Richard Moran - Executive Vice President & Chief Financial Officer Jeff Hawken - Chief Operating Officer Tyler Rose - Treasurer Heidi Roth - Controller

Dave AuBuchon - R.W. Baird Mark Montana - Citi Dave Rogers - RBC Capital Markets Michael Knott - Green Street Advisors

Good day ladies and gentlemen and welcome to the Kilroy Realty Corporation first quarter 2009 earnings conference call. My name is Mary and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) I’d now like to turn the presentation over to your host for today’s call, Mr. Richard Moran, Executive Vice President and Chief Financial Officer. Please proceed.

Thank you very much and good morning everyone. Thank you for joining us. With me today are Jeff Hawken, our COO; Tyler Rose, our Treasurer and Heidi Roth, our Controller. John Kilroy isn’t able to join us today, because his recovery from surgery to fix an old athletic injury is taking a bit longer than expected. He plans to be back in the office soon. 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 and in the supplemental. This call is being telecast live on our website and will be available for replay for the next 10 days both by phone and over the internet. Our press release and supplemental package have been filed on a 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 our key markets. I’ll add financial highlights and updated earnings guidance for 2009 and then we’ll be happy to take your questions. Jeff.

Thanks Dick. Hello everyone. Thank for joining us. Let me start with a brief review of general market conditions. As you all know, the difficult credit markets and recessionary business conditions have created a challenging leasing environment. Perspective tenants continue to look, but are extremely cautious about committing to new space and lease discussions remain protracted. : Unfortunately, we started the New Year with roughly half of our 2009 expirations of about 2 million square pre-leased. During the first quarter, we reduced that figure by another 250,000 square feet and for the leases that were signed in the first quarter rents were up 15% on a cash basis and 24% on a GAAP basis. Nonetheless, our occupancy rates slipped 1.5 points during the first quarter, as Sony and two industrial tenants moved out of their buildings. Looking ahead, we know that Boeing will move out of a 113,000 square feet in Anaheim in the second quarter and Epicor will not renew a 173,000 square feet in Sorrento Mesa that expires in the third quarter. In addition, Accredited Home Lenders which leases 182,000 square feet has expressed an interest in negotiating a reduction in the space that occupies in San Diego. We are in current discussions with them, but have no resolution at this point. Re-leasing our vacant space is clearly our number one priority. With existing tenants we’re using a range of incentives, including flexibility in renewal rents, lease periods, tenant improvement packages and other terms to improve our retention rate. Our larger vacancies in newly developed properties, we’re spending considerable time and effort identifying viable prospects, understanding their individual real estate needs and shaping proposals to suit them. Despite all the difficulties in today’s market, we have some clear advantages in what is going to be difficult leasing competition…

Thanks Jeff. FFO was $0.82 of share in the first quarter; that includes a $0.04 of share increase in bad debt expense related to our credit at home lenders, straight line rent receivable. As Jeff mentioned, we're in discussions with them regarding lease renegotiation. While we don’t have any resolution yet and while they are current on their rent, we've taken the conservative approach and reserved the 100% of our straight line receivables from a credit. This is offset by lower G&A, which was $0.04 lower than our budget and $0.09 lower than last quarter. G&A was down primarily as a result of lower accruals for incentive compensation. In addition, we had about $0.05 of share in other income which was primarily onetime lease termination and restoration fees. As a reminder, our results now incorporate the impact of the new convertible accounting rules that were adopted at the beginning of the year. First quarter interest expense was $0.04 higher as a result of the new accounting, although there was no cash impact. Prior quarters have been restated as well. Occupancy and our stabilized portfolio was 87.6% at the end of the first quarter. That’s down from 89.2% at the end of 2008 and 94.8% a year ago. By product type, office occupancy was 85.4% at year end and industrial occupancy was 92.7%. Same-store NOI was down 8.3% in the first quarter on a GAAP basis and 9.7% on a cash basis. The downward pressure on same-store results largely reflects our lower occupancy. Office rents increased 11% on a GAAP basis and 10% on a cash basis, for leases that commenced during the first quarter. Industrial rents were up 3% on a GAAP basis and down 9% on a cash basis. Following some leasing progress in the first quarter, we now…

Can you provide any more perspective about how much base the credit is willing to give back, any sort of framework there?

Dave, this is Jeff. They currently occupy three buildings, 182,000 square feet and our understanding is they had a clean sheet of paper; they could reduce into one building, approximately 40,000 square feet.

Your desire is to help them work out a new deal going forward?

Well, we’re in negotiations right now and more to come. I think it’s a little premature at this point to make further comments, but we are talking with them and reviewing their financial position, etc. Based on those negotiation discussions, we’ll have a game plan from there.

Dick, your guidance doesn’t assume any sort of lease termination, I’m assuming from accredited?

I beg your pardon?

Your guidance for this year does not include any sort of lease termination from Accredited Home Lenders?

Yes, I mean we again don’t want to get into the details of what our assumptions are in terms of that negotiation, but we’ve made some conservative assumptions on that lease.

I mean in your supplemental you have a top 15 tenant list. What is the nearest maturity outside of Epicor and maybe while you look that up, did the Boeing lease Jeff that you mentioned was leaving in Q2, is that industrial or office space?

That’s the industrial property in Anaheim.

I think that the nearest maturity is the Boeing space in El Segundo next year.

What’s the square footage, Tyler?

It’s like 290,000 square feet.

Can you talk about the weakness in the industrial portfolio? It looks like that’s where the most of the occupancy decline came from, at least over the last couple quarters. Do you anticipate any sort of quicker than average turnaround if you assume that economic activity starts to rebound and inventories start to rebuild in the industrial world?

Dave, I think if you look at the overall industrial vacancy, it’s 5% so that’s obviously very strong. Well we just got back 113,000 square feet from Boeing that’s industrial. We actually have activity on it already. We did have another building; the tenant moved out, it moved into its own space. So, we have a little bit of space obviously that’s come back. We are seeing tours; again, the overall market strength is still pretty good. It’s still a little too early to tell how quickly it’s going to take to convert tours to LOI to leases, but I think we’re in a pretty good part of the market.

Okay and then one last question. Can you kind of outline what your financing strategy is over the next couple of years? Obviously you have the ability to push out a couple mortgages this year and I think you did that, but as you look out over the next couple years and looking at Kilroy’s balance sheet, where do you think you’re going to be able to replace capital that maybe expiring?

Well, I think we’ve obviously kept our debt levels pre-recession down relatively low compared with the sector at least and we’ve also as a Kilroy to that had a relatively or quite low percentage of our assets secured, both of those meaning to give us the flexibility to enter into more secured debt if the financing cycle and the credit cycle warranted doing so. At the same time, we are obviously not unaware of what’s going on in the capital markets and the rest of the REIT sector broadly and we’re watching all that carefully. I think you should expect us to continue to see, have a relatively conservative strategy going forward.

Are you actively looking at putting new mortgage debt on your unencumbered asset pool?

We’re looking at it carefully, but basically what happens, it’s still early in the cycle for secured lenders to come out in force. Obviously there was a remarkable dislocation in the fourth quarter last year and availability of secured financing like much in the financial markets, tends at times to be a lagging indicator. So, I think what we’ve seen is a fair amount of sentiment that suggests that people are waiting a bit for the employment losses to begin to subside as a sign, on a macro basis, as a sign that the economy might be hitting its trough and at least out here, the news has tended to be on a macro level. Employment losses are declining in the last couple of announcements. So, we’ve started to see more interesting discussions from secured lenders, but they are not by any means active at this point yet.

Your next question comes from the line of Mark Montana - Citi.

Hi, this is Mark Montana on behalf of Irwin. First off, I have a rather general question on your markets. It appears that the rate of decline in the office occupancy is slowing sequentially. I just want to get your thoughts on how far along you believe the Southern California market is in the bottoming process, especially since it turned down a lot and lost a lot of occupancy earlier than most other major markets.

If I’m sorry, your voice didn’t come through crystal clear, but if I understand the gist of your question, it’s a question about the prospects for the near term office market here in Southern California. I think that’s just a function of where employment is. Obviously employment losses have to subside and have to largely stop before employers will in scale start to expand again. So we’re very much in an employment sensitive business. As I just mentioned in the prior question, I think we’ve started to see some evidence that employment losses are slowing. We have not yet seen part of the cycle where employments start to stabilize and start to build again. We’re not there yet and so I think we would expect to have, as Jeff remarked some more tough going for most of the balance of the year would be, I think our guess.

At similar rates to this past quarter or do you believe that the trend over the last three quarters has been moderation in the deceleration or in the decline of your occupancy levels? Is that a trend you expect to continue or is it sort of a one-off this quarter?

Is the question, are we continuing to see decline in our occupancy?

No, the office occupancy, the rate of decline has been moderating over the last few quarters. I was just trying to get your thoughts on whether you believe that this is a trend that could continue or whether you believe it from one-off?

This is Dick speaking again. I think, assuming what the local economic prognosticators have been offering as thoughts about the economy. I think we would generally expect to see a continuing moderation in the deterioration of the office market generally. I think that would certainly be consistent with what economists or employment forecasting agencies are projecting for the balance of the year. Purely and simply that most of the big job losses have already occurred, if you study sector-by-sector and most of the sectors that would be most sensitive to a recession have already shed almost all the jobs that they could. So in that sense, I think the answer to your question would be, yes.

Secondly, I know the unencumbered asset pool occupancy for covenant purposes is calculating on a trailing 12 month basis, but just wondering if you could provide the occupancy for this pool for 1Q ‘09?

89%.

(Operator Instructions) Your next question comes from Dave Rogers - RBC Capital Markets.

My first question is, is your convertible debt was that a private placement and then have you had any discussions to repurchase the buyback?

It was a 144A for life, so effectively it was a private placement and we have had a lot of interest, but we’ve had no serious discussions.

Can you give us some more color with regards to the bad debt in 1Q ‘09 and your outlook for the rest of the year for that?

As we say, the increase was a function of the reserve we took for the straight line rent receivable from credited home lenders. That’s a one-off and unique circumstance related to our tenant. I’m not sure whether that will set a pattern for beyond the first quarter or not. It just depends on whether or not we have other difficulties with significant tenants.

Could you give us some sequential, color on the same-store property pool, where did cash NOI go and what happened to occupancy? I believe if you look at the fourth quarter supplement, the basket changed from fourth quarter ‘08 to the first quarter ‘09, so it was hard to tell what happened sequentially?

Yes, I’m not sure I’m following completely, but we added in a couple development properties in the fourth quarter. So, that’s what you’re probably seeing in terms of the basket and the negative same-store results were as I think Dick mentioned were primarily related to lower occupancy.

Could you quantify, what did the same-property pool did sequentially from 4Q ‘08 to 1Q ‘09?

I can get back to you on that.

Could you remind us, which properties or group of properties were secured?

Well, we have over 100 properties and there is a portion of the secure. I don’t think we want to spend time right now going through each property that’s secured.

Okay. How about the market exposure or property type or I guess generally was it like a mix of everything or was it particularly one property type or one market?

We have a mix. Our typical secured mortgage is a portfolio of properties and we have an office portfolio; we have an industrial portfolio; we have a mix portfolio and also it ranges in region as well. So it’s not as if we just secured one type of our property.

Okay, great. Have you had any discussions with your secured lenders about extending any loans or have you had any I guess serious discussions? I know you mentioned before that you’re not looking into it, but have you had thought about where the rate would be at or on how many proceeds you would think about going after?

This is Dick speaking. The only extension discussion that we’ve had with our secured lenders was the one related to the loan that we extended for a year at the end of the first quarter.

Your next question comes from Michael Knott - Green Street Advisors.

I had a question about your unencumbered asset pool occupancy covenant. How restrictive is that going to be in terms of securing new financing and maybe using those secured financings to pay down some of the unsecured maturities that are coming due?

Well, as I think we reported, we ended the quarter at a 91% level for the overall pool on a 12 month trailing average. So at this point, we still have a fair amount of room and therefore it will be a discussion with any lender. They obviously won’t understand that, but at this point we feel relatively comfortable with that, but we’ll just have to see how the occupancy goes for the rest of the year.

Okay and then where is your dividend policy right now, stack up in the hierarchy of sources for meeting your debt maturities? Is that something that’s still on the table? Is it high on the list or is it something that you’re not really considering and you’re looking at other alternatives?

I don’t think we want to comment on our dividend policy beyond what we’ve said; that the board will continue to look at our dividend at each quarter in terms of our overall corporate finance strategy.

Okay. So it’s just something that’s on a quarter-by-quarter basis and then just finally, for your line of credit renewal, I know you mentioned that you were going to try to pay-off the secured loan that you extended with the line, but now you decided obviously to extend that loan. Any idea or feeling, have you talked to lenders on what you think the renewal rate will be when the line comes due in terms of overall capacity?

I’m sorry, this is Dick speaking. Are you getting at pricing or availability? I’m not sure I followed.

More on the availability side; do you think you like there’s a potential to renew it for the full amount when it comes due or are you expecting that there may be some higher limitations on what the line is allowed?

Well, I think that generally, since we haven’t had any of those discussions yet, since it’s premature, but I think that what we’ve generally heard and would agree with, just as a general judgment is that to the order of magnitude, REITs might expect that unsecured credit line sizes will come down by somewhere on the order of magnitude of between 25% and 50%. I think that fits what we generally expect, although I’d emphasize we haven’t had specific discussions yet, since as we say, our line doesn’t come due for a year and we have a year’s extension beyond that. We’ve gotten from our lead banks is that it’s early yet to have those discussions, that we should wait and have those later.

Thank you. There are no other questions at this time. I would like to hand the call to Mr. Moran for closing remarks.

Thank you all for your interest in KRC. We appreciate it. Have a good day.

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.