.

11. The Committee shall discuss with management and the independent auditor any related-party transactions brought to the Committee’s attention which could reasonably be expected to have a material impact on the Company’s financial statements.

12. The Committee shall discuss with management and the independent auditor any correspondence from or with regulators or governmental agencies, any employee complaints or any published reports that raise material issues regarding the Company’s financial statements, financial reporting process, accounting policies or internal audit function.

13. The Committee shall discuss with the Company’s General Counsel or outside counsel any legal matters brought to the Committee’s attention that could reasonably be expected to have a material impact on the Company’s financial statements.

14. The Committee shall annually discuss with management the Company’s policies and internal control procedures in place to safeguard the Company’s assets, including the scope of applicable risk of loss insurance. The Committee shall discuss with management the Company’s significant financial risk exposures and the actions management has taken to limit, monitor or control such exposures.

15. The Committee shall set clear hiring policies for employees or former employees of the Company’s independent auditor.

16. The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters. The Committee shall also establish procedures for the confidential and anonymous submission by employees regarding questionable accounting or auditing matters.

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17. The Committee shall provide the Company with the report of the Committee with respect to the audited financial statements for inclusion in each of the Company’s annual proxy statements.

18. The Committee, through its Chairman, shall report regularly to, and review with, the Board any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with applicable legal or regulatory requirements, the performance and independence of the Company’s independent auditor, the performance of the Company’s internal audit function or any other matter the Committee determines is necessary or advisable to report to the Board.

19. The Committee shall at least annually perform an evaluation of the performance of the Committee and its members, including a review of the Committee’s compliance with this Charter.

20. The Committee shall at least annually review and reassess this Charter and submit any recommended changes to the Board for its consideration.

21. The Committee shall discuss with management and the independent auditor the Company’s compliance with applicable regulatory provisions required to maintain the Company’s status as a REIT.

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LOGO

PROXY

KIL ROY REALTY CORPORATION ANNUAL MEETING OF STOCKHOLDERS FOR THE

MAY 17, 2007

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder of Kilroy Realty Corporation (the “Company”) acknowledges receipt of a copy of the proxy statement dated April 10, 2007 and, revoking any proxy heretofore given, hereby appoints John B. Kilroy, Sr., John B. Kilroy, Jr., Richard E. Moran Jr. and each of them, as proxies for the undersigned, and hereby authorizes each of them to vote all the shares of Common Stock of the Company held of record by the undersigned on March 12, 2007, at the Annual Meeting of Stockholders to be held on May 17, 2007, or any adjournment or postponement thereof, and otherwise to represent the undersigned at the meeting with discretionary authority as to any and all other business the at may properly come before the meeting and with all powers possessed by the undersigned as if personally present at the meeting.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR THE NOMINEE FOR DIR ECTOR LISTED IN THE PROXY STATEMENT.

(Continued, and to be marked, dated and signed, on the other side)

Address Change/Comments (Mark the corresponding box on the reverse side)

FOLD AND DETACH HERE

LOGO

Mark Here for Address Change or Comments

PLEASE SEE REVERSE SIDE

PROPOSAL 1: ELECTION OF DIRECTOR

The Board recommends a vote FOR the following nominee:

01 William P. Dickey

FOR WITHHOLD

In their discretion, th e proxies are authorized to vote upon such other business as may properly come before the meeting.

Returned proxy cards that are signed and dated will be voted as directed or, if no contrary directions nidicated, will be voted FOR the election of the named nominee.

Signature

Sig nature

Date

NOT E: Please sign as name appears hereon. Joint owners should each sign. When sign ng i as attorney, executor, administrator, tru stee or guardian, please give f ull title as such. If a corporation, please sign in ful corporate name by president or other authorized officer, stating title. If a partnership , please sign in partnership name by authorized person , stating title. l

WE ENCOURAGE YOU TO TAKE ADVANTAGE OF IN TERNET OR TELEPHONE VOTING, BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.

Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to annual meeting day.

Your Internet or telephone vote authorizes the named proxies to vote your shares n i the same manner as f i you marked, signed and returned your proxy card.

INTERNET http:/ /www.proxyvoting.c om/krc

Use h t e in ternet to vote your proxy. Have yo ur pr oxy card n i hand when you access h t e web site.

TELEPHONE 1-866-540-5760

Use any touch-tone telephone to vote your proxy. Have your proxy card n i hand when you call.

If you vote your proxy by I n ternet or by t e lephone, you do NOT need to mail back your proxy card. To vote by mail , mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

Choose MLinkSM for fast, easy and secure 24/7 onlin e access o t your u f ture proxy materials, n i vestment plan statements, tax documents and more. Simply lo g on to Investor ServiceDirect® at www.meloninvestor.com/i sd where step-by-step instr uctions will prompt you through enrollment.

You can view the Annual Report and Proxy Statement on the n i ternet at http:/ www.kilr oyrealty.com