Good day ladies and gentlemen, and welcome to the Quarter Four 2008 Kilroy Realty Corp. Earnings Conference Call. My name is Michele and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Richard Moran, Chief Financial Officer. Please proceed sir.

Thank you very much and good morning everyone. Thanks for joining us. With me today are Jeff Hawken, our Chief Operating Officer; Tyler Rose, our Treasurer and Heidi Roth, our Controller. Unfortunately, John Kilroy woke up ill this morning and won’t be able to be with us today. At the outset, I need to say that some of the information we will be discussing this morning is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information in this call into the supplemental. This call is being telecast live on our website and will be available for replay for the next 10 days by phone and over the Internet. Our press release and supplemental package have been filed on Form 8-K with the SEC, and both are also available on our website. Jeff will start the call with an overview of the quarter and the year and then review our key markets. I’ll add financial highlights and our 2009 initial earnings guidance, and then we'll be happy to take your questions. Jeff?

Thanks, Dick. Hello, everyone. Thanks for joining us. Considering the turmoil in the economy and the credit markets during 2008, KRC had a good year in many respects. We capitalized on our portfolio strengths including location and asset quality to deliver strong, pleasing results. For the year, we executed new or renewing leases on more than 2.1 million square feet of space. That’s more than a 25% increase over 2007. As part of that leasing effort, we made solid progress on our 2009 expirations, reducing by almost half to roughly 2 million square feet of space that was set to expire in 2009. In total, on the 2.1 million square feet of leasing, rents were up 25% on a GAAP basis and 9% on a cash basis. In a world of deteriorating credit capacity, we maintain our longstanding strategy of financial strength and conservative leverage. Throughout the year, our balance sheet emphasized simplicity, transparency and liquidity. Where necessary we also acted decisively to address changing economic conditions and their impact on our operations. In the fourth quarter, we took the painful but prudent step of decreasing our headcount by about 5%. With all that said, however, it is clear that continued severe credit market constraints and weakening national and regional economics are now translating to a more difficult period for commercial real estate in Southern California. It is evident in our operating results and our recent market experience. Year-end occupancy in our stabilized portfolio was 89%, down nearly five percentage points from beginning of the year. More anecdotally, our lease negotiations continue to be slow and protracted. Businesses are demonstrating extreme caution in taking our new real estate obligations. And while none of our major tenants have exhibited credit problems or announced major layoffs, we received a few calls from…

Thanks, Jeff. FFO was $0.78 a share in the fourth quarter and $3.42 for the year. Occupancy in our stabilized portfolio was 89.2% at the end of the year. That compares to 90.7% at the end of the third quarter and 94% at year end 2007. By product type, office occupancy was 86.2% at year end and industrial occupancy was 96.3%. These numbers exclude the 150,000 square foot project in Irvine that we’re attempting to re-zone to residential given that we’re not trying to release the existing industrial space while we’re pursuing re-zoning. We've removed the project from our stabilized portfolio as you can see on page eight of the supplemental. On a GAAP basis, same-store NOI was down 5.1% in the fourth quarter and was flat for the year. On a cash basis, it was down 3.4% in the quarter and up 3.1% for the year. The lower same-store results are primarily a function of lower occupancy. Office rents increased 19% on a GAAP basis and 10% on a cash basis for leases that commenced during the fourth quarter. Industrial rents were down 2% on both a GAAP and a cash basis. For the year, office rents were up 36% on a GAAP basis and 18% on a cash basis. Industrial rents were up 24% on a GAAP basis and 1% on a cash basis. While it’s difficult to make estimates about market rents with any real confidence in these times, our most recent analysis of market conditions suggest that rent levels in our overall portfolio are approximately 5 to 10% under market and our remaining 2009 expirations are about 5% under market. Given current economic conditions, we expect that our pricing power will weaken before it improves. After a strong leasing effort last year we now have approximately…

(Operator Instructions). Your first question comes from the line of Irvine Budman with Citi. Please proceed. Irvine Budman – Citi: Hi, this is actually Mark Montana (13:59) on behalf of Irvine (14:00). Quick question – two questions. What’s the timing of your fourth quarter release expirations, in particular, were they weighted towards the end of the quarter, even more specifically, do you know what percentage occurred in December?

Well, we only had, I think, 19,000 square feet expiring in the fourth quarter and I just don’t know off the top of my head what the percentage was in December. I can get back to you on that. Irvine Budman – Citi: Okay. Thanks. And then secondly, regarding the tenant retention rate, are you finding that tenants are – I mean, the tendency to trade down to lower price space or is it primarily due to other reasons? I know you noted in your prepared remarks some tenants coming back to you asking for some leniency on their rents.

Yeah, this is Jeff. I guess in terms of the tenant retention, you saw we ended the year around 65% and I think looking at 2009, we anticipate seeing that to be probably closer to 60%. I haven’t – we haven’t seen a lot of examples where tenants are moving from one building to another. Obviously, they are very mindful about economics, but I think what we’re finding right now is that tenants tend to be doing a lot more underwriting of landlords as they seek space. So I think a lot of tenants want to stay in space if they can. It’s disruptive to move, expensive to move, but they are also spending a fair amount of time underwriting who their landlords are. Irvine Budman – Citi: Okay. Great, thank you.

Your next question comes from Lou Taylor with Deutsche Bank. Please proceed.

Hello. Thanks. Good morning guys. Dick, can you just clarify a little bit on the guidance, the impact of the convert?

Sure. As obviously you know, Lou, the guidance is fairly complicated. As we know it, as I mentioned, there’s a $0.24 estimated impact of the convertible accounting and the EPS impact of this new treasury method for the two-class method. That breaks down to $0.20 for the convert and $0.04 for the treasury method. As I understand it, there’s the potential and I’ll defer it to Heidi here, if she wants to amplify that there may be another interpretation of a related rule that might change that. Bt I don’t think we have any further ability to estimate that effect right now. It’s ultra technical as I understand it.

Okay. But your 3.05, 3.25 is net of that?

Yes, we’ve already included that $0.24 in the total – everything we know and can estimate so far, yes. And I think that’s essentially the substance of it.

Okay. And then with regards to the leasing decline in San Diego, how much was just due to market weakness versus just the recent development deliveries going into the stabilized pool?

Well, it’s a combination. We had the Paul Hastings expiration in the fourth quarter on the stabilized side. But on the development side, we had two, the Sabre Springs Corporate Center coming on line that added 80,000 square feet of vacancy and the Sorrento Gateway Lot 3 that added 50,000 square feet of vacancy. So it’s a combination of both.

Okay. And then for Jeff, just in terms of trying to lease new space versus existing space, I mean how reluctant are tenants to move to new space either because of just image issues or just cost issues and what kind of tenants do you have to give new space versus existing space these days?

Well, Lou, again, I think it really depends on a case-by-case basis. We’re seeing a lot of our tenants like the product. We obviously have very great product location, et cetera, so tenants tend to want to stay. There are tenants that from time to time do have to move and move for economic reasons. I think they go to different submarkets that are seeking lower cost points. Obviously disruption of the move of the TI packages, I think, we’re starting to see an increase in some cases where landlords are doing more turnkey of the TI packages to make sure they can capture new tenants. So, I think a lot of tenants are – they like to stay if they can. If business reasons take them to smaller space or different markets, then obviously they’ll move, and I think, landlords are being more aggressive in trying to capture those tenants.

Okay. And the last question, back to Dick, in terms of the dividend, I mean, what’s the general thinking among the management team with regards to that being paid in cash versus stock this year?

That’s obviously a key issue that we’re carefully evaluating, and that’s something that we’ll obviously be discussing with our Board later this quarter. Our objective is – has always been to have a sustainable dividend that could be continued to be paid through recessions and through the course of cycles. The cycle is obviously unprecedented in any of our lifetimes. So, I think, that’s something that we’ll look real carefully at. Our preference is to continue to pay it in cash, more to come though. We haven’t made that decision as to what we would recommend to the Board.

Great. Thank you.

Our strong preference is to pay it in cash.

Thank you.

Your next question comes from Dave Rodgers with RBC Capital Markets. Please proceed.

Hi, guys. This is Mike Carroll here with Dave. My first question is, what is the progress with the Sony space in LA, and did they vacate on January 1?

Yes. This is Jeff. Yes. Sony did vacate at the end of the year, at January 1. We’ve just gotten the building back. We’re making improvements to the lobbies, et cetera, and clearing out space that makes it show better. So we’ve got a little bit of interest, but now that we have the building back and under our control, we expect to see more tours as we go forward.

Okay. And then what drove the higher TI level this past quarter, and should we expect that going forward?

That was a little bit of a mix. We had a couple of leases, one in Long Beach and one in Calabasas, that were sort of in the mid $50 TI and leasing commission level. And we didn’t have that many transactions, so that drove it up. So that – it really depends on the mix quarter-by-quarter, and I don’t think – and Jeff can comment whether we’re seeing that trend or not.

Yes. I’d just amplify Tyler. I think, those were in many cases full floor tenants’ requirements that would tend to be higher TI packages, but we haven’t yet seen an increase on our TI packages. The renewals are obviously pretty low in even new tenants. We’ve got high residual value in our space. So we haven’t really seen the trend increasing too much.

Okay. So, you don’t have any more full floor tenants coming due or going to be signed for 2009 or are those going to be minimal?

Well, again, I – it’s going to be a function of how the leasing goes for the balance of the year. We’ve obviously done a lot of renewals already, and those TIs were fairly minimal. It was sort of a case-by-case basis on it. If we get a building back or full floor, we may have higher TIs, but obviously be a function of those buildings as we release them.

Okay. And then, were there any one-time or non-recurring items in the quarter embedded in the property income or G&A expense?

On the G&A side, we had about $1 million of severance cost. On the expense side, it was a little bit higher than normal related to repairs on a couple buildings and some legal costs, but there wasn’t any unusual lease termination fees or anything like that this quarter.

Was there a charge for headcount reduction in the quarter or is that not taken?

Oh, it’s the severance cost that Tyler just mentioned of $1 million.

Okay. Okay. And then what gives you a confidence there, or what would give you confidence in this market for you guys to repurchase your discounted exchangeable notes back?

That’s a good question, Mike. It’s something we’re continuing to think about and evaluate. It obviously relates fundamentally to our confidence in our liquidity level and the outlook for the economy and particularly the dividend decision that Lou asked about a moment ago. And so we just are obviously being quite risk adverse right now and careful about our liquidity, but we view that as an enormously attractive potential investment opportunity. So we’re carefully considering that. Obviously once we’re through the blackout period here, we’ll be thinking more of it, but I’d emphasize the dividend as a decision that we’re thinking through carefully, and it will take a little time before we conclude on what we recommend to the Board, and then obviously we’ll be discussing it with them as the quarter progresses.

Okay. And then my last question is, can you tell me what’s the market thinking about smaller loans, single mortgages, and your access to that kind of capital?

Well, it’s challenging right now. I think there are banks and insurance companies that are in the market, but the terms are different than they were a couple of years ago, loan to values are a lot lower, but there is money out there. But it just depends on the term and the type of quality of the assets.

Okay. Thank you, guys.

You’re welcome.

Your next question comes from George Auerbach with Merrill Lynch. Please proceed.

Hi. Good afternoon. Jeff, regarding the loss of occupancy in your office portfolio, in general have the tenants you’ve lost moved to other assets in your submarkets, exited the core markets for better rents in secondary markets, or have the tenants simply pulled back on their space requirements?

It’s a little of all of that. We’ve seen some cases like where Sony, as they moved out of the building in West LA, and downsized, moved into a different submarket that we’re not in and for lower economics. And other tenants are consolidating, other tenants are moving out of the area, and some other tenants are seeking much lower price points and moving to lower price submarkets.

So in general is the driving, sort of, factor better rents elsewhere?

Sorry.

And if so, how far down do core San Diego rents have to go to compete with those secondary markets?

Well, again I think in some cases, what’s driving it is the tenants are realizing they don’t need as much space. They’re looking to downsize. They are trying to move to other buildings, sometimes it’s image, sometimes it’s price. In San Diego, I think some of the bigger transactions we’ve seen up in the Kearny Mesa submarkets, which are not in our core markets. I think, they can get fairly attractive, lower economics going into the Kearny Mesa markets than the UTC, Sorrento Mesa, Del Mar, or the I-15 Corridors.

Okay. And through 2010, you have over 25% of your office leases scheduled to expire. How active are those negotiations with the tenants in 2010? And second, how interested are those tenants in discussing extensions or renewals today versus taking more of a wait and see approach?

Well, the first part of your question. We’re already talking. We were talking to people last year in 2008 about 2009 and 2010. So we’re, I think, way out in front trying to make sure we understand what our tenants need and want, are they expanding or contracting. So we tend to be out in front of our tenants very early. We tend to find right now that most tenants are unwilling to make long term decisions or renewals. They’re waiting for the lease expiration. Their Boards are more conservative, more disciplined about what the requirements are going to be. So we’ve found somewhat of a reluctance of tenants even if they want to renew, they’re going to kind of wait and see what happens.

Okay. Great. Thank you.

(Operator Instructions). Your next question comes from Dave Aubuchon with Baird. Please proceed.

Thanks. The 89.6% occupancy – that was in your guidance assumption, right, Dick?

Yes.

Just given the comments that you’ve all made at the start of this call, doesn’t that seem aggressive, certainly, relative to – you’ve already lost 25 bps from the Sony lease, and just the difficulties in the market, and how long the lease negotiations [inaudible] this year?

I think that’s certainly a possibility that it is. We try and set stretch targets, and given the outlook, I suppose it would be fair to say, there’s probably somewhat more risk to the downside there than there is possible upside to it. Nevertheless, we thought long and hard about that, and for the moment at least that’s where we wanted to start.

Should we assume that that is the midpoint of the guidance, or they are just, like you said, calculating guidances is more difficult than just kind of simplifying into that?

Sure. I think, the – my own guidance think there’s the midpoint is the midpoint right now. I think, you’ve identified the core risk to our guidance for this year though, that’s really, that’s it, there’s – the rest is noise.

The Newgen/TeleTech lease, I believe in the third quarter supplementals, I know that you showed it at 100% occupancy. In this supplemental, it’s down to zero percent. Has there been a conclusion or resolution to that situation, or how should we see that?

No, we just concluded that from an occupancy perspective, we should represent it as zero percent occupied, since we’re now working with the tenants to lease that – lease the space.

And you’re not receiving rent, correct?

Correct.

Okay. Where do you think you have the best pricing power on your 2009 expirations? You identified what exposure is in LA, what’s in Orange County and San Diego, and that your embedded mark-to-market is 5 to 10%, but likely lower in 2009. Where do you feel like you have the best pricing power in 2009?

I think, the Los Angeles region gives – has performed the strongest and continues to – as just as within El Segundo and Long Beach, those markets are continuing to perform better than the other markets. And then West LA is not as strong as it has been, but it continues to do well, so that area would be the stronger area.

Okay. And then relative to the development pipeline, obviously you’re not starting any projects. Should we assume that the capitalized interest number that you booked in Q4, 2.7 million – that that is a suitable run rate going forward or should that trail down because you’re not starting any projects, and it’s basically land?

Okay. That should trail down. We are – in 2009, we’re at the beginning of the year. We’re capitalizing on only two of our seven projects, and so the run rate on that basis for 2009 – it’s fairly complicated, but for 2009, it’s about $6.5 million of capitalized interest for the year.

Based on what? I am sorry, Tyler. That’s on the Q1 2009 run rate?

No. The full year 2009.

Okay. You’re anticipating it to be 6.5 million?

Right.

Okay. Dick, when you consider the development pipeline, do you think that there is a possibility at all that you put a shell on to – into the ground this year trying to forecast when the economy may be improving and trying to get the first development project out or is your cost of capital just too uncertain at this point?

I think – well, obviously, I mentioned in our guidance that we are not assuming any acquisition through development starts this year at this point. So I think knowing what we know right now, we would assume that we – the odds of us starting a new project this year are exceptionally slim given the likely economic outlook, but having said that, I think, if anything the world has taught us over the last year that our power as human beings to forecast the future out for extended periods of time is fairly limited. So our objective remains to be ready to have land in key barrier to entry markets, the very best sites, and to be ready to build, and at the same time to be very cautious and conservative in so doing. And so I think having said that, the bottom line is, it’s highly doubtful that we would start anything this year.

Okay, I have one more question. Sorry, I just want to clarify, so on the TeleTech issue, I believe you’ve said in the past that that’s $0.12 of FFO. Trying to make sure that that is not in your guidance in 2009? And I am sorry?

It is not.

It is not in the guidance. And I am assuming since you’re trying to sublease the space that you no longer will have – I mean, did you just rev up the lease? I’m trying to figure out what’s happening there?

This is Jeff. We’re actually in the midst of a lawsuit with TeleTech and Newgen.

Right.

We just don’t really want to get into a lot of detail, but the tenant is trying to sublease the space and obviously we’re monitoring the situation.

Right. Thanks.

At this time, we have no additional questions in the queue. I would like to turn the call back over to Mr. Richard Moran for any closing remarks.

Thank you very much for joining us today. We appreciate your interest in KRC and thanks and have a great day.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.