KILROY REALTY CORP, S-11/A, 1996-12-27

KILROY REALTY CORP
S-11/A, 1996-12-27
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996

REGISTRATION NO. 333-15553
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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 1

TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

KILROY REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)

2250 EAST IMPERIAL HIGHWAY
EL SEGUNDO, CALIFORNIA 90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

----------------

JOHN B. KILROY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KILROY REALTY CORPORATION
2250 EAST IMPERIAL HIGHWAY
EL SEGUNDO, CALIFORNIA 90245
(NAME AND ADDRESS OF AGENT FOR SERVICE)

----------------

COPIES TO:

EDWARD SONNENSCHEIN, JR., ESQ. LYNN TOBY FISHER, ESQ.
LATHAM & WATKINS KAYE, SCHOLER, FIERMAN, HAYS &
633 WEST FIFTH STREET HANDLER, LLP
LOS ANGELES, CALIFORNIA 90071 425 PARK AVENUE
(213) 485-1234 NEW YORK, NEW YORK 10022
(212) 836-8000

----------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

----------------

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED PRICE (1) REGISTRATION FEE (2)
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<S> <C> <C>
Common Stock, par value $.01 per
share................................ $258,750,000 $51,750
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.

(2) The Company has previously paid a registration fee of $64,539 with the
original filing of this Registration Statement on November 5, 1996, based
on the originally proposed maximum offering price and number of shares of
Common Stock to be registered.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors;
Distribution Policy; Business and
Properties; Certain Relationships and
Related Transactions
4. Determination of Offering Price........ Underwriting
5. Dilution............................... Dilution
6. Selling Security Holders............... Not applicable
7. Plan of Distribution................... Underwriting
8. Use of Proceeds........................ Use of Proceeds
9. Selected Financial Data................ Selected Financial Data
10. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
11. General Information as to Registrant... Prospectus Summary; Business and
Properties; Management; Principal
Stockholders; Certain Provisions of
Maryland Law and of the Company's Articles
of Incorporation and Bylaws
12. Policy with Respect to Certain
Activities............................ Policies With Respect to Certain Activities
13. Investment Policies of Registrant...... Policies With Respect to Certain Activities
14. Description of Real Estate............. Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business and Properties
15. Operating Data......................... Business and Properties
16. Tax Treatment of Registrant and Its
Security-Holders...................... Federal Income Tax Consequences
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters................... Risk Factors; Principal Stockholders;
Distribution Policy; Shares Available for
Future Sale
18. Description of Registrant's
Securities............................ Description of Capital Stock; Certain
Provisions of Maryland Law and of the
Company's Articles of Incorporation and
Bylaws
19. Legal Proceedings...................... Business and Properties--Legal Proceedings
20. Security Ownership of Certain
Beneficial Owners and Management...... Principal Stockholders
21. Directors and Executive Officers....... Management
22. Executive Compensation................. Management
23. Certain Relationships and Related
Transactions.......................... Risk Factors; Business and Properties;
Management; Certain Relationships and
Related Transactions; Principal
Stockholders
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S>
24. Selection, Management and Custody of
Registrant's Investments.............. Risk Factors; Business and Properties;
Policies With Respect to Certain
Activities
25. Policies with Respect to Certain
Transactions.......................... Risk Factors; Business and Properties;
Policies With Respect to Certain
Activities; Management; Certain
Relationships and Related Transactions;
Principal Stockholders
26. Limitations of Liability............... Management; Certain Provisions of Maryland
Law and of the Company's Articles of
Incorporation and Bylaws
27. Financial Statements and Information... Index to Financial Statements
28. Interests of Named Experts and
Counsel............................... Not Applicable
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION--DATED , 1997
PROSPECTUS
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11,250,000 Shares
[LOGO] KILROY REALTY CORPORATION
Common Stock
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Kilroy Realty Corporation (the "Company") has been formed to succeed to the
business of Kilroy Industries and its affiliates consisting principally of a
portfolio of Class A suburban office and industrial buildings in prime
locations, primarily in Southern California, and the affiliated real estate
ownership, acquisition, development, leasing and management businesses which
were established in Southern California in 1947. Upon the consummation of this
offering (the "Offering") and a series of related transactions (the "Formation
Transactions"), the Company will own 14 suburban office buildings (the "Office
Properties"), 11 of which are located in Southern California, encompassing an
aggregate of approximately 2.0 million rentable square feet and 12 industrial
properties (the "Industrial Properties") encompassing an aggregate of
approximately 1.3 million rentable square feet. As of September 30, 1996, the
Office Properties were approximately 79.8% leased to 126 tenants and the
Industrial Properties were approximately 93.7% leased to 19 tenants. The
Company will also have exclusive rights to develop an aggregate of
approximately 24 acres of land in strategic Southern California submarkets
presently entitled for over 900,000 net rentable square feet. See "Business and
Properties--Development, Leasing and Management Activities." The Office
Properties, the Industrial Properties, and all of the other real estate assets
and contract rights are hereinafter collectively referred to as the
"Properties." Upon consummation of the Offering, the Company will have a debt
to market capitalization ratio of 25.2%, a working capital cash reserve of
approximately $20.0 million and a capital expenditure cash reserve of
approximately $3.1 million. The Company will operate as a self-administered and
self-managed real estate investment trust (a "REIT"). The Company intends to
make regular quarterly distributions to its stockholders beginning with a
distribution for the period ending , 1997.

All of the shares of common stock of the Company, par value $.01 per share (the
"Common Stock"), offered hereby are being sold by the Company and will
represent approximately 79.1% of all shares of Common Stock (or interests
exchangeable therefor) outstanding after consummation of the Offering. Upon
consummation of the Offering, the Company's officers and directors (and certain
of their affiliates) will own in the aggregate 20.9% of the Common Stock or
interests exchangeable therefor. See "Principal Stockholders." To assist the
Company in maintaining its qualification as a REIT for federal income tax
purposes, ownership by any person generally is limited to 7.0% of the then
outstanding Common Stock, which can be waived by the Board of Directors.

Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently anticipated that the initial public offering price
will be between $19.00 and $21.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The shares of Common Stock offered hereby have been approved
for listing on the New York Stock Exchange (the "NYSE") under the symbol "KRC,"
subject to official notice of issuance. See "Glossary" beginning on page 155
for definitions of certain terms used in this Prospectus.

See "Risk Factors" on pages 21 to 37 for a discussion of certain material
factors which should be considered in connection with an investment in the
Common Stock offered hereby, including:

. Dependence on demand for office, industrial and retail space in the Southern
California market, thereby increasing the risk that the Company will be
materially adversely affected by general economic conditions in a single
market.

. Dependence on certain significant tenants, particularly Hughes Electronic
Corporation's Space & Communications Company, thereby increasing the
potential negative impact to the Company of downturns in the business of, or
its relationship with, such tenants.

. A portion of the Company's anticipated cash flow may be generated from
development activities which are partially dependent on the availability of
development opportunities, and are subject to the risks inherent with
development, which in turn may negatively impact the Company's ability to
make distributions.

. The distribution requirements of REITs may limit the Company's ability to
finance future developments, acquisitions and expansions without additional
debt or equity financing necessary to achieve the Company's business plan,
which in turn may adversely affect the price of the Company's Common Stock.

. The valuation of the Properties was not based on third-party appraisals, and
the consideration to be paid by the Company for the Properties may exceed
their aggregate fair market value, thereby increasing the risk that the
aggregate market value of the Common Stock may exceed its total assets.

. Real estate investment considerations, including the effect of economic and
other conditions on real estate values and the ability of the Company's
properties to generate sufficient cash flow to meet operating expenses,
including debt service, which may negatively impact the Company's ability to
make cash distributions.

. Risks associated with debt financing, including the potential inability to
refinance indebtedness upon maturity, and the fact that the Company's
organizational documents do not limit the amount of indebtedness that the
Company may incur, which may adversely affect the Company's ability to repay
its debt, particularly in the event of a downturn of the Company's business.

. Conflicts of interest with, and material benefits to, affiliates of the
Company, including certain officers and directors, in connection with the
Formation Transactions (as defined), consummation of the Offering and the
operation of the Company's ongoing businesses, including conflicts
associated with the tax consequences of sales and refinancings of the
Properties.
. Taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the taxation of the Operating Partnership
(as defined) as a corporation if it fails to qualify as a partnership for
federal income tax purposes and the resulting decreases in cash available
for distribution.
. Risk that the Company's Board of Directors may in the future alter its
investment policies without the consent of stockholders.

. Limitations on stockholders' ability to effect a change of control of the
Company, including the restriction of ownership of shares of Common Stock by
any person (with certain exceptions) to 7.0% of the outstanding shares,
which may inhibit a change in management or change of control of the
Company, or limit the ability of stockholders to receive a premium over the
market price for the Common Stock.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total(3).............. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .

(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 1,687,500 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ and the total
Proceeds to Company will be $ . See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and
to withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares to the Underwriters is expected to be made at the office
of Prudential Securities Incorporated, One New York Plaza, New York, New York,
on or about , 1997.

PRUDENTIAL SECURITIES INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
SMITH BARNEY INC.
, 1997
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

FORWARD LOOKING STATEMENTS

THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
UNCERTAINTIES SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.

THE FORWARD LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS UNDER THE
CAPTIONS "PROSPECTUS SUMMARY," "THE COMPANY," "DISTRIBUTION POLICY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS AND PROPERTIES," SUCH AS THOSE CONCERNING, AMONG
OTHER THINGS, FUTURE RESULTS OF OPERATIONS, CASH AVAILABLE FOR DISTRIBUTION,
LEASE RENEWALS, INCREASES IN BASE RENT, FEE DEVELOPMENT ACTIVITIES, SOURCES OF
GROWTH, ECONOMIC CONDITIONS AND TRENDS, PROPERTY ACQUISITIONS AND PLANNED
DEVELOPMENT AND EXPANSION OF OWNED OR LEASED PROPERTY ARE PROJECTIONS AND ARE
NECESSARILY SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. ACTUAL OUTCOMES ARE
DEPENDENT UPON THE COMPANY'S SUCCESSFUL PERFORMANCE OF INTERNAL PLANS,
ECONOMIC CONDITIONS IN THE SUBMARKETS IN WHICH THE COMPANY'S PROPERTIES ARE
LOCATED SUCH AS OVERSUPPLY OF OFFICE, INDUSTRIAL OR RETAIL SPACE OR A
REDUCTION IN THE DEMAND FOR SUCH SPACE, SUCCESSFUL COMPLETION OF PLANNED
DEVELOPMENT, THE AVAILABILITY OF DEVELOPMENT OPPORTUNITIES, THE AVAILABILITY
OF ACQUISITION AND DEVELOPMENT FINANCING, COMPLIANCE WITH APPLICABLE LAWS AND
REGULATIONS AND THE SUCCESSFUL MANAGEMENT OF OTHER ECONOMIC, LEGAL, FINANCIAL
AND GOVERNMENTAL RISKS AND UNCERTAINTIES.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company............................................................... 1
Risk Factors.............................................................. 3
Formation and Structure of the Company.................................... 5
Formation of Kilroy Services, Inc. ....................................... 9
Growth Strategies......................................................... 10
The Office and Industrial Properties...................................... 14
The Company's Southern California Submarkets.............................. 16
The Financing............................................................. 16
Distribution Policy....................................................... 17
Tax Status of the Company................................................. 17
The Offering.............................................................. 18
Summary Financial Data.................................................... 19
RISK FACTORS.............................................................. 21
Dependence on Southern California Market.................................. 21
Dependence on Significant Tenants......................................... 21
Cash Flow from Development Activities..................................... 21
Distributions to Stockholders............................................. 21
No Appraisals; Consideration to be Paid for Properties and Other Assets
May Exceed their Fair Market Value....................................... 22
Real Estate Investment Considerations..................................... 23
Real Estate Financing Risks............................................... 25
Conflicts of Interest..................................................... 26
Adverse Consequences of Failure to Qualify as a REIT...................... 28
Adverse Consequences of Failure of the Operating Partnership to Qualify as
a Partnership for Federal Income Tax Purposes............................ 29
Changes in Investment and Financing Policies Without Stockholder Vote..... 29
Risk of Operations Conducted Through the Operating Partnership............ 30
Limits on Ownership and Change in Control................................. 30
Risks of Development Business and Related Activities Being Conducted by
the Services Company; Control of the Services Company.................... 32
Dependence on Key Personnel............................................... 32
Distribution Payout Percentage............................................ 32
Historical Operating Losses of the Office and Industrial Properties....... 33
No Limitation on Debt..................................................... 33
Government Regulations.................................................... 33
Immediate and Substantial Dilution........................................ 35
No Prior Public Market.................................................... 35
Effect of Market Interest Rates on Price of Common Stock.................. 35
Shares Available for Future Sale.......................................... 36
FORMATION AND STRUCTURE OF THE COMPANY.................................... 38
Formation Transactions.................................................... 38
Reasons for the Reorganization of the Company............................. 40
Comparison of Common Stock and Units...................................... 42
Advantages and Disadvantages of the Formation Transactions to
Unaffiliated Stockholders................................................ 42
Benefits of the Formation Transactions to the Continuing Investors........ 42
Determination and Valuation of Ownership Interests........................ 44
Allocation of Consideration in the Formation Transactions................. 44
FORMATION OF KILROY SERVICES, INC. ....................................... 45
THE COMPANY............................................................... 46
General................................................................... 46
Growth Strategies......................................................... 48
USE OF PROCEEDS........................................................... 52
DISTRIBUTION POLICY....................................................... 55
CAPITALIZATION............................................................ 60
DILUTION.................................................................. 61
SELECTED FINANCIAL DATA................................................... 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................ 64
Results of Operations..................................................... 64
Development and Management Fees........................................... 66
Adoption of SFAS No. 121.................................................. 66
Liquidity and Capital Resources........................................... 66
Historical Cash Flows..................................................... 68
Funds from Operations..................................................... 69
Inflation................................................................. 69
BUSINESS AND PROPERTIES................................................... 70
General................................................................... 70
Occupancy and Rental Information.......................................... 77
Lease Expirations......................................................... 77
Tenant Information........................................................ 78
Office Properties......................................................... 79
Industrial Properties..................................................... 86
Development, Leasing and Management Activities............................ 86
Acquisition Properties.................................................... 89
</TABLE>

i
<PAGE>

TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company's Southern California Submarkets............................. 90
Excluded Properties...................................................... 103
Insurance................................................................ 105
Uninsured Losses from Seismic Activity................................... 105
Government Regulations................................................... 105
Management and Employees................................................. 107
Legal Proceedings........................................................ 107
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.............................. 108
Investment Policies...................................................... 108
Dispositions............................................................. 109
Financing................................................................ 109
Working Capital Reserves................................................. 110
Conflict of Interest Policies............................................ 110
Other Policies........................................................... 112
THE FINANCING............................................................ 113
The Mortgage Loan........................................................ 113
The Credit Facility...................................................... 113
MANAGEMENT............................................................... 114
Directors and Executive Officers......................................... 114
Committees of the Board of Directors..................................... 115
Compensation of Directors................................................ 116
Executive Compensation................................................... 117
Employment Agreements.................................................... 117
Stock Incentive Plan..................................................... 118
Section 401(k) Plan...................................................... 119
Indemnification.......................................................... 119
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 120
Partnership Agreement.................................................... 120
Assignment of Lease; Various Services Provided by the Services Company to
the Kilroy Group........................................................ 120
Benefits of the Formation Transactions to Certain Executive Officers..... 120
PRINCIPAL STOCKHOLDERS................................................... 121
DESCRIPTION OF CAPITAL STOCK............................................. 122
General.................................................................. 122
Common Stock............................................................. 122
Transfer Agent and Registrar............................................. 123
Preferred Stock.......................................................... 123
Restrictions on Ownership and Transfer................................... 123
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS................................................ 126
Board of Directors....................................................... 126
Removal of Directors..................................................... 126
Business Combinations.................................................... 127
Control Share Acquisitions............................................... 127
Amendment to the Articles of Incorporation and Bylaws.................... 128
Meetings of Stockholders................................................. 128
Advance Notice of Director Nominations and New Business.................. 128
Dissolution of the Company............................................... 129
Limitation of Directors' and Officers' Liability......................... 129
Indemnification Agreements............................................... 130
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP....................... 131
Management............................................................... 131
Indemnification.......................................................... 131
Transferability of Interests............................................. 131
Issuance of Additional Units............................................. 132
Capital Contribution..................................................... 132
Awards Under Stock Incentive Plan........................................ 133
Redemption/Exchange Rights............................................... 133
Registration Rights...................................................... 133
Tax Matters.............................................................. 133
Operations............................................................... 133
Duties and Conflicts..................................................... 134
Certain Limited Partner Approval Rights.................................. 134
Term..................................................................... 134
SHARES AVAILABLE FOR FUTURE SALE......................................... 135
General.................................................................. 135
Redemption/Exchange Rights/Registration Rights........................... 136
Reinvestment and Share Purchase Plan..................................... 136
FEDERAL INCOME TAX CONSEQUENCES.......................................... 137
Taxation of the Company.................................................. 137
Failure to Qualify....................................................... 142
Taxation of Taxable U.S. Stockholders Generally.......................... 143
Backup Withholding....................................................... 143
Taxation of Tax-Exempt Stockholders...................................... 144
Taxation of Non-U.S. Stockholders........................................ 144
Tax Aspects of the Operating Partnership................................. 147
Services Company......................................................... 149
OTHER TAX CONSEQUENCES................................................... 150
ERISA CONSIDERATIONS..................................................... 150
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs ......... 150
</TABLE>

ii
<PAGE>

TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Status of the Company, the Operating Partnership and the Partnerships
Under ERISA............................................................. 151
UNDERWRITING............................................................. 152
LEGAL MATTERS............................................................ 153
EXPERTS.................................................................. 153
ADDITIONAL INFORMATION................................................... 154
GLOSSARY................................................................. 155
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>

iii
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data, including the financial statements and notes
thereto, set forth elsewhere in this Prospectus. Unless otherwise indicated,
all calculations and information contained in this Prospectus assume (i) an
initial public offering price of $20 per share of Common Stock (representing
the midpoint of the range set forth on the cover page of this Prospectus),
(ii) that the Underwriters' over-allotment option will not be exercised and
(iii) the consummation of the Formation Transactions described under the
heading "Formation and Structure of the Company," including consummation of the
financings described under the heading "The Financing" and the acquisition of
certain properties described under the heading "Business and Properties--
Acquisition Properties" and give pro forma effect thereto as if such
transactions had each occurred on January 1, 1995. In addition, unless
otherwise indicated, all calculations and information contained in this
Prospectus, other than the historical and pro forma financial statements and
the respective notes thereto, give pro forma effect to the recent extension of
the tenant lease with Hughes Electronic Corporation's Space & Communications
Company with respect to space leased in the Office Property located at 2250 E.
Imperial Highway, and a portion of the space leased in the Office Property
located at 2240 E. Imperial Highway as if such lease renewal had occurred on
January 1, 1995. Unless the context otherwise requires, (i) the "Company" shall
include Kilroy Realty Corporation ("Kilroy Realty") and its subsidiaries,
including Kilroy Realty, L.P. (the "Operating Partnership") and Kilroy
Services, Inc. (the "Services Company"), and with respect to the period prior
to the Offering, the Kilroy Group (as defined below), and its predecessors,
(ii) the "Kilroy Group" shall mean, collectively, Kilroy Industries, a
California corporation ("KI"), and certain of its affiliated corporations,
partnerships and trusts that prior to the Offering owned the Properties, as
identified in "Note 1. Organization and Basis of Presentation" to the
historical financial statements of the Kilroy Group (collectively, the
"Partnerships") and (iii) the "Continuing Investors" shall mean the persons and
entities which beneficially own interests in the Partnerships or in the
Properties and will receive limited partnership interests ("Units") in the
Operating Partnership in connection with the Formation Transactions. See "--
Formation and Structure of the Company." Additional capitalized terms shall
have the meanings set forth in the Glossary beginning on page 155.

THE COMPANY

The Company has been formed to succeed to the business of the Kilroy Group,
consisting principally of a portfolio of Class A suburban office and industrial
buildings in prime locations, primarily in Southern California, and the Kilroy
Group's real estate ownership, acquisition, development, leasing and management
businesses which were established in Southern California in 1947. Upon the
consummation of the Offering and the Formation Transactions, the Company
(through the Operating Partnership) will own 14 Office Properties encompassing
an aggregate of approximately 2.0 million rentable square feet and 12
Industrial Properties encompassing an aggregate of approximately 1.3 million
rentable square feet. Eleven of the 14 Office Properties and 11 of the 12
Industrial Properties are located in prime Southern California suburban
submarkets (including a complex of three Office Properties located in El
Segundo, adjacent to the Los Angeles International Airport, presently the
nation's second largest air-cargo port, and a complex of five Office Properties
located adjacent to the Long Beach Municipal Airport). The Company also will
own three Office Properties located adjacent to the Seattle-Tacoma
International Airport in the State of Washington and one Industrial Property
located in Phoenix, Arizona. As of September 30, 1996, the Office Properties
were approximately 79.8% leased to 126 tenants and the Industrial Properties
were approximately 93.7% leased to 19 tenants. The average age of the Office
Properties and the Industrial Properties is approximately 12 years and 24
years, respectively. The Company developed and leased all but two of the Office
Properties and seven of the 12 Industrial Properties, and, upon consummation of
the Offering and acquisition of the Acquisition Properties, will manage all of
the Properties.

The Company was founded in 1947 by John B. Kilroy, Sr., a nationally
prominent member of the real estate community, and is led by John B. Kilroy,
Jr., the Company's Chief Executive Officer and President. The Company's
executive officers have served as members of the Company's executive management
team for an

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average of approximately 13 years. The Company presently has 47 employees, 34
of whom are located at the Company's headquarters at Kilroy Airport Center at
El Segundo, California. Upon consummation of the Offering, the Company's
officers and directors (and certain of their affiliates) will own in the
aggregate 20.9% of the Company's Common Stock (or interests exchangeable
therefor).

The Company's strategy has been to own, develop, acquire, lease and manage
Class A properties in select locations in key suburban submarkets, primarily in
Southern California, that the Company believes have strategic advantages
compared to neighboring submarkets. Existing locations offer tenants: (i) lower
business taxes and operating expenses than in adjoining submarkets; (ii) access
to highly skilled labor markets; (iii) strategic access to major transportation
facilities such as freeways, airports and the expanded Southern California
light-rail system; (iv) proximity to the Los Angeles-Long Beach port complex
which presently ranks as the largest commercial port in the United States; and
(v) for tenants with their names on certain Properties, visibility to freeway
and airplane travelers. As a result, the Properties attract major corporate
tenants and historically have achieved among the highest occupancy, tenant
retention and rental rates, both within their respective submarkets and as
compared to their respective neighboring submarkets. See "Business and
Properties--Office Properties" and "--Industrial Properties."

The Company's major tenants include, among others, Hughes Electronic
Corporation's Space & Communications Company and related companies ("Hughes
Space & Communications"), a tenant since 1984, which is engaged in high-
technology commercial activities including satellite development and related
applications such as DirecTV, as well as Mattel, Inc., Northwest Airlines,
Inc., Olympus America, Inc. and Furon Co., Inc. As of December 31, 1995, the
Company's 12 largest office tenants and ten largest industrial tenants (based
upon December 31, 1995 base rents) had leased space from the Company for an
average of 5.6 years. The Company's strong relationships with its tenants is
further evidenced by its average tenant retention rate (based upon rentable
square feet) for the three-year period ended December 31, 1995, which was 75.4%
for the Properties located in the Southern California Area. The Company's
extensive experience and long-term presence in Southern California have enabled
it to form key alliances and working relationships with large corporate
tenants, municipalities and landowners that have led to a variety of
development projects and provide a continuing source of development and
acquisition opportunities with institutional sellers. As a result of its
experience and relationships, the Company currently has exclusive rights to
develop approximately 24 acres of developable land (net of the acreage required
for streets) at Kilroy Airport Center Long Beach, and has an exclusive
agreement to negotiate to acquire an additional six acres of developable land
(net of acreage reserved for open areas) at the Thousand Oaks Civic Arts Plaza
Entertainment and Retail Center (together, the "Development Properties"). These
properties are presently entitled for over 1.0 million rentable square feet of
office, industrial and retail space. See "Business and Properties--Development,
Leasing and Management Activities."

The Company believes, based on independent economic surveys, that the
Southern California office and industrial real estate market is recovering
after experiencing a downturn over the last several years. Vacancy rates in the
Class A office space market in the greater Southern California area, including
the counties of Los Angeles, Orange, Riverside, San Bernardino and Ventura (the
"Southern California Area"), have decreased from a high in 1991 and 1992 of
nearly 20.0% to a level at the end of 1995 of under 18.0%. Vacancy rates in the
industrial space market in the Southern California Area also are decreasing
from a high of nearly 14.0% in 1992 to 9.2% at the end of 1995. In addition,
the Company has on average achieved increases in rental rates since 1994 in the
Office Properties it has managed. See "--The Company's Southern California
Submarkets" and "Business and Properties--The Company's Southern California
Submarkets." Management believes that the on-going economic recovery in its
submarkets will continue the trend of increasing occupancy rates and will cause
rents for all of the Properties to increase. See "--Growth Strategies."

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to tenants, its capital structure, its access to public capital markets, the
lack of new construction of office properties in its submarkets, its access to
developable properties, the knowledge and experience of its senior management
team and its long-term relationships with large Southern California corporate
tenants, municipalities, landowners and institutional sellers. In addition, the
Company believes that it will be one of a limited number of REITs focusing on
office and industrial properties and that it will be the only REIT with a
50-year operating history concentrating primarily on suburban Southern
California office and industrial properties. In the 12 months following the
consummation of the Offering, the Company expects sources of potential growth
in cash available for distribution per share from the amount set forth under
the caption "Distribution Policy" through: (i) the further leasing of its
available space, currently approximately 496,000 rentable square feet; (ii) the
renewal of leases for approximately 60,000 rentable square feet which expire
during such period; (iii) the acquisition of strategic properties with Units
and/or with available cash and borrowings under its $75.0 million revolving
credit facility (the "Credit Facility") and (iv) additional fees from
development services and related leasing and management services provided to
third parties. In the second 12-month period following consummation of the
Offering, the Company expects sources of potential growth in cash flow per
share from: (i) contractual increases in base rent payments from tenants; (ii)
continued leasing of available space; (iii) the contemplated completion of
certain planned development activities; (iv) increased fee income, including
development fees and related leasing and management services provided to third
parties; and (v) the acquisition of strategic properties. In addition, the
Company presently plans to expand one or more of its Industrial Properties
during the next two years, subject to substantial pre-leasing. There can be no
assurance, however, that the Company will achieve any growth in cash available
for distribution per share, that available space will be leased, that leases
scheduled to expire will be renewed or that the Company will successfully
acquire additional properties or complete any of its planned development
activities. See "Risk Factors--Real Estate Investment Considerations--Risks of
Real Estate Acquisition and Development."

The Company will be fully integrated in that it will perform substantially
all leasing, management and tenant improvements on an "in-house" basis and will
be self-administered and self-managed. The Company expects to qualify as a REIT
for federal income tax purposes beginning with its taxable year ending December
31, 1997. See "Federal Income Tax Consequences--Taxation of the Company."

RISK FACTORS

An investment in the shares of Common Stock involves various material risks.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with an investment in the shares of Common Stock offered hereby. Such risks
include, among others:

. geographic concentration of 22 of its 26 Properties in Southern
California, creating a dependence on demand for office, industrial and
retail space in such market and increasing the risk that the Company
will be materially adversely affected by general economic conditions in
a single market;

. the Company's results of operations are dependent on certain key
tenants, particularly Hughes Space & Communications, which accounted for
approximately 25.2% of the Company's total base rental revenues for the
year ending December 31, 1995 (giving pro forma effect to a recent
extension of a lease with Hughes Space & Communications with respect to
two of the Office Properties located at Kilroy Airport Center at El
Segundo), thereby increasing the potential negative impact to the
Company of downturns in the business of, or its relationship with, such
tenants. The base periods of the Hughes Space & Communications' leases
expire beginning in January 1999;

. A portion of the Company's anticipated cash flow may be generated from
development activities, which are partially dependent on the
availability of development opportunities, and are subject to the risks
inherent in development as well as general economic conditions and
limitations on such activities imposed by the REIT tests, which in turn
may negatively impact the Company's ability to make distributions;

3
<PAGE>

. the distribution requirements for REITs under federal income tax laws
may limit the Company's ability to finance future acquisitions,
developments and expansions without additional debt or equity financing
and may limit cash available for distribution;

. the valuation of the Properties was not based on third-party appraisals
and there have not been arm's-length negotiations with respect to such
values. The consideration to be paid by the Company for the Properties
may exceed their aggregate fair market value;

. real estate investment considerations such as the effect of economic and
other conditions on real estate values, the general lack of liquidity of
investments in real estate, the ability of tenants to pay rents, the
possibility that leases may not be renewed or will be renewed on terms
less favorable to the Company, the possibility of uninsured losses,
including losses associated with earthquakes, the ability of the
Properties to generate sufficient cash flow to meet operating expenses,
including debt service, and competition in seeking properties for
acquisition and in seeking tenants, which, individually or in the
aggregate, may negatively impact the Company's ability to make
distributions;

. risks associated with debt financing, including the potential inability
to refinance mortgage indebtedness upon maturity and the potential
increase in the level of indebtedness incurred by the Company since its
organizational documents do not limit the amount of indebtedness which
the Company may incur, which may adversely affect the ability of the
Company to repay debt, particularly in the event of a downturn in the
Company's business;

. conflicts of interest, particularly with the Continuing Investors
(including John B. Kilroy, Sr. and John B. Kilroy, Jr.) in connection
with the (i) Formation Transactions, (ii) operation of the Company's
ongoing businesses, including conflicts associated with the tax
consequences to Continuing Investors of sales or refinancings of any of
the Properties, which may influence the Company's decision to sell or
refinance the Properties or prepay debt secured by certain Properties,
(iii) Company's election to exercise its option to purchase any of the
properties owned or controlled by one or more of the Continuing
Investors which the Company has the option to acquire (the "Excluded
Properties") and (iv) enforcement of agreements with affiliates of the
Company, any of which could result in decisions affecting the Company
that do not fully reflect interests of all of the Company's
stockholders;

. taxation of the Company as a corporation if it fails to qualify as a
REIT for federal income tax purposes, taxation of the Operating
Partnership as a corporation if it fails to qualify as a partnership for
federal income tax purposes (and the resulting failure of the Company to
qualify as a REIT), the Company's liability for certain federal, state
and local income taxes in any of such events and the resulting decrease
in cash available for distribution;

. substantial influence over the affairs of the Company by certain
Continuing Investors who are directors and executive officers of the
Company, including the ability of the Board of Directors to change the
investment policies of the Company (including the Company's ratio of
debt to total market capitalization) without the consent of
stockholders, which may result in a decline in the market value of the
Common Stock;

. potential antitakeover effects of provisions generally limiting the
actual or constructive ownership by any one person or entity of Common
Stock to 7.0% of the outstanding shares, a classified board of directors
and other charter and statutory provisions and provisions in the
Operating Partnership partnership agreement that may have the effect of
inhibiting a change of control of the Company or making it more
difficult to effect a change in management or limiting the opportunity
for stockholders to receive a premium over the market price for the
Common Stock;

. the inability of the Company to control the operations of the Services
Company, which could result in decisions that do not reflect the
Company's interest because the Company does not control the election of
directors or the selection of officers of the Services Company;

4
<PAGE>

. the Company's cash available for distribution may be less than the
Company expects and may decrease in future periods from expected levels,
materially adversely affecting the Company's ability to make the
expected annual distributions of $1.55 per share during the 12-month
period following consummation of the Offering (which represents
approximately 93.5% of the estimated cash available for distribution for
such period) or to sustain such distribution rate in the future;

. immediate and substantial dilution of $13.09 per share in the net
tangible book value per share of the shares of Common Stock purchased by
new investors in the Offering;

. no prior public market for the shares of Common Stock, including the
risk that an active trading market might not develop, or if developed
might not be maintained, and which may negatively impact the price at
which shares of the Common Stock may be resold;

. potential adverse effects on the value of the shares of Common Stock of
fluctuations in interest rates or equity markets, which may negatively
impact the price at which shares of the Common Stock may be resold and
may limit the Company's ability to raise additional equity to finance
future development;

. dependence on key personnel;

. the possible issuance of additional shares of Common Stock, including
2,974,500 shares of Common Stock issuable upon exchange of the Units
outstanding upon consummation of the Offering, which may adversely
affect the market price of the shares of Common Stock or result in
dilution on a per share basis of cash available for distribution;

. limitations on the Company's ability to withdraw as general partner of
the Operating Partnership, transfer or assign its interest in the
Operating Partnership without the consent of at least 60% of the Units
(including Units held by the Company which will represent 79.1% of all
Units outstanding upon consummation of the Offering) and without meeting
certain criteria with respect to the consideration to be received by the
Continuing Investors, or to dissolve the Operating Partnership or sell
certain specified assets of the Operating Partnership without the
consent of more than 50% of the Units held by limited partners
(excluding Units held by the Company which will represent 79.1% of all
Units outstanding upon consummation of the Offering), which may in each
case result in the Company taking action that is not in the best
interest of all stockholders;

. the Company's historical operating losses for financial reporting
purposes; and

. the potential liability of the Company for environmental matters and the
costs of compliance with certain governmental regulations, which may
negatively impact the Company's financial condition, results of
operations and cash available for distribution.

FORMATION AND STRUCTURE OF THE COMPANY

The Company was formed in September 1996 and the Operating Partnership was
formed in October 1996. The Services Company will be formed prior to
consummation of the Offering. Prior to or simultaneous with the consummation of
the Offering, the Company, the Operating Partnership, the Services Company and
the Continuing Investors will engage in certain transactions (the "Formation
Transactions"), designed to enable the Company to continue and expand the real
estate operations of the Continuing Investors, to facilitate the Offering, to
enable the Company to qualify as a REIT for federal income tax purposes
commencing with its taxable year ending December 31, 1997 and to preserve
certain tax advantages for the existing owners of the Properties. The Formation
Transactions are as follows:

. Pursuant to an omnibus option agreement (the "Omnibus Agreement"), the
Operating Partnership may require the contribution to the Operating
Partnership of all of the Continuing Investors' interests in the
Properties (other than the Acquisition Properties), and the assets used
to conduct the leasing,

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<PAGE>

management and development activities (principally office equipment),
and the assignment of contract rights in connection with development
opportunities at Kilroy Airport Center Long Beach and the Thousand Oaks
Civic Arts Plaza, and the rights with respect to the purchase of each of
the Acquisition Properties, to the Operating Partnership in exchange for
Units representing limited partnership interests in the Operating
Partnership. The right to acquire the Properties in exchange for Units
is conditioned upon the consummation of the Offering. Pursuant to the
terms of the Omnibus Agreement, the Operating Partnership has the right
to acquire the Properties from the Continuing Investors in exchange for
Units through December 31, 1997, the date the Omnibus Agreement
terminates. Following the consummation of the Offering and the Formation
Transactions, the Units received by the Continuing Investors will
constitute in the aggregate an approximately 20.9% limited partnership
interest in the Operating Partnership.

. John B. Kilroy, Sr. and John B. Kilroy, Jr. will acquire all of the
voting common stock of the Services Company for the aggregate purchase
price of $ in cash (representing 5.0% of its economic value), and
the Operating Partnership will acquire all of the non-voting preferred
stock of the Services Company (representing 95.0% of its economic
value).

. The Company will sell shares of Common Stock in the Offering and
contribute the net proceeds from the Offering (approximately $206.1
million) to the Operating Partnership in exchange for a 79.1% general
partner interest in the Operating Partnership.

. The Operating Partnership will borrow approximately $96.0 million in
principal amount of long-term financing pursuant to the Mortgage Loan.

. The Company, through the Operating Partnership, will apply the aggregate
of the net Offering proceeds and the Financing toward the repayment of
existing mortgage indebtedness on certain of the Properties, the
purchase of the Acquisition Properties and the payment of its expenses
from the Offering and the Financing. See "Use of Proceeds."

. Forty-seven of the current 69 employees of KI will become employees of
the Company, the Operating Partnership and/or the Services Company,
including John B. Kilroy, Jr., the President and Chief Executive Officer
of KI, four other officers (Mr. Jeffrey Hawken, Executive Vice President
and Chief Operating Officer, Mr. Richard Moran Jr., Executive Vice
President and Chief Financial Officer, Mr. Campbell Hugh Greenup,
General Counsel, and Mr. Christian Krogh, Vice President of Asset
Management) who are not Continuing Investors and 43 other operating and
administrative employees. See "Management."

. The Operating Partnership or the Services Company will enter into
management agreements with respect to each of the Excluded Properties
(the "Management Agreements"). Pursuant to the terms of each of the
Management Agreements, the Operating Partnership or the Services
Company, as applicable, will have exclusive control and authority
(subject to an operating budget to be approved by the owners of each
property) over each of the Excluded Properties for a term of 24 months.
If any of the Excluded Properties are sold during the term of the
Management Agreements, then either party may terminate the respective
Management Agreement upon 30 days' prior written notice. In
consideration of the services to be provided under each of the
Management Agreements, the Company will receive a market rate monthly
property management fee as well as any applicable leasing commissions.
See "Business and Properties--Excluded Properties."

. The Company also has entered into option agreements (together, the
"Option Agreements") with partnerships controlled by John B. Kilroy, Sr.
and John B. Kilroy, Jr. granting to the Operating Partnership the
exclusive right to acquire (i) the approximately 18 undeveloped acres
located at Calabasas Park Centre for cash and (ii) the Office Property
located at North Sepulveda Boulevard, El Segundo for cash (or for Units
after the first anniversary of the Offering at the election of the
seller),

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<PAGE>

and in each case pursuant to the other terms of the respective Option
Agreement. See "Business and Properties--Excluded Properties--Calabasas
Park Centre" and "--North Sepulveda Boulevard, El Segundo" for a
discussion of the purchase price and other material terms of each Option
Agreement.

The Continuing Investors are comprised of (i) seven individuals, John B.
Kilroy, Sr., his five children, John B. Kilroy, Jr., Patrice Bouzaid, Susan
Hahn, Anne McCahon and Dana Pantuso, and Marshall L. McDaniel, a long-time
employee of Kilroy Industries, all of whom are "accredited investors" as
defined in Regulation D ("Regulation D") under the Securities Act, and (ii)
corporations, partnerships and trusts owned, directly or indirectly, solely by
such individuals, all of which are also "accredited investors." See "Note 1.
Organization and Basis of Presentation" to the historical financial statements
of the Kilroy Group. In addition, John B. Kilroy, Sr. is the Company's
Chairman of the Board of Directors and John B. Kilroy, Jr. is President and
Chief Executive Officer and a director of the Company. Consent on behalf of
the Continuing Investors to the Formation Transactions was received on or
before November 3, 1996 pursuant to a private solicitation thereof in
compliance with Regulation D.

REASONS FOR THE REORGANIZATION OF THE COMPANY

The Company believes that the benefits of the Formation Transactions
outweigh the detriments to the Company. The benefits of the Company's REIT
status and structure, as opposed to the status and structure of the
Partnerships, include greater access to capital for refinancing and growth,
allow stockholders to participate in real estate growth through one business
enterprise, diversification of risk and reward not available in single asset
entities, reduction in indebtedness encumbering the Properties, greater
liquidity than interests in partnerships owning individual properties, REIT
structure which allows shareholders to benefit potentially from the current
public market valuation of REITs and deferral of tax liabilities to the
Continuing Investors upon contribution of the Properties.

The detriments of the Company's REIT status and structure as opposed to the
status and structure of the Partnerships include the fact that management will
be subject to conflicts of interest in the operation of the Operating
Partnership, the limited partners of the Operating Partnership will have
certain approval rights with respect to certain transactions, the Continuing
Investors will have influence over certain transactions, a potential lower
overall rate of return for an investor who exchanges an interest in a single
asset for a smaller interest in a group of assets, lower potential of
distributions from asset sales, no assurance that the public market valuation
of the Company will reflect private real estate values, the aggregate cost to
the Company of the Offering (estimated at $19.0 million, including
underwriting discounts) and the incremental costs of operating a public
company. See also "Risk Factors."

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<PAGE>

The following diagram illustrates the structure of the Company, the Operating
Partnership and the Services Company after the consummation of the Offering and
the Formation Transactions:

Kilroy Realty Corporation

(the "Company")

100% owned by public

stockholders(/1/)

Kilroy Realty, L.P.

(the "Operating Partnership")

79.1% owned by the Company

as general partner

20.9% owned by the Continuing Investors

as limited partners

Kilroy Services, Inc.

(the "Services Company")

100% non-voting

preferred stock owned by

the Operating Partnership(/2/)

100% voting common stock

owned by John B. Kilroy, Sr.

and John B. Kilroy, Jr.(/3/)

- --------

(1) If all Units of the Operating Partnership were exchanged for Common Stock,
the Company would be owned approximately 79.1% by public stockholders and
approximately 20.9% by the Continuing Investors. Beginning on the second
anniversary of the consummation of the Offering, each Unit will be
redeemable by the Operating Partnership at the request of the Unitholder
for cash (based on the fair market value of an equivalent number of shares
of Common Stock at the time of such redemption) or, at the Company's
option, it may exchange Units for shares of Common Stock on a one-for-one
basis, subject to certain antidilution adjustments and exceptions;
provided, however, that if the Company does not elect to exchange such
Units for shares of Common Stock, a Unitholder that is a corporation or
limited liability company may require the Company to issue shares of Common
Stock in lieu of cash, subject to the Ownership Limit, or such other limit
as provided in the Company's Articles of Incorporation or as otherwise
permitted by the Board of Directors. See "Partnership Agreement of
Operating Partnership--Redemption/Exchange Rights." Under certain
circumstances, the Units may be redeemed prior to the second anniversary of
the consummation of the Offering in connection with the obligation of
certain of the Continuing Investors to indemnify the Company in connection
with the Formation Transactions. See "Formation and Structure of the
Company--Allocation of Consideration in the Formation Transactions."
Officers, directors and employees of the Company will have options to
acquire approximately 650,000 shares of Common Stock which could reduce the
percentage owned by public stockholders to approximately 75.6% (assuming
exchange of all outstanding Units and the exercise of all outstanding
options).

(2)Represents 95.0% of the economic interest in the Services Company.

(3)Represents 5.0% of the economic interest in the Services Company.

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BENEFITS TO THE CONTINUING INVESTORS

The principals of KI proposed the Formation Transactions to the Continuing
Investors because they believe that the benefits of the organization of the
Company for the Continuing Investors outweigh the detriments to them. Benefits
to members of the Continuing Investors include:

. improved liquidity of their interests in the Properties and increased
diversification of their investment;

. repayment of indebtedness in the aggregate net amount of approximately
$228.2 million resulting from the refinancing of existing mortgage
indebtedness, approximately $37.2 million of which is guaranteed by John
B. Kilroy, Sr. and $8.7 million of which guaranteed by John B. Kilroy,
Jr., and the repayment of approximately $3.4 million of personal
indebtedness of John B. Kilroy, Sr.;

. an employment agreement between the Company and John B. Kilroy, Jr.
providing annual salary, incentive compensation (including Common Stock
options) and other benefits for his services as an officer of the
Company. See "Management--Employment Agreements;" and

. the deferral of certain tax consequences of taxable dispositions of
assets through the creation of the Operating Partnership and the direct
contribution of their interests in the Properties to the Operating
Partnership in exchange for Units.

DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS

The Company's percentage interest in the Operating Partnership was determined
based upon the percentage of estimated cash available for distribution required
to pay estimated cash distributions resulting in an annual distribution rate
equal to 7.75% of the assumed initial public offering price of the Common Stock
of $20.00. The ownership interest in the Operating Partnership allocated to the
Company is equal to this percentage of estimated cash available for
distribution, and the remaining interest in the Operating Partnership will be
allocated to the Continuing Investors receiving Units in the Formation
Transactions. The parameters and assumptions used in deriving the estimated
cash available for distribution are described under the caption "Distribution
Policy."

In connection with the Offering, the Company did not obtain appraisals with
respect to the market value of any of the Properties or other assets that the
Company will own immediately after consummation of the Offering and the
Formation Transactions or an opinion as to the fairness of the allocation of
shares to the purchasers in the Offering. The initial public offering price
will be determined based upon the estimated cash available for distribution and
the factors discussed under the caption "Underwriting," rather than a property
by property valuation based on historical cost or current market value. This
methodology has been used because management believes it is appropriate to
value the Company as an ongoing business rather than with a view to values that
could be obtained from a liquidation of the Company or of individual properties
owned by them. See "Underwriting."

FORMATION OF KILROY SERVICES, INC.

Kilroy Services, Inc. (the "Services Company") has been formed under the laws
of the State of Maryland to succeed to the third-party development activities
of the Kilroy Group. John B. Kilroy, Sr. and John B. Kilroy, Jr. together will
own 100% of the voting common stock of the Services Company, representing 5% of
its economic value. The Operating Partnership will own 100% of the nonvoting
preferred stock of the Services Company, representing 95% of its economic
value. The ownership structure of the Services Company is necessary to permit
the Company to share in the income of the activities of the Services Company
and also maintain its status as a REIT. Although the Company anticipates
receiving substantially all of the economic benefit of the businesses carried
on by the Services Company through the Company's right to receive dividends
through the Operating Partnership's investment in the Services Company's
nonvoting preferred stock, the Company will not be able to elect the Services
Company's officers or directors and, consequently, may not have

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<PAGE>

the ability to influence the operations of the Services Company. See "Risk
Factors--Risks of Development Business and Related Activities Being Conducted
by the Services Company; Control of Services Company--Adverse Consequences of
Lack of Control Over the Businesses of the Services Company."

GROWTH STRATEGIES

The Company's objectives are to maximize growth in cash flow per share and to
enhance the value of its portfolio through effective management, operating,
acquisition and development strategies. The Company believes that opportunities
exist to increase cash flow per share: (i) by acquiring office and industrial
properties with attractive returns in strategic suburban submarkets where such
properties complement its existing portfolio; (ii) from contractual increases
in base rent; (iii) as a result of increasing rental and occupancy rates and
decreasing concessions and tenant installation costs as vacancy rates in the
Company's submarkets generally continue to decline; (iv) by developing
properties for the benefit of the Company where such development will result in
a favorable risk adjusted return on investment or, alternatively, on a fee
basis for others; and (v) by expanding Properties within the Company's existing
industrial portfolio. The Company's ability to achieve its growth strategy will
be aided by its $75.0 million credit facility as well as its working capital
cash reserves of approximately $20.0 million and capital expenditure cash
reserves of approximately $3.1 million.

The Company believes that a number of factors will enable it to achieve its
business objectives, including: (i) the opportunity to lease available space at
attractive rental rates because of increasing demand and, with respect to the
Office Properties, the present lack of new construction in the Southern
California submarkets in which most of the Properties are located; (ii) the
presence of distressed sellers and inadvertent owners (through foreclosure or
otherwise) of office and industrial properties in the Company's markets, as
well as the Company's ability to acquire properties with Units (thereby
deferring the seller's taxable gain), all of which create enhanced acquisition
opportunities; (iii) the quality and location of the Company's Properties; (iv)
the Company's access to development opportunities as a result of its
significant relationships with large Southern California corporate tenants,
municipalities and landowners and its nearly 50-year presence in the Southern
California market; and (v) the limited availability to competitors of capital
for financing development, acquisitions or capital improvements. Management
believes that the Company is well positioned to exploit existing opportunities
because of its extensive experience in its submarkets, its seasoned management
team and its proven ability to develop, lease and efficiently manage office and
industrial properties. In addition, the Company believes that public ownership
and its capital structure will provide new opportunities for growth. There can
be no assurance, however, that the Company will be able to lease available
space, complete any property acquisitions, successfully develop any land
acquired or improve the operating results of any developed properties that are
acquired. See "Business and Properties--Development, Leasing and Management
Activities."

Operating Strategies. The Company will focus on enhancing growth in cash flow
per share by: (i) maximizing cash flow from existing Properties through active
leasing, contractual base rent increases and effective property management;
(ii) managing operating expenses through the use of in-house management,
leasing, marketing, financing, accounting, legal, construction management and
data processing functions; (iii) maintaining and developing long-term
relationships with a diverse tenant group; (iv) attracting and retaining
motivated employees by providing financial and other incentives to meet the
Company's operating and financial goals; and (v) continuing to emphasize
capital improvements to enhance the Properties' competitive advantages in their
markets.

10
<PAGE>

California Area, approximately 89.2% for the El Segundo submarket and
approximately 85.4% in the Long Beach submarket. In addition, at December 31,
1995, the Industrial Properties were approximately 91.4% leased as compared to
approximately 82.3% and approximately 87.1% for industrial properties located
in Los Angeles and Orange Counties, respectively. As of September 30, 1996, (i)
the Office Properties contained approximately 2.0 million rentable square feet
and were approximately 79.8% leased, and (ii) the Industrial Properties
contained an aggregate of approximately 1.3 million rentable square feet and
were approximately 93.7% leased. In addition, the number of individual lease
transactions since 1992, including the results for the nine-month period ended
September 30, 1996, averaged over 33 per year. See "Business and Properties--
General," "--Properties," "--Occupancy and Rental Information" and "--The
Company's Southern California Submarkets."

Approximately 1,000,000 aggregate rentable square feet in the Properties was
leased by the Company from January 1, 1992 through December 31, 1994, a period
which management characterizes as recessionary. Based on the leases the Company
signed in 1996, and the findings in an independent study of the Southern
California real estate market commissioned by the Company, management believes
that the recent trend toward increasing rental rates in Class A office and
industrial buildings in the Company's Southern California submarkets presents
significant opportunities for growth. In addition, approximately 65.3% of the
Company's net rentable square feet is subject to leases expiring in 2000 or
beyond, when management expects asking rents for the respective Properties to
be higher than the rents paid pursuant to such leases. In addition,
approximately 36.7% of the Company's total base rent (representing
approximately 25.4% of the Company's total rentable square feet) is
attributable to leases with Consumer Price Index increases. No assurance can be
given, however, that new leases will reflect rental rates greater than or equal
to current rental rates or that current or future economic conditions will
support higher rental rates. See "Risk Factors--Real Estate Investment
Considerations."

Acquisition Strategies. The Company will seek to increase its cash flow per
share by acquiring additional quality office and industrial properties,
including properties that may: (i) provide attractive initial yields with
significant potential for growth in cash flow from property operations; (ii)
are strategically located, of high quality and competitive in their respective
submarkets; (iii) are located in the Company's existing submarkets and/or in
other strategic submarkets where the demand for office and industrial space
exceeds available supply; or (iv) have been under-managed or are otherwise
capable of improved performance through intensive management and leasing that
will result in increased occupancy and rental revenues. The Company believes
that the Southern California market is an established and mature real estate
market in which property owners generally have a low tax basis (and,
accordingly, the potential for large taxable gains) in their properties.
Management believes that the Company's extensive experience, capital structure
and ability to acquire properties for Units, and thereby defer a seller's
taxable gain, if any, will enhance the ability of the Company to consummate
transactions quickly and to structure more competitive acquisitions than other
real estate companies in the market which lack its access to capital or the
ability to issue Units. See "Business and Properties--Development, Leasing and
Management Activities."

The Company has entered into an agreement to acquire the two office
properties that comprise Phase I of Kilroy Airport Center Long Beach. Kilroy
Airport Center Long Beach Phase I was developed by the Company in 1987 and has
been leased and managed by the Company since its inception. In addition, the
Company has entered into an agreement to purchase an office property located in
Thousand Oaks, California. The Company also has entered into an agreement to
acquire a three building office and industrial complex located in Anaheim,
California. In addition, Kilroy Industries, on behalf of the Operating
Partnership, has acquired a multi-tenant industrial property located in Garden
Grove, California. The acquisition of these properties (the "Acquisition
Properties") by the Company is expected to occur concurrently with the
consummation of the Offering and, accordingly, the Acquisition Properties are
included in the discussion of the Properties included throughout this
Prospectus. There can be no assurance, however, that the Company will be able
to complete any property acquisitions, including the acquisition of the
Acquisition Properties, successfully develop any land acquired or improve the
operating results of any developed properties that are acquired. See "Business
and Properties--Acquisition Properties."

11
<PAGE>

Development Strategies. The Company's interests in the Development Properties
provide it with significant growth opportunities.

light industrial and other commercial projects at which the Company owns all
five existing Office Properties and manages all ongoing leasing and development
activities. The Company developed Phases I and II in 1987 and 1989/1990,
respectively, encompassing an aggregate of approximately 620,000 rentable
square feet of office space. The Company controls development of the Phase III
and IV parcels while receiving rental revenue in connection with such parcels
in an amount sufficient to cover substantially all of the predevelopment
carrying costs. Phases III and IV presently are planned to be developed on the
projects' approximately 24 undeveloped acres and are entitled for an aggregate
of approximately 900,000 rentable square feet. The Company is currently in
discussions with several prospective tenants for office space presently planned
to be included in Kilroy Long Beach Phase III. Development of each of Phases
III and IV is subject to substantial predevelopment leasing activity and,
therefore, the timing for the commencement of development of Phases III and IV
is uncertain. No assurance can be given that the Company will commence such
development when planned, or that, if commenced, such development will be
completed. See "Risk Factors--Real Estate Investment Considerations--Risks of
Real Estate Acquisition and Development" and "Business and Properties--
Development, Leasing and Management Activities--Kilroy Long Beach."

The Company has entered into an exclusive agreement to negotiate a
Development and Disposition Agreement in connection with the Thousand Oaks
Civic Arts Plaza Retail and Entertainment Center project, an approximately 11-
acre project (representing approximately six developable acres net of acreage
reserved for open areas) presently contemplated to include an approximately
90,000 square foot multiplex theater and virtual reality entertainment center
and retail space. The project is located in the City of Thousand Oaks,
immediately adjacent to the City's recently completed $65 million Civic Arts
Plaza Complex. See "Business and Properties--Development, Leasing and
Management Activities--Thousand Oaks."

The Company also has entered into a Development Management Agreement in
connection with the development, on a fee basis, of the Riverside Judicial
Center. See "Business and Properties--Development, Management and Leasing
Activities--Riverside Judicial Center." In addition, the Company has been
engaged on a fee basis as a consultant in connection with the development of an
approximately 200-acre site presently owned by Northrop Grumman Corporation.
See "Business and Properties--Development, Management and Leasing Activities--
Northrop Grumman."

In addition, certain of the Industrial Properties can support additional
development, and the Company presently is planning to develop in the next two
years, subject to substantial pre-leasing, approximately 105,000 rentable
square feet of such additional space.

The Company may engage in the development of other office and/or industrial
properties primarily in Southern California submarkets when market conditions
support a favorable risk-adjusted return on such development. The Company's
activities with third-party owners in Southern California are expected to give
the Company further access to development opportunities. There can be no
assurance, however, that the Company will be able to successfully develop any
of the Development Properties or any other properties. See "Business and
Properties--Development, Leasing and Management Activities."

Financing Policies. The Company's financing policies and objectives are
determined by the Company's Board of Directors. The Company presently intends
to limit the ratio of debt to total market capitalization (total debt of the
Company as a percentage of the market value of issued and outstanding shares of
Common Stock, including interests exchangeable therefor, plus total debt) to
approximately 50%. However, such objectives may be altered without the consent
of the Company's stockholders and the Company's organizational documents do

12
<PAGE>

not limit the amount of indebtedness that the Company may incur. Upon
completion of the transactions outlined under the caption "Formation and
Structure of the Company," total debt will constitute approximately 25.2% of
the total market capitalization of the Company (assuming an initial public
offering price of $20.00 per share of Common Stock). In addition, the Company
will have working capital cash reserves of approximately $20.0 million and
capital expenditure cash reserves of approximately $3.1 million upon
consummation of the Offering. The Company anticipates that upon consummation of
the Offering all of its permanent indebtedness will bear interest at fixed
rates. The Company intends to utilize one or more sources of capital for future
acquisitions, including development and capital improvements, which may include
undistributed cash flow, borrowings under the Credit Facility, issuance of debt
or equity securities and other bank and/or institutional borrowings. There can
be no assurance, however, that the Company will be able to obtain capital for
any such acquisitions, developments or improvements on terms favorable to the
Company. See "--Growth Strategies," "The Company--Growth Strategies" and
"Business and Properties--Development, Leasing and Management Activities" and
"--Debt Structure."

13
<PAGE>

THE OFFICE AND INDUSTRIAL PROPERTIES

The following table sets forth certain information relating to each of the
Properties as of December 31, 1995, unless indicated otherwise. This table
gives pro forma effect to a recent extension of one of the leases with Hughes
Space & Communications with respect to two of the Office Properties located at
Kilroy Airport Center at El Segundo as if such lease renewal had occurred on
January 1, 1995. After completion of the Formation Transactions, the Company
(through the Operating Partnership) will own a 100% interest in all of the
Office and Industrial Properties other than the five Office Properties located
at Kilroy Airport Center Long Beach and the three Office Properties located at
the SeaTac Office Center, each of which are held subject to ground leases
expiring in 2035 and 2032, respectively (or 2084 and 2062 assuming the exercise
of the Company's options to extend such leases).

<TABLE>
<CAPTION>
AVERAGE
PERCENTAGE PERCENTAGE BASE
NET LEASED 1995 OF 1995 RENT
RENTABLE AS OF BASE 1995 TOTAL PER EFFECTIVE
SQUARE 12/31/95 RENT EFFECTIVE BASE SQ. FT. RENT PER
PROPERTY LOCATION YEAR BUILT FEET (%)(1) ($000)(2) RENT($000)(3) RENT (%) ($)(4) SQ. FT. ($)(5)
----------------- ---------- --------- ---------- --------- ------------- ---------- ------- --------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Properties:
Kilroy Airport Center at El
Segundo
2250 E. Imperial Highway(8).... 1983 291,187 80.9 4,316 4,042 11.5 18.32 17.16
2260 E. Imperial Highway)(9)... 1983 291,187 100.0 7,160 6,545 19.1 24.59 22.48
2240 E. Imperial Highway
El Segundo, California(10)..... 1983 118,933 100.0 1,130 1,121 3.0 9.50 9.43
Kilroy Airport Center Long Beach
3900 Kilroy Airport Way(11).... 1987 126,840 94.0 2,282 2,092 6.1 19.14 17.55
3880 Kilroy Airport Way(11).... 1987 98,243 100.0 1,296 1,022 3.5 13.19 10.40
3760 Kilroy Airport Way........ 1989 165,278 92.1 3,372 2,807 9.0 22.16 18.45
3780 Kilroy Airport Way........ 1989 219,745 63.6 3,465 3,005 9.2 24.79 21.50
3750 Kilroy Airport Way
Long Beach, California......... 1989 10,457 100.0 75 28 0.2 7.21 2.66
SeaTac Office Center
18000 Pacific Highway.......... 1974 207,092 58.7 1,799 1,510 4.8 14.80 12.42
17930 Pacific Highway.......... 1980 210,899 -- -- -- -- -- --
17900 Pacific Highway
Seattle, Washington........... 1980 113,605 87.7 1,896 1,820 5.0 19.02 18.26
La Palma Business Center
4175 E. La Palma Avenue
Anaheim, California(11)....... 1985 42,790 93.2 493 475 1.3 12.37 11.92
2829 Townsgate Road
Thousand Oaks, California(11).. 1990 81,158 100.0 1,888 1,760 5.0 23.26 21.69
185 S. Douglas Street
El Segundo, California(12)..... 1978 60,000 100.0 1,313 898 3.5 21.89 14.96
--------- ----- ------ ------ ---- ----- -----
Subtotal/Weighted Average 2,037,414 77.0 30,485 27,125 81.1 19.44 17.30
--------- ----- ------ ------ ---- ----- -----
Industrial Properties:
2031 E. Mariposa Avenue
El Segundo, California......... 1954 192,053 100.0 1,556 1,296 4.1 8.10 6.75
3332 E. La Palma Avenue
Anaheim, California............ 1966 153,320 100.0 881 790 2.3 5.74 5.16
2260 E. El Segundo Boulevard
El Segundo, California(13)..... 1979 113,820 100.0 553 510 1.5 4.86 4.48
2265 E. El Segundo Boulevard
El Segundo, California......... 1978 76,570 100.0 554 493 1.5 7.23 6.44
1000 E. Ball Road
Anaheim, California(14)........ 1956 100,000 100.0 639 519 1.7 6.39 5.19
1230 S. Lewis Street
Anaheim, California............ 1982 57,730 100.0 303 284 0.8 5.25 4.92
12681/12691 Pala Drive
Garden Grove, California ...... 1970 84,700 82.6 476 454 1.3 6.81 6.48
<CAPTION>
TENANTS LEASING
PERCENTAGE 10% OR MORE OF
LEASED NET RENTABLE
AS OF SQUARE FEET PER
9/30/96 PROPERTY
(%)(6) AS OF 9/30/96(7)
---------------------------
<C> <S>
83.9 Hughes Space &
Communications
(33.0%)
100.0 Hughes Space &
Communications
(100.0%)

100.0 Hughes Space &
Communications
(94.6%)
94.0 McDonnell
Douglas
Corporation
(50.9%), Olympus
America, Inc.
(18.6%)
100.0 Devry, Inc.
(100.0%)
82.6 R.L. Polk & Co.
(9.8%)
92.2 SCAN Health Plan
(20.4%), Zelda
Fay Walls (12.7%)
100.0 Oasis Cafe
(37.1%),
Keywanfar &
Baroukhim
(16.1%),
SR Impressions
(15.0%)
60.0 Principal Mutual
(8.8%)
Lynden (8.8%)
Rayonier (8.0%)
-- --

87.7 Key Bank
(41.9%)(15)
Northwest
Airlines (24.9%)
City of Sea Tac
(17.2%)

91.6 Peryam & Kroll
(26.7%)
DMV/VPI
Insurance Group
(26.5%)
Midcom
Corporation
(15.5%)

100.0 Worldcom, Inc.
(34.2%), Data
Select Systems,
Inc. (13.0%),
Pepperdine
University
(12.7%),
Anheuser Busch,
Inc. (12.0%)

100.0 Northwest
Airlines, Inc.
(100%)
----------
79.8
----------
Mattel, Inc.
100.0 (100%)
Furon Co., Inc.
59.2 (59.2%)
Ace Medical Co.
100.0 (100%)
100.0 MSAS Cargo
Intl., Inc.
(100%)

100.0 Allen-Bradley
Company (100%)

100.0 Extron
Electronics (100%)

82.6 Rank Video Services America, Inc.
(82.6%)
</TABLE>
(footnotes on next page)

14
<PAGE>

Festival Markets, Inc. (100%)

Cannon Equipment (60%) Vanco (16.4%)

Bond Technologies (29.6%)
NovaCare Orthotics (24.0%)
Specialty Restaurants Corp. (21.7%)

Household Finance Corporation (59%)
</TABLE>
- -------
(1) Based on all leases at the respective Properties in effect as of December
31, 1995.
(2) Total base rent for the year ended December 31, 1995, determined in
accordance with generally accepted accounting principles ("GAAP"). All
leases at the Industrial Properties are written on a triple net basis.
Unless otherwise indicated, all leases at the Office Properties are
written on a full service gross basis, with the landlord obligated to pay
the tenant's proportionate share of taxes, insurance and operating
expenses up to the amount incurred during the tenant's first year of
occupancy ("Base Year") or a negotiated amount approximating the tenant's
pro rata share of real estate taxes, insurance and operating expenses
("Expense Stop"). Each tenant pays its pro rata share of increases in
expenses above the Base Year or Expense Stop.
(3) Aggregate base rent received over their respective terms from all leases
in effect at December 31, 1995 minus all tenant improvements, leasing
commissions and other concessions for all such leases, divided by the
terms in months for such leases, multiplied by 12. Tenant improvements,
leasing commissions and other concessions are estimated using the same
methodology used to calculate effective rent for the Properties as a whole
in the charts set forth under the caption "Business and Properties--
General."
(4) Base rent for the year ended December 31, 1995 divided by net rentable
square feet leased at December 31, 1995.
(5) Effective rent at December 31, 1995 divided by net rentable square feet
leased at December 31, 1995.

(6) Based on all leases at the respective Properties dated on or before
September 30, 1996.
(7) Excludes office space leased by the Company.
(8) For this Property, a lease with Hughes Space & Communications, for
approximately 96,000 rentable square feet, and with SDRC Software Products
Marketing Division, Inc., for approximately 6,800 rentable square feet,
are written on a full service gross basis except that there is no Expense
Stop.
(9) For this Property, the lease with Hughes Space & Communications is written
on a modified full service gross basis under which Hughes Space &
Communications pays for all utilities and other internal maintenance costs
with respect to the leased space and, in addition, pays its pro rata share
of real estate taxes, insurance, and certain other expenses including
common area expenses.
(10) For this Property, leases with Hughes Space & Communications for
approximately 101,000 rentable square feet are written on a full service
gross basis except that there is no Expense Stop.
(11) This Property is an Acquisition Property.
(12) For this Property, the lease is written on a triple net basis.
(13) This Industrial Property was vacant until April 1995. The tenant began
paying rent in mid-October 1995 at an annual rate of $4.86 per rentable
square foot.
(14) The tenant subleased this Industrial Property on May 15, 1996 to RGB
Systems, Inc. (doing business as Extron Electronics), the tenant of the
Property located at 1230 S. Lewis Street, Anaheim, California, which is
adjacent to this Property. The sublease is at an amount less than the
current lease rate, and the tenant is paying the difference between the
current lease rate and the sublease rate. The lease and the sublease
terminate in April 1998. Extron Electronics has executed a lease for this
space from May 1998 through April 2005 at the current lease rate. Extron
Electronics continues to occupy the space located at 1230 S. Lewis Street.

(15) This lease terminates on December 31, 1996.

(16) This Industrial Property was originally designed for multi-tenant use and
currently is leased to a single tenant and utilized as an indoor multi-
vendor retail marketplace.

15
<PAGE>

THE COMPANY'S SOUTHERN CALIFORNIA SUBMARKETS

The Company retained Robert Charles Lesser & Co. ("Lesser"), nationally
recognized experts in real estate consulting and urban economics, to study the
Company's Southern California submarkets, and the discussion of such submarkets
below is based upon Lesser's findings. While the Company believes that these
estimates of economic trends are reasonable, there can be no assurance that
these trends will in fact continue.

The Company's Office and Industrial Properties are primarily located in Los
Angeles, Orange and Ventura Counties which, together with Riverside and San
Bernardino Counties, comprise the second largest Consolidated Metropolitan
Statistical Area in the United States. Management believes that the region's
economy, which in 1994 commenced recovery from a four-year economic recession,
and the continuing growth in the region's foreign trade, tourism and
entertainment industries, provide an attractive environment for owning and
operating Class A office and industrial properties where occupancy rates and
asking rents generally are increasing. In addition, since 1992 there has been
virtually no increase in the region's office space, while the region's demand
for quality industrial space and low vacancy rates has spurred modest new
construction of industrial properties.

Vacancy rates in the office space market in the Southern California Area are
trending downward from a high in 1991 and 1992 of nearly 20.0% to a level at
the end of 1995 of under 18.0%. At December 31, 1995, the vacancy rate for the
Southern California Area Office Properties was approximately 10.5%. Vacancy
rates in the industrial space market in the Southern California Area have
decreased from a high of nearly 14% in 1992 to approximately 9.2% at December
31, 1995. At December 31, 1995, the vacancy rate for the Southern California
Area Industrial Properties was approximately 8.6%.

As of December 31, 1995, the Southern California Area had a total population
of approximately 15.6 million people which accounted for approximately 5.9% of
the total U.S. population. Beginning in 1990, annual population growth in the
region has averaged approximately 217,000 persons. Of the total population at
December 31, 1995, approximately 9.2 million and 2.6 million persons lived in
Los Angeles and Orange Counties, respectively, the counties in which all but
five of the Properties are located. Annual estimated growth in population over
the next five years in these counties is expected to be approximately 94,000
and 32,000 persons, respectively. See "Business and Properties--The Company's
Southern California Submarkets."

THE FINANCING

The Company, on behalf of the Operating Partnership, intends to obtain a
written commitment for a mortgage loan of $96.0 million (the "Mortgage Loan"),
the closing of which is a condition to the consummation of the Offering. The
proceeds of the Mortgage Loan will principally be used to repay existing
indebtedness on the Properties. Payment of principal and interest on the
Mortgage Loan is expected to be secured by certain of the Properties. The
Mortgage Loan is expected to require monthly principal and interest payments
based on a fixed rate, amortizing over a 25-year period, maturing in 2005.

The Company expects to obtain a written commitment to establish a $75.0
million revolving credit facility (the "Credit Facility" and, together with the
Mortgage Loan, the "Financing") which the Company, on behalf of the Operating
Partnership, expects to enter into concurrently with the consummation of the
Offering. The Company also will have a working capital cash reserve of
approximately $20.0 million and capital expenditure cash reserves of
approximately $3.1 million upon consummation of the Offering. The Credit
Facility and the working capital cash reserve will be used primarily to finance
acquisitions of additional properties. Payment of principal and interest on the
Credit Facility is expected to be secured by certain of the Properties. In
addition, borrowings under the Credit Facility are expected to be recourse
obligations to the Company and the Operating Partnership.

If the initial public offering price for the Common Stock is less than the
range set forth on the cover page of this Prospectus, the Company expects to
make up any shortfall between the aggregate net proceeds of the Offering and
the Mortgage Loan, and the intended uses thereof, with borrowings under the
Credit Facility or by reducing its working capital cash reserves or its capital
expenditure cash reserves. See "Use of Proceeds."

16
<PAGE>

DISTRIBUTION POLICY

The Company presently intends to make regular quarterly distributions to
holders of its Common Stock. The first distribution, for the period commencing
upon the consummation of the Offering and ending 1997, is anticipated to be
approximately $ per share (which is equivalent to a quarterly distribution
of $.3875 per share or an annual distribution of $1.55 per share) which results
in an initial annual distribution rate of 7.75%, based on the initial public
offering price set forth on the cover page of this Prospectus. The Company does
not expect to change its estimated distribution rate if any of the
Underwriters' over-allotment option is exercised. The Company currently expects
to distribute approximately 93.5% of estimated cash available for distribution
for the 12 months following the consummation of the Offering. Units and shares
of Common Stock will receive equal distributions. The Board of Directors may
vary the percentage of cash available for distribution which is distributed if
the actual results of operations, economic conditions or other factors differ
from the assumptions used in the Company's estimates.

The Company established its initial distribution rate based on estimated cash
flow for the 12 months following the consummation of the Offering and the
Formation Transactions which the Company anticipates to be available for
distribution, taking into account rents under existing leases, estimated
operating expenses, capital improvements, debt service requirements, known
contractual commitments, and estimated amounts for recurring tenant
improvements and leasing commissions. To maintain its qualification as a REIT,
the Company must make annual distributions to stockholders of at least 95% of
its taxable income, determined without regard to the deduction for dividends
paid and by excluding any net capital gains. Under certain circumstances, the
Company may be required to make distributions in excess of cash flow available
for distribution to meet such distribution requirements. See "Distribution
Policy."

The Company's estimate of the initial distribution rate for the Common Stock
was based on the Company's estimate of cash available for distribution, which
is being made solely for the purpose of setting the initial distribution rate
and is not intended to be a projection or forecast of the Company's results of
operations or of its liquidity. The Company believes that its estimate of cash
available for distribution constitutes a reasonable basis for setting the
initial distribution rate. However, no assurance can be given that the
Company's estimate will be accurate. See "Risk Factors--Distribution Payout
Percentage."

TAX STATUS OF THE COMPANY

The Company intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1997 and believes its organization
and proposed method of operation will enable it to meet the requirements for
qualification as a REIT. To maintain REIT status, an entity must meet a number
of organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its REIT taxable income (determined
without regard to the dividends paid deduction and by excluding net capital
gains) to its stockholders. As a REIT, the Company generally will not be
subject to federal income tax on net income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax at regular corporate rates and may not be
able to qualify as a REIT for the four subsequent taxable years. See "Risk
Factors--Adverse Consequences of Failure to Qualify as a REIT" and "Federal
Income Tax Considerations." Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain federal, state and local taxes on
its income and property. In addition, the Services Company will be subject to
federal and state income tax at regular corporate rates on its net income.

17
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered Hereby.. 11,250,000 shares
Common Stock Outstanding af-
ter the Offering............ 14,224,500 shares(/1/)
Use of Proceeds.............. Together with the net proceeds of the Financing,
repayment of approximately $228.2 million
principal amount of existing mortgage and other
indebtedness, approximately $48.8 million for
the purchase of the Acquisition Properties and
the remaining approximately $27.8 million to be
available for expenses of the Formation
Transactions, expenses of the Financing,
expenses of the Offering and as working capital.
NYSE symbol.................. KRC
</TABLE>
- --------

(1) Includes 2,974,500 Units (calculated on an as-exchanged basis) issued in
connection with the Formation Transactions, but excludes approximately
1,400,000 shares of Common Stock reserved for issuance pursuant to the
Stock Incentive Plan (as defined herein). See "Management--Stock Incentive
Plan" and "Shares Eligible for Future Sale."

18
<PAGE>

SUMMARY FINANCIAL DATA

The following table sets forth certain financial data on a pro forma basis
for the Company, and on an historical basis for the Kilroy Group, which consist
of the combined financial statements of the Kilroy Group (the "Combined
Financial Statements") whose financial results will be consolidated in the
historical and pro forma financial statements of the Company. The financial
data should be read in conjunction with the historical and pro forma financial
statements and notes thereto included in this Prospectus. The combined
historical summary financial data as of December 31, 1994, 1995 and September
30, 1996 and for each of the three years in the period ended December 31, 1995
and the nine months ended September 30, 1995 and 1996 have been derived from
the Combined Financial Statements of the Kilroy Group audited by Deloitte &
Touche LLP, independent public accountants, whose report with respect thereto
is included elsewhere in this Prospectus. The selected combined historical
financial and operating information as of December 31, 1993, 1992 and 1991, and
for the years ended December 31, 1992 and 1991, have been derived from the
unaudited Combined Financial Statements of the Kilroy Group and, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the operating information for
the unaudited periods. The pro forma data assume the completion of the
Formation Transactions, including acquisition of the Acquisition Properties and
the consummation of the Offering (based upon the midpoint of the range of the
initial public offering price set forth on the cover page of this Prospectus)
and the Financing, and use of the aggregate net proceeds therefrom as described
under "Use of Proceeds" as of the beginning of the periods presented for the
operating data and as of the balance sheet date for the balance sheet data. The
pro forma financial data does not give effect to the recent extension of the
tenant lease with Hughes Space & Communications with respect to space leased in
the Office Property located at 2250 E. Imperial Highway, El Segundo, California
and a portion of the space leased in the Office Property located at 2240 E.
Imperial Highway, El Segundo, California. The pro forma financial data are not
necessarily indicative of what the actual financial position or results of
operations of the Company would have been as of and for the periods indicated,
nor does it purport to represent the future financial position and results of
operations.

19
<PAGE>

THE COMPANY (PRO FORMA) AND KILROY GROUP (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------- ------------------------------------------------------------
COMBINED HISTORICAL COMBINED HISTORICAL
PRO FORMA --------------------- PRO FORMA --------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- ------------ -------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Rental income.......... $ 30,635 $ 25,156 $ 24,056 $39,141 $ 32,314 $ 31,220 $ 34,239 $ 32,988 $ 29,300
Tenant reimbursements.. 3,326 2,583 2,377 3,886 3,002 1,643 4,916 5,076 5,416
Parking income......... 1,317 1,317 1,193 1,582 1,582 1,357 1,360 1,286 1,358
Development and
management fees....... -- 580 926 -- 1,156 919 751 882 779
Sale of air rights..... -- -- 4,456 4,456 4,456 -- -- -- --
Lease termination
fees.................. -- -- -- 100 100 300 5,190 48 --
Other income........... 364 65 211 705 298 784 188 221 206
-------- ---------- -------- ------- --------- --------- -------- -------- --------
Total revenues......... 35,642 29,701 33,219 49,870 42,908 36,223 46,644 40,501 37,059
-------- ---------- -------- ------- --------- --------- -------- -------- --------
Property expenses...... 5,304 5,042 5,045 7,192 6,834 6,000 6,391 6,384 6,971
Real estate taxes
(refunds)............. 1,457 970 1,088 2,002 1,416 (448) 2,984 3,781 2,377
General and
administrative
expense............... 3,629 1,607 1,554 4,839 2,152 2,467 1,113 1,115 841
Ground lease........... 832 579 542 1,127 789 913 941 854 726
Development expenses... -- 584 564 -- 737 468 581 429 255
Option buy-out cost.... 3,150 3,150 -- -- -- -- -- -- --
Interest expense....... 5,777 16,234 18,660 7,703 24,159 25,376 25,805 26,293 26,174
Depreciation and
amortization.......... 7,651 6,838 7,171 10,558 9,474 9,962 10,905 10,325 9,116
-------- ---------- -------- ------- --------- --------- -------- -------- --------
Total expenses......... 27,800 35,004 34,624 33,421 45,561 44,738 48,720 49,181 46,460
-------- ---------- -------- ------- --------- --------- -------- -------- --------
Income (loss) before
equity in income of
subsidiary, minority
interest and
extraordinary item.... 7,842 (5,303) (1,405) 16,449 (2,653) (8,515) (2,076) (8,680) (9,401)
Equity in income (loss)
of subsidiary......... (58) -- 136 -- -- -- -- --
Minority interest...... (1,627) -- (3,466) -- -- -- -- --
Extinguishment of
debt.................. -- 20,095 15,267 -- 15,267 1,847 -- -- --
-------- ---------- -------- ------- --------- --------- -------- -------- --------
Net income (loss)...... $ 6,157 $ 14,792 $ 13,862 $13,119 $ 12,614 $ (6,668) $ (2,076) $ (8,680) $ (9,401)
======== ========== ======== ======= ========= ========= ======== ======== ========
Pro forma net income
per share(1).......... $ 0.55 $ 1.17
======== =======
<CAPTION>
DECEMBER 31,
--------------------------------------------------
SEPTEMBER 30, 1996 COMBINED HISTORICAL
----------------------- --------------------------------------------------
COMBINED
PRO FORMA HISTORICAL 1995 1994 1993 1992 1991
--------- ------------ --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets,
before accumu-
lated depreciation and
amortization.......... $284,975 $ 227,127 $ 224,983 $ 223,821 $222,056 $221,423 $220,363
Total assets........... 208,179 131,062 132,857 143,251 148,386 161,008 169,147
Mortgages and loans.... 96,000 224,046 233,857 250,059 248,043 250,792 245,645
Total liabilities...... 109,981 244,285 254,683 273,585 263,346 263,156 254,786
Minority interest...... 20,523
Stockholders' equity
(deficit)............. 77,675 (113,223) (121,826) (130,334) (114,960) (102,148) (85,639)
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------- ------------------------------------------
COMBINED HISTORICAL COMBINED HISTORICAL
PRO FORMA ---------------------- PRO FORMA -------------------------------
1996 1996 1995 1995 1995 1994 1993
----------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(2)......... $ 18,643 $4,685 $1,309 $ 22,551 $2,365 $1,447 $3,639
Cash flows from:
Operating activities... -- 5,528 9,270 -- 10,071 6,607 11,457
Investing activities... -- (2,140) (446) -- (1,162) (1,765) 2,028
Financing activities... -- (3,388) (8,824) -- (8,909) (4,842) (13,485)
Office Properties:
Square footage......... 2,037,414 1,688,383 1,688,383 2,037,414 1,688,383 1,688,383 1,688,383
Average occupancy...... 79.8% 76.3% 73.1% 77.0% 73.1% 71.1% 81.0%
Industrial Properties:
Square footage......... 1,337,697 916,570 916,570 1,337,697 916,570 916,570 916,570
Average occupancy...... 93.7% 98.4% 98.4% 92.2% 98.4% 79.7% 77.6%
</TABLE>
- -------

(1) Pro forma net income per share equals pro forma net income divided by the
11,250,000 shares of Common Stock offered hereby.

(2) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), Funds from Operations represents net income (loss) before
minority interest of unit holders (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. For all periods presented,
depreciation and amortization and, in 1996, 1995 and 1994, gain on
extinguishment of debt, were the only non-cash adjustments. Further, in
1996 and 1995 non-recurring items (sale of air rights and option buy-out
cost) were excluded. Management considers Funds from Operations an
appropriate measure of liquidity of an equity REIT because industry
analysts have accepted it as a liquidity measure of equity REIT. The
Company computes Funds from Operations in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White
Paper, which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, Funds from Operations does not
represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt service obligations, or
other commitments and uncertainties. See notes (8), (9) and (10) under the
caption "Distribution Policy" and the notes to the historical financial
statements of the Kilroy Group. Funds from Operations should not be
considered as an alternative for net income as a measure of profitability
nor is it comparable to cash flows provided by operating activities
determined in accordance with GAAP.

20
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock involves various material
risks. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in this Prospectus, in
connection with an investment in the shares of Common Stock offered hereby.

DEPENDENCE ON SOUTHERN CALIFORNIA MARKET. Twenty-two of the 26 Properties,
comprising an aggregate of approximately 2.7 million rentable square feet
(representing approximately 80.4% of the aggregate rentable square feet of all
of the Properties), are located in Southern California. Consequently, the
Company's performance will be linked to economic conditions and the demand for
office, industrial and retail space in this region. The Southern California
economy has experienced significant recessionary conditions in the past
several years, primarily as a result of the downsizing of the aerospace and
defense industries; there is still a dependence on these industries in the
Company's El Segundo and Long Beach Airport area submarkets. The recessionary
conditions resulted in a general increase in vacancies and a general decrease
in net absorption and rental rates in the Company's El Segundo and Long Beach
Airport area submarkets. See "Business and Properties--The Company's Southern
California Submarkets." Any decline in the Southern California economy
generally may result in a material decline in the demand for office,
industrial and retail space, have a material adverse effect greater than if
the Company had a more geographically diverse portfolio of properties, and may
materially and adversely affect the ability of the Company to make
distributions to stockholders. See "Business and Properties--The Company's
Southern California Submarkets."

In addition, eight Office Properties, representing approximately 64.9% of
the aggregate office space of all of the Office Properties, are located in two
office parks in El Segundo, California, and Long Beach, California,
respectively.

DEPENDENCE ON SIGNIFICANT TENANTS. The Company's 12 largest office tenants
represented approximately 47.9% of annual base rent for the year ended
December 31, 1995 (giving pro forma effect to a recent extension of a lease
with Hughes Space & Communications with respect to two of the Office
Properties located at Kilroy Airport Center at El Segundo), and its ten
largest industrial tenants represented approximately 15.9% of annual base rent
for the same period. Of this amount, its largest tenant, Hughes Space &
Communications, currently leases approximately 495,000 rentable square feet of
office space in Kilroy Airport Center at El Segundo, representing
approximately 25.2% of the Company's total base rent revenues for the year
ended December 31, 1995 (giving pro forma effect to the Hughes Space &
Communications lease extension). The base periods of the Hughes Space &
Communications leases expire beginning in January 1999. The Company's revenues
and cash available for distribution to stockholders would be
disproportionately and materially adversely affected in the event of
bankruptcy or insolvency of, or a downturn in the business of, or the
nonrenewal of leases by, any of its significant tenants, or the renewal of
such leases on terms less favorable to the Company than their current terms.

DISTRIBUTIONS TO STOCKHOLDERS. Distributions by the Company to its
stockholders will be based principally on cash available for distribution from
the Properties. Increases in base rent under the leases of the Properties or
the payment of rent in connection with future acquisitions will increase the
Company's cash available for distribution to stockholders. However, in the
event of a default or a lease termination by a lessee, there could be a
decrease or cessation of rental payments and thereby a decrease in cash
available for distribution. In addition, the amount available to make
distributions may decrease if properties acquired in the future yield lower
than expected returns.

The distribution requirements for REITs under federal income tax laws may
limit the Company's ability to finance future developments, acquisitions and
expansions without additional debt or equity financing. If the Company incurs
additional indebtedness in the future, it will require additional funds to
service such indebtedness and as a result amounts available to make
distributions may decrease. Distributions by the Company will also be
dependent on a number of other factors, including the Company's financial
condition, any decision to reinvest funds rather than to distribute such
funds, capital expenditures, the annual distribution requirements under the
REIT provisions of the Code and such other factors as the Company deems
relevant. In addition, the

21
<PAGE>

Company may issue from time to time additional Units or shares of Common Stock
in connection with the acquisition of properties or in certain other
circumstances. No prediction can be made as to the number of such Units or
shares of Common Stock which may be issued, if any, and, if issued, the effect
on cash available for distribution on a per share basis to holders of Common
Stock. Such issuances, if any, will have a dilutive effect on cash available
for distribution on a per share basis to holders of Common Stock. See "The
Company--Growth Strategies." The possibility exists that actual results of the
Company may differ from the assumptions used by the Board of Directors in
determining the initial distribution rate. In such event, the trading price of
the Common Stock may be adversely affected.

To obtain the favorable tax treatment associated with REITs, the Company
generally will be required to distribute to its stockholders at least 95% of
its taxable income (determined without regard to the dividends paid deduction
and by excluding net capital gains) each year. In addition, the Company will be
subject to tax at regular corporate rates to the extent that it distributes
less than 100% of its taxable income (including net capital gains) each year.
The Company will also be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years.

The Company intends to make distributions to its stockholders to comply with
the distribution requirements of the Code and to reduce exposure to federal
income taxes and the nondeductible excise tax. Differences in timing between
the receipt of income and the payment of expenses in arriving at taxable income
and the effect of required debt amortization payments could require the Company
to borrow funds on a short-term basis to meet the distribution requirements
that are necessary to achieve the tax benefits associated with qualifying as a
REIT.

NO APPRAISALS; CONSIDERATION TO BE PAID FOR PROPERTIES AND OTHER ASSETS MAY
EXCEED THEIR FAIR MARKET VALUE. No independent valuations or appraisals of the
Properties were obtained in connection with the Formation Transactions. The
valuation of the Company has been determined by considering the enterprise
value of the Company as a going concern based primarily upon a capitalization
of estimated and anticipated Funds from Operations (as defined) and cash
available for distribution and the other factors discussed in this Prospectus
under "Distribution Policy" and "Underwriting," rather than an asset-by-asset
valuation based on historical cost or current market value. This methodology
has been used because management believes it is appropriate to value the
Company as an ongoing business rather than with the view to values that could
be obtained from a liquidation of the Company or of individual assets owned by
the Company. Accordingly, there can be no assurance that the consideration paid
by the Company will not exceed the fair market value of the Properties and
other assets acquired by the Company. A valuation of the Company determined
solely by appraisals of the Properties and other assets of the Company may
result in a significantly lower valuation of the Company from that which is
reflected by the initial public offering price per share set forth on the cover
of this Prospectus, which also takes into account the businesses of the
Services Company, the earnings of the Properties and the going concern value of
the Company. See "Underwriting." Since the liquidation value of the Company is
likely to be significantly less than the value of the Company as a going
concern, stockholders may suffer a significant loss in the value of their
shares if the Company were required to sell its assets.

The valuation of the Company's development, leasing and management services
business has been derived, in part, from a capitalization of the revenue
derived from the Company's contracts with third parties for real estate
development, leasing and management services. Upon consummation of the
Offering, the Company expects to provide through the Operating Partnership
leasing and management services, and through the Services Company third-party
development services.

The consideration paid and the allocation of Units of the Operating
Partnership among the participants in connection with the Formation
Transactions were not determined by arm's-length negotiations. Since no
appraisals of the Properties and other assets were obtained, the value of the
Units allocated to participants in the Formation Transactions may exceed the
fair market value of their ownership of such Properties and assets. The terms
of the option agreements relating to the Excluded Properties also were not
determined by arm's-length

22
<PAGE>

negotiations, and such terms may be less favorable to the Company than those
that may have been obtained through negotiations with a third party. In
addition, approximately $37.2 million of mortgage indebtedness guaranteed by
John B. Kilroy, Sr., $8.7 million guaranteed by John B. Kilroy, Jr., and
personal indebtedness of approximately $3.4 million of John B. Kilroy, Sr.,
will be repaid in connection with the Formation Transactions. See "--Conflicts
of Interest," "Use of Proceeds" and "Formation and Structure of the Company."

CASH FLOW FROM DEVELOPMENT ACTIVITIES. A portion of the Company's
anticipated cash flow may be generated from development activities which are
partially dependent on the availability of development opportunities and which
are subject to the risks inherent with development and general economic
conditions. In addition, development activities will be subject to limitations
imposed by the REIT tests. See "Federal Income Tax Consequences--Taxation of
the Company--Income Tests." There can be no assurance that the Company will
realize such anticipated cash flows. See "Risk Factors--Real Estate Investment
Considerations--Risks of Real Estate Acquisition and Development."

REAL ESTATE INVESTMENT CONSIDERATIONS

General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the
amount of income earned and capital appreciation generated by the related
properties as well as the expenses incurred in connection therewith. If the
Properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, the ability to make
distributions to the Company's stockholders could be adversely affected.
Income from, and the value of, the Properties may be adversely affected by the
general economic climate, local conditions such as oversupply of office,
industrial or retail space or a reduction in demand for office, industrial or
retail space in the area, the attractiveness of the Properties to potential
tenants, competition from other office, industrial and retail buildings, and
the ability of the Company to provide adequate maintenance and insurance and
increased operating costs (including insurance premiums, utilities and real
estate taxes). In addition, revenues from properties and real estate values
are also affected by such factors as the cost of compliance with regulations
and the potential for liability under applicable laws, including changes in
tax laws, interest rate levels and the availability of financing. The
Company's income would be adversely affected if a significant number of
tenants were unable to pay rent or if office, industrial or retail space could
not be rented on favorable terms. Certain significant expenditures associated
with an investment in real estate (such as mortgage payments, real estate
taxes and maintenance costs) generally are not reduced when circumstances
cause a reduction in income from the investment.

Illiquidity of Real Estate. Real estate investments are relatively illiquid
and, therefore, the Company has limited ability to vary its portfolio quickly
in response to changes in economic or other conditions. In addition, the
prohibition in the Code and related regulations on a REIT holding property for
sale may affect the Company's ability to sell properties without adversely
affecting distributions to the Company's stockholders.

Competition. The Company plans to expand, primarily through the acquisition
and development of additional office and industrial buildings in Southern
California and other markets where the acquisition and/or development of
property would, in the opinion of management, result in a favorable risk
adjusted return on investment. There are a number of office and industrial
building developers and real estate companies that compete with the Company in
seeking properties for acquisition, prospective tenants and land for
development. All of the Properties are in developed areas where there are
generally other properties of the same type. Competition from other office,
industrial and retail properties may affect the Company's ability to attract
and retain tenants, rental rates and expenses of operation (particularly in
light of the higher vacancy rates of many competing properties which may
result in lower-priced space being available in such properties). The Company
may be competing with other entities that have greater financial and other
resources than the Company. During the three-year period ended December 31,
1995, the Company's weighted average renewal rate, based on net rentable
square footage, was 75.4% for the Properties located in the Southern
California Area, and 48.3% for the Properties overall. The lower overall
retention rate is due primarily to the termination in 1993 of a lease for
211,000 square feet at the SeaTac office Center.

23
<PAGE>

Lease Expirations. Certain leases expiring during the first several years
following the Offering are at rental rates higher than those attained by the
Company in its recent leasing activity. Such leases, or other leases of the
Company, may not be renewed or, if renewed, may be renewed at rental rates
lower than rental rates in effect immediately prior to expiration. Decreases
in the rental rates for the Company's properties, the failure of tenants to
renew any such leases or the failure of the Company to re-lease any of the
Company's space could materially adversely affect the Company and its ability
to make distributions. During the three calendar years ending December 31,
1999, the Company will have expiring Office Property leases covering
approximately 404,800 net rentable square feet, and Industrial Property leases
covering approximately 92,900 net rentable square feet, subject to renewal at
a weighted average annual rent per net rentable square foot of approximately
$18.76 and $5.97, respectively. For the nine-month period ended September 30,
1996, the Company entered into 31 Office Property lease transactions for an
aggregate of approximately 342,000 net rentable square feet with a weighted
average annual rent per net rentable square foot of approximately $19.52
(excluding the Thousand Oaks Office Property where the Company entered into
one lease transaction with a average annual rent per net rentable square foot
of $24.00). For the 12-month period ending December 31, 1996, the Company
entered into one Industrial Property lease transaction for approximately
62,500 net rentable square feet with an annual rent per net rentable square
foot of $6.36. See "Business and Properties--General" and "--Lease
Expirations."

Ground Leases. The Company's eight Office Properties located at Kilroy
Airport Center in Long Beach and SeaTac are held subject to ground leases. A
default by the Company under the terms of a ground lease could result in the
loss of Properties located on the respective parcel, with the landowner
becoming the owner of such Properties unless the default under the lease is
cured or waived. In addition, upon expiration of the ground leases, including
the options thereon, there is no assurance that the Company will be able to
negotiate new ground leases at all or, if any leases were renewed, that they
will be on terms consistent with or more favorable than existing terms, which
may result in the loss of the Properties or increased rental expense to the
Company. The ground leases for the Kilroy Airport Center Long Beach (including
renewal options) will expire in 2084. See "Business and Properties--Office
Properties--Kilroy Long Beach." The ground leases for the SeaTac Office Center
(including renewal options) will expire in 2062. See "Business and
Properties--Office Properties--SeaTac."

Capital Improvements. The Properties vary in age and require capital
improvements regularly. If the cost of improvements, whether required to
attract and retain tenants or to comply with governmental requirements,
substantially exceeds management's expectations, cash available for
distribution could be reduced.

Risks of Real Estate Acquisition and Development. The Company intends to
actively seek to acquire office and industrial properties to the extent that
they can be acquired on advantageous terms and meet the Company's investment
criteria. Acquisitions of office and industrial properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with
any new real estate investment.

In addition to the Development Properties, the Company will pursue other
development opportunities both for ownership by the Company and on a fee
basis. The real estate development business involves significant risks in
addition to those involved in the ownership and operation of established
office or industrial buildings, including the risks that financing may not be
available on favorable terms for development projects and construction may not
be completed on schedule or within budget, resulting in increased debt service
expense and construction costs and delays in leasing such properties and
generating cash flow. In addition, new development activities, regardless of
whether or not they are ultimately successful, typically require a substantial
portion of management's time and attention. Development activities are also
subject to risks relating to the inability to obtain, or delays in obtaining,
all necessary zoning, land-use, building, occupancy, and other required
governmental permits and authorizations.

The Company anticipates that future acquisitions and developments will be
financed, in whole or in part, through additional equity offerings, lines of
credit and other forms of secured or unsecured financing. If new developments
are financed through construction loans, there is a risk that, upon completion
of construction,

24
<PAGE>

permanent financing for newly developed properties may not be available or may
be available only on disadvantageous terms. Equity, rather than debt,
financing of future acquisitions or developments could have a dilutive effect
on the interests of existing stockholders of the Company.

While the Company has focused primarily on the development and ownership of
office and industrial properties, the Company plans in the future to develop
properties, part or all of which will be for retail use. In addition, while
the Company has historically limited its ownership of properties primarily to
the Southern California market, the Company in the future may expand its
business to geographic markets other than Southern California, where the
acquisition and/or development of property would, in the opinion of
management, result in a favorable risk adjusted return on investment. The
Company will not initially possess the same level of familiarity with new
types of commercial development or new markets, which could adversely affect
its ability to acquire or develop properties in any new localities or to
realize expected performance.

Uninsured Loss. Management believes that the Properties are covered by
adequate comprehensive liability, rental loss and all-risk (at full
replacement cost) insurance provided by reputable companies and with
commercially reasonable deductibles, limits and policy specifications
customarily carried for similar properties. Certain types of losses, however,
may be either uninsurable or not economically insurable, such as losses due to
floods, riots or acts of war, or may be insured subject to certain limitations
including large deductibles or copayments, such as losses due to seismic
activity. See discussion of uninsured losses from seismic activity below.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its investment in and anticipated profits and cash flow
from a property and would continue to be obligated on any mortgage
indebtedness or other obligations related to such property. Any such loss
would adversely affect the Company and its ability to make distributions.

Uninsured Losses from Seismic Activity. The Properties are located in areas
that are subject to earthquake activity. Although the Company expects to have
earthquake insurance on a substantial portion of its Properties, should any
Property sustain damage as a result of an earthquake, or should losses exceed
the amount of such coverage, the Company may incur uninsured losses or losses
due to deductibles or co-payments on insured losses. During the January 17,
1994 Northridge earthquake in the Los Angeles area, which had a magnitude of
approximately 6.7 on the Richter scale, only one of the Properties sustained
damage which was repaired at a cost of approximately $5,000. See "Business and
Properties--Uninsured Losses from Seismic Activity."

Risks Involved in Property Ownership Through Partnerships and Joint
Ventures. Although the Company will own fee simple interests in the Properties
(other than Kilroy Long Beach and SeaTac, which are held subject to long-term
ground leases), in the future the Company may also participate with other
entities in property ownership through joint ventures or partnerships.
Partnership or joint venture investments may, under certain circumstances,
involve risks not otherwise present, including the possibility that the
Company's partners or co-venturers might become bankrupt, that such partners
or co-venturers might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the
Company, and that such partners or co-venturers may be in a position to take
action contrary to the instructions or the requests of the Company or contrary
to the Company's policies or objectives, including the Company's policy with
respect to maintaining its qualification as a REIT. The Company will, however,
seek to maintain sufficient control of such partnerships or joint ventures to
permit the Company's business objectives to be achieved. There is no
limitation under the Company's organizational documents as to the amount of
available funds that may be invested in partnerships or joint ventures.

REAL ESTATE FINANCING RISKS. The Company will be subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest, the risk that indebtedness on the Properties will not be refinanced
at maturity or that the terms of such refinancing will not be as favorable as
the terms of such indebtedness. If the Company were unable to refinance its
indebtedness on acceptable terms, or at all, the Company might be forced to
dispose of one or more of the Properties upon disadvantageous terms, which
might result in losses to the Company and might adversely affect the cash
available for distribution. If prevailing interest rates or other factors at
the time of

25
<PAGE>

refinancing result in higher interest rates on refinancings, the Company's
interest expense would increase, which would adversely affect the Company's
cash flow and its ability to pay expected distributions to stockholders.
Further, if a Property is mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, or is in default under the
related mortgage or deed of trust, such Property could be transferred to the
mortgagee, the mortgagee could foreclose upon the Property, appoint a receiver
and receive an assignment of rents and leases or pursue other remedies, all
with a consequent loss of income and asset value to the Company. Foreclosures
could also create taxable income without accompanying cash proceeds, thereby
hindering the Company's ability to meet the REIT distribution requirements of
the Code. See "The Financing."

CONFLICTS OF INTEREST

Certain Limited Partner Approval Rights. While the Company will be the sole
general partner of the Operating Partnership, and generally will have full and
exclusive responsibility and discretion in the management and control of the
Operating Partnership, certain provisions of the Partnership Agreement place
limitations on the Company's ability to act with respect to the Operating
Partnership. The Partnership Agreement provides that if the Limited Partners
own at least 5% of the outstanding Units (including Units held by the Company
which will represent 79.1% of all Units outstanding upon consummation of the
Offering), the Company shall not, on behalf of the Operating Partnership, take
any of the following actions without the prior consent of the holders of more
than 50% of the Units representing limited partner interests (excluding Units
held by the Company) if the limited partners own at least 5% of all
outstanding Units: (i) dissolve the Operating Partnership, other than incident
to a merger or sale of substantially all of the Company's assets; or
(ii) prior to the seventh anniversary of the consummation of the Offering,
sell certain specified assets, other than incident to a merger or sale of
substantially all of the Company's assets. Furthermore, the Partnership
Agreement provides that, except in connection with certain transactions, the
Company may not voluntarily withdraw from the Operating Partnership, or
transfer or assign its interest in the Operating Partnership, without the
consent of the holders of at least 60% of the Units (including Units held by
the Company) and without meeting certain other criteria with respect to the
consideration to be received by the Continuing Investors. The restrictions on
the Company's ability to act as described above may result in the Company
being precluded from taking action which the Board of Directors believes is in
the best interest of all stockholders. See "Partnership Agreement of the
Operating Partnership--Transferability of Interests" and "Certain Limited
Partner Approval Rights."

Business Combinations and Control Share Acquisitions. Under certain
provisions of the MGCL, members of the Kilroy Group may be able to enter into
certain transactions without seeking the approval of the Company's Board of
Directors whereby the Company may take action which may not be in the best
interest of all stockholders. See "--Limits on Ownership and Change in
Control--Maryland Business Combination Statute" and "--Maryland Control Share
Acquisition Statute."

Tax Consequences Upon Sale or Refinancing. Unlike persons acquiring shares
of Common Stock in the Offering, holders of Units may suffer different and
more adverse tax consequences than the Company upon the sale or refinancing of
the Properties owned by the Operating Partnership, and therefore such holders
may have different objectives regarding the appropriate pricing and timing of
any sale or refinancing of such Properties.

While the Company, as the sole general partner of the Operating Partnership,
will have the authority (subject to certain limited partner approval rights
described below) to determine whether and on what terms to sell or refinance
each Property owned solely by the Operating Partnership, those directors and
officers of the Company who hold Units may seek to influence the Company not
to sell or refinance the Properties, even though such a sale might otherwise
be financially advantageous to the Company, or may seek to influence the
Company to refinance a Property with a higher level of debt. The Partnership
Agreement provides that if the limited partners own at least 5% of the
outstanding Units (including Units held by the Company which will represent
79.1% of all Units outstanding upon consummation of the Offering), the Company
shall not, on behalf of the Operating Partnership, take any of the following
actions without the prior consent of the holders of more than 50% of the Units
representing limited partner interests: (i) dissolve the Operating
Partnership, other than incident to a merger or sale of substantially all of
the Company's assets; or (ii) prior to the seventh anniversary of the
consummation

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of the Offering, sell certain specified assets, other than incident to a
merger or sale of substantially all of the Company's assets. The Operating
Partnership will also use commercially reasonable efforts to cooperate with
the Limited Partners to minimize any taxes payable in connection with any
repayment, refinancing, replacement or restructuring of indebtedness of the
Operating Partnership. See "Partnership Agreement of the Operating
Partnership--Certain Limited Partner Approval Rights."

Failure to Enforce Terms of Certain Agreements. As recipients of Units in
the Formation Transactions, John B. Kilroy, Sr., as Chairman of the Company's
Board of Directors, and John B. Kilroy, Jr., as the Company's President and
Chief Executive Officer and a director of the Company, will have a conflict of
interest with respect to their obligations as directors or officers of the
Company to enforce the terms of the agreements relating to the transfer to the
Operating Partnership of their interests in the Partnerships and other assets
to be acquired by the Company and relating to the Company's option to purchase
certain additional properties owned by entities controlled by them. See
"Business and Properties--Development, Leasing and Management Activities--
Excluded Properties." The failure to enforce the material terms of those
agreements (which would require the approval of the Independent Directors)
could result in a monetary loss to the Company, which loss could have a
material effect on the Company's financial condition or results of operations.
While certain Continuing Investors will provide indemnities in connection with
such transfers, such indemnities would be impaired to the extent that such
Continuing Investors have other obligations, including obligations for taxes
arising from the Formation Transactions or prior transactions, which they may
not have sufficient assets to satisfy.

Policies with Respect to Conflicts of Interest. The Company has adopted
certain policies designed to eliminate or minimize conflicts of interest.
These policies include the requirement that (i) provisions in the Company's
charter and bylaws which require that (a) at least a majority of the directors
be Independent Directors, (b) a majority of the Independent Directors approve
transactions between the Company and members of the Kilroy Group, including
the enforcement of terms of the transfers of the Properties to the Operating
Partnership and the exercise of the options with respect to the Excluded
Properties, and (c) a majority of the Board of Directors approve the sale or
refinancing of the Properties and (ii) the requirement that the members of the
Board of Directors that are Continuing Investors (John B. Kilroy, Jr. and John
B. Kilroy, Sr.) enter into noncompetition agreements with the Company.
However, there can be no assurance that these policies will not be changed in
the future or otherwise, or always will be successful in eliminating the
influence of such conflicts, and, if they are not successful, decisions could
be made that might fail to reflect fully the interests of all stockholders.
See "Policies with Respect to Certain Activities--Conflict of Interest
Policies."

Competitive Real Estate Activities of Management. John B. Kilroy, Sr. and
John B. Kilroy, Jr. will have controlling ownership interests in a complex of
three office properties which are located in the El Segundo submarket in which
four of the Office Properties and four of the Industrial Properties are
located. These properties will be managed by the Operating Partnership and
certain of the Company's officers, directors and employees will spend an
immaterial portion of their time and effort managing these interests and
Calabasas Park Centre, an undeveloped approximately 66-acre site (representing
approximately 45 developable acres net of acreage required for streets and
contractually required open areas). The Kilroy Group is actively marketing for
sale all but 18 acres of Calabasas Park Centre. Certain of the Company's
officers, directors and employees will spend an immaterial amount of time in
connection with any sales of such parcels.

Each of these properties is currently owned by partnerships controlled by
John B. Kilroy, Sr. and John B. Kilroy, Jr. The properties located on North
Sepulveda Boulevard in El Segundo will be managed by the Operating Partnership
pursuant to a management agreement on market terms. With respect to Calabasas
Park Centre, the officers, directors and employees of the Company will spend
an immaterial amount of time in connection with the entitlement, marketing and
sales of such parcels. The implementation of the arrangements relating to each
of these properties will involve a conflict of interest with John B. Kilroy,
Sr. and John B. Kilroy, Jr. The Kilroy Group holds certain other real estate
interests which are not being contributed to the Company as part of the
Formation Transactions. All of such other real estate interests relate to
miscellaneous properties and

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<PAGE>

property rights that the Company believes are not of a type appropriate for
inclusion in the Company's portfolio and the properties are not consistent
with the Company's strategy. See "Business and Properties--Excluded
Properties."

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

Tax Liabilities as a Consequence of Failure to Qualify as a REIT. The
Company intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1997. Although management
believes that it will be organized and will operate in such a manner, no
assurance can be given that the Company will be organized or will be able to
operate in a manner so as to qualify or remain so qualified. Qualification as
a REIT involves the satisfaction of numerous requirements (some on an annual
and others on a quarterly basis) established under highly technical and
complex Code provisions for which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Company's control.
For example, in order to qualify as a REIT, at least 95% of the Company's
gross income in any year must be derived from qualifying sources and the
Company must pay distributions to stockholders aggregating annually at least
95% of its REIT taxable income (determined without regard to the dividends
paid deduction and by excluding net capital gains). The complexity of these
provisions and of the applicable Treasury Regulations that have been
promulgated under the Code is greater in the case of a REIT that holds its
assets in partnership form. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or
the federal income tax consequences of such qualification. The Company is
relying on the opinion of Latham & Watkins, tax counsel to the Company,
regarding various issues affecting the Company's ability to qualify, and
continue to qualify, as a REIT. See "Federal Income Tax Consequences--Taxation
of the Company" and "Legal Matters." Such legal opinion is based on various
assumptions and factual representations by the Company regarding the Company's
ability to meet the various requirements for qualification as a REIT, and no
assurance can be given that actual operating results will meet these
requirements. Such legal opinion is not binding on the Internal Revenue
Service ("IRS") or any court.

Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the REIT's total
assets on certain testing dates. See "Federal Income Tax Consequences--
Taxation of the Company--Requirements for Qualification." The Company believes
that the aggregate value of the securities of the Services Company to be held
by the Company will be less than 5% of the value of the Company's total
assets, based on the initial allocation of Units among participants in the
Formation Transactions and the Company's opinion regarding the maximum value
that could be assigned to the expected assets and net operating income of the
Services Company after the Offering. In rendering its opinion as to the
qualification of the Company as a REIT, Latham & Watkins is relying on the
conclusions of the Company regarding the value of the Services Company.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to stockholders because of
the additional tax liability to the Company for the years involved. In
addition, distributions to stockholders would no longer be required to be
made. See "Federal Income Tax Consequences--Taxation of the Company--
Requirements for Qualification."

Other Tax Liabilities. Even if the Company qualifies for and maintains its
REIT status, it will be subject to certain federal, state and local taxes on
its income and property. For example, if the Company has net income from a
prohibited transaction, such income will be subject to a 100% tax. In
addition, the Company's net income, if any, from the third-party development
conducted through the Services Company will be subject to federal income tax
at regular corporate tax rates. See "Federal Income Tax Consequences--Services
Company."

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ADVERSE CONSEQUENCES OF FAILURE OF THE OPERATING PARTNERSHIP TO QUALIFY AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. The Company will receive an
opinion of Latham & Watkins, tax counsel to the Company, at the closing of the
Formation Transactions to the effect that the Operating Partnership is
properly treated as a partnership for federal income tax purposes. Such
opinion is not binding on the IRS or the courts. If the IRS were to
successfully challenge the tax status of the Operating Partnership as a
partnership for federal income tax purposes, the Operating Partnership would
be treated as an association taxable as a corporation. In such event, the
character of the Company's assets and income would change, which would
preclude the Company from satisfying the asset tests and possibly the income
tests (as imposed by the REIT provisions of the Code) and, in turn, would
prevent the Company from qualifying as a REIT. The imposition of a corporate
tax on the Operating Partnership, combined with the loss of REIT status of the
Company, would also materially adversely affect the amount of cash available
for distribution to the Company and its stockholders. See "Federal Income Tax
Consequences--Tax Aspects of the Operating Partnership--Entity
Classification."

CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT STOCKHOLDER
VOTE. Subject to the Company's fundamental investment policy to maintain its
qualification as a REIT (unless a change is approved by the Company's Board of
Directors and stockholders), the Company's Board of Directors will determine
its investment and financing policies, its growth strategy, and its debt,
capitalization, distribution and operating policies. Although the Board of
Directors has no present intention to revise or amend these strategies and
policies, the Board of Directors may do so at any time without a vote of the
Company's stockholders. See "Policies With Respect to Certain Activities--
Other Policies." Accordingly, stockholders will have no control over changes
in strategies and policies of the Company, and such changes may not serve the
interests of all stockholders and could adversely affect the Company's
financial condition or results of operations, including its ability to
distribute cash to stockholders.

Issuance of Additional Securities. The Company has authority to offer its
Common Stock or other equity or debt securities in exchange for property or
otherwise. Similarly, the Company may cause the Operating Partnership to offer
additional Units or preferred units of the Operating Partnership, including
offers in exchange for property to sellers who seek to defer certain of the
tax consequences relating to a property transfer. Existing stockholders will
have no preemptive right to acquire any such securities, and any such issuance
of equity securities could result in dilution in an existing stockholder's
investment in the Company.

Risks Involved in Acquisitions Through Partnerships or Joint Ventures. The
Company may invest in office and industrial properties through partnerships or
joint ventures instead of purchasing such properties directly or through
wholly-owned subsidiaries. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present in a direct
acquisition of properties. These include the risk that the Company's co-
venturer or partner in an investment might become bankrupt; a co-venturer or
partner might at any time have economic or business interests or goals which
are inconsistent with the business interests or goals of the Company and a co-
venturer or partner might be in a position to take action contrary to the
instructions or the requests of the Company or contrary to the Company's
policies or objectives.

Risks Involved in Investments in Securities Related to Real Estate. The
Company may pursue its investment objectives through the ownership of
securities of entities engaged in the ownership of real estate. Ownership of
such securities may not entitle the Company to control the ownership,
operation and management of the underlying real estate. In addition, the
Company may have no ability to control the distributions with respect to such
securities, which may adversely affect the Company's ability to make required
distributions to stockholders. Furthermore, if the Company desires to control
an issuer of securities, it may be prevented from doing so by the limitations
on percentage ownership and gross income tests which must be satisfied by the
Company in order for the Company to qualify as a REIT. See "Federal Income Tax
Consequences--Taxation of the Company--Requirements for Qualification as a
REIT." The Company intends to operate its business in a manner that will not
require the Company to register under the Investment Company Act of 1940 and
stockholders will therefore not have the protection of that Act.

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<PAGE>

The Company may also invest in mortgages, and may do so as a strategy for
ultimately acquiring the underlying property. In general, investments in
mortgages include the risk that borrowers may not be able to make debt service
payments or pay principal when due, the risk that the value of the mortgaged
property may be less than the principal amount of the mortgage note securing
such property and the risk that interest rates payable on the mortgages may be
lower than the Company's cost of funds to acquire these mortgages. In any of
these events, Funds from Operations and the Company's ability to make required
distributions to stockholders could be adversely affected.

RISK OF OPERATIONS CONDUCTED THROUGH THE OPERATING PARTNERSHIP. The Company
will own and manage the Properties through its investment in the Operating
Partnership in which it will own an approximately 79.1% economic interest (or
an 81.3% interest if the Underwriters' over-allotment option is exercised in
full). The remaining interests in the Operating Partnership will be owned by
the Continuing Investors. Although the number of limited partnership Units was
designed to result in a distribution per Unit equal to a distribution per
share of Common Stock, such distributions would be equal only if the Company
distributes to stockholders all amounts it receives in distributions from the
Operating Partnership. See "Formation Transactions--Comparison of Common Stock
and Units." In addition, under the terms of the Partnership Agreement, the
limited partners of the Operating Partnership have certain approval rights
with respect to certain transactions that affect all stockholders. See "--
Conflicts of Interest--Certain Limited Partner Approval Rights."

LIMITS ON OWNERSHIP AND CHANGE IN CONTROL. Certain provisions of the
Maryland General Corporation Law (the "MGCL") and the Company's Articles of
Incorporation and Bylaws, and certain provisions of the Operating
Partnership's partnership agreement, could have the effect of delaying,
deferring or preventing a change in control of the Company or the removal of
existing management and, as a result, could prevent the stockholders of the
Company from being paid a premium for their shares of Common Stock over then
prevailing market prices.

Limits on Ownership of Common Stock; Staggered Board; Capital Stock; Voting
Rights. In order for the Company to maintain its qualification as a REIT, not
more than 50% in value of the outstanding shares of its capital stock may be
owned, actually or constructively, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other than the first year for which the election to be treated as a REIT has
been made). Furthermore, after the first taxable year for which a REIT
election is made, the Company's shares must be held by a minimum of 100
persons for at least 335 days of a 12-month taxable year (or a proportionate
part of a short tax year). In addition, if the Company, or an owner of 10% or
more of the Company, actually or constructively, owns 10% or more of a tenant
of the Company (or a tenant of any partnership in which the Company is a
partner), the rent received by the Company (either directly or through any
such partnership) from such tenant will not be qualifying income for purposes
of the REIT gross income tests of the Code. See "Federal Income Tax
Consequences--Taxation of the Company." In order to protect the Company
against the risk of losing REIT status due to a concentration of ownership
among its stockholders, the Articles of Incorporation of the Company limit
actual or constructive ownership of the outstanding shares of Common Stock by
any single stockholder to 7.0% (the "Ownership Limit") of the then outstanding
shares of Common Stock. See "Description of Capital Stock--Restrictions on
Ownership and Transfer." Although the Board of Directors presently has no
intention of doing so (except as described below), the Board of Directors will
consider waiving the Ownership Limit with respect to a particular stockholder
if it is satisfied, based upon the advice of tax counsel or otherwise, that
ownership by such stockholder in excess of the Ownership Limit would not
jeopardize the Company's status as a REIT and the Board of Directors otherwise
decided such action would be in the best interests of the Company. The Board
of Directors has waived the Ownership Limit with respect to John B. Kilroy,
Sr., John B. Kilroy, Jr., members of their families and certain affiliated
entities and has permitted such individuals and entities to actually or
constructively own, in the aggregate, up to 21% of the outstanding Common
Stock. The Articles of Incorporation provide that any of John B. Kilroy, Sr.,
John B. Kilroy, Jr., members of their families and certain affiliates may
acquire Common Stock pursuant to their rights to exchange Units for shares of
Common Stock, subject to certain restrictions, or from other sources, but may
not acquire Common Stock such that such individuals or affiliates would
actually or constructively own in the aggregate Common Stock in excess of 21%
of the then outstanding Common Stock.

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<PAGE>

Actual or constructive ownership of shares of Common Stock in excess of the
Ownership Limit, or, with the consent of the Board of Directors, such other
limit, will cause the violative transfer or ownership to be void with respect
to the transferee or owner as to that number of shares in excess of the
Ownership Limit, or, with the consent of the Board of Directors, such other
limit, as applicable, and such shares will be automatically transferred to a
trust for the benefit of a qualified charitable organization. Such purported
transferee or owner shall have no right to vote such shares or be entitled to
dividends or other distributions with respect to such shares. See "Description
of Capital Stock--Restrictions on Ownership and Transfer" for additional
information regarding the Ownership Limit.

Following the consummation of the Offering, the Board of Directors of the
Company will be divided into three classes serving staggered three-year terms.
The terms of the first, second and third classes will expire in 1997, 1998 and
1999, respectively. Directors for each class will be chosen for a three-year
term upon the expiration of the current class' term, beginning in 1997. In
addition, the Articles of Incorporation authorize the Board of Directors to
issue up to 150,000,000 shares of Common Stock and 30,000,000 shares of
preferred stock and to establish the rights and preferences of any shares of
preferred stock issued. No shares of preferred stock will be issued or
outstanding at the consummation of the Offering. See "Description of Capital
Stock--Preferred Stock." Under the Articles of Incorporation, stockholders do
not have cumulative voting rights.

The Ownership Limit, the staggered terms for directors, the issuance of
additional common or preferred stock in the future and the absence of
cumulative voting rights could have the effect of (i) delaying or preventing a
change of control of the Company even if a change of control were in the
stockholders' interest, (ii) deterring tender offers for the Common Stock that
may be beneficial to the stockholders, or (iii) limiting the opportunity for
stockholders to receive a premium for their Common Stock that might otherwise
exist if an investor attempted to assemble a block of shares of Common Stock
in excess of the Ownership Limit or otherwise to effect a change of control of
the Company. See "Management" and "Description of Capital Stock."

Maryland Business Combination Statute. Under the MGCL, certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns, directly or
indirectly, 10% or more of the voting power of the corporation's voting shares
(an "Interested Stockholder") are prohibited for five years after the date on
which the Interested Stockholder became an Interested Stockholder. Thereafter,
any such business combination must be approved by two super-majority
stockholder votes unless, among other things, the holders of the Common Stock
receive a minimum price (as defined in the MGCL) for their Common Stock and
the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its Common Stock. These provisions of the
MGCL could have the effect of delaying or preventing a change of control of
the Company or other transactions even if it were in the interest of some, or
a majority, of the Company's stockholders. As permitted by the MGCL, the
Company has exempted any "business combinations" involving the members of the
Kilroy Group and their affiliates and associates, present or future, or any
other person acting in concert or as a group with any of the foregoing persons
and, consequently, the five year prohibition and the super-majority vote
requirements will not apply to "business combinations" between any of them and
the Company. As a result, members of the Kilroy Group, any present or future
affiliate or associate thereof or any other person acting in concert or as a
group with any of the foregoing persons may be able to enter into "business
combinations" with the Company, which may or may not be in the best interest
of the stockholders. See "Certain Provisions of Maryland Law and of the
Company's Articles of Incorporation and Bylaws--Business Combinations."

Maryland Control Share Acquisition Statute. Maryland law provides that
"control shares" of the Company acquired in a "control share acquisition" have
no voting rights except to the extent approved by a vote of two- thirds of the
votes entitled to be cast on the matter, excluding shares owned by the
acquiror or by officers or directors who are employees of the Company.
"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect
of which the acquiror is able to exercise or direct the exercise of voting
power (except solely by revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third; (ii) one-third
or more but less than a majority; or (iii) a

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majority of all voting power. "Control shares" do not include shares of stock
the acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions. The control share
acquisition statute does not apply to shares acquired in a merger,
consolidation or share exchange if the Company is a party to the transaction or
to acquisitions approved or exempted by the Company's Articles of Incorporation
or Bylaws. As permitted by the MGCL, the Company has exempted control share
acquisitions involving any of the members of the Kilroy Group, their affiliates
and associates, directors, officers and employees of the Company, and any other
person approved by the Board of Directors in its sole discretion. As a result,
any of the members of the Kilroy Group, their affiliates and associates,
persons acting in concert with them, directors, officers and employees of the
Company, and any person approved by the Board of Directors in its sole
discretion may be able to effect a control share acquisition of the Company,
which may or may not be in the best interest of the stockholders. See "Certain
Provisions of Maryland Law and of the Company's Articles of Incorporation and
Bylaws--Control Share Acquisitions."

RISKS OF DEVELOPMENT BUSINESS AND RELATED ACTIVITIES BEING CONDUCTED BY THE
SERVICES COMPANY

Tax Liabilities. The Services Company will be subject to federal and state
income tax on its taxable income at regular corporate rates. Any federal, state
or local income taxes that the Services Company is required to pay will reduce
the cash available for distribution by the Company to its stockholders.

Adverse Consequences of Lack of Control Over the Businesses of the Services
Company. To comply with the REIT asset tests that restrict ownership of shares
of other corporations, upon consummation of the Offering, the Operating
Partnership will own 100% of the non-voting preferred stock of the Services
Company (representing approximately 95% of its economic value) and John B.
Kilroy, Sr. and John B. Kilroy, Jr. will own all the outstanding voting common
stock of the Services Company (representing approximately 5% of its economic
value). This ownership structure is necessary to permit the Company to share in
the income of the Services Company and also maintain its status as a REIT.
Although it is anticipated that the Company will receive substantially all of
the economic benefit of the businesses carried on by the Services Company
through the Company's right to receive dividends through the Operating
Partnership, the Company will not be able to elect directors or officers of the
Services Company and, therefore, the Company will not have the ability to
influence the operations of the Services Company. As a result, the board of
directors and management of the Services Company may implement business
policies or decisions that would not have been implemented by persons
controlled by the Company and that are adverse to the interests of the Company
or that lead to adverse financial results, which could adversely impact the
Company's net operating income and cash flow. See "Formation and Structure of
the Company."

Adverse Consequence of REIT Status on the Businesses of the Services
Company. Certain requirements for REIT qualification may in the future limit
the Company's ability to receive increased distributions from the fee
development operations conducted and related services offered by the Services
Company. See "--Adverse Consequences of Failure to Qualify as a REIT."

DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of its
executive officers and directors, particularly John B. Kilroy, Sr., the
Company's Chairman of the Board, and John B. Kilroy, Jr., the Company's
President and Chief Executive Officer, for strategic business direction and
experience in the Southern California real estate market. While the Company
believes that it could find replacements for these key personnel, the loss of
their services could have an adverse effect on the operations of the Company.
The Company has entered into employment agreements with John B. Kilroy, Jr.,
Jeffrey C. Hawken, Richard E. Moran Jr. and Campbell Hugh Greenup. See
"Management--Employment Agreements."

DISTRIBUTION PAYOUT PERCENTAGE. The Company's expected annual distributions
for the 12 months following consummation of the Offering of $1.55 per share are
expected to be approximately 93.5% of estimated cash available for
distribution. If cash available for distribution generated by the Company's
assets for such

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<PAGE>

12-month period is less than the Company's estimate, or if such cash available
for distribution decreases in future periods from expected levels, the
Company's ability to make the expected distributions would be adversely
affected. Any such failure to make expected distributions could result in a
decrease in the market price of the Common Stock. See "Distribution Policy."

HISTORICAL OPERATING LOSSES OF THE OFFICE AND INDUSTRIAL
PROPERTIES. Although the Office and Industrial Properties developed by the
Company after their construction and initial lease-up periods have
historically generated positive net cash flow, the effect of depreciation,
amortization and other non-cash charges of the Company has resulted in net
losses for financial reporting purposes in each of the last five fiscal years.
Historical operating results of the Office and Industrial Properties may not
be comparable to future operating results of the Company because, prior to the
completion of the Offering and the Formation Transactions, the Office and
Industrial Properties were encumbered with greater levels of debt (which has
the effect of reducing net income) than that with which the Company intends to
operate. In addition, the historical results of operations do not reflect the
acquisition and development of the any of the Acquisition Properties or the
Development Properties. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." However, there can be no assurance that
the Company will acquire and successfully develop any of the Development
Properties, and, even if such Properties are acquired and successfully
developed, that they will not experience losses in the future.

NO LIMITATION ON DEBT. The Board of Directors currently intends to fund
acquisition opportunities and development partially through short-term
borrowings, as well as out of undistributed cash available for distribution
and other available cash. The Board of Directors expects to refinance projects
purchased or developed with short-term debt either with long-term indebtedness
or equity financing depending upon the economic conditions at the time of
refinancing. Upon completion of the Offering and the Formation Transactions,
the debt to total market capitalization ratio of the Company will be
approximately 25.2% (assuming an initial public offering price of $20.00 per
share of Common Stock). The Board of Directors has adopted a policy of
limiting its indebtedness to approximately 50% of its total market
capitalization (i.e., the market value of the issued and outstanding shares of
Common Stock, including interests exchangeable therefor, plus total debt), but
the organizational documents of the Company do not contain any limitation on
the amount or percentage of indebtedness, funded or otherwise, that the
Company may incur. The Board of Directors, without the vote of the Company's
stockholders, could alter or eliminate its current policy on borrowing at any
time at its discretion. If this policy were changed, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's cash flow and its ability to make expected
distributions to its stockholders and an increased risk of default on the
Company's obligations. See "Policies With Respect to Certain Activities--
Financing."

The Company has established its debt policy relative to the market
capitalization of the Company rather than to the book value of its assets, a
ratio that is frequently employed. The Company has used total market
capitalization because it believes that the book value of its assets (which to
a large extent is the depreciated value of real property, the Company's
primary tangible asset) does not accurately reflect its ability to borrow and
to meet debt service requirements. The total market capitalization of the
Company, however, is more variable than book value, and does not necessarily
reflect the fair market value of the underlying assets of the Company at all
times. Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of indebtedness
(such as the purchase price of properties to be acquired with debt financing,
the estimated market value of such properties upon refinancing and the ability
of particular properties and the Company as a whole to generate cash flow to
cover expected debt service), there can be no assurance that the ratio of
indebtedness to total market capitalization (or to any other measure of asset
value) will be consistent with the expected level of distributions to the
Company's stockholders.

GOVERNMENT REGULATIONS. Many laws and governmental regulations are
applicable to the Properties and changes in these laws and regulations, or
their interpretation by agencies and the courts, occur frequently.

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Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation, effective beginning in 1992, are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA might require removal of structural barriers to handicapped
access in certain public areas where such removal is "readily achievable."
Noncompliance with the ADA could result in the imposition of fines or an award
of damages to private litigants. The impact of application of the ADA to the
Company's properties, including the extent and timing of required renovations,
is uncertain. If required changes involve a greater amount of expenditures
than the Company currently anticipates or if the changes must be made on a
more accelerated schedule than the Company currently anticipates, the
Company's ability to make expected distributions to stockholders could be
adversely affected.

Environmental Matters. Under various federal, state and local laws,
ordinances and regulations relating to the protection of the environment, an
owner or operator of real estate may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose liability without regard to whether the
owner was responsible for, or even knew of, the presence of such hazardous or
toxic substances. The costs of investigation, removal or remediation of such
substances may be substantial, and the presence of such substances may
adversely affect the owner's ability to rent or sell the property or to borrow
using such property as collateral and may expose it to liability resulting
from any release of or exposure to such substances. Persons who arrange for
the disposal or treatment of hazardous or toxic substances at another location
may also be liable for the costs of removal or remediation of such substances
at the disposal or treatment facility, whether or not such facility is owned
or operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials into the air, and third parties may
also seek recovery from owners or operators of real properties for personal
injury associated with asbestos-containing materials and other hazardous or
toxic substances. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental penalties and injuries to persons and
property.

The Company believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. The Company has
not been notified by any governmental authority, and is not otherwise aware,
of any material noncompliance, liability or claim relating to hazardous or
toxic substances or petroleum products in connection with any of its present
properties.

All of the Properties were subject to Phase I or similar environmental
assessments by independent environmental consultants in connection with the
formation of the Company. Phase I assessments are intended to discover
information regarding, and to evaluate the environmental condition of, the
surveyed property and surrounding properties. Phase I assessments generally
include an historical review, a public records review, an investigation of the
surveyed site and surrounding properties, and preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
In connection with the preparation of the Phase I environmental survey with
respect to Kilroy Long Beach Phase I, interviews of certain individuals
formerly employed at the site documented in a historical site assessment
survey revealed the site's possible prior use as a Nike missile storage
facility. Further investigation performed by the Company's environmental
consultants did not reveal any additional information with respect to such use
of the site. The Company's further investigation into the use and storage of
Nike missiles, including their possible use with nuclear warheads, did not
reveal any facts that would indicate that such a prior use of the site would
result in a material risk of environmental liability. Consequently, the
Company does not believe that this site constitutes a risk of a liability that
would have a material adverse effect on the Company's business, assets or
results of operations taken as a whole. In addition, none of the Company's
environmental assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there

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are material environmental liabilities of which the Company is unaware.
Moreover, there can be no assurance that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the
Properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company. If compliance with the various laws and
regulations, now existing or hereafter adopted, exceeds the Company's budgets
for such items, the Company's ability to make expected distributions to
stockholders could be adversely affected.

Other Regulations. The Properties are also subject to various federal, state
and local regulatory requirements such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's Funds from
Operations and expected distributions.

The City of Los Angeles has enacted certain regulations relating to the
repair of welded steel moment frame buildings located in certain areas damaged
as a result of the Southern California Northridge earthquake on January 17,
1994. Such regulations do not apply to the Properties. There can be no
assurance, however, that similar regulations will not be adopted by
governmental agencies with the ability to regulate the Properties or that
other requirements affecting the Properties will not be imposed which would
require significant unanticipated expenditures by the Company and could have
an adverse effect on the Company's Funds from Operations and cash available
for distribution. The Company believes, based in part on recent engineering
reports, that its Properties are in good condition. See "Business and
Properties--Uninsured Losses from Seismic Activity."

IMMEDIATE AND SUBSTANTIAL DILUTION. As set forth more fully under
"Dilution," as of September 30, 1996, the Properties to be contributed by the
Kilroy Group in exchange for Units in the Operating Partnership had a pro
forma net tangible book value for financial reporting purposes (giving effect
to the Offering) of approximately $77.7 million, or $6.91 per share of Common
Stock. As a result, the pro forma net book value per share of Common Stock of
the Company after the consummation of the Offering and the Formation
Transactions will be less than the assumed initial public offering price of
$20.00 per share. The purchasers of Common Stock offered hereby will
experience immediate and substantial dilution of $13.09 per share of Common
Stock (based on the assumed initial public offering price) in the net tangible
book value of the shares of Common Stock. See "Dilution."

NO PRIOR PUBLIC MARKET. Prior to the Offering, there has been no public
market for the Common Stock, and there can be no assurance that an active
trading market will develop as a result of the Offering or, if a trading
market does develop, that it will be sustained or that the shares of Common
Stock will be resold at or above the initial public offering price. The market
for equity securities can be volatile and the trading price of the Common
Stock could be subject to wide fluctuations in response to operating results,
news announcements, trading volume, general market trends, changes in interest
rates, governmental regulatory action and changes in tax laws. The initial
public offering price of the Common Stock offered hereby will be determined
through negotiations between the Company and the representatives (the
"Representatives") of the Underwriters. Among the factors to be considered in
such negotiations, in addition to prevailing market conditions, will be
distribution rates and Funds from Operations of publicly traded REITs that the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential and earnings prospects of the Company, and
the current state of the Company's industry and the economy as a whole. The
assumed initial public offering price does not necessarily bear any
relationship to the Company's book value, assets, financial condition or any
other established criteria of value and may not be indicative of the market
price for the Common Stock after the Offering. See "Underwriting."

EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK. One of the factors
that will influence the market price of the Common Stock in public markets
will be the annual yield on the price paid for shares from

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<PAGE>

distributions by the Company. An increase in prevailing market interest rates
on fixed income securities may lead prospective purchasers of the Common Stock
to demand a higher annual yield from future distributions. Such an increase in
the required yield from distributions may adversely affect the market price of
the Common Stock.

SHARES AVAILABLE FOR FUTURE SALE. No prediction can be made as to the
effect, if any, that future sales of shares, or the availability of shares for
future sale, will have on the market price of the Common Stock. Sales of
substantial amounts of shares of Common Stock in the public market (or upon
exchange of Units) or the perception that such sales might occur could
adversely affect the market price of the shares of Common Stock.

Upon the consummation of the Offering and the Formation Transactions, the
Company will have outstanding 11,250,000 shares of Common Stock (12,937,500
shares if the Underwriters' over-allotment option is exercised in full), all
of which will be freely tradeable in the public market by persons other than
"affiliates" of the Company without restriction or registration under the
Securities Act. All of the shares of Common Stock that are issuable upon the
redemption of Units will be deemed to be "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be transferred unless
registered under the Securities Act or an exemption from registration is
available, including any exemption from registration provided under Rule 144
of the Securities Act. In general, upon satisfaction of certain conditions,
Rule 144 of the Securities Act permits the sale of certain amounts of
restricted securities two years following the date of acquisition of the
restricted securities from the Company and, after three years, permits
unlimited sales by persons unaffiliated with the Company.

It is expected that the Operating Partnership will issue an aggregate of
2,974,500 Units to executive officers, directors and other Continuing
Investors in connection with the formation of the Company which, after two
years following the receipt of such Units, may be redeemed by the Operating
Partnership at the request of the holders for cash (based on the fair market
value of an equivalent number of shares of Common Stock at the time of such
redemption) or, at the Company's option, exchanged for an equal number of
shares of Common Stock, subject to certain antidilution adjustments and the
obligation of certain of the Continuing Investors to indemnify the Company in
connection with the Formation Transactions. See "Formation and Structure of
the Company--Allocation of Consideration in the Formation Transactions."
However, if the Company does not elect to exchange such Units for shares, a
Continuing Investor that is a corporation or a limited liability company may
require the Company to issue shares of Common Stock in lieu of cash, subject
to the Ownership Limit or, with the consent of the Board of Directors, such
other limit which does not result in the failure of the Company to qualify as
a REIT. See "Formation and Structure of the Company" and "Shares Available for
Future Sale-- Redemption Rights/Exchange Rights/Registration Rights." It is
expected that immediately after the Offering the Company will grant options to
purchase an aggregate of approximately 650,000 shares of Common Stock at the
initial public offering price to certain directors, officers and employees of
the Company and an additional approximately 750,000 shares of Common Stock
will be reserved for issuance upon the exercise of options granted under the
Stock Incentive Plan. See "Management--Stock Incentive Plan." In addition, the
Company may issue from time to time additional shares of Common Stock or Units
in connection with the acquisition of properties, including the possible
issuance of Units upon the exercise of options to acquire the Excluded
Properties. See "The Company--Growth Strategies" and "Business and
Properties--Development, Management and Leasing Activities--Excluded
Properties." The Company has agreed to file and generally keep continuously
effective beginning two years after the completion of the Offering a
registration statement covering the issuance of shares upon the exchange of
Units and the resale thereof. See "Shares Available for Future Sale." The
Company also anticipates that it will file a registration statement with
respect to the shares of Common Stock issuable under the Stock Incentive Plan
following the consummation of the Offering. Such registration statements
generally will allow shares of Common Stock issuable upon exchange of Units or
the exercise of options to be transferred or resold without restriction under
the Securities Act.

In addition to the limits placed on the sale of shares of Common Stock by
operation of Rule 144 and other provisions of the Securities Act, (i) each of
the Continuing Investors has agreed not to, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or

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<PAGE>

announce any offer, sale, offer to sell, contract of sale, pledge, grant of
any option to purchase or other sale or disposition) of any Units or shares of
Common Stock or other capital stock of the Company, or any securities
convertible or exercisable or exchangeable for any Units or shares of Common
Stock or other capital stock of the Company for a period of two years from the
date of this Prospectus, and (ii) the Company has agreed not to offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any (other than pursuant to the Stock Incentive Plan) shares
of Common Stock or other capital stock of the Company, or any securities
convertible or exercisable or exchangeable for any Units or shares of Common
Stock or other capital stock of the Company, for a period of one year from the
date of this Prospectus, in each case without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, subject to
certain limited exceptions. At the conclusion of the two-year period
referenced in clause (i) above, Common Stock issued upon the subsequent
exchange of Units may be sold in the public market pursuant to the
registration rights described above. Notwithstanding the foregoing, the Units
received by certain of the Continuing Investors in connection with the
Formation Transactions will be pledged to secure their indemnification
obligations pursuant to an agreement with the Company. See "Formation and
Structure of the Company." Future sales of the shares of Common Stock
described above could have an adverse effect on the market price of the shares
of Common Stock and the existence of Units, options, shares of Common Stock
reserved for issuance upon exchange of Units and the exercise of options and
registration rights referred to above may adversely affect the terms upon
which the Company may be able to obtain additional capital through the sale of
equity securities. See "Shares Available for Future Sale" and "Underwriting."
Such sales may be increased or accelerated to the extent that the Continuing
Investors have personal obligations, including obligations for taxes, which
may arise as a result of the Formation Transactions or prior transactions.

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FORMATION AND STRUCTURE OF THE COMPANY

Kilroy Realty was formed in September 1996 and the Operating Partnership was
formed in October 1996. The Services Company will be formed prior to
consummation of the Offering.

FORMATION TRANSACTIONS

Prior to or simultaneous with the consummation of the Offering, the Company,
the Operating Partnership, the Services Company and the Continuing Investors
will engage in certain transactions (the "Formation Transactions") designed to
enable the Company to continue and expand the real estate operations of KI, to
facilitate the Offering, to enable the Company to qualify as a REIT for federal
income tax purposes commencing with its taxable year ending December 31, 1996
and to preserve certain tax advantages for the existing owners of the
Properties. The Formation Transactions are as follows:

. Pursuant to the Omnibus Agreement, the Operating Partnership may require
the contribution to the Operating Partnership of all of the Continuing
Investors' interests in the Properties (other than the Acquisition
Properties), and the assets used to conduct the leasing, management and
development activities (principally office equipment), and the
assignment of contract rights in connection with development
opportunities at Kilroy Long Beach and the Thousand Oaks Civic Arts
Plaza, and the rights with respect to the purchase of each of the
Acquisition Properties in exchange for Units representing limited
partnership interests in the Operating Partnership. Pursuant to the
terms of the Omnibus Agreement, the Operating Partnership has the right
to acquire the Properties from the Continuing Investors in exchange for
Units through December 31, 1997, the date the Omnibus Agreement
terminates. Following the consummation of the Offering and the Formation
Transactions, the Units received by the Continuing Investors will
constitute in the aggregate an approximately 20.9% limited partnership
interest in the Operating Partnership.

. The Company, through the Operating Partnership will borrow approximately
$96.0 million principal amount of long-term financing pursuant to the
Mortgage Loan.

. The Operating Partnership, will apply the aggregate of the net Offering
proceeds and the Financing toward the repayment of existing mortgage
indebtedness on certain of the Properties, the purchase of the
Acquisition Properties and payment of its expenses arising in connection
with the Offering and the Financing. See "Use of Proceeds."

. Forty-seven of the current 69 employees of KI will become employees of
the Company, the Operating Partnership and/or the Services Company,
including John B. Kilroy, Jr., the President and Chief Executive Officer
of KI, four other executive officers (Mr. Jeffrey Hawken, Executive Vice
President and Chief Operating Officer, Mr. Richard Moran Jr., Executive
Vice President and Chief Financial Officer, Mr. Campbell Hugh Greenup,
General Counsel, and Mr. Christian Krogh, Vice President of Asset
Management) who are not Continuing Investors and 43 other operating and
administrative employees. See "Management."

. The Operating Partnership or the Services Company will enter into
management agreements with respect to each of the Excluded Properties.
Pursuant to the terms of each of the Management Agreements, the
Operating Partnership or the Services Company, as applicable, will have
exclusive control and authority (subject to an operating budget to be
approved by the owners of each property)

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<PAGE>

over each of the Excluded Properties for a term of 24 months. If any of
the Excluded Properties are sold during the term of the Management
Agreements, then either party may terminate the respective Management
Agreement with respect to the property being sold upon 30 days' prior
written notice. In consideration of the services to be provided under
the Management Agreements, the Company will receive a monthly property
management fee as well as any applicable leasing commissions.

. The Company also has entered into option agreements with partnerships
controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr. granting to
the Operating Partnership the exclusive right to acquire (i) the
approximately 18 undeveloped acres located at Calabasas Park Centre for
cash and (ii) the office property located at North Sepulveda Boulevard,
El Segundo for cash (or for Units after the first anniversary of the
Offering at the election of the seller), and in case pursuant to the
other terms of each Option Agreement. See "Business and Properties--
Excluded Properties--Calabasas Park Centre" and "--North Sepulveda
Boulevard, El Segundo" for a discussion of the purchase price and other
material terms of each Option Agreement.

As a result of the foregoing transactions, the Company will own 11,250,000
Units of the Operating Partnership, which will represent an approximately
79.1% economic interest in the Operating Partnership, and the Continuing
Investors will own 2,974,500 Units, which will represent the remaining
approximately 20.9% economic interest in the Operating Partnership. If the
Underwriters' over-allotment option is exercised in full and the net proceeds
from the additional shares of Common Stock sold by the Company are contributed
to the Operating Partnership, the Company's percentage ownership interest in
the Operating Partnership will increase to approximately 81.3%. The Company
will be the sole general partner and retain management control over the
Operating Partnership.

Holders of Units will have the opportunity after two years following the
receipt of such Units to have their Units redeemed by the Operating
Partnership at the request of the Unitholder for cash (based on the fair
market value of an equivalent number of shares of Common Stock at the time of
such redemption) or, at the Company's option, it may exchange Units for shares
of Common Stock on a one-for-one basis, subject to certain antidilution
adjustments and the obligation of certain of the Continuing Investors to
indemnify the Company in connection with the Formation Transactions, provided,
however, that if the Company does not elect to exchange such Units for shares
of Common Stock, a Unitholder that is a corporation or limited liability
company may require the Company to issue shares of Common Stock in lieu of
cash, subject to the Ownership Limit or such other limit as provided in the
Company's Articles of Incorporation, as applicable. See "Formation and
Structure of the Company--Allocation of Consideration in the Formation
Transactions," Under certain circumstances, the Units may be redeemed prior to
the second anniversary of the consummation of the Offering in connection with
the obligation of certain of the Continuing Investors to indemnify the Company
in connection with the Formation Transactions. See "--Allocation of
Consideration in the Formation Transactions."

The Continuing Investors are comprised of (i) seven individuals, John B.
Kilroy, Sr., his five children, John B. Kilroy, Jr., Patrice Bouzaid, Susan
Hahn, Anne McCahon and Dana Pantuso, and Marshall L. McDaniel, a long-time
employee of Kilroy Industries, all of whom are "accredited investors" as
defined in Regulation D under the Securities Act, and (ii) corporations,
partnerships and trusts owned, directly or indirectly, solely by such
individuals all of which are also "accredited investors." See "Note 1.
Organization and Basis of Presentation" to the historical financial statements
of the Kilroy Group. In addition, John B. Kilroy, Sr. is the Company's
Chairman of the Board of Directors and John B. Kilroy, Jr. is President and
Chief Executive Officer and a director of the Company. Consent of the
Continuing Investors to the Formation Transactions was received on or before
November 3, 1996 pursuant to a private solicitation thereof in compliance with
Regulation D.

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REASONS FOR THE REORGANIZATION OF THE COMPANY

. Access to Capital. The Company's structure will, in the Company's
judgment, provide it with greater access to capital for refinancing and
growth. Sources of capital include the Common Stock sold in the Offering
and possible future issuances of debt or equity through public offerings
or private placements. The financial strength of the Company should
enable it to obtain financing at better rates and on better terms than
would otherwise be available to the Partnerships, some of which are
single asset entities.

. Growth of the Company. The Company's structure will allow stockholders,
including the Continuing Investors through their ownership of Units, an
opportunity to participate in the growth of the real estate market
through an ongoing business enterprise. In addition to the existing
portfolio of Properties, the Company gives stockholders an interest in
all future development by the Company and in the fee-producing service
businesses being contributed by the Company to the Services Company.

. Risk Diversification. The Company's structure provides stockholders a
diversification of risk and reward not available in single asset
entities by providing them with an equity interest in a REIT in which
there has been a pooling together of similar properties and by
consolidating the operating business and future development projects.

. Deleveraging. Upon completion of the Offering and the Formation
Transactions, the Company will have substantially reduced the debt
encumbering the Properties. This reduction, with a consequent reduction
in debt service, will increase the aggregate amount of cash available
for distribution to stockholders. The Formation Transactions also will
permit the Company to refinance its existing indebtedness at more
favorable rates.

. Liquidity. The equity interests in the Partnerships are typically not
marketable. The Company's structure allows stockholders, including the
Continuing Investors, the opportunity to liquidate their capital
investment through the disposition of Common Stock or Units. Beginning
on the second anniversary of the consummation of the Offering, holders
of Units will have the opportunity to have their Units redeemed by the
Operating Partnership for cash equal to the value of an equal number of
shares of Common Stock, or the Company may elect to exchange such Units,
for an equivalent number of shares of Common Stock, provided, however,
if the Company does not elect to exchange such units for shares of
Common Stock, a holder of Units that is a corporation or limited
liability company may require the Company to issue Common Stock in lieu
thereof, subject to the Ownership Limit or such other limit as provided
in the Company's Articles of Incorporation, as applicable.

. Public Market Valuation of Real Estate Assets. The Company's structure
may allow investors to benefit potentially from the current public
market valuation of REITs, which is favorable in light of the current
private market valuation of comparable assets.

. Tax Deferral. The Formation Transactions provide to the members of the
Continuing Investors the opportunity to defer the tax consequences that
would arise from a sale or contribution of their interests in the
Properties and other assets to the Company.

The detriments of the Company's REIT status and structure as opposed to the
status and structure of the Partnerships include the following (see also "Risk
Factors"):

. Conflicts of Interest. Management of the Company will be subject to a
number of conflicts of interest in the operation of the Operating
Partnership as well as the formation of the Company. Among other
conflicts, there will be no independent valuation or appraisal of the
Properties, and no arm's-length negotiation of the terms of the option
agreements relating to the Excluded Properties, and there can be no
assurance that the value given to the Continuing Investors by the
Company for such assets is equal to their fair market value. Because
certain Continuing Investors will be directors or officers of the

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<PAGE>

Company, they will have a conflict of interest with respect to enforcing
the agreements transferring their interest in certain assets to the
Company. In addition, because the Continuing Investors and officers of
the Company may suffer different tax consequences than the Company upon
the sale or refinancing of any of the Properties, their interests
regarding the timing and pricing of such sale or refinancing may
conflict with those of the Company.

. Consent Rights of Limited Partners. The Company will be the sole general
partner of the Operating Partnership and will own and control 79.1% of
the ownership interests in the Operating Partnership. However, under the
terms of the Partnership Agreement, the Company may not withdraw as
general partner of the Operating Partnership, transfer or assign its
interest in the Operating Partnership, dissolve the Operating
Partnership, or sell certain specified assets of the Operating
Partnership without the consent of the requisite percentage of the
limited partners, which may result in the Company being precluded from
taking action that the Board of Directors believes in the best interest
of all stockholders. See "Partnership Agreement of the Operating
Partnership--Transferability of Interests" and "--Certain Limited
Partner Approval Rights."

. Influence of Certain Continuing Investors. John B. Kilroy, Sr., the
Company's Chairman of the Board of Directors, and John B. Kilroy, Jr.,
the Company's President and Chief Executive Officer and one of its
directors, will own, together with the other Continuing Investors, Units
exchangeable for shares of the Company's Common Stock equal to
approximately 20.9% of the total outstanding shares. In addition, the
Messrs. Kilroy will hold two of the Company's five seats on the Board of
Directors. Under the terms of the Company's charter and bylaws, no other
stockholder presently is permitted to own in excess of 7.0% of the
Company's Common Stock. Consequently, although the Messrs. Kilroy will
not be able to take action on behalf of the Company without the
concurrence of other members of the Company's Board of Directors, they
will be able to exert substantial influence over the Company's affairs.

. Loss of Individual Asset Growth Opportunity. Any given asset may over
time outperform the Common Stock. Any investor who exchanges an interest
in a single asset for a smaller interest in a group of assets will
receive a lower return on investment if the asset from which the
investor traded outperforms the Common Stock.

. No Anticipated Distributions from Asset Sales. Unlike the Partnerships,
in which the net proceeds from the sale of assets were generally
distributed to the partners, the Company is not expected to have
significant asset sales. Moreover, the Company may decide to reinvest
the proceeds from asset sales rather than distribute them to
stockholders. Although stockholders will have the ability to sell their
shares of Common Stock (subject to certain restrictions discussed
herein), they would not be able to rely upon the mere passage of time to
realize their share of the gains, if any, that might be recognized at
any point in time from a liquidation of all or part of the assets of the
Company.

. Public Market Valuation. Although the public market may value real
estate assets on a basis that is attractive in relation to private
market real estate values, there is no assurance that this condition, if
it exists, will continue. In the 1980s, REIT shares generally traded at
a discount to the underlying private market values of the REIT
properties, rather than at a premium. This condition could return. In
addition, an increase in interest rates could adversely affect the
market value of the shares of Common Stock.

. Costs of the Transaction. The aggregate expenses of the Offering,
including the underwriting discount, are expected to be approximately
$19.0 million, assuming gross proceeds of the Offering of approximately
$225.0 million. In addition, the Operating Partnership will incur costs
of approximately $1.5 million in the aggregate in connection with the
Financing.

. Costs of Operating Public Company. The Company expects to incur expenses
in connection with the requirements of being a public company, including
without limitation, preparation of financial statements and proxies,
printing and filing costs and fees paid to the Company's certified
public accountants, estimated to be $500,000 annually.

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COMPARISON OF COMMON STOCK AND UNITS

Conducting the Company's operations through the Operating Partnership allows
the Continuing Investors to defer certain tax consequences by contributing
their interests in Properties to the Operating Partnership and also offers
favorable methods of accessing capital markets. Units in the Operating
Partnership will be held by the Continuing Investors and the Company. Each
Unit was designed to result in a distribution per Unit equal to a distribution
per share of Common Stock (assuming the Company distributes to its
shareholders all amounts it receives as distribution from the Operating
Partnership). Beginning two years following the consummation of the Offering,
each Unit issued in the Formation Transactions is redeemable by the Operating
Partnership at the request of the Unitholder for cash payable by the Operating
Partnership or, at the Company's option, the Company may exchange Units for
Common Stock on a one-for-one basis (subject to certain antidilution
adjustments and certain limitations on exchange to preserve the Company's
status as a REIT), provided, however, that if the Operating Partnership elects
to redeem such Units for cash, a Unitholder that is a corporation or a limited
liability company may require the Company to issue shares of Common Stock in
lieu of cash. There are, however, certain differences between the ownership of
Common Stock and Units, including:

. Voting Rights. Holders of Common Stock may elect the Board of Directors
of the Company, which, as the general partner of the Operating
Partnership, controls the business of the Operating Partnership.
Unitholders may not elect directors of the Company.

. Transferability. The shares of Common Stock sold in the Offering will be
freely transferable under the Securities Act by holders who are not
affiliates of the Company or the Underwriters. The Units and the shares
of Common Stock into which they are exchangeable are subject to transfer
restrictions under applicable securities laws and under the Partnership
Agreement, including the required consent of the general partner to the
admission of any new limited partner, and the Units of certain
Continuing Investors will be pledged to secure certain indemnity
obligations. See "Shares Available for Future Sale" for a description of
the Registration Rights Agreement applicable to holders of Units.

. Distributions. Because the relative tax basis of the contributions by
the public investors and the Continuing Investors are expected to be
different, it is possible that the public investors' distribution will
include a return of capital that exceeds that of the Continuing
Investors. See "Federal Income Tax Consequences."

ADVANTAGES AND DISADVANTAGES OF THE FORMATION TRANSACTIONS TO UNAFFILIATED
STOCKHOLDERS

The potential advantages of the Formation Transactions to unaffiliated
stockholders of the Company include their ability to participate in the cash
flow of the Properties through their ownership in the Company and in all
future office and industrial property acquisitions and development by the
Company. The potential disadvantages of such transactions to unaffiliated
stockholders of the Company may be several, including the impact of shares
available for future sale and substantial and immediate dilution in the
tangible book value per share, and the lack of arm's-length negotiations to
determine the terms of the transfers of the Properties to the Company and the
Operating Partnership and the terms of the option agreements relating to the
Excluded Properties. See the discussion of such matters under "Risk Factors."

BENEFITS OF THE FORMATION TRANSACTIONS TO THE CONTINUING INVESTORS

. improved liquidity of their interests in the Properties and increased
diversification of investment;

. repayment of indebtedness in the aggregate net amount of approximately
$228.2 million resulting from the refinancing of existing mortgage
indebtedness, approximately $37.2 million of which is guaranteed by John
B. Kilroy, Sr., $8.7 million of which is guaranteed by John B. Kilroy,
Jr., and the repayment of approximately $3.4 million of personal
indebtedness of John B. Kilroy, Sr.;

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<PAGE>

. an employment agreement between the Company and John B. Kilroy, Jr.
providing annual salary, incentive compensation (including options) and
other benefits for his services as an officer of the Company. See
"Management--Employment Agreements;" and

Set forth below are (i) the names of executive officers of the Company and
certain other persons involved in the Formation Transactions; (ii) the net
book value of the interests of such persons in the Properties being
transferred; (iii) the value of (a) the Units (assuming a value of $20.00 per
Unit), (b) the shares of Common Stock (assuming a value of $20.00 per share of
Common Stock), (c) the cash, (d) the stock options, (e) the options on
Excluded Properties and (f) the repayment of debt and/or termination of
guarantees that were outstanding as of December 31, 1996, received by such
persons in the Formation Transactions:

<TABLE>
<CAPTION>
NET BOOK
VALUE OF
PROPERTY ANNUAL NO. NO. OF SHARES NO. OF CONSIDERATION DEBT
INTERESTS SALARY OF OF COMMON CASH STOCK FOR EXCLUDED REPAYMENT
$ $ UNITS STOCK $ OPTIONS PROPERTIES $
--------- ------ ----- ------------- ---- ------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Kilroy, Sr. .... [ ] -- 1,404(2) -- -- -- (1) 40,636(3)
John B. Kilroy, Jr. .... [ ] $200 1,404(2) -- -- 250 (1) 8,700(4)
KI(5)................... -- -- -- -- -- -- (1) --
Other non
officers/directors
(6).................... [ ] -- 166 -- -- -- (1) --
--------- ---- ----- --- ---- --- ---- -------
$(113,223) $200 2,974 -- $-- 250 $-- $49,336
========= ==== ===== === ==== === ==== =======
</TABLE>
- --------

(1) In the event the Company exercises its option with respect to any of the
Excluded Properties, each of John B. Kilroy, Sr. and John B. Kilroy, Jr.
will receive a portion of the respective purchase price therefor. The
exercise price for the options for the Excluded Properties will vary
depending on the date of exercise. See "Business and Properties--Excluded
Properties."

(2) Includes the beneficial ownership of Units to be received by KI allocated
to John B. Kilroy, Sr. and John B. Kilroy, Jr. in accordance with their
respective percentage of ownership of KI.

(3) Represents $3,400,000 of personal indebtedness repaid with proceeds of
indebtedness incurred by the Company within the past 12 months which is
being repaid with proceeds of the Offering, and $37,236,000 of personal
guarantees of indebtedness of the Kilroy Group secured by the Properties
which is being repaid with proceeds of the Offering. See "Use of
Proceeds."

(4) Represents the termination of personal guarantees of indebtedness of the
Kilroy Group secured by the Properties which is being repaid with proceeds
of the Offering.

(5) The amounts attributable to KI are reflected in the amounts attributable
to each of John B. Kilroy, Sr. and John B. Kilroy, Jr. KI's sole
shareholders, who own 81.3% and 18.7% of the common stock of KI,
respectively.

(6) The other non officers/directors are Patrice Bouzaid, Susan Hahn, Anne
McCahon and Dana Pantuso, the daughters of John B. Kilroy, Sr., and
Marshall McDaniel, a long-time employee of Kilroy Industries, all of whom
are members of the Kilroy Group.

No third party determination of the value of the Properties was sought or
obtained in connection with the acquisition by the Operating Partnership of
the Properties, and the terms of each of the Option Agreements relating to the
Excluded Properties were not determined through arm's-length negotiations.
There can be no assurance that the aggregate value of the consideration
received by the participants in the Formation Transactions, including the
grant of the options relating to the Excluded Properties, is equivalent to the
fair market value of the properties and assets acquired by the Company and the
Operating Partnership in connection with the Formation Transactions. See "Risk
Factors--No Appraisals; Consideration to be Paid for Properties and Other
Assets May Exceed their Fair Market Value" and "--Conflicts of Interest--
Competitive Real Estate Activities of Management."

43
<PAGE>

DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS

The Company's percentage interest in the Operating Partnership was
determined based upon the percentage of estimated cash available for
distribution required to pay estimated cash distributions to stockholders of
the Company representing an annual distribution rate equal to 7.75% of the
assumed initial public offering price of the Common Stock of $20.00. The
ownership interest in the Operating Partnership allocated to the Company is
equal to this percentage of estimated Cash Available for Distribution and the
remaining interest in the Operating Partnership will be allocated to the
Continuing Investors receiving Units in the Formation Transactions. The
parameters and assumptions used in deriving the estimated cash available for
distribution are described under the caption "Distribution Policy."

Based on the issuance of 11,250,000 shares of Common Stock in the Offering,
the Company will hold an approximately 79.1% ownership interest in the
Operating Partnership and the Continuing Investors will hold an approximately
20.9% ownership interest in the Operating Partnership. If the Underwriters'
over-allotment option is exercised in full, the Company will hold an
approximately 81.3% ownership interest in the Operating Partnership and the
Continuing Investors will hold an approximately 18.7% ownership interest in
the Operating Partnership.

In connection with the Offering, the Company did not obtain appraisals with
respect to the market value of any of the Properties or other assets that the
Company will own immediately after consummation of the Offering and the
Formation Transactions or an opinion as to the fairness of the allocation of
shares to the purchasers in the Offering. The initial public offering price
will be determined based upon the estimated cash available for distribution
and the factors discussed under the caption "Underwriting," rather than a
property by property valuation based on historical cost or current market
value. This methodology has been used because management believes it is
appropriate to value the Company as an ongoing business rather than with a
view to values that could be obtained from a liquidation of the Company or of
individual properties owned by them. See "Underwriting."

ALLOCATION OF CONSIDERATION IN THE FORMATION TRANSACTIONS

No independent valuations or appraisals of the Properties were obtained in
connection with the Formation Transactions. The allocation of Units among the
Kilroy Group was based primarily on the relative contributions to net
operating income and other factors relating to the value of the Company as an
on-going enterprise, and generally was not determined through arm's-length
negotiations. There can be no assurance that the fair market value of the
Properties transferred to the Company will equal the sum of the value of the
Units issued to the Kilroy Group.

Certain Continuing Investors (the "Indemnitors") have agreed pursuant to a
supplemental representations, warranties and indemnity agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, to make certain representations and warranties
concerning the Properties, and have also agreed to indemnify the Company
against breaches of such representations and warranties. These representations
and warranties will survive the closing of the Offering until June 1998 and
the related

indemnification obligations will be joint and several among the Indemnitors.
The Units received by these Continuing Investors in the Formation Transactions
will be pledged to secure their indemnification obligations under the
agreement.

44
<PAGE>

FORMATION OF KILROY SERVICES, INC.

Kilroy Services, Inc. has been formed under the laws of the State of
Maryland to succeed to the third-party development activities of the Kilroy
Group. John B. Kilroy, Sr. and John B. Kilroy, Jr. together will own 100% of
the voting common stock of the Services Company, representing 5% of its
economic value. The Operating Partnership will own 100% of the nonvoting
preferred stock of the Services Company, representing 95% of its economic
value. The ownership structure of the Services Company is necessary to permit
the Company to share in the income of the activities of the Services Company
and also maintain its status as a REIT. Although the Company anticipates
receiving substantially all of the economic benefit of the businesses carried
on by the Services Company through the Company's right to receive dividends
through the Operating Partnership's investment in the Services Company's
nonvoting preferred stock, the Company will not be able to elect the Services
Company's officer or directors and, consequently, may not have the ability to
influence the operations of the Services Company. See "Risk Factors--Risks of
Development Business and Related Activities Being Conducted by the Services
Company; Control of Services Company--Adverse Consequences of Lack of Control
Over the Businesses of the Services Company."

The Services Company initially will have three directors, including Campbell
Hugh Greenup, who also serves as the General Counsel of the Company, and
Jeffrey C. Hawken, who also serves as the Executive Vice President and Chief
Operating Officer of the Company. See "Management." In addition, the Services
Company will have a third and independent director. Campbell Hugh Greenup will
serve as the Services Company's President and Secretary, and David Armanetti
will serve as its Vice President of Development Services and Treasurer.

45
<PAGE>

THE COMPANY

GENERAL

The Company has been formed to succeed to the business of the Kilroy Group
consisting principally of a portfolio of Class A suburban office and
industrial buildings in prime locations primarily in Southern California, and
the Kilroy Group's real estate ownership, acquisition, development, leasing
and management businesses. Upon the consummation of the Offering and the
Formation Transactions, the Company (through the Operating Partnership) will
own 14 Office Properties encompassing an aggregate of approximately 2.0
million rentable square feet and 12 Industrial Properties encompassing an
aggregate of approximately 1.3 million rentable square feet. Eleven of the 14
of the Office Properties and 11 of the 12 Industrial Properties are located in
prime Southern California suburban submarkets (including a complex of three
Office Properties located in El Segundo, adjacent to Los Angeles International
Airport, presently the nation's second largest air-cargo port, and a complex
of five Office Properties located adjacent to the Long Beach Municipal
Airport). The Company also will own three Office Properties located adjacent
to the Seattle-Tacoma International Airport in the State of Washington and one
Industrial Property located in Phoenix, Arizona. As of September 30, 1996, the
Office Properties were approximately 79.8% leased to 126 tenants and the
Industrial Properties were approximately 93.7% leased to nineteen tenants. The
average age of the Office Properties and the Industrial Properties is
approximately 12 years and 24 years, respectively. The Company developed and
leased all but two of the Office Properties and all but seven of the 16
Industrial Properties, and upon consummation of the Offering and acquisition
of the Acquisition Properties will manage all of the Properties.

The Company was founded in 1947 by John B. Kilroy, Sr., a nationally
prominent member of the real estate community, and is led by John B. Kilroy,
Jr., the Company's President since 1981. The Company's executive officers have
served as members of the Company's executive management team for an average of
approximately 13 years. The Company has been involved in the ownership,
acquisition, entitlement, development, leasing and management of commercial
properties, the majority of which are located in Southern California, for
nearly 50 years and has been focusing primarily on office and industrial
development for the past 30 years. The Company presently has 47 employees, 34
of whom are located at the Company's headquarters at Kilroy Airport Center at
El Segundo, California.

The Company's strategy has been to own, develop, acquire, lease and manage
Class A properties in select locations in key suburban submarkets, primarily
in Southern California, that the Company believes have strategic advantages
compared to neighboring submarkets. The Company's extensive experience and
long-term presence in Southern California have enabled it to form key
alliances and working relationships with major corporate tenants,
municipalities and landowners in Southern California that have resulted in a
variety of development projects and provide an on-going source of development
and acquisition opportunities. The Southern California Properties located in
Los Angeles and Orange Counties are situated in locations which the Company
believes are among the best within key submarkets, offering tenants: (i) lower
business taxes and operating expenses than adjoining submarkets; (ii) access
to highly skilled labor markets; (iii) access to major transportation
facilities such as freeways, airports and the expanded Southern California
light-rail system; (iv) proximity to the Los Angeles-Long Beach port complex,
which presently ranks as the largest commercial port in the United States; and
(v) for tenants with their names on certain Properties, visibility to freeway
and airline travelers.

The Company also has focused on the design and construction of its projects.
The Office Properties were designed and developed to above-standard
specifications, with an emphasis on long-term operating efficiency and tenant
comfort. The Industrial Properties also were designed and developed to provide
above-standard quality and meet the long-term needs of tenants and were
designed as multi-use facilities to satisfy various types of manufacturing,
distribution and office uses. As a result, the Industrial Properties continue
to serve the evolving needs of their tenants, some of which have recently
invested substantially in long-term tenant improvements. As a result of the
high quality and strategic location of the Company's Properties, and the
Company's attention to the highest quality management and service, the Company
believes that the Properties attract major corporate tenants and historically
have achieved among the highest occupancy, tenant retention and rental rates,
both within

46
<PAGE>

their respective submarkets and as compared to their respective neighboring
submarkets. See "Business and Properties--Office Properties" and "--Industrial
Properties."

The Company has created value by effectively working with municipalities,
large landowners and other members of the real estate community in Southern
California, and has maintained strong relationships at all levels of
government, as well as with financial institutions and major corporate
tenants. In 1981, the Company initiated the El Segundo Employers' Association,
a traffic and management organization composed of major employers in the El
Segundo area. The organization has worked with local government and has been
instrumental in the furtherance of infrastructure developments in El Segundo
and throughout the surrounding area, including two recent developments that
management believes will have a substantial economic benefit to the El Segundo
submarket. First, in October 1994, Interstate Highway I-105 (the "I-105
Freeway") opened, which crosses Los Angeles from east to west and provides
substantially improved access to El Segundo and Los Angeles International
Airport. A second infrastructure development in the El Segundo submarket is a
major east-west grade-separated light rail commuter line (the "Green Line").
The Green Line runs adjacent to Kilroy Airport Center at El Segundo.
Management believes that the Green Line, which opened in August 1995, will add
significant value to the El Segundo submarket. See "Business and Properties--
The Company's Southern California Submarkets--El Segundo Submarket."

The Company's major tenants include, among others, Hughes Space &
Communications, a tenant since 1984, which is engaged in high-technology
commercial activities including satellite development and related applications
such as DirecTV, as well as CompuServe, Inc., Employer's Health Insurance Co.,
the Federal Aviation Administration, First Nationwide Mortgage Corporation,
Furon Co., Inc., GTE Directories Sales Corporation, Great Western Bank,
HealthNet, Mattel, Inc. (which has its worldwide corporate headquarters in
El Segundo), North American Title Company, Northwest Airlines, Inc., Olympus
America, Inc., The Prudential Insurance Company of America, R.L. Polk &
Company, SCAN HealthPlan, Senn-Delaney Leadership Consulting Group, Inc.,
Transamerica Financial Services, Inc., 20th Century Industries, UniCare
Financial Corporation and Unihealth. As of December 31, 1995, the Company's 12
largest office tenants and ten largest industrial tenants (based upon annual
base rents as of December 31, 1995 base rents) had leased office space from
the Company for an average of 5.6 years. The Company's strong relationships
with its tenants is further evidenced by its average tenant retention rate
(based upon rentable square feet) for the three-year period ended December 31,
1995, which was 75.4% for the Properties located in the Southern California
Area and 48.3% for the Properties overall. The Company's extensive experience
and long-term presence in Southern California have enabled it to form key
alliances and working relationships with large corporate tenants,
municipalities and landowners that have led to a variety of development
projects and provide a continuing source of development and acquisition
opportunities with institutional sellers. As a result of its experience and
relationships, the Company currently has exclusive rights to develop
approximately 24 acres of developable land (net of the acreage required for
streets) at Kilroy Airport Center Long Beach, and has an exclusive agreement
to negotiate to acquire an additional six acres of developable land (net of
acreage reserved for open areas) at the Thousand Oaks Civic Arts Plaza
Entertainment and Retail Center. These properties are presently entitled for
over 1.0 million rentable square feet of office, industrial and retail space.

The Company believes that the foundation for its growth in future years will
be the strengthening Southern California economy, the quality and strategic
location of its Properties, the economic benefits of its submarkets to
tenants, its capital structure, its access to public capital markets, the lack
of new construction of office properties in its submarkets, its access to
developable properties, the knowledge and experience of its senior management
team and its long-term relationships with the Southern California real estate
community, large corporate tenants, municipalities, landowners and
institutional sellers. In addition, the Company believes that it will be one
of a limited number of REITs focusing on office and industrial properties and
that it will be the only REIT with a 50-year operating history concentrating
primarily on suburban Southern California office and industrial properties. In
the 12 months following the consummation of the Offering, the Company expects
sources of potential growth in cash available for distribution per share from
the amount set forth under the caption "Distribution Policy," through: (i) the
further leasing of its available space, currently approximately 496,000
rentable square feet; (ii) the renewal of leases for approximately 60,000
rentable square feet which

47
<PAGE>

expire during such period; (iii) the acquisition of strategic properties with
Units and/or with available cash and borrowings under the Credit Facility; and
(iv) additional fees from development services and related activities. In the
second 12-month period following consummation of the Offering, the Company
expects sources of potential growth in cash flow per share from: (i)
contractual increases in base rent payments from tenants; (ii) continued
leasing of available space; (iii) the contemplated completion of certain
planned development activities; (iv) increased fee income, including
development fees and related leasing and management activities provided to
third parties; and (v) the acquisition of strategic properties. In addition,
the Company presently plans to expand one or more of its Industrial Properties
during the next two years, subject to substantial pre-leasing. There can be no
assurance, however, that the Company will achieve any growth in cash available
for distribution per share, that available space will be leased, that leases
scheduled to expire will be renewed, that the Company will successfully
complete any of its planned development activities or that the Company will be
able to acquire and develop any of the Development Properties or other
properties that may become available. See "Risk Factors--Real Estate
Investment Considerations--Risks of Real Estate Acquisition and Development."

The Company will continue its practice of managing or administering
substantially all leasing, management, tenant improvements and construction on
an "in-house" basis and will be self-administered and self-managed. The
Company intends to elect to qualify as a REIT for federal income tax purposes
beginning with its taxable year ending December 31, 1996. See "Federal Income
Tax Consequences--Taxation of the Company."

Kilroy Realty Corporation, a Maryland corporation, has executive offices at
2250 East Imperial Highway, El Segundo, CA 90245 and its telephone number is
(213) 772-1193.

GROWTH STRATEGIES

The Company's objectives are to maximize growth in cash flow per share and
to enhance the value of its portfolio through effective management, operating,
acquisition and development strategies. The Company believes that
opportunities exist to increase cash flow per share: (i) by acquiring office
and industrial properties with attractive returns in strategic suburban
submarkets where such properties complement its existing portfolio; (ii) from
contractual increases in base rent; (iii) as a result of increasing rental and
occupancy rates and decreasing concessions and tenant installation costs as
vacancy rates in the Company's submarkets generally continue to decline; (iv)
by developing properties for the benefit of the Company where such development
will result in a favorable risk adjusted return on investment or,
alternatively, on a fee basis for others; and (v) by expanding Properties
within the Company's existing industrial portfolio. The Company's ability to
achieve its growth strategy will be aided by its $75.0 million credit facility
and $20.0 million of working capital cash reserves.

The Company believes that a number of factors will enable it to achieve its
business objectives, including: (i) the opportunity to lease available space
at attractive rental rates because of increasing demand and, with respect to
the Office Properties, the present lack of new construction in the Southern
California submarkets in which most of the Properties are located; (ii) the
presence of distressed sellers and inadvertent owners (through foreclosure or
otherwise) of office and industrial properties in the Company's markets, as
well as the Company's ability to acquire properties with Units (thereby
deferring the seller's taxable gain), all of which create enhanced acquisition
opportunities; (iii) the quality and location of the Company's Properties;
(iv) the Company's access to development opportunities as a result of its
significant relationships with large Southern California corporate tenants,
municipalities and landowners and its nearly 50-year presence in the Southern
California market; and (v) the limited availability to competitors of capital
for financing development, acquisitions or capital improvements. Management
believes that the Company is well positioned to exploit existing opportunities
because of its extensive experience in its submarkets, its seasoned management
team and its proven ability to develop, lease and efficiently manage office
and industrial properties. In addition, the Company believes that public
ownership and its capital structure will provide new opportunities for growth.
There can be no assurance, however, that the Company will be able to lease
available space, complete any property acquisitions, successfully develop any
land acquired or improve the operating results of any developed properties
that are acquired. See "Business and Properties--Development, Leasing and
Management Activities."

48
<PAGE>

Operating Strategies. The Company will focus on enhancing growth in cash
flow per share by: (i) maximizing cash flow from existing Properties through
active leasing, contractual base rent increases and effective property
management; (ii) managing operating expenses through the use of in-house
management, leasing, marketing, financing, accounting, legal, construction
management and data processing functions; (iii) maintaining and developing
long-term relationships with a diverse tenant group; (iv) attracting and
retaining motivated employees by providing financial and other incentives to
meet the Company's operating and financial goals; and (v) continuing to
emphasize capital improvements to enhance the Properties' competitive
advantages in their markets.

The Company believes that the strength of its leasing is demonstrated by the
Company's leasing activity since 1993. In the period from January 1, 1993 to
September 30, 1996, the Company leased or renewed leases for an aggregate of
approximately 1,017,000 rentable square feet of office space and approximately
718,000 rentable square feet of industrial space. As of December 31, 1995, the
Office Properties in the Southern California Area were approximately 89.5%
leased as compared to approximately 82.0% for the Southern California Area,
approximately 89.2% for the El Segundo submarket and approximately 85.4% in
the Long Beach submarket. In addition, at December 31, 1995, the Industrial
Properties were approximately 91.4% leased as compared to approximately 82.3%
and approximately 87.1% for industrial properties located in Los Angeles and
Orange Counties, respectively. As of September 30, 1996, (i) the Office
Properties contained approximately 2.0 million rentable square feet and were
approximately 79.8% leased, and (ii) the Industrial Properties contained an
aggregate of approximately 1.3 million rentable square feet and were
approximately 93.7% leased. In addition, the number of individual lease
transactions since 1992, including the results for the nine-month period ended
September 30, 1996, averaged over 33 per year. See "Business and Properties--
General," "--Properties," "--Occupancy and Rental Information," and "--The
Company's Southern California Submarkets."

Approximately 1,000,000 aggregate rentable square feet in the Properties was
leased by the Company from January 1, 1992 through December 31, 1994, a period
which management characterizes as recessionary. Based on the leases the
Company signed in 1996, and the findings in an independent study of the
Southern California real estate market commissioned by the Company, management
believes that the recent trend toward increasing rental rates in Class A
office and industrial buildings in the Company's Southern California
submarkets presents significant opportunities for growth. In addition,
approximately 65.3% of the Company's net rentable square feet is subject to
leases expiring in 2000 or beyond, when management expects asking rents for
the respective Properties to be higher than the rents paid pursuant to such
leases. In addition, approximately 36.7% of the Company's total base rent
(representing approximately 25.4% of the Company's total rentable square feet)
is attributable to leases with Consumer Price Index increases. No assurance
can be given, however, that new leases will reflect rental rates greater than
or equal to current rental rates or future economic conditions will support
higher rental rates. See "Risk Factors--Real Estate Investment
Considerations."

49
<PAGE>

The Company has entered into an agreement to acquire the two office
properties that comprise Phase I of Kilroy Airport Center Long Beach. Kilroy
Airport Center Long Beach Phase I was developed by the Company in 1987 and has
been leased and managed by the Company since its inception. In addition, the
Company has entered into an agreement to purchase an office property located
in Thousand Oaks, California. The Company also has entered into agreements to
acquire a three building office and industrial complex located in Anaheim,
California. In addition, Kilroy Industries, on behalf of the Operating
Partnership, has acquired a multi-tenant industrial property located in Garden
Grove, California. The acquisition of the Acquisition Properties by the
Company is expected to occur concurrently with the consummation of the
Offering and, accordingly, the Acquisition Properties are included in the
discussion of the Properties included throughout this Prospectus. There can be
no assurance, however, that the Company will be able to complete any property
acquisitions, including the acquisition of the Acquisition Properties,
successfully develop any land acquired or improve the operating results of any
developed properties that are acquired. See "Business and Properties--
Acquisition Properties."

Development Strategies. The Company's interests in the Development
Properties provide it with significant growth opportunities.

The Company is the master ground lessee of, and has sole development rights
in, Kilroy Airport Center Long Beach, a planned four-phase, approximately 53-
acre property entitled for office, research and development, light industrial
and other commercial projects at which the Company owns all five existing
Office Properties and manages all ongoing leasing and development activities.
The Company developed Phases I and II in 1987 and 1989/1990, respectively,
encompassing an aggregate of approximately 620,000 rentable square feet of
office and light industrial space. The Company controls development of the
Phase III and IV parcels while receiving rental revenue in connection with
such parcels in an amount sufficient to cover substantially all of the
predevelopment carrying costs. Phases III and IV presently are planned to be
developed on the project's approximately 24 undeveloped acres and are entitled
for an aggregate of approximately 900,000 rentable square feet. The Company is
currently in discussions with several prospective tenants for office space
presently planned to be included in Kilroy Long Beach Phase III. Development
of each of Phases III and IV is subject to substantial predevelopment leasing
activity and, therefore, the timing for the commencement of development of
Phases III and IV is uncertain. However, no assurance can be given that the
Company will commence such development when planned, or that, if commenced,
such development will be completed. See "Risk Factors--Real Estate Investment
Considerations--Risks of Real Estate Acquisition and Development" and
"Business and Properties--Development, Leasing and Management Activities--
Kilroy Long Beach."

The Company also has entered into a Development Management Agreement in
connection with the development, on a fee basis, of the Riverside Judicial
Center. See "Business and Properties--Development, Management and Leasing
Activities--Riverside Judicial Center." In addition, the Company has been
engaged on a fee basis as a consultant in connection with the development of
an approximately 200-acre site presently owned by Northrop Grumman
Corporation. See "Business and Properties--Development, Management and Leasing
Activities--Northrop Grumman."

50
<PAGE>

development. The Company's activities with third-party owners in Southern
California are expected to give the Company further access to development
opportunities. There can be no assurance, however, that the Company will be
able to successfully develop any of the Development Properties or any other
properties. See "Business and Properties--Development, Leasing and Management
Activities."

Financing Policies. The Company's financing policies and objectives are
determined by the Company's Board of Directors. The Company intends to limit
the ratio of debt to total market capitalization (total debt of the Company as
a percentage of the market value of issued and outstanding shares of Common
Stock, including interests exchangeable therefor, plus total debt) to
approximately 50%. However, such objectives may be altered without the consent
of the Company's stockholders and the Company's organizational documents do
not limit the amount of indebtedness that the Company may incur. Upon
completion of the transactions outlined under the caption "Formation and
Structure of the Company," total debt will constitute approximately 25.2% of
the total market capitalization of the Company (assuming an initial public
offering price of $20.00 per share of Common Stock). In addition, the Company
will have working capital cash reserves of $20.0 million and capital
expenditure cash reserves of $3.1 million upon consummation of the Offering.
The Company anticipates that upon consummation of the Offering all of the
permanent indebtedness will bear interest at fixed rates. The Company intends
to utilize one or more sources of capital for future acquisitions, including
development and capital improvements, which may include undistributed cash
flow, borrowings under the Credit Facility, issuance of debt or equity
securities and other bank and/or institutional borrowings. There can be no
assurance, however, that the Company will be able to obtain capital for any
such acquisitions, developments or improvements on terms favorable to the
Company. See "--Growth Strategies," "The Company--Growth Strategies" and
"Business and Properties--Development, Leasing and Management Activities" and
"--Debt Structure."

51
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock in the
Offering (based on the midpoint of the range of the initial public offering
price set forth on the cover page of this Prospectus), after deduction of
underwriting discounts and commissions and estimated offering expenses, are
expected to be approximately $206.1 million (approximately $237.4 million if
the Underwriters' over-allotment option is exercised in full). In addition to
the net proceeds from the Offering, the Operating Partnership expects to
receive net proceeds from the Financing, after payment of expenses related
thereto, of approximately $95.5 million. The Company intends to apply the net
proceeds of the Offering and from the Financing as follows:

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Repayment of existing mortgage debt (net of
discounts/premiums)...................................... $228,202
Purchase price of the Acquisition Properties.............. 48,788
Working capital cash reserves............................. 20,000
Capital expenditure cash reserves......................... 3,080
Financing expenses........................................ 1,500
--------
Total................................................. $301,570
========
</TABLE>

Upon consummation of the Offering, the estimated principal amount of certain
indebtedness of the Kilroy Group secured by the Properties which is to be
repaid with net proceeds of the Offering and the Financing will be
approximately $228.2 million, of which approximately $37.2 million has been
guaranteed by certain members of the Kilroy Group, including officers and
directors of the Company. An aggregate of approximately $32.1 million of
indebtedness was incurred within the last year, of which $1.5 million was
incurred to finance tenant improvements and to pay leasing commissions related
to Kilroy Airport Center Long Beach, $9.1 million was incurred by Kilroy
Industries (on behalf of the Company) to acquire the industrial property
located at 12752-12822 Monarch Street, Garden Grove, California, and reimburse
expenses at closing, and $21.5 million was used to repay $16.6 million of
existing indebtedness (including $3.4 million of indebtedness of John B.
Kilroy, Sr., the Chairman of the Company's Board of Directors, and accrued
interest and prepayment penalties in connection with such repayments), and to
pay approximately $940,000 in property taxes and approximately $454,000 in
loan costs, legal fees and other expenses in connection with such financing,
with the remainder being contributed to working capital.

The approximately $48.8 million to be used to purchase the Acquisition
Properties referenced above represents the aggregate purchase price paid or to
be paid pursuant to executed agreements for the acquisition of Kilroy Airport
Center Long Beach Phase I, the Westlake Office Plaza and the Anaheim Office
and Industrial Properties. The acquisition of the Industrial Property located
at 12752-12822 Monarch Street, Garden Grove, California is reflected in the
Repayment of existing mortgage debt (net of discounts/premiums) referenced
above, as this amount was incurred by Kilroy Industries on behalf of the
Company to acquire the property based on the closing schedule required by the
seller. See "Business and Properties--Acquisition Properties."

52
<PAGE>

The following table represents as of September 30, 1996 (unless otherwise
indicated) the mortgages and loans (which are all of the current outstanding
mortgages and loans on the Properties) intended to be repaid out of the net
proceeds of the Offering. The mortgages expected to be repaid upon completion
of the Offering had a weighted average interest rate of approximately 8.74%
and a weighted average remaining term to maturity of approximately 3.14 years
as of September 30, 1996.

<TABLE>
<CAPTION>
DEBT AS OF
SEPTEMBER 30, 1996
PROPERTY LOCATION (UNLESS OTHERWISE INDICATED)
- ----------------- ----------------------------
(IN THOUSANDS)
<S> <C>
Kilroy Airport Center at El Segundo )
2240 E. Imperial Highway )
2250 E. Imperial Highway ) ...... $ 94,799
2260 E. Imperial Highway )
El Segundo, California )

Kilroy Airport Center Long Beach )
3750 Kilroy Airport Way )
3760 Kilroy Airport Way ) ...... 56,168
3780 Kilroy Airport Way )
Long Beach, California )

SeaTac Properties Ltd )
17900 Pacific Highway )
17930 Pacific Highway ) ...... 20,162
18000 Pacific Highway )
Seattle, Washington )

2031 E. Mariposa Avenue
El Segundo, California(2)........................ 12,000
3332 E. La Palma Avenue
Anaheim, California.............................. 7,589

2260 E. El Segundo Boulevard )
El Segundo, California )
2265 E. El Segundo Boulevard )
El Segundo, California ) ...... 21,525(2)
2270 E. El Segundo Boulevard )
El Segundo, California )
185 S. Douglas Street )
El Segundo, California(1) )

1000 E. Ball Road )
Anaheim, California(3) ) ...... 5,536
1230 S. Lewis Street )
Anaheim, California(3) )

12681/12691 Pala Drive,
Garden Grove, California......................... 3,267
5115 N. 27th Avenue
Phoenix, Arizona................................. 3,000
12752-12822 Monarch Street (balance as of
December 19, 1996)
Garden Grove, California......................... 9,060(4)
--------
$233,106
========
</TABLE>

53
<PAGE>

- --------

(1) This property is also subject to mortgage indebtedness securing the $9.1
million aggregate principal amount of indebtedness (including the accrual
of expenses incurred in connection therewith) referenced in note (4)
below, which will be repaid with the net proceeds of the Offering.

(2) This indebtedness is also secured by a second mortgage on the properties
located at 1000 East Ball Road, Anaheim, California, 1230 S. Lewis Street,
Anaheim, California and 2031 E. Mariposa Avenue, El Segundo, California.

(3) This property is also subject to second mortgage indebtedness securing the
$19.7 million aggregate principal amount of indebtedness which will be
repaid with the net proceeds of the Offering. This property is also
subject to mortgage indebtedness securing the $9.1 million aggregate
principal amount of indebtedness (including the accrual of expenses
incurred in connection therewith) referenced in note (4) below, which will
be repaid with the net proceeds of the Offering.

(4) Represents the principal amount of indebtedness incurred on December 19,
1996, by Kilroy Industries on behalf of the Company, in connection with
the acquisition of the Industrial Property located at 12752-12822 Monarch
Street, Garden Grove, California, plus reimbursement of related expenses
at closing.

54
<PAGE>

In the event that the Underwriters' over-allotment option is exercised, the
net proceeds thereof will be used by the Company for additional working
capital and will be available for development and for future acquisitions of
additional properties not yet identified. Pending application of such net
proceeds, the Company will invest the net proceeds in interest-bearing
accounts and short-term, interest-bearing securities, which are consistent
with the Company's intention to qualify for taxation as a REIT. Such
investments may include, for example, obligations of the Governmental National
Mortgage Association, other government and government agency securities,
certificates of deposit and interest-bearing bank deposits.

DISTRIBUTION POLICY

The Company presently intends to make regular quarterly distributions to
holders of its Common Stock. The first distribution, for the period commencing
upon the consummation of the Offering and ending , 1997, is anticipated
to be approximately $ per share (which is equivalent to a quarterly
distribution of $.3875 per share or an annual distribution of $1.55 per share)
which results in an initial annual distribution rate of 7.75%, based on the
midpoint of the range of the initial public offering price set forth on the
cover page of this Prospectus. The Company does not expect to change its
estimated distribution rate if any of the Underwriters' over-allotment option
is exercised. The Company currently expects to distribute approximately 93.5%
of estimated cash available for distribution for the 12 months following the
consummation of the Offering. Units and shares of Common Stock will receive
equal distributions. The Board of Directors may vary the percentage of cash
available for distribution which is distributed if the actual results of
operations, economic conditions or other factors differ from the assumptions
used in the Company's estimates.

The Company believes that its estimate of cash available for distribution
constitutes a reasonable basis for setting the initial distribution rate and
is made solely for the purpose of setting the initial distribution rate and is
not intended to be a projection or forecast of the Company's results of
operations or of its liquidity. The Company presently intends to maintain the
initial distribution rate for the 12 months following the consummation of the
Offering unless actual results from operations, economic conditions or other
factors differ significantly from the assumptions used in its estimate.
However, no assurance can be given that the Company's estimate will prove
accurate. The actual return that the Company will realize will be affected by
a number of factors, including the revenue received from the Properties, the
distributions and other payments received from the Operating Partnership and
Services Company (which in turn is based in part on revenues received from
third-party development activities), the operating expenses of the Company,
the interest expense incurred on its borrowings, the ability of tenants to
meet their obligations, general leasing activity and unanticipated capital
expenditures. See "Risk Factors--Real Estate Investment Considerations."

55
<PAGE>

The following table illustrates the adjustments made by the Company to its
pro forma Funds from Operations for the twelve months ended September 30, 1996
in order to calculate estimated cash available for distribution;
<TABLE>
<CAPTION>
AMOUNT
-------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Pro forma net income before minority interests for the year
ended December 31, 1995..................................... $16,585
Plus pro forma net income before minority interests for the
nine months ended September 30, 1996........................ 7,784
Less pro forma net income before minority interests for the
nine months ended September 30, 1995........................ (8,277)
-------
Pro forma net income before minority interests for the 12
months ended September 30, 1996(1).......................... 16,092
Add back non-cash items:
Pro forma depreciation for the 12 months ended September
30, 1996(2)............................................... 8,769
Pro forma amortization for capitalized leasing commissions
for the 12 months ended September 30, 1996(2)............. 1,041
Elimination of nonrecurring sale of air rights............. (4,456)
Elimination of nonrecurring option buy-out cost............ 3,150
-------
Pro forma Funds from Operations for the 12 months ended
September 30, 1996.......................................... 24,596
Adjustments:
Net increases in contractual rental income(3).............. 348
Net increase from new leases(4)............................ 3,904
Net effect of lease expirations, assuming no renewals(5)... (4,052)
Net effect of straight-line rents(6)....................... 293
Interest income on excess cash from proceeds of
Offering(7)............................................... 1,008
-------
Estimated cash flow from operating activities for the 12
months ending January 31, 1998.............................. 26,097
Estimated capitalized tenant improvements and leasing
commissions(8).............................................. (1,117)
Estimated capital expenditures(9)............................ (150)
Scheduled debt principal payments(10)........................ (1,257)
-------
Estimated cash available for distribution for the 12 months
ending January 31, 1998..................................... $23,573
=======
Company's share of cash available for distribution(11)..... $18,646
Minority interest's share of cash available for
distribution.............................................. $ 4,927
=======
Total estimated initial annual distribution.................. $22,048
=======
Estimated initial annual distribution per share.............. $ 1.55
=======
Estimated cash available for distribution payout ratio(12)... 93.5%
=======
</TABLE>
- --------

(1) Assumes that no dividends will be paid by the Services Company during
such period.

(2) Pro forma depreciation of $9,573,000 for the year ended December 31, 1995
plus $6,756,000 for the nine months ended September 30, 1996 less
$7,560,000 for the nine months ended September 30, 1995. Pro forma
amortization of $985,000 for the year ended December 31, 1995 plus
$895,000 for the nine months ended September 30, 1996 less $839,000 for
the nine months ended September 30, 1995. Amortization consists primarily
of amortization of deferred leasing commissions. Non-cash interest
expense of $68,000 for the year ended September 30, 1996 related to
amortization of the costs associated with the Mortgage Loan is not added
back in this table in conformity with NAREIT's definition of Funds from
Operations.

(3) Represents an incremental increase in Funds from Operations attributable
to contractual rental increases for the 12 months ending January 31, 1998
(over actual rental revenue included in pro forma Funds from Operations
for the 12 months ended September 30, 1996). The contractual rental
increases are limited to the actual number of months in which the
increased rental rate will be in effect as to each lease.

(footnotes continued on next page)

56
<PAGE>

(4) Represents the incremental increase in Funds from Operations attributable
to rental revenue from new executed leases commencing after September 30,
1995 for the 12 months ending January 31, 1998.

(5) Represents the elimination of rental revenue reflected in rental revenue
for the 12 months ended September 30, 1996 from: (i) leases which expired
between September 30, 1995 and September 30, 1996 ($1,249,000) and (ii)
leases which will expire between October 1, 1996 and January 31, 1998 for
that portion of the 12 months ending January 31, 1998 that such leases
are no longer in effect ($2,803,000).

This table assumes that leases which expire prior to January 31, 1998 will
not be renewed or re-leased during the period. As a result of this
assumption, the effective average occupancy rate of the Properties for the
12-month period ending January 31, 1998 will equal 82.8%, versus the actual
occupancy rate for the Properties of 85.3% as of September 30, 1996. The
Company's average tenant retention rate for expiring leases for 1993
through 1995 was approximately 75.4% for the Properties located in the
Southern California Area and 48.3% for the Properties overall.
(6) Represents the effect of adjusting straight-line rental income and expense
included in pro forma net income from an accrual basis under GAAP to a cash
basis.

(7) Represents estimated interest earned at 5% on excess cash proceeds of
approximately $20,000,000.

(8) Reflects projected non-incremental revenue-generating tenant improvement
("TI") and leasing commission ("LC") for the 12-month period ending
January 31, 1998 based on the weighted average TI and LC expenditures for
all renewed and retenanted space incurred during 1993, 1994, 1995 and the
nine months ended September 30, 1996, multiplied by the average annual
net rentable square feet of leased space expiring during the three 12-
month periods following the consummation of the Offering.

<TABLE>
<CAPTION>
WEIGHTED
1993 1994 1995 1996 AVERAGE
----- ------ ----- ----- ----------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
Retenanted
TI per net rentable square foot.. $5.21 $20.82 $4.76 $8.62 $ 12.50
LC per net rentable square foot.. $1.85 $ 3.56 $4.23 $3.85 3.41
----------
Total weighted average TI and
LC............................ 15.91
Average annual net rentable
square feet of leased space
expiring during the three 12-
month periods following the
Offering...................... 137,976
----------
Total estimated annual TI and
LC............................ 2,195,198
Rate of retenant(i)............ 30%
----------
Total cost of retenants........ $ 658,672
Renewals
TI per net rentable square foot.. $ -- $ .28 $4.49 $4.01 $ 2.89
LC per net rentable square foot.. $ -- $ .07 $1.61 $1.02 0.80
----------
Total weighted average TI and
LC............................ 3.69
Average annual net rentable
square feet of leases expiring
during the three 12-month
periods following the
Offering...................... 137,976
----------
Total estimated annual TI and
LC............................ 509,131
Rate of renewal(i)............. 70%
----------
Total cost of renewals....... 356,616
----------
Total TI and LC cost of Office
Properties...................... 1,015,288
----------
INDUSTRIAL PROPERTIES:
TI per net rentable square foot.... $ .14 $ 4.49 $2.00 $ -- $ 2.19
LC per net rentable square foot.... $1.49 $ 3.49 $1.84 $ -- 2.16
----------
Total weighted average TI and
LC.............................. 4.35
Average annual net rentable
square feet of leases expiring
during the three 12-month
periods following the Offering.. 23,333
----------
Total estimated annual TI and
LC.............................. 101,497
----------
Total.............................. $1,116,785
==========
</TABLE>

(footnotes continued on next page

57
<PAGE>

--------

(i) The historical weighted average renewal rate based on rentable square
footage, for the Company from January 1, 1993 through December 3, 1995
was 75.4% for the Properties located in the Southern California Area
and 48.3% for the Properties overall. The lower overall renewal rate
results primarily from a 1993 termination of a lease for 211,000
square feet at the SeaTac Office Center. Management believes, based on
historical figures and its review of market conditions in the
Company's submarkets in which the Properties are located, that the
assumption of a 70% renewal rate is reasonable.

(9) Estimated annual capital expenditures not reimbursed by tenants.
Represents the average of historical nonreimbursed capital expenditures
at the Office and Industrial Properties during the years ended
December 31, 1994 and 1995. All capital expenditures during 1993 were
reimbursed by tenants.

(10) Estimated principal payments on the Mortgage Loan.

(11) The Company's share of estimated distributions based on its approximately
79.1% partnership interest in the Operating Partnership.

(12) Calculated as the estimated initial annual distribution divided by the
estimated cash flow available for distribution for the 12 months ending
January 31, 1998. The payout ratio of estimated adjusted pro forma Funds
from Operations (which is substantially equivalent to the Company's
estimated pro forma cash flow from operating activities) for the 12
months ending January 31, 1998 equals 84.5%.

The Company anticipates that its estimated cash available for distribution
will exceed earnings and profits due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company. Distributions by
the Company to the extent of its current or accumulated earnings and profits
for federal income tax purposes, other than capital gain dividends, will be
taxable to stockholders as ordinary dividend income. Capital gain
distributions generally will be treated as long-term capital gains.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable return of capital to the extent of each stockholder's basis in his
or her Common Stock to the extent thereof, and thereafter as taxable gain. The
non-taxable distributions will reduce each stockholder's tax basis in the
Common Stock and, therefore, the gain (or loss) recognized on the sale of such
Common Stock or upon liquidation of the Company will be increased (or
decreased) accordingly. Based on the estimated cash flow available for
distribution set forth in the table above, the Company believes that
approximately % of distributions for the 12 months following consummation
of the Offering would represent a return of capital. If actual cash available
for distribution or taxable income vary from these amounts, the percentage of
distributions which represent a return of capital may be materially different.
For a discussion of the tax treatment of distributions to holders of Common
Stock, see "Federal Income Tax Consequences--Taxation of U.S. Stockholders"
and "--Taxation of Non-U.S. Stockholders." In order to qualify to be taxed as
a REIT, the Company must make annual distributions to stockholders of at least
95% of its REIT taxable income (determined without regard to the dividends
received deduction and by excluding any net capital gains) which the Company
anticipates will be less than its share of adjusted Funds from Operations.
Under certain circumstances, the Company may be required to make distributions
in excess of cash available for distribution in order to meet such
distribution requirements.

Financing activities such as repayment or refinancing of loans also may
affect the Company's assets and liabilities and the amount of cash available
for distribution for future periods. Management will seek to control the
timing and nature of investing and financing activities in order to maximize
the Company's return on invested capital.

Future distributions by the Company will be subject to the requirements of
the MGCL and the discretion of the Board of Directors of the Company, and will
depend on the actual cash flow of the Company, its financial condition, its
capital requirements, any decision by the Board of Directors to reinvest the
Operating Partnership's Funds from Operations rather than distribute such
funds to the Company, the annual distribution requirements under the REIT
provisions of the Code (see "Federal Income Tax Considerations--Taxation of
the Company--Annual Distribution Requirements") and such other factors as the
Board of Directors deems relevant. There can be no assurance that any
distributions will be made or that the expected level of distributions will be
maintained by the Company. See "Risk Factors--Real Estate Investment
Considerations" and "--Distribution Payout Percentage." If revenues generated
by the Company's properties in future periods decrease materially from current
levels, the Company's ability to make expected distributions would be
materially adversely affected, which could result in a decrease in the market
price of the shares of Common Stock.

58
<PAGE>

The Company may in the future implement a distribution reinvestment program
under which holders of shares of Common Stock may elect automatically to
reinvest distributions in additional shares of Common Stock. The Company may,
from time to time, repurchase shares of Common Stock in the open market for
purposes of fulfilling its obligations under this distribution reinvestment
program, if adopted, or may elect to issue additional shares of Common Stock.
If the Company adopts a distribution reinvestment program, it will solicit
participation in the program after the Offering by means of a separate
prospectus, and a purchase of shares of Common Stock in the Offering does not
entitle any investor to participate in any such program. There can be no
assurance that the Company will adopt such a program, and consequently, the
probable date of adoption or number of shares of Common Stock that would be
available under such program cannot be determined at this time.

Cash available for distribution is based on Funds from Operations (which is
defined by NAREIT as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding amortization
of deferred financing costs)) and after adjustments for unconsolidated
partnerships and joint ventures. The calculation of adjustments to pro forma
Funds from Operations is being made solely for the purpose of setting the
initial distribution amount and is not intended to be a projection or
prediction of the Company's actual results of operations nor is the
methodology upon which such adjustments are made intended to be a basis for
determining future distributions. Management considers Funds from Operations
an appropriate measure of liquidity or an equity REIT because industry
analysts have accepted it as a performance measure or equity REIT. The Company
computes Funds from Operations in accordance with standards established by the
Board of Governors of NAREIT in its March 1995 White Paper, which may differ
from the methodology for calculating Funds from Operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.
Further, Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Funds from Operations."

59
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company (based on
the Combined Financial Statements of the Kilroy Group) as of September 30,
1996 on an historical basis, and on a pro forma basis as adjusted to give
effect to the Formation Transactions, the Offering, the Financing and the
application of the net proceeds therefrom as described under the caption "Use
of Proceeds." The information set forth in the following table should be read
in conjunction with the Combined Financial Statements of the Kilroy Group and
notes thereto, the pro forma financial information of the Company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Loan(1)..................................... $ 224,046 $ 96,000
Borrowings under Credit Facility(2).................. -- --
----------- ----------
Total debt............................................. 224,046 96,000
----------- ----------
Minority interest in the Operating Partnership(3)...... -- 20,523
----------- ----------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 30,000,000 shares
authorized, none issued or outstanding..............
Common Stock, $.01 par value, 150,000,000 shares
authorized, 11,250,000 shares issued and
outstanding(3)(4)................................... -- 114
Capital in excess of par value....................... -- 77,561
Accumulated deficit.................................. (113,223) --
----------- ----------
Total stockholders' equity (deficit)................... (113,223) 77,675
----------- ----------
Total capitalization................................... $ 110,823 $ 194,198
=========== ==========
</TABLE>
- --------

(1) The Company, on behalf of the Operating Partnership, intends to obtain a
written commitment for the $96 million Mortgage Loan, the closing of which
is a condition to the consummation of the Offering. See "The Financing--
The Mortgage Loan."

(2) The Company, on behalf of the Operating Partnership, expects to obtain a
written commitment to establish the $75.0 million Credit Facility, which
the Company expects to enter into concurrently with the consummation of
the Offering. See "The Financing--The Credit Facility."

(3) Assumes no exchange of the Units to be issued to the Continuing Investors
in connection with the Formation Transactions. If all of the Units were
exchanged, 14,224,500 shares of Common Stock would be outstanding.

(4) Excludes approximately 1,400,000 shares of Common Stock reserved for
issuance pursuant to the Stock Incentive Plan. See "Management--Stock
Incentive Plan."

60
<PAGE>

DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution of the net tangible book value of their Common Stock
from the assumed initial public offering price. At September 30, 1996, the
Company had a negative combined net tangible book value of approximately
$113.2 million, or $38.06 per share of Common Stock (assuming the exchange of
Units issued to Continuing Investors in connection with the Formation
Transactions into shares of Common Stock on a one-for-one basis). After giving
effect to the sale of the shares of Common Stock offered hereby at an assumed
initial public offering price of $20.00 per share of Common Stock, the
deduction of underwriting discounts and commissions and estimated Offering
expenses and the receipt by the Company of approximately $206.1 million in net
proceeds from the Offering, the pro forma net tangible book value at September
30, 1996 would have been $77.7 million, or $6.91 per share of Common Stock.
This amount represents an immediate increase in net tangible book value of
$44.97 per Unit to Continuing Investors and an immediate dilution in pro forma
net tangible book value of $13.09 per share of Common Stock to new public
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $20.00
Pro forma net tangible book value before the
Offering(1)............................................. $(38.06)
Increase in pro forma net tangible book value
attributable to the Offering and Formation
Transactions............................................ 44.97
-------
Pro forma net tangible book value after the Offering(2).... 6.91
------
Dilution in pro forma net tangible book value to new
investors(3).............................................. $13.09
======
</TABLE>
- --------
(1) Net tangible book value per share of Common Stock before the Offering is
determined by dividing net tangible book value (total tangible assets less
total liabilities) of the Company by the number of shares of Common Stock
of the Company representing the exchange in full of the Units to be issued
to the Continuing Investors.

(2) Based on pro forma net tangible book value of approximately $77.7 million
divided by 11,250,000 shares of Common Stock outstanding. There is no
impact on dilution attributable to the exchange of Units to be issued to
the Continuing Investors due to the effect of minority interest.
(3) Dilution is determined by subtracting pro forma net tangible book value
per share of Common Stock after giving effect to the Formation
Transactions and the Offering from the assumed initial public offering
price paid by a new investor for a share of Common Stock.

The following table sets forth, on a pro forma basis giving effect to the
Offering and the Formation Transactions: (i) the number of shares of Common
Stock to be sold by the Company in the Offering and the number of Units issued
to the Continuing Investors in connection with the Formation Transactions;
(ii) the net tangible book value as of September 30, 1996 of the assets
contributed to the Operating Partnership in the Formation Transactions; and
(iii) the net tangible book value of the average contribution per share/Unit
based on total contributions. See "Risk Factors--Immediate and Substantial
Dilution."

<TABLE>
<CAPTION>
SHARES/UNITS BOOK VALUE OR CASH
ISSUED(1) CONTRIBUTIONS AVERAGE PRICE
------------------ ------------------------ PER
NUMBER PERCENT AMOUNT PERCENT SHARE/UNIT
---------- ------- ---------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
New investors........... 11,250,000 79.1% $ 225,000 (2) 242.4 % $ 20.00
Units issued to
Continuing Investors in
connection with the
Formation
Transactions........... 2,974,500 20.9% (132,173)(3) (142.4)% $(44.44)
---------- ----- ---------- -------
Total............... 14,224,500 100.0% $ 92,827 100.0 %
========== ===== ========== =======
</TABLE>
- --------
(1) Reflects the shares of Common Stock offered hereby and the Units to be
issued to the Continuing Investors in exchange for assets contributed in
connection with the Formation Transactions at the initial exchange ratio
of one share of Common Stock for each Unit. There are, however, certain
restrictions on the exchange of Units. See "Partnership Agreement of the
Operating Partnership--Redemption/Exchange Rights."
(2) This amount is based on the assumed initial public offering price of
$20.00.

(3) Based on the September 30, 1996 pro forma book value of the assets to be
contributed to the Operating Partnership in connection with the Formation
Transactions less underwriting discounts and commissions and estimated
expenses of the Offering.

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<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth certain financial data on a pro forma basis
for the Company, and on an historical basis for the Kilroy Group, which
consist of the combined financial statements of the Kilroy Group (the
"Combined Financial Statements") whose financial results will be consolidated
in the historical and pro forma financial statements of the Company. The
financial data should be read in conjunction with the historical and pro forma
financial statements and notes thereto included in this Prospectus. The
combined historical summary financial data as of December 31, 1994, 1995 and
September 30, 1996 and for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996 have
been derived from the Combined Financial Statements of the Kilroy Group
audited by Deloitte & Touche LLP, independent public accountants, whose report
with respect thereto is included elsewhere in this Prospectus. The selected
combined historical financial and operating information as of December 31,
1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991 have
been derived from the unaudited Combined Financial Statements of the Kilroy
Group and, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
operating information for the unaudited periods. The pro forma data assume the
completion of the Formation Transactions, including acquisition of the
Acquisition Properties and the consummation of the Offering (based upon the
midpoint of the range of the initial public offering price set forth on the
cover page of this Prospectus) and the Financing and use of the aggregate net
proceeds therefrom as described under "Use of Proceeds" as of the beginning of
the periods presented for the operating data and as of the balance sheet date
for the balance sheet data. The pro forma financial data do not give effect to
the recent extension of the tenant lease with Hughes Space & Communications
with respect to space leased in the Office Property located at 2250 E.
Imperial Highway, El Segundo, California and a portion of the space leased in
the Office Property located at 2240 E. Imperial Highway, El Segundo,
California. The pro forma financial data are not necessarily indicative of
what the actual financial position or results of operations of the Company
would have been as of and for the periods indicated, nor does it purport to
represent the future financial position and results of operations.

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THE COMPANY (PRO FORMA) AND KILROY GROUP (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) Pro forma net income per share equals pro forma net income divided by the
11,250,000 shares of Common Stock offered hereby.

(2) Industry analysts generally consider Funds from Operations an alternative
measure of performance of an equity REIT. As defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), Funds from
Operations represents net income (loss) before minority interest of unit
holders (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs) and after adjustments for unconsolidated partnerships and joint
ventures. For all periods presented, depreciation and amortization and, in
1996, 1995 and 1994, gain on extinguishment of debt, were the only non-cash
adjustments. Further, in 1996 and 1995 non-recurring items (sale of air
rights and option buy-out cost) were excluded. Management considers Funds
from Operations an appropriate measure of liquidity of an equity REIT
because industry analysts have accepted it as a liquidity measure of equity
REIT. The Company computes Funds from Operations in accordance with
standards established by the Board of Governors of NAREIT in its March 1995
White Paper which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, Funds from Operations does not
represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. See notes (8), (9) and (10) under the
caption "Distribution Policy" and the notes to the historical financial
statements of the Kilroy Group. Funds from Operations should not be
considered as an alternative for net income as a measure of profitability
nor is it comparable to cash flows provided by operating activities
determined in accordance with GAAP.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Combined Financial Statements for the Kilroy Group and
notes thereto appearing elsewhere in this Prospectus. The Combined Financial
Statements of the Kilroy Group are comprised of the operations, assets and
liabilities of the Properties other than the Acquisition Properties. As part
of the Formation Transactions, the Properties will be contributed to the
Operating Partnership, of which the Company will be the sole general partner
and the beneficial owner of an approximately 79.1% interest. As a result, for
accounting purposes, the financial information of the Operating Partnership
and the Company will be consolidated.

RESULTS OF OPERATIONS

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Total revenues decreased $10.4 million, or 22.3%, for the year ended
December 31, 1994 compared to the year ended December 31, 1993. The primary
reason for the decrease in revenue was the receipt of lease termination fees
in 1993 of $5.2 million, of which $5.0 million related to the SeaTac Office
Center and $0.2 million to the Kilroy Airport Center Long Beach. Revenues from
base rents decreased $3.0 million, or 8.8%, to $31.2 million for the year
ended December 31, 1994 compared to $34.2 million for the year ended
December 31, 1993, due to the lease termination at the SeaTac Office Center
referred to above (with $2.0 million in rental revenue in 1993), a lease
renegotiation resulting in a lower rent rate effective June 1, 1994 for a
lease on office space in the parking structure at Kilroy Airport Center at El
Segundo, partially offset by continuing leasing activity at Kilroy Airport
Center Long Beach. Office square footage under lease decreased to 1,239,000 at
December 31, 1994 from 1,360,000 at December 31, 1993. The decrease is due
primarily to the termination of the lease at the SeaTac Office Center (211,000
square feet) offset by 30,000 square feet of new leases elsewhere in the
project and a 55,000 increase in square footage leased at Kilroy Airport
Center Long Beach. Average office rent per square foot declined $2.33 per
square foot in 1994 from 1993 due to the lease renegotiation referred to above
and a softness in the Southern California rental market in 1994. Industrial
rents decreased $0.2 million in 1994 primarily due to an extension of a lease
at a reduced rate.

Tenant reimbursements decreased to $1.6 million in 1994 from $4.9 million in
1993, due to a $1.5 million refund to tenants in 1994 for property tax refunds
(for the tax years 1990 through 1994) and an approximate $1.5 million decrease
due to the termination of the SeaTac Office Center lease referred to above.
Tenant reimbursements consist of additional rental revenue from tenants
covering operating expenses, such as utilities and property taxes, and are
recorded as revenue on an accrual basis in accordance with the lease terms.
Other income increased $0.6 million, to $0.8 million in 1994 from $0.2 million
in 1993, primarily as a result of interest income of $0.4 million on the
property tax refunds recorded in 1994.

Expenses in 1994 decreased $4.0 million, or 8.2%, to $44.7 million compared
to $48.7 million in 1993. Property expenses decreased $0.4 million, or 6.1%,
due to the vacancy at SeaTac Office Center referred to above and the related
reduction in expenses. Real estate taxes decreased $3.4 million to a credit
balance of $0.4 million in 1994 from $3.0 million in 1993, primarily due to
property tax refunds of $2.4 million (for the tax years 1990 through 1994)
recorded by the Company in 1994. General and administrative expenses increased
$1.4 million, to $2.5 million in 1994 from $1.1 million in 1993, principally
due to a $0.6 million increase in the allowance for uncollectible rent
attributable to a single tenant and a $0.3 million penalty in 1994 for late
payment of property taxes. Interest expense decreased $0.4 million, to $25.4
million in 1994 due to a decrease in the interest rate on the variable rate
mortgage secured by Kilroy Airport Center Long Beach. Depreciation and
amortization decreased $0.9 million to $10.0 million in 1994 as a result of
certain assets becoming fully amortized.

The net loss increased $4.6 million to $6.7 million in 1994 compared to a
net loss of $2.1 million in 1993, due to lease termination fees of $5.2
million received in 1993 and to the net effect of the items discussed above.

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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Total revenues increased $6.7 million, or 18.5%, for the year ended December
31, 1995 compared to the year ended December 31, 1994. Revenues from base
rents increased $1.1 million, or 3.5%, to $32.3 million in 1995 from $31.2
million in 1994. In 1995, rents from Industrial Properties increased $0.8
million from the year ended December 31, 1994, primarily due to the effect of
12-months' rental for the Property located at 2265 E. El Segundo Boulevard
compared to four-months' rental in 1994. Office square footage and average
rent per square foot remained relatively unchanged for the year ended December
31, 1995. Industrial square footage under lease increased to 902,000 at
December 31, 1995 as compared to 730,000 a year earlier. The
2260 E. El Segundo Boulevard building was leased in April 1995 after being
vacant during 1994. The Company also leased the 1230 S. Lewis St. property in
February 1995. However, the average rate per square foot decreased from
$6.43 to $6.11. Tenant reimbursements increased to $3.0 million in 1995 from
$1.6 million in 1994 due principally to the 1994 $1.5 million refund to
tenants for property tax refunds. Parking revenues increased to $1.6 million
in 1995 from $1.4 million in 1994 due to recognition of 12-months' parking
income for Kilroy Airport Center Long Beach in 1995 compared to two months in
1994, together with increased tenant parking revenues at Kilroy Airport Center
at El Segundo. Revenues for 1995 include a gain on the sale of air rights of
$4.5 million at Kilroy Airport Center at El Segundo. See Note 2 to the
Combined Financial Statements. Other income decreased $0.5 million to $0.3
million during 1995 compared to 1994, primarily as a result of nonrecurring
interest income of $0.4 million referred to above.

Expenses in 1995 increased $0.8 million, or 1.8%, to $45.6 million. Property
operating expenses increased $0.8 million, or 13.9%, primarily due to
increased utility costs, increases in employee wages and benefits and a $0.3
million special management fee paid to Kilroy Industries to cover costs of the
loan renegotiation at Kilroy Airport Center at El Segundo. Real estate taxes
increased $1.9 million, to $1.8 million in 1995 from a credit balance of $0.4
million in 1994, primarily due to the $2.4 million property tax refund
recorded by the Company in 1994. General and administrative expenses decreased
$0.3 million, or 12.0%, to $2.2 million in 1995 from $2.5 million in the 1994
period, primarily due to a $0.3 million penalty for late payment of property
taxes in 1994. Interest expense decreased $1.2 million to $24.2 million in
1995 from $25.4 million in 1994 due to the September 1995 extension of the
mortgage on Kilroy Airport Center at El Segundo at a lower interest rate and
the forgiveness of certain debt, offset in part by the effect of higher
interest rates on the variable rate mortgage secured by Kilroy Airport Center
Long Beach. See Note 4 to the Combined Financial Statements. Ground lease
expense decreased $0.1 million to $0.8 million in 1995, reflecting the effect
of 12 months' reduction of ground rent for Phase III of Kilroy Airport Center
Long Beach compared to six months in 1994. The $0.5 million decrease in
depreciation and amortization to $9.5 million in 1995 results from certain
assets becoming fully amortized.

Net income increased $19.3 million to $12.6 million in 1995 compared to a
net loss of $6.7 million in 1994, primarily due to the sale of air rights
discussed above and a $13.4 million increase in gains on extinguishment of
debt to $15.3 million in 1995 compared to $1.8 million in 1994.

Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995

Total revenues decreased $3.5 million, or 10.6%, for the nine months ended
September 30, 1996 compared to the same period for 1995. Revenues from base
rents increased $1.1 million, or 4.6%, to $25.2 million in the 1996 period
compared to $24.1 million in the 1995 period. Rents from Office Properties
increased $0.8 million during the nine months ended September 30, 1996 from
the comparable period in 1995. Such increase was due to office space under
lease increasing from 1,229,000 square feet at September 30, 1995 to 1,288,000
square feet at September 30, 1996. The majority of this increase relates to
leasing at Kilroy Airport Center Long Beach. There was no significant change
in rent per square foot during the 1996 period compared to the 1995 period.
Rents from Industrial Properties increased a net $0.2 million during the nine
months ended September 30, 1996 compared to the same period in 1995. The net
increase was due to a lease with a CPI increase and the effect the 2260 E. El
Segundo Boulevard Building being leased for the entire nine months ended
September 30, 1996. Tenant reimbursements and parking revenues increased to
$2.6 million and $1.3 million, respectively, in the 1996

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period compared to $2.4 million and $1.2 million for the same period in 1995.
The overall $0.3 million increase is primarily due to increased billable
operating expenses resulting from new leases and parking income. Revenues for
1995 include a gain on the sale of air rights of $4.5 million referred to
above.

Expenses in the nine months ended September 30, 1996 increased by $0.4
million, or 1.1%, to $35.0 million compared to $34.6 million in the 1995
period. During the nine months ended September 30, 1996, the Company accrued
the costs of option buyout of $3.15 million for the cancellation of an option
to purchase a 50% equity interest in Kilroy Airport Center at El Segundo.
Interest expense decreased $2.5 million, or 13.4%, to $16.2 million in 1996
from $18.7 million in 1995, primarily as a result of the forgiveness and
restructuring of certain debt in 1995 and 1996 (see Note 4 to the Combined
Financial Statements).

Net income was $14.8 million for the nine months ended September 30, 1996
compared to $13.9 million for the same period in 1995. The increase of $0.9
million is due primarily to a decrease in interest expense of $2.5 million, an
increase in extraordinary gains of $4.8 million less the nonrecurring option
buy-out cost of $3.2 million for the 1996 period and the sale of air rights of
$4.5 million in 1995.

DEVELOPMENT AND MANAGEMENT FEES

The Kilroy Group's development activities are summarized below:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------
1996 1995 1995 1994 1993
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Revenues..................................... $580 $926 $1,156 $919 $751
Expenses..................................... 584 564 737 468 581
------ ------ ------ ---- ----
Excess of revenues over expenses............. $ (4) $362 $ 419 $451 $170
====== ====== ====== ==== ====
</TABLE>

Subsequent to the Formation Transactions, the Kilroy Group's development
activities will be conducted through Kilroy Services, Inc., See "Formation and
Structure of the Company--Formation Transactions" and "Formation of Kilroy
Services, Inc."

The increases in revenues in 1994, as compared with 1993, and in 1995, as
compared with 1994, was a result of the commencement of development services
for the Riverside Judicial Center and the Northrop Grumman Corporation's
property located in Pico Rivera, California (the agreement for the latter of
which expires in February 1997). The decrease in revenues during the nine
months ended September 30, 1996 of $0.3 million compared with the same period
in 1995, was primarily the result of a decrease in development services at the
Calabasas Park Centre which was acquired by the stockholders of Kilroy
Industries in 1996. The remainder of the decrease was due to the completion of
development services for the Riverside Judicial Center. The related expenses
of development and management services are generally fixed in nature and have
not fluctuated significantly. With the acquisition of Calabasas Park Centre by
the Kilroy Group in 1996, and completion of the fee activities pursuant to the
agreement with Northrop Grumman in February 1997, the Company does not expect
significant fee activity from these sources.

ADOPTION OF SFAS NO. 121

LIQUIDITY AND CAPITAL RESOURCES

Upon the consummation of the Offering and the Formation Transactions and the
use of proceeds therefrom, the Company will have (i) acquired the Acquisition
Properties, (ii) reduced its total indebtedness by approximately $128.0
million and (iii) established working capital cash reserves of approximately
$20.0 million and capital expenditure cash reserves of $3.1 million. The
Company intends to obtain a written commitment for

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a $75.0 million Credit Facility, which the Company expects to enter into
concurrently with the consummation of the Offering. The Credit Facility will
be used primarily to finance acquisitions of additional properties. In
addition, upon consummation of the Offering, the Company will have working
capital cash reserves of $20.0 million and capital expenditure cash reserves
of $3.1 million. The Company presently expects to finance development
activities from working capital and from funds from operations. See "The
Financing--The Credit Facility."

The Company anticipates that distributions will be paid from cash available
for distribution, which is expected to exceed cash historically available for
distribution as a result of the reduction in debt service anticipated to
result from the repayment of indebtedness. The Company presently intends to
make distributions quarterly, subject to the discretion of the Board of
Directors. Amounts accumulated for distribution will be invested by the
Company primarily in interest-bearing accounts and short-term, interest-
bearing securities, which are consistent with the Company's intention to
qualify for taxation as a REIT. Such investments may include, for example,
obligations of the Government National Mortgage Association, other
governmental agency securities, certificates of deposit and interest-bearing
bank deposits.

The Company believes the Offering and the Formation Transactions will
improve its financial performance through changes to its capital structure,
principally the substantial reduction in its overall debt and its debt to
equity ratio. Through the Formation Transactions, the Company will repay all
of its existing mortgage debt and replace it with debt in the principal amount
of $96.0 million bearing interest at 8.0% pursuant to a Mortgage Loan due in
2005. The Mortgage Loan will amortize on a 25-year basis. Thus, total secured
debt after the Formation Transactions (assuming no advances under the Credit
Facility) will be reduced by approximately $128 million. This will result in a
significant reduction in annual mortgage interest expense as a percentage of
total revenue (15.5% on a pro forma basis as compared to 56.3% for the
historical year ended December 31, 1995). Cash from operations required to
fund interest expense will decrease substantially, although this reduction
will be offset by the use of cash from operations to meet annual REIT
distribution requirements. In addition, the Offering and Formation
Transactions, together with the Mortgage Loan and the Credit Facility, will
produce a lower leveraged capital structure. The market capitalization of the
Company, based on the assumed initial public offering price of the issued and
outstanding shares of Common Stock and Units (assuming all OP Units are
exchanged for shares of Common Stock) and the debt outstanding at the
completion of the Offering, is expected to be approximately $380.5 million
with total debt of approximately $96.0 million. As a result, the Company's
debt to total market capitalization ratio will be approximately 25.2%.

The Company was adversely impacted in 1993 and 1994 by the decline in market
rental rates, higher vacancies and its higher leverage which prevented it from
meeting certain of its financial obligations, including property taxes. With
respect to the SeaTac Office Center, a high vacancy rate in 1993 resulted in
insufficient cash flow to service the underlying debt on this property. The
high vacancy rate has continued and this debt has been in default since
October 1995. In October, 1996 the Company successfully negotiated a
discounted payoff with the lender which provides for a payoff or purchase of
the note at a discount on or before February 10, 1997. The Company believes it
will be able to meet this commitment irrespective of the consummation of the
Offering based upon discussions with other sources of financing.

The Company expects to meet its short-term liquidity requirements generally
through its initial working capital, net cash provided by operations and
additional debt or equity financings. The Company estimates that for the 12
months ending September 30, 1997 it will incur approximately $1.12 million of
expenses attributable to non-incremental revenue generating tenant
improvements and leasing commissions and $150,000 of capital expenditures not
reimbursed by tenants. In connection with the Formation Transactions, the
Company will pay to Hughes Space & Communications the remaining balance of
approximately $1.4 million in connection with the amendment and/or extension
of leases of office space at the Office Properties located at Kilroy Airport
Center, including $500,000 in connection with a tenant improvement allowance
for the properties located at 2240 and 2250 E. Imperial Highway and the
balance in connection with the cancellation of an option to purchase an

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equity interest in the Office Properties located at Kilroy Airport Center at
El Segundo. In November 1996, $2.26 million of the option buy-out liability
was paid by Kilroy Industries and its stockholders. The Company is negotiating
for the development rights to the Thousand Oaks Civic Center Arts Plaza Retail
Entertainment Center in 1997, subject to approval by the City of Thousand
Oaks. The estimated cost of the Center will total approximately $32.0 million,
which will be financed by the source determined to be most appropriate by the
Company's Board of Directors, including borrowings under the Company's Credit
Facility, other debt or equity financing sources, or a combination thereof.
See "Distribution Policy." The Company presently has no financial commitments
in its capacity as a developer of real estate projects and believes that it
will have sufficient capital resources to satisfy its obligations during the
12-month period following completion of the Offering, and that its net cash
provided by operations will be adequate to meet both operating requirements
and expected distributions by the Company in accordance with REIT
requirements.

The Company expects to meet certain of its long-term liquidity requirements,
including the repayment of long-term debt of approximately $96.0 million (less
scheduled principal repayments) in 2005 and possible property acquisitions and
development, through long-term secured and unsecured borrowings and the
issuance of debt securities or additional equity securities of the Company or,
possibly in connection with acquisitions of land or improved properties, the
issuance of Units of the Operating Partnership.

The Phase I Environmental Assessments of the Properties have not revealed
any environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liability. See "Risk Factors--Government Regulations--Environmental Matters"
and "Business and Properties--Government Regulations--Environmental Matters."

HISTORICAL CASH FLOWS

Historically, the Kilroy Group's principal sources of funding for operations
and capital expenditures were cash flow from operating activities and secured
debt financings. The Kilroy Group incurred net losses before extraordinary
items in each of the last five years and for the nine-month period ended
September 30, 1996. However, after adding back depreciation and amortization,
the Properties have generated positive net operating cash flows for the last
four years.

The Company's net cash provided by operating activities decreased to $6.6
million for the year ended December 31, 1994 from $11.5 million for the same
period in 1993 primarily as a result of lease termination fees of $5.2
received in 1993. The Company's net cash from operating activities increased
$3.5 million from the year ended December 31, 1994 compared to the same period
in 1995, or from $6.6 million in the 1994 period to $10.1 million in the 1995
period. The increase was primarily due to the sale of air rights in 1995 of
$4.5 million. The Company's net cash from operating activities decreased $3.8
million to $5.5 million during the nine months ended September 30, 1996
compared with $9.3 million in the comparable 1995 period. The decrease was a
result of the sale of air rights of $4.5 million in 1995, the option buyout
cost of $3.2 million in 1996, offset by an increase in total rent of $1.3
million in 1996 and a decrease in interest expense of $2.5 million in 1996.

Net cash received from investing activities of $2.0 million for the year
ended December 31, 1993 decreased to net cash used in investing activities of
$1.8 million for the same period in 1994 due to the receipt in the 1993 period
of a $2.7 million reimbursement of tenant improvements. Net cash used in
investing activities decreased $0.6 million to $1.2 million for the year ended
December 31, 1995 from $1.8 million for the same period in 1994 due to a
decrease in the level of tenant improvement activity. Net cash used in
investing activities increased $1.7 million to $2.1 million in the nine months
ended September 30, 1996 from $0.4 million in the 1995 period primarily due to
an increase in the level of tenant improvement activity.

The Company's cash flows used in financing activities decreased $8.7 million
to $4.8 million from $13.5 million for the year ended December 31, 1993 as a
result of net borrowings of $3.9 million during the year ended December 31,
1994 compared to a net repayment of $2.7 million of debt in the 1993 period,
together with an decrease in deemed distributions to partners to $8.7 million
during the year ended December 31, 1994

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<PAGE>

compared to $10.7 million in the 1993 period. Cash flows used in financing
activities increased $4.1 million to $8.9 million for the year ended December
31, 1995 compared to net cash used in financing activities of $4.8 million for
the same period in 1994 as result of net repayments of debt in the 1995 period
compared to net borrowings in the 1994 period and a $4.6 million decrease in
deemed distributions to partners. Cash flows used in financing activities was
$3.4 million for the nine months ended September 30, 1996 consisting of net
proceeds from issuance of debt of $2.8 million, less $6.2 million in
distributions to partners.

FUNDS FROM OPERATIONS

Industry analysts generally consider Funds from Operations, as defined by
NAREIT, an alternative measure of performance of an equity REIT. Funds from
Operations is defined by NAREIT to mean net income (loss) determined in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization (other than amortization
of deferred financing costs and depreciation of non-real estate assets), and
after adjustment for unconsolidated partnerships and joint ventures. The
Company believes that in order to facilitate a clear understanding of the
combined historical operating results of the Company, Funds from Operations
should be examined in conjunction with net income (loss) as presented in the
audited Combined Financial Statements and selected financial data included
elsewhere in this Prospectus. Management considers Funds from Operations an
appropriate measure of performance of an equity REIT because industry analysts
have accepted it as a performance measure of equity REITs. The Company
computes Funds from Operations in accordance with standards established by the
Board of Governors of NAREIT in its March 1995 White Paper, which may differ
from the methodology for calculating Funds from Operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.
Funds from Operations should not be considered as an alternative to net income
(loss) as an indication of the Company's performance or to cash flows as a
measure of liquidity or the ability to pay dividends or make distributions.

INFLATION

The Company's leases with the majority of its tenants require the tenants to
pay most operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenses, which reduce the Company's
exposure to increases in costs and operating expenses resulting from
inflation.

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BUSINESS AND PROPERTIES

GENERAL

Upon the consummation of the Offering and the Formation Transactions, the
Company (through the Operating Partnership) will own 14 Office Properties
encompassing an aggregate of approximately 2.0 million rentable square feet
and 12 Industrial Properties encompassing an aggregate of approximately
1.3 million rentable square feet. Eleven of the 14 of the Office Properties as
well as 11 of the 12 Industrial Properties are located in prime Southern
California suburban submarkets (including a complex of three Office Properties
located adjacent to the Los Angeles International Airport, presently the
nation's second largest air cargo port, and a complex of five Office
Properties located adjacent to the Long Beach Municipal Airport). The Company
also will own three Office Properties located adjacent to the Seattle-Tacoma
International Airport in the State of Washington), and one Industrial Property
located in Phoenix, Arizona. As of September 30, 1996, the Office Properties
were approximately 79.8% leased to 126 tenants and the Industrial Properties
were approximately 93.7% leased to nineteen tenants. The Company has
developed, managed and leased 12 of the Office Properties and seven of the
Industrial Properties. The Company believes that all of its Properties are
well-maintained and, based on recent engineering reports, do not require
significant capital improvements.

In addition to the Office and Industrial Properties, the Company has
development rights with respect to approximately 24 acres of developable land
(net of acreage required for streets), located in Southern California. The
Company also has an exclusive agreement to negotiate to acquire an additional
six acres of developable land (net of acreage reserved for open areas) at the
Thousand Oaks Civic Arts Plaza and Retail Center. See "--Development, Leasing
and Management Activities." Upon consummation of the Offering, the Company
also will have the option to purchase three office properties currently owned
by the Kilroy Group which will not be contributed to the Operating Partnership
immediately upon consummation of the Offering. The Company will have the right
to acquire the option properties under the terms and conditions described
below. All of these properties will be managed by the Company. See "--Excluded
Properties."

In general, the Office Properties are leased to tenants on a full service
basis, with the landlord obligated to pay the tenant's proportionate share of
taxes, insurance and operating expenses up to the amount incurred during the
tenant's first year of occupancy ("Base Year") or a negotiated amount
approximating the tenant's pro rata share of real estate taxes, insurance and
operating expenses ("Expense Stop"). The tenant pays its pro rata share of
increases in expenses above the Base Year or Expense Stop. All leases for the
Industrial Properties are written on a triple net basis, with tenants paying
their proportionate share of real estate taxes, operating costs and utility
costs.

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<PAGE>

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Office Properties managed
by the Company (i.e., all of the Office Properties other than the Thousand
Oaks Office Property and the La Palma Business Center Office Property which
are being acquired concurrently upon consummation of the Offering) since
January 1, 1992 (based upon an average of all lease transactions during the
respective periods):

OFFICE PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE-MONTH
---------------------------------- PERIOD ENDED
1992 1993 1994 1995 SEPTEMBER 30, 1996
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Number of Lease
Transactions During
Period(1).............. 27 19 36 27 31
Rentable Square Feet
During Period(1)....... 221,946 127,126 354,018 105,544 341,940
Base Rent ($)(1)(2)..... 21.41 19.32 18.89 19.31 19.52
Tenant Improvements
($)(3)................. 9.04 6.82 15.01 7.30 8.99
Leasing Commissions
($)(4)................. 1.37 2.18 2.66 3.03 2.87
Other Concessions
($)(5)................. -- -- -- -- --
Effective Rent ($)(6)... 11.00 17.72 16.97 17.30 17.73
Expense Stop ($)(7)..... 6.22 6.15 6.77 6.77 6.70
Effective Equivalent
Triple Net Rent
($)(8)................. 12.43 11.57 10.20 10.53 11.04
Occupancy Rate at End of
Period (%)............. 74.8% 76.1% 75.8% 75.6% 78.7%
</TABLE>
- --------
(1) Includes only office tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.
(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases, multiplied by 12, divided by the total net rentable square
feet leased under all lease transactions during the period.
(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.
(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Includes moving expenses, furniture allowances and other concessions.
(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the terms in months from such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.
(7) Equals the amount of real estate taxes, operating costs and utility costs
which the landlord is obligated to pay on an annual basis. The tenant is
required to pay any increases above such amount. Expense Stop for 1996 is
estimated.
(8) Equals effective rent minus Expense Stop.

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Thousand Oaks Office
Property since January 1, 1992 (based upon an average of all lease
transactions during the respective periods):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE-MONTH
----------------------- PERIOD ENDED
1992 1993 1994 1995 SEPTEMBER 30, 1996
---- ----- ----- ------ ------------------
<S> <C> <C> <C> <C> <C>
Number of Lease Transactions Dur-
ing Period(1).................... -- 1 1 9 1
Rentable Square Feet During Peri-
od(1)............................ -- 1,437 2,745 76,266 2,745
Base Rent ($)(1)(2)............... -- 25.01 23.40 23.09 24.00
Tenant Improvements ($)(3)........ -- 16.25 -- 5.04 --
Leasing Commissions ($)(4)........ -- -- -- 4.90 --
Other Concessions ($)(5).......... -- -- -- -- --
Effective Rent ($)(6)............. -- 22.73 23.40 21.42 24.00
Expense Stop ($)(7)............... -- 6.45 6.16 6.49 6.16
Effective Equivalent Triple Net
Rent ($)(8)...................... -- 16.28 17.24 14.93 17.84
Occupancy Rate at End of Period
(%)(9)........................... NA NA NA 100.0% 100.0%
</TABLE>

71
<PAGE>

- --------
(1) Includes only office tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.
(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases, multiplied by 12, divided by the total net rentable square
feet leased under all lease transactions during the period.
(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.
(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Includes moving expenses, furniture allowances and other concessions.
(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the terms in months from such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.
(7) Equals the amount of real estate taxes, operating costs and utility costs
which the landlord is obligated to pay on an annual basis. The tenant is
required to pay any increases above such amount. Expense Stop for 1996 is
estimated.
(8) Equals effective rent minus Expense Stop.
(9) Occupancy data is not available for the years ended December 31, 1992,
1993 and 1994.

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at 4175 E. La Palma Avenue,
Building A, La Palma Business Center since January 1, 1992 (based upon an
average of all lease transactions during the respective periods):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE-MONTH
-------------------------- PERIOD ENDED
1992 1993 1994 1995 SEPTEMBER 30, 1996
----- ----- ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
Number of Lease Transactions
During Period(1)........... NA -- 1 1 --
Rentable Square Feet During
Period(1).................. NA -- 3,348 2,038 --
Base Rent ($)(1)(2)......... NA -- 19.36 16.48 --
Tenant Improvements ($)(3).. NA -- -- 9.69 --
Leasing Commissions ($)(4).. NA -- -- 2.06 --
Other Concessions ($)(5).... NA -- -- -- --
Effective Rent ($)(6)....... NA -- 19.36 14.17 --
Expense Stop ($)(7)......... NA -- 0.00 0.00 --
Effective Equivalent Triple
Net Rent ($)(8)............ NA -- 19.36 14.17 --
Occupancy Rate at End of Pe-
riod (%)(1)(9)............. NA NA 92.6% 94.8% 93.2%
</TABLE>
- --------

(1) Includes only office tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.

(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases, multiplied by 12, divided by the total net rentable square
feet leased under all lease transactions during the period.

(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.

(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.

(5) Includes moving expenses, furniture allowances and other concessions.

(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the terms in months from such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.

(7) Equals the amount of real estate taxes, operating costs and utility costs
which the landlord is obligated to pay on an annual basis. The tenant is
required to pay any increases above such amount. Expense Stop for 1996 is
estimated.

(8) Equals effective rent minus Expense Stop.

(9) Occupancy data is not available for the years ended December 31, 1992 and
1993.

72
<PAGE>

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Industrial Properties
other than the industrial buildings at the La Palma Business Center and the
Monarch Street Industrial Building which are being acquired in connection with
the Offering since January 1, 1992 (based upon an average of all lease
transactions during the respective periods):

INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE-MONTH
-------------------------------- PERIOD ENDED
1992 1993 1994 1995 SEPTEMBER 30, 1996(1)
------- ------ ------ ------- ---------------------
<S> <C> <C> <C> <C> <C>
Number of lease
transactions during
period................. 1 1 1 2 0
Net Rentable square feet
leased during period... 100,000 70,000 76,570 171,550 --
Base rent ($)(2)........ 6.39 6.81 7.23 4.99 --
Tenant improvements
($)(3)................. 5.87 0.14 4.49 2.00 --
Leasing commissions
($)(4)................. 1.37 1.49 3.49 1.84 --
Other concessions
($)(5)................. -- -- -- -- --
Effective rent ($)(6)... 5.19 6.48 6.44 4.63 --
Expense stop ($)(7)..... -- -- -- -- --
Effective equivalent
triple net rent
($)(8)................. 5.19 6.48 6.44 4.63
Occupancy rate at end of
period (%)............. 86.0% 77.6% 79.7% 98.4% 90.8%
</TABLE>
- --------

(1) No leasing activity occurred during the nine-month period ended September
30, 1996.
(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases, multiplied by 12, divided by the total rentable square feet
leased under all lease transactions during the period.
(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.
(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Includes moving expenses, furniture allowances and other concessions.
(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the terms in months from such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.
(7) Leases for all Industrial Properties are written on a triple net basis,
providing for each tenant to be responsible, in addition to base rent, for
its proportionate share of real estate taxes, operating costs, utility
costs and other expenses without regard to a base year.
(8) Equals effective rent minus Expense Stop.

73
<PAGE>

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the La Palma Business Center
and Monarch Street Industrial Properties since January 1, 1992 (based upon an
average of all lease transactions during the respective periods):

INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE-MONTH
-------------------------- PERIOD ENDED
1992 1993 1994 1995 SEPTEMBER 30, 1996(1)
---- ------ ----- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Number of Lease Transactions
During Period(1)........... NA 2 -- 4 5
Rentable Square Feet During
Period (2)................. NA 63,094 -- 229,952 107,381
Base Rent ($)(2)............ NA 7.37 -- 3.66 4.72
Tenant Improvements ($)(3).. NA 2.65 -- 0.61 0.75
Leasing Commissions ($)(4).. NA 3.61 -- 0.43 1.25
Other Concessions ($)(5).... NA -- -- -- --
Effective Rent ($)(6)....... NA 7.37 -- 3.48 4.34
Expense Stop ($)(7)......... NA -- -- -- --
Effective Equivalent Triple
Net Rent ($)(8)............ NA 7.37 -- 3.48 4.34
Occupancy Rate at End of Pe-
riod (%)(9)................ NA NA 85.94% 78.7% 100.0%
</TABLE>
- --------

(1) Includes only industrial tenants with lease terms of 12 months or longer.
Excludes month-to-month tenants.
(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases, multiplied by 12, divided by the total rentable square feet
leased under all lease transactions during the period.
(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.
(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Includes moving expenses, furniture allowances and other concessions.
(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the terms in months from such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.
(7) Leases for all Industrial Properties are written on a triple net basis,
providing for each tenant to be responsible, in addition to base rent, for
its proportionate share of real estate taxes, operating costs, utility
costs and other expenses without regard to a base year.
(8) Equals effective rent minus Expense Stop.

(9) Occupancy data is not available for the years ending December 31, 1992 and
1993.

74
<PAGE>

THE OFFICE AND INDUSTRIAL PROPERTIES

The following table sets forth certain information relating to each of the
Properties as of December 31, 1995, unless indicated otherwise. This table
gives pro forma effect to a recent extension of one of the leases with Hughes
Space & Communications with respect to two of the Office Properties located at
Kilroy Airport Center at El Segundo as if such lease renewal had occurred on
January 1, 1995. After completion of the Formation Transactions, the Company
(through the Operating Partnership) will own a 100% interest in all of the
Office and Industrial Properties other than the five Office Properties located
at Kilroy Airport Center Long Beach and the three Office Properties located at
the SeaTac Office Center, each of which are held subject to ground leases
expiring in 2035 and 2032, respectively (or 2084 and 2062 assuming the
exercise of the Company's options to extend such leases).

<CAPTION>
TENANTS LEASING
PERCENTAGE 10% OR MORE OF
LEASED NET RENTABLE
AS OF SQUARE FEET PER
9/30/96 PROPERTY
(%)(6) AS OF 9/30/96(7)
---------------------------
<C> <S>
83.9 Hughes Space & Communications
(33.0%)
100.0 Hughes Space & Communications
(100.0%)

100.0 Hughes Space & Communications
(94.6%)

94.0 McDonnell Douglas Corporation
(50.9%), Olympus America, Inc.
(18.6%)
100.0 Devry, Inc. (100.0%)
82.6 R.L. Polk & Co. (9.8%)
92.2 SCAN Health Plan (20.4%), Zelda
Fay Walls (12.7%)
100.0 Oasis Cafe (37.1%),
Keywanfar & Baroukhim (16.1%),
SR Impressions (15.0%)
60.0 Principal Mutual (8.8%)
Lynden (8.8%)
Rayonier (8.0%)
-- --

87.7 Key Bank (41.9%)(15)
Northwest Airlines (24.9%)
City of Sea Tac (17.2%)

91.6 Peryam & Kroll (26.7%)
DMV/VPI Insurance Group (26.5%)
Midcom Corporation (15.5%)

100.0 Worldcom, Inc. (34.2%), Data
Select Systems, Inc. (13.0%),
Pepperdine University (12.7%),
Anheuser Busch, Inc. (12.0%)

100.0 Northwest Airlines, Inc. (100%)
----------
79.8
----------

100.0 Mattel, Inc. (100%)

59.2 Furon Co., Inc. (59.2%)

100.0 Ace Medical Co. (100%)

100.0 MSAS Cargo Intl., Inc. (100%)

100.0 Allen-Bradley Company (100%)

100.0 Extron Electronics (100%)

82.6 Rank Video Services America, Inc.
(82.6%)
</TABLE>
(footnotes on next page)

75
<PAGE>

<TABLE>
<CAPTION>
AVERAGE
PERCENTAGE PERCENTAGE BASE PERCENTAGE
NET LEASED 1995 OF 1995 RENT LEASED
RENTABLE AS OF BASE 1995 TOTAL PER EFFECTIVE AS OF
SQUARE 12/31/95 RENT EFFECTIVE BASE SQ. FT. RENT PER 9/30/96
PROPERTY LOCATION YEAR BUILT FEET (%)(1) ($000)(2) RENT($000)(3) RENT (%) ($)(4) SQ. FT. ($)(5) (%)(6)
----------------- ---------- --------- ---------- --------- ------------- ---------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2270 E. El
Segundo
Boulevard
El Segundo,
California..... 1975 7,500 100.0 129 129 0.3 17.17 17.17 --
5115 N. 27th
Avenue
Phoenix,
Arizona(16).... 1962 130,877 100.0 640 612 1.7 4.89 4.68 100.0
12752-12822
Monarch Street
Garden Grove,
CA(11)......... 1970 277,037 76.4 727 715 1.9 3.43 3.38 100.0
4155 E. La Palma
Avenue
Anaheim,
CA(11)(12)..... 1985 74,618 100.0 325 237 0.9 4.36 3.18 100.0
4125 La Palma
Avenue
Anaheim,
CA(11)(12)..... 1985 69,472 65.6 319 302 0 .8 7.00 6.63 100.0
--------- ----- ------ ------ ----- ----- ----- -----
Subtotal/Weighted
Average 1,337,697 92.2 7,104 6,341 18.8 5.76 5.14 93.7
--------- ----- ------ ------ ----- ----- ----- -----
Office &
Industrial--All
Properties 3,375,111 83.0 37,590 33,466 100.0 13.42 11.95 85.3
--------- ----- ------ ------ ----- ----- ----- -----
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE FEET PER PROPERTY
PROPERTY LOCATION AS OF 9/30/96(7)
----------------- ------------------------
<S> <C>
2270 E. El
Segundo
Boulevard
El Segundo,
California..... --
5115 N. 27th
Avenue
Phoenix,
Arizona(16).... Festival Markets, Inc. (100%)
12752-12822
Monarch Street
Garden Grove,
CA(11)......... Cannon Equipment (60%)
Vanco (16.4%)
4155 E. La Palma
Avenue
Anaheim,
CA(11)(12)..... Bond Technologies (29.6%)
NovaCare Orthotics (24.0%)
Specialty Restaurants Corp.
(21.7%)
4125 La Palma
Avenue
Anaheim,
CA(11)(12)..... Household Finance
Corporation (59%)
Subtotal/Weighted
Average
Office &
Industrial--All
Properties
</TABLE>
- -------
(1) Based on all leases at the respective Properties in effect as of December
31, 1995.
(2) Total base rent for the year ended December 31, 1995, determined in
accordance with generally accepted accounting principles ("GAAP"). All
leases at the Industrial Properties are written on a triple net basis.
Unless otherwise indicated, all leases at the Office Properties are
written on a full service gross basis, with the landlord obligated to pay
the tenant's proportionate share of taxes, insurance and operating
expenses up to the amount incurred during the tenant's first year of
occupancy ("Base Year") or a negotiated amount approximating the tenant's
pro rata share of real estate taxes, insurance and operating expenses
("Expense Stop"). Each tenant pays its pro rata share of increases in
expenses above the Base Year or Expense Stop.
(3) Aggregate base rent received over their respective terms from all leases
in effect at December 31, 1995 minus all tenant improvements, leasing
commissions and other concessions for all such leases, divided by the
terms in months for such leases, multiplied by 12. Tenant improvements,
leasing commissions and other concessions are estimated using the same
methodology used to calculate effective rent for the Properties as a
whole in the charts set forth under the caption "Business and
Properties--General."
(4) Base rent for the year ended December 31, 1995 divided by net rentable
square feet leased at December 31, 1995.
(5) Effective rent at December 31, 1995 divided by net rentable square feet
leased at December 31, 1995.

(6) Based on all leases at the respective Properties dated on or before
September 30, 1996.
(7) Excludes office space leased by the Company.
(8) For this Property, a lease with Hughes Space & Communications, for
approximately 96,000 rentable square feet, and with SDRC Software
Products Marketing Division, Inc., for approximately 6,800 rentable
square feet, are written on a full service gross basis except that there
is no Expense Stop.
(9) For this Property, the lease with Hughes Space & Communications is
written on a modified full service gross basis under which Hughes Space &
Communications pays for all utilities and other internal maintenance
costs with respect to the leased space and, in addition, pays its pro
rata share of real estate taxes, insurance, and certain other expenses
including common area expenses.
(10) For this Property, leases with Hughes Space & Communications for
approximately 101,000 rentable square feet are written on a full service
gross basis except that there is no Expense Stop.
(11) This Property is an Acquisition Property.
(12) For this Property, the lease is written on a triple net basis.
(13) This Industrial Property was vacant until April 1995. The tenant began
paying rent in mid-October 1995 at an annual rate of $4.86 per rentable
square foot.
(14) The tenant subleased this Industrial Property on May 15, 1996 to RGB
Systems, Inc. (doing business as Extron Electronics), the tenant of the
Property located at 1230 S. Lewis Street, Anaheim, California, which is
adjacent to this Property. The sublease is at an amount less than the
current lease rate, and the tenant is paying the difference between the
current lease rate and the sublease rate. The lease and the sublease
terminate in April 1998. Extron Electronics has executed a lease for this
space from May 1998 through April 2005 at the current lease rate. Extron
Electronics continues to occupy the space located at 1230 S. Lewis
Street.

(15) This lease terminates on December 31, 1996.

(16) This Industrial Property was originally designed for multi-tenant use and
currently is leased to a single tenant and utilized as an indoor multi-
vendor retail marketplace.

76
<PAGE>

OCCUPANCY AND RENTAL INFORMATION

The following table sets forth the average percentage leased and average
annual base rent per leased square foot for the Properties for the past three
years:

<TABLE>
<CAPTION>
AVERAGE
ANNUAL
BASE RENT
AVERAGE PER RENTABLE
PERCENTAGE SQUARE
YEAR LEASED (%)(1) FOOT($)(2)
---- ------------- ------------
<S> <C> <C>
OFFICE:
1995............................................ 77.0 19.44
1994............................................ 70.9(3) 19.49(3)
1993............................................ 76.1(3) 21.82(3)
INDUSTRIAL:
1995............................................ 81.5 5.76
1994............................................ 78.7(3) 6.51(3)
1993............................................ 81.8(3) 6.55(3)
</TABLE>
- --------
(1) Average of beginning and end-of-year aggregate percentage leased.
(2) Total base rent for the year, determined in accordance with GAAP, divided
by the average of the beginning and end-of-year aggregate rentable square
feet leased.

(3) Excludes data from the Thousands Oaks Office Property, La Palma Business
Center and the Industrial Property located at 12752-12822 Monarch Street,
Garden Grove, California which are being acquired in connection with the
Offering.

LEASE EXPIRATIONS

The following table sets out a schedule of the lease expirations for the
Office Properties for each of the ten years beginning with 1996, assuming that
none of the tenants exercises renewal options or termination rights:

<TABLE>
<CAPTION>
NET PERCENTAGE OF ANNUAL AVERAGE ANNUAL
RENTABLE TOTAL LEASED BASE RENT PER NET
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES(1) (SQ. FT.) LEASES(%)(2) ($000)(3) LEASES($)(4)
------------- --------- ------------ -------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
10/01/96-12/31/1996..... 7 83,080 5.33 1,340 16.13
1997..... 14 59,870 3.84 1,196 19.98
1998..... 19 83,838 5.38 1,893 22.58
1999..... 29 261,082 16.74 4,507 17.26
2000..... 24 149,969 9.62 3,300 22.00
2001(4).. 20 289,383 18.56 5,105 17.64
2002..... 2 83,047 5.33 1,606 19.34
2003..... 3 17,574 1.13 346 19.72
2004..... 4 311,491 19.97 7,731 24.82
2005 and
beyond.. 9 220,102 14.11 3,916 17.79
--- --------- ------ ------
Totals.............. 131 1,559,436 100.00 30,941 19.84
=== ========= ====== ======
</TABLE>
- --------
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.

(2) Excludes all space vacant as of December 31, 1995 unless a lease for a
replacement tenant has been dated on or before September 30, 1996.

(3) Determined based upon aggregate base rent to be received over the term
divided by the term in months multiplied by 12, including all leases dated
on or before September 30, 1996. Certain leases became effective
subsequent to September 30, 1996.
(4) Includes Hughes Space & Communications leases of 96,133 and 11,556 net
rentable square feet at Kilroy Airport Center at El Segundo. These leases
expire in October 2001 and are at a triple net base rental rate of $14.04
per square foot.

77
<PAGE>

The following table sets out a schedule of the lease expirations for the
Industrial Properties for each of the ten years beginning with 1996, assuming
that none of the tenants exercises renewal options or termination rights:

<TABLE>
<CAPTION>
NET PERCENTAGE OF ANNUAL AVERAGE ANNUAL
RENTABLE TOTAL LEASED BASE RENT PER NET
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES(%)(1) ($000)(2) LEASES($)
------------- --------- ------------ -------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
10/01/96-12/31/1996..... 0 -- -- -- --
1997..... 0 -- -- -- --
1998..... 1 70,000 5.72 476 6.81
1999..... 1 22,888 1.87 78 3.41
2000..... 3 210,464 17.19 1,234 5.86
2001..... 4 189,667 15.49 918 4.84
2002..... 0 -- -- -- --
2003..... 3 229,075 18.71 1,058 4.62
2004..... 1 76,570 6.25 554 7.23
2005 and
beyond.. 6 425,787 34.77 2,174 5.11
--- --------- ------ ------ -----
Totals.............. 19 1,224,451 100.00 $6,492 $5.30
=== ========= ====== ====== =====
</TABLE>
- --------

(1) Excludes all space vacant as of December 31, 1995 unless a lease for a
replacement tenant has been dated on or before September 30, 1996.

(2) Determined based upon aggregate base rent to be received over the term
divided by the term in months multiplied by 12, including all leases dated
on or before September 30, 1996.

TENANT INFORMATION

The Company's tenants include significant corporate and other commercial
enterprises representing a range of industries including, among others,
satellite communications, manufacturing, entertainment, banking, insurance,
telecommunications, health care, computer software, finance, engineering,
technology, legal and accounting. The following table sets forth information
as to the Company's largest tenants based upon annualized rental revenues for
the year ended December 31, 1995:

<TABLE>
<CAPTION>
PERCENTAGE OF
TENANT COMPANY'S
ANNUAL TOTAL LEASE
BASE RENTAL BASE RENTAL INITIAL LEASE EXPIRATION
REVENUE($)(2) REVENUES(%) DATE(3) DATE
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Office Tenants(1):
Hughes Aircraft
Corporation's Space &
Communications
Company(4)........... $ 9,757,877(5) 25.32 August 1984 January 1999
Northwest Airlines:
El Segundo.......... 1,313,418 3.41 August 1978 February 2001
Seattle............. 622,317 1.62 May 1980 April 2005
Devry, Inc............ 1,296,270 3.36 November 1994 October 2009
McDonnell Douglas
Corporation.......... 1,149,922 2.98 February 1992 January 2002
SCAN(6)............... 941,325 2.44 February 1996 May 2006
Zelda Fay Walls....... 823,896 2.14 August 1989 August 2000
Worldcom, Inc......... 674,592 1.75 January 1995 December 1999
Key Bank of
Washington........... 667,587 1.73 January 1993 December 1996
The Walls Group....... 456,220 1.18 October 1991 September 2002
Olympus America,
Inc.................. 443,375 1.15 September 1993 December 1998
SITA.................. 378,359 0.98 June 1984 May 1999
----------- -----
Total............... $18,525,158 48.08
=========== =====
</TABLE>

78
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE OF
TENANT COMPANY'S
ANNUAL TOTAL LEASE
BASE RENTAL BASE RENTAL INITIAL LEASE EXPIRATION
REVENUE($)(2) REVENUES(%) DATE(3) DATE
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Industrial Tenants(1):
Mattel, Inc........... $1,556,321 4.04 May 1990 October 2000
Festival Markets...... 640,348 1.66 May 1991 May 2001
Allen-
Bradley/Rockwell..... 639,432 1.66 May 1992 April 1998
Cannon Equipment...... 592,548 1.54 August 1995 July 2003
MSAS Cargo
International Inc.... 553,934 1.44 September 1994 August 2004
Ace Medical........... 553,300 1.44 April 1995 April 2006
Furon, Inc. .......... 543,180 1.41 February 1990 July 2005
Rank Video Services... 476,358 1.24 October 1984 May 1998
Household Finance
Corporation.......... 319,199 0.83 June 1993 November 2003
Extron................ 302,930 0.79 February 1995 January 2005
---------- -----
Total............... $6,158,471 15.98
========== =====
</TABLE>
- --------
(1) Table excludes the lease with LACTC (total base rent of $449,935) which
expired on April 30, 1996, the lease with Cerplex Group, Inc./Incert
(total base rent of $337,530) which expired on June 30, 1996, and the
lease with Pacific Southwest Realty (total base rent of $128,783) which
expired on June 30, 1996.
(2) Determined in accordance with GAAP.
(3) Represents date of first relationship between tenant and the Kilroy Group.
(4) Includes Hughes Space & Communication's leases of (i) 96,133 and 11,556
net rentable square feet at Kilroy Airport Center at El Segundo which
expire in October 2001, (ii) 286,151 net rentable square feet at Kilroy
Airport Center at El Segundo which expires in July 2004 and (iii) 100,978
net rentable square feet at Kilroy Airport Center at El Segundo which
expires in January 1999.
(5) Tenant annual base rental revenue for Hughes Space & Communications gives
pro forma effect to the recent extension of the tenant lease with respect
to 96,133 rentable square feet of office space located at 2250 E. Imperial
Highway (along with 11,556 rentable square feet located at 2240 E.
Imperial Highway) as if such lease renewal had occurred on January 1,
1995. See "Business and Properties--Kilroy LAX."
(6) Tenant executed leases during 1995 representing approximately 44,825
square feet effective on February 15, 1996. Base rental revenue figure
included on a contract basis.

OFFICE PROPERTIES

All but two of the Office Properties are Class A office buildings. Each of
the Kilroy LAX, Kilroy Long Beach and SeaTac (each as defined) Office
Properties was designed and developed to above-standard specifications to
accommodate the long-term needs of tenants and include features such as extra-
floor loading capacity and extra-high ceilings. Each of the Kilroy LAX, Kilroy
Long Beach and SeaTac Office Properties also was designed with an emphasis on
long-term operating efficiency and tenant comfort and includes above-standard
climate controls, on-site management and security, covered parking, heliports
and retail services, all in professionally landscaped environments. In
addition, each of the Kilroy LAX and Kilroy Long Beach Office Properties
offers tenants redundant telecommunications capability and utility leads. The
Office Properties range in size from two to 12 stories and are easily
accessible from major highways and airports. Management believes that as a
result of these factors the Office Properties achieve among the highest rent,
occupancy and tenant retention rates when compared to other properties within
their respective submarkets and in neighboring submarkets. Management believes
that the location, quality of construction and amenities at the complexes as
well as the Company's reputation for providing a high level of tenant service
have enabled the Company to attract and retain a national tenant base.

Kilroy LAX. The Company developed, owns, leases and manages three Office
Properties at Kilroy Airport Center at El Segundo ("Kilroy LAX"), a Class A
high-rise, multi-tenant corporate office complex situated in what the Company
considers to be the premier location in El Segundo immediately adjacent to Los
Angeles International Airport ("LAX"), the new light rail system servicing Los
Angeles County and the new I-105 Freeway with a freeway off-ramp and freeway
on-ramp providing immediate access to and from the project's

79
<PAGE>

parking facilities. Kilroy LAX was built in 1983 to high quality specifications
to address the anticipated demands of the submarket's aerospace and high
technology tenants. The Company believes Kilroy LAX has the premier location in
the El Segundo office submarket for a number of reasons, including:
(i) unobstructed views of LAX, West Los Angeles and Downtown Los Angeles; (ii)
excellent access to LAX, the new I-105 Freeway and the new light rail system;
(iii) close proximity to corporate office users including Hughes Space &
Communications and its satellite manufacturing facility, and other related
enterprises such as DirectTV; and (iv) for tenants with their names on the
Property, visibility to freeway and airline travelers.

The complex is comprised of two 12-story towers and a 13-level parking
structure with two floors of office space on top, encompassing an aggregate of
approximately 701,000 rentable square feet, of which 93.3% was leased as of
September 30, 1996. Kilroy LAX features fiber optic/telecommunications dual
redundancy (one of the few properties in Southern California so equipped) and
multiple lead-lines for both water and power, thereby mitigating the risk of
temporary loss of such services to the facility. The Property was designed and
constructed with above-standard floor loadings and floor-to-ceiling heights to
accommodate the weight and raised floors requirements of computer and other
equipment. The facility is climate controlled in smaller areas which, while
increasing tenant comfort, allows for separate thermostat controls for areas
housing temperature sensitive equipment and reduces costs for after-hour
operations. The facility was designed toward tenant efficiency and convenience
and features an above-standard ratio of elevators to rentable square feet and
provides 24-hour on-site security and management, private dual heliports,
shuttle service to LAX and on-site retail, banking and dining facilities. In
addition, the two 12-story towers are joined by an atrium and are
professionally landscaped creating a pleasant environment. In addition, the
facility has been recognized by the local utility for its energy efficient
heating, ventilating and air conditioning systems which reduce operating costs
for both the Company and its tenants. Management believes because of these and
other high quality features, Kilroy LAX continues to attract long-term major
corporate tenants at rates above those offered by other facilities in the El
Segundo and neighboring submarkets. The occupancy rates for Kilroy LAX as of
the years ended December 31, 1993 through 1995, and the nine-month period ended
September 30, 1996, were 90.8%, 91.6%, 92.1% and 93.3%, respectively.

Major tenants of the facility include Hughes Space & Communications (the
Company's largest tenant), the Federal Aviation Administration and Realtime
Associates. Hughes Space & Communications has been a tenant at Kilroy LAX since
its development in 1983 and, over the past five years, has consolidated
operations into its owned facilities in El Segundo (which includes its
satellite manufacturing facility) and into leased facilities at Kilroy LAX
which also serves as its headquarters. In addition, Hughes Space &
Communications has invested substantial amounts in tenant improvements,
including approximately $3.3 million during the year ended December 31, 1994
and $23.5 million since 1984, and repeatedly has renewed leases at the
facilities, including one lease for approximately 101,000 rentable square feet
which has been renewed twice. Hughes Space and Communications is a major
employer and owner of technical facilities in El Segundo, including facilities
for the development of satellite technology and its applications, such as
DirecTV.

Because the book value of the Office Property located at 2240 E. Imperial
Highway will be in excess of 10% of the Company's total assets, additional
information regarding this Property is presented below. The information
presented below gives pro forma effect to the recent extension of the tenant
lease with Hughes Space & Communications with respect to this Office Property
as if such lease renewal had occurred on January 1, 1995.

The property located at 2240 E. Imperial Highway had an occupancy rate of
100.0% for each of the years ended December 31, 1991 through 1995. As of
September 30, 1996, Hughes Space & Communications occupied approximately 94.6%
of the Property's net rentable square feet under two leases. Under the
principal lease for this space, Hughes Space & Communications commenced
occupancy of 100,978 square feet on August 11, 1986 and renewed the lease on
February 1, 1989 and again on June 1, 1994. In connection with the latter
renewal, Hughes made a one time payment of $4,000,000 to the Company in
consideration of a lease amendment to relieve Hughes Space & Communications of
the obligation to remove certain tenant improvements upon termination of the
lease. The current lease term under this lease expires on January 31, 1999,
subject to a five-year option to renew at fair market value, but not less than
$15.84 per annum per net rentable square foot, on a

80
<PAGE>

triple net basis. Hughes Space & Communications also leases 11,556 rentable
square feet (along with the 96,133 rentable square feet located at 2250 E.
Imperial Highway) under a second lease which expires October 31, 2001, at an
annualized triple net base rental rate of $14.04 and, for the first year of
the lease term, the tenant's allocable share of operating costs shall not
exceed $7.32 per rentable square foot. The lease also is subject to a five-
year option to renew at fair market value, adjusted bi-annually for CPI
adjusted increases in base rent. The total annual rental income per net
rentable square foot for the years ended December 31, 1991 through December
31, 1995 was $23.17, $24.42, $25.22, $17.15 and $11.83, respectively. The
following table sets forth for such Property for each of the ten years
following the date of Offering (i) the number of tenants whose leases will
expire, (ii) the total net rentable square feet covered by such leases,
(iii) the percentage of total leased net rentable square feet represented by
such leases, (iv) the annual base rent represented by such leases and (v) the
average annual rent per net rentable square foot represented by such leases.

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL LEASED AVERAGE ANNUAL
NET RENTABLE RENT PER
NET RENTABLE SQUARE FEET NET RENTABLE
YEAR OF NUMBER OF SQUARE FOOTAGE REPRESENTED SQUARE FOOT
LEASE LEASES SUBJECT TO BY EXPIRING ANNUAL BASE RENT UNDER REPRESENTED BY
EXPIRATION EXPIRING EXPIRING LEASES LEASES(%) EXPIRING LEASES ($)(1) EXPIRING LEASES($)
---------- --------- --------------- ------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996.................... 0 -- -- -- --
1997.................... 0 -- -- -- --
1998.................... 0 -- -- -- --
1999.................... 1(2) 100,978 86.4 $1,085,716 $10.75
2000.................... 0 --
2001.................... 2(3) 15,898 13.6 196,670 12.37
2002.................... 0 -- -- -- --
2003.................... 0 -- -- -- --
2004.................... 0 -- -- -- --
2005.................... 0 -- -- -- --
--- ------- ----- ----------
Totals.............. 3 116,876(4) 100.0 $1,282,386 $10.97
=== ======= ===== ==========
</TABLE>
- --------

(1) Determined based upon aggregate base rent to be received over the term
divided by the term in months multiplied by 12, including all leases dated
on or before September 30, 1996.
(2) The terms of this lease are described in the text preceding this table.
(3) The terms of a lease representing 11,556 rentable square feet are
described in the text preceding this table.
(4) The aggregate square footage reflected in each of the respective leases
differs from the actual aggregate square footage for this Property of
118,933 as shown on the table under the caption "The Office and Industrial
Properties." Subsequent to the execution of the leases, the Property was
remeasured at a larger aggregate number of square feet than is reflected
in the executed leases.

The Company's tax basis in the Property for federal income tax purposes as
of December 31, 1995 was approximately $4.1 million (net of accumulated
depreciation and reductions in depreciable basis). The Property is depreciated
using the modified accelerated cost recovery system straight-line method,
based on an estimated useful life ranging from 31 1/2 years to 39 years,
depending upon the date of certain capitalized improvements to the Property.
For the year ended December 31, 1995, the estimated average depreciation rate
for this Property under the modified accelerated cost recovery system was
4.3%. For the 12-month period ending September 30, 1996, the Company was
assessed property taxes on this Property at an effective annual rate of
approximately 1.0%. Property taxes on this Property for the 12-month period
ending September 30, 1996 totaled approximately $130,000. Management does not
believe that any capital improvements made during the 12-month period
immediately following the Offering should result in an increase in annual
property taxes.

Because the gross revenues for the Office Property located at 2250 E.
Imperial Highway for the year ended December 31, 1995 were in excess of 10% of
the aggregate gross revenues for all of the Properties, additional information
regarding this Property is presented below. The information presented below
gives pro forma effect to the recent extension of the tenant lease with Hughes
Space & Communications with respect to this Office Property as if such lease
renewal had occurred on January 1, 1995.

81
<PAGE>

The property located at 2250 E. Imperial Highway had an occupancy rate of
84.0%, 82.5%, 77.8%, 79.8% and 80.9% as of the years ended December 31, 1991
through 1995, respectively. As of September 30, 1996, Hughes Space &
Communications occupied 33% of the Property's net rentable square feet. The
Property's other tenants include companies engaged in the communications,
technology, transportation and healthcare industries. Hughes Space &
Communications commenced occupancy of 96,133 rentable square feet on November
1, 1986 and has entered into an agreement to renew this space (along with the
11,556 square feet located at 2240 E. Imperial Highway) through October 31,
2001, at a triple net annual base rental rate of $14.04 per square foot and,
for the first year of the lease term, the tenant's allocable share of
operating costs shall not exceed $7.32 per rentable square foot. The lease
also is subject to a five-year option to renew at fair market value, adjusted
bi-annually for CPI increases in base rent. The total annual rental income per
net rentable square foot for the years ended December 31, 1991 through
December 31, 1995 was $17.82, $18.73, $19.48, $18.19 and $18.86, respectively.
The following table sets forth for such Property for each of the ten years
following the date of the Offering (i) the number of tenants whose leases will
expire, (ii) the total net rentable square feet covered by such leases, (iii)
the percentage of total leased net rentable square feet represented by such
leases, (iv) the annual base rent represented by such leases and (v) the
average annual rent per net rentable square foot represented by such leases.

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL LEASED AVERAGE ANNUAL
NET RENTABLE RENT PER
NET RENTABLE SQUARE FEET NET RENTABLE
NUMBER OF SQUARE FOOTAGE REPRESENTED ANNUAL BASE SQUARE FOOT
LEASES SUBJECT TO BY EXPIRING RENT UNDER REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES LEASES(%)(1) EXPIRING LEASES($)(2) EXPIRING LEASES($)
- ------------------------ --------- --------------- ------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996.................... 6 32,212 11.9 $ 705,336 $21.90
1997.................... 3 4,385 1.6 83,025 18.93
1998.................... 6 23,033 8.5 464,705 20.18
1999.................... 4 29,148 10.7 695,821 23.87
2000.................... 2 18,201 6.7 302,853 16.64
2001.................... 4 124,271 45.8 1,805,281 14.53
2002.................... 1 18,517 6.8 456,220 24.64
2003.................... 0 -- -- -- --
2004.................... 2 21,418 7.9 485,244 22.66
2005.................... 0 -- -- -- --
--- ------- ----- ----------
Totals.............. 28 271,185 100.0 $4,998,485 $18.43
=== ======= ===== ==========
</TABLE>
- --------

(1) Excludes all space vacant as of December 31, 1995 unless a lease for a
replacement tenant has been dated on or before September 30, 1996.

(2) Determined based upon aggregate base rent to be received over the term
divided by the term in months multiplied by 12, including all leases dated
on or before September 30, 1996. Certain leases became effective
subsequent to September 30, 1996.

The Company's tax basis in the Property for federal income tax purposes as
of December 31, 1995 was approximately $2.0 million (net of accumulated
depreciation and reductions in depreciable basis), and was fully depreciated
for federal tax purposes. For the 12-month period ending September 30, 1996,
the Company was assessed property taxes on this Property at an effective
annual rate of approximately 1.0%. Property taxes on this Property for the 12-
month period ending September 30, 1996 totaled approximately $240,000.
Management does not believe that any capital improvements made during the 12-
month period immediately following the Offering should result in an increase
in annual property taxes.

Because the 1995 gross revenues for the Office Property located at 2260 E.
Imperial Highway were in excess of 10% of the aggregate gross revenues for all
of the Properties, additional information regarding this Property is presented
below.

The property located at 2260 E. Imperial Highway had an occupancy rate of
100.0% for the years ended December 31, 1991 through 1995. As of September 30,
1996, Hughes Space & Communications occupied

82
<PAGE>

100.0% of the Property's net rentable square feet. Hughes Space &
Communications commenced occupancy of 291,187 square feet on August 1, 1984.
This lease runs through July 31, 2004 with CPI adjusted increases in base rent
every two years. The next CPI adjustment is scheduled to occur on August 1,
1998 and provides for an increase in base rent to the extent that such CPI
adjustment exceeds a minimum floor of 1.86% compounded annually. The remaining
CPI adjustments scheduled for August 1, 2000 and August 1, 2002, respectively,
provide for similar increases to the extent that the CPI adjustment exceeds a
minimum floor of 3% compounded annually. The total annual rental income per
net rentable square foot was $25.35, $26.16, $26.66, $24.59 and $24.59 for the
years ended December 31, 1991 through December 31, 1995, respectively. The
following table sets forth for such Property for each of the ten years
following the date of Offering (i) the number of tenants whose leases will
expire, (ii) the total net rentable square feet covered by such leases, (iii)
the percentage of total leased net rentable square feet represented by such
leases, (iv) the annual base rent represented by such leases and (v) the
average annual rent per net rentable square foot represented by such leases.

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL LEASED AVERAGE ANNUAL
NET RENTABLE RENT PER
NET RENTABLE SQUARE FEET NET RENTABLE
NUMBER OF SQUARE FOOTAGE REPRESENTED ANNUAL BASE SQUARE FOOT
LEASES SUBJECT TO BY EXPIRING RENT UNDER REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES LEASES(%) EXPIRING LEASES($)(1) EXPIRING LEASES($)
- ------------------------ --------- --------------- ------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996.................... 0 -- -- -- --
1997.................... 0 -- -- -- --
1998.................... 0 -- -- -- --
1999.................... 0 -- -- -- --
2000.................... 0 -- -- -- --
2001.................... 0 -- -- -- --
2002.................... 0 -- -- -- --
2003.................... 0 -- -- -- --
2004.................... 1(2) 286,151 100.0 $7,160,207 $25.02
2005.................... 0 -- -- -- --
--- ------- ----- ----------
Totals.............. 1 286,151(3) 100.0 $7,160,207 $25.02
=== ======= ===== ==========
</TABLE>
- --------

(1) Determined based upon aggregate base rent to be received over the term
divided by the term in months multiplied by 12, including all leases dated
on or before September 30, 1996.
(2) The terms of this lease are described in the text preceding this table.
(3) The square footage reflected in the lease differs from the actual square
footage for this Property of 291,187 as shown on the table under the
caption "The Office and Industrial Properties." Subsequent to the
execution of the lease, the Property was remeasured at a larger aggregate
number of square feet than is reflected in the executed lease.

The Company's tax basis in the Property for federal income tax purposes as
of December 31, 1995 was approximately $2.0 million (net of accumulated
depreciation and reductions in depreciable basis), and was fully depreciated
for federal tax purposes. For the 12-month period ending September 30, 1996,
the Company was assessed property taxes on this Property at an effective
annual rate of approximately 1.0%. Property taxes on this Property for the 12-
month period ending September 30, 1996 totaled approximately $275,000.
Management does not believe that any capital improvements made during the 12-
month period immediately following the Offering should result in an increase
in annual property taxes.

Kilroy Long Beach. The Company developed, owns, leases and manages the three
Office Properties which comprise Phase II of Kilroy Airport Center Long Beach
("Kilroy Long Beach Phase II"), part of a planned four-phase, 53-acre Class A
corporate office headquarters, business park and retail and entertainment
center strategically located adjacent to the San Diego freeway (Interstate
405, the major coastal north-south highway in Southern California between Los
Angeles and Orange Counties) (the "I-405 Freeway") and immediately adjacent to
the Long Beach Airport. The Company has sole development rights for the
remaining 24 developable acres. Upon consummation of the Offering, the Company
also will own the two office buildings comprising Kilroy Long Beach Phase I
("Kilroy Long Beach Phase I") which were developed by the Company and which

83
<PAGE>

have been leased and managed by the Company since their inception. See "--
Acquisition Properties--Kilroy Long Beach Phase I." Kilroy Long Beach Phase II
includes an eight-story and a six-story office building, and a multi-level
parking structure with retail facilities on the ground floor, encompassing an
aggregate of approximately 395,000 net rentable square feet, of which 88.4%
was leased as of September 30, 1996. The facility is the only GTE SmartPark in
Los Angeles County and offers tenants an array of advanced telecommunications
functions through a pre-laid fiber optic network, emergency backup loop and
ISDN interfaces. The facility also includes state-of-the-art mechanical and
electrical systems designed to accommodate the highest tenant demands
including above-standard floor-to-ceiling heights and floor loading and four
high-speed passenger elevators. Each of the office structures offers efficient
28,000 square foot floors. Other amenities include a spacious lobby with an
atrium, and a central courtyard with a fountain and pedestrian arcade. The
facility also features 24-hour on-site security and management, a fitness
center, group conference facilities, helipad facilities, and various retail
and business services including banking facilities, dining facilities and
printer services. The occupancy rates for Kilroy Long Beach Phase II as of the
years ended December 31, 1993 through 1995, and the nine month period ended
September 30, 1996, were 64.8%, 78.7%, 76.5% and 88.39%, respectively. Major
tenants include AIG Claim Services, Inc., Assistance in Marketing, Inc.,
CompuServe, Inc., Employer's Health Insurance, Co., GTE Directories Sales
Corporation, Great Northern Insured Annuities Corp., Great Western Bank,
HealthNet, Mutual of America Life Insurance Company, North American Title
Company, The Prudential Insurance Company of America, R.L. Polk & Company,
SCAN Health Plan, Senn-Delaney Leadership Consulting Group, Inc., 20th Century
Industries, UniCare Financial Corporation, Unihealth and Zelda Fay Walls.

Kilroy Airport Center Long Beach was developed in response to a desire by
the City of Long Beach to promote development in the airport area. Phase I of
the project, encompassing approximately 225,000 rentable square feet, was
developed by the Company in 1987 and was sold in 1993. The Company has entered
into a letter of intent to reacquire the Phase I properties. As of September
30, 1996 the Phase I properties were 96.6% leased to eight tenants with total
annual rental income per leased net rentable square foot of $15.67 (calculated
on the basis of base rent of signed leases at September 30, 1996, adjusted for
contractual increases in base rent in effect during the 12-month period ending
September 30, 1996). Major tenants include McDonnell Douglas Corporation,
Olympus America, Inc. and Devry, Inc. See "--Acquisition Properties--Kilroy
Long Beach Phase I." The Company has overseen and continues to oversee all
leasing and management of Phase I.

Kilroy Long Beach Phase II was developed by the Company in 1989/1990 and
encompasses an aggregate of approximately 395,000 net rentable square feet.
Phases III and IV are planned for future development. See "--Development,
Leasing and Management Activities--Kilroy Airport Center Long Beach."

Kilroy Airport Center Long Beach is subject to three long-term ground leases
under which the Company is ground lessee (assuming the assignment to the
Company of the approximately 14-acre parcel in connection with the acquisition
of Kilroy Long Beach Phase I). The City of Long Beach is the ground lessor
with respect to Kilroy Long Beach Phases I through III and the Board of Water
Commissioners of the City of Long Beach, acting on behalf of the City of Long
Beach, is the ground lessor with respect to Kilroy Long Beach Phase IV. The
basic term under each of the ground leases expires on July 17, 2035, with four
10-year renewals and a final renewal term of 9 years. Primary rent under the
leases for Kilroy Long Beach Phases I, II, III and IV is currently
approximately $338,000 per year, $295,000 per year, $75,000 per year and
$76,764 per year, respectively, with such amounts adjusted periodically to
take account of changes in the fair market rental value of the land underlying
each lease.

Because the book value of the Office Property located at 3780 Kilroy Airport
Way will be in excess of 10% of the Company's total assets, additional
information regarding this Property is presented below.

The property located at 3780 Kilroy Airport Way had an occupancy rate of
70.2%, 70.5%, 69.1%, 78.6% and 63.6% as of the years ended December 31, 1991
through 1995, respectively. As of September 30, 1996, SCAN Health Plan, a
group health insurer, and Zelda Fay Walls, an operator of executive office
suites, occupied approximately 20.4% and 12.7%, respectively, of the
Property's net rentable square feet. The Property's other

84
<PAGE>

tenants include companies engaged in the insurance, healthcare, finance, high
technology, law and accounting industries. Base rent under the SCAN Health
Plan lease is $941,325 per year. The lease expires on August 31, 2000, subject
to two successive five-year options to renew. Base rent under the Zelda Fay
Walls lease is currently $823,896 per year although the tenant has been paying
only approximately $640,200 since August 1993 and the balance is expensed
quarterly by the Company as an increase to its bad debt service. Effective
February 1, 1997, annual base rent under the lease will be $672,000, and the
term of the lease has been extended to 2007, subject to a five year option to
renew. The average effective annual rent per net rentable square foot for the
years ended December 31, 1991 through 1995 was $13.02, $17.53, $18.90, $19.70
and $17.42, respectively. The following table sets forth for such Property for
each of the ten years following the date of Offering (i) the number of tenants
whose leases will expire, (ii) the total net rentable square feet covered by
such leases, (iii) the percentage of total leased net rentable square feet
represented by such leases, (iv) the annual base rent represented by such
leases and (v) the average annual rent per net rentable square foot
represented by such leases.

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL LEASED AVERAGE ANNUAL
NET RENTABLE RENT PER
NET RENTABLE SQUARE FEET NET RENTABLE
NUMBER OF SQUARE FOOTAGE REPRESENTED ANNUAL BASE SQUARE FOOT
LEASES SUBJECT TO BY EXPIRING RENT UNDER REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES LEASES(%)(1) EXPIRING LEASES($)(2) EXPIRING LEASES($)
- ------------------------ --------- --------------- ------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996.................... 4 18,867 8.79 $ 363,225 $19.25
1997.................... 4 22,469 10.46 532,872 23.72
1998.................... 1 2,088 0.97 47,606 22.80
1999.................... 2 4,339 2.02 89,709 20,68
2000.................... 7 74,093 34.50 1,816,896 24.52
2001.................... 5 28,251 13.15 638,222 22.59
2002.................... 0 0 0.00 0 0.00
2003.................... 1 9,439 4.40 209,299 22.17
2004.................... 1 3,922 1.83 85,656 21.84
2005 and beyond......... 2 51,290 23.88 1,077,090 21.00
--- ------- ------ ----------
Totals.............. 27 214,758 100.00 $4,860,575 $22.63
=== ======= ====== ==========
</TABLE>
- --------

(1) Excludes all space vacant as of December 31, 1995 unless a lease for a
replacement tenant has been dated on or before September 30, 1996.

The Company's tax basis in the Property for federal income tax purposes was
$11.4 million (net of accumulated depreciation) as of December 31, 1995. The
Property is depreciated using the modified accelerated cost recovery system
straight-line method, based on an estimated useful life ranging from 31 1/2
years to 39 years, depending upon the date of certain capitalized improvements
to the Property. For the year ended December 31, 1995, the estimated average
depreciation rate for this Property under the modified accelerated cost
recovery system was 3.4%. For the 12-month period ending September 30, 1996,
the Company was assessed property taxes on this Property at an effective
annual rate of approximately 1.2%. Property taxes on this Property for the
12-month period year ending September 30, 1996 totaled $175,000. Management
does not believe that any capital improvements made during the 12-month period
immediately following the Offering should result in an increase in annual
property taxes.

SeaTac Office Center at Seattle-Tacoma International Airport. The Kilroy
Group developed and operates the SeaTac Office Center ("SeaTac"), south of
Seattle in SeaTac, Washington, a Class A office development in the Southend
submarket of the Puget Sound region. SeaTac is comprised of two 12-story
towers (constructed in 1977 and 1980, respectively) and a 4-level office and
garage structure with two floors of office space on top (constructed in 1980),
all with views of the Olympic and Coastal mountain ranges. The site is located
directly across from the Seattle-Tacoma International Airport. The facility
currently contains an aggregate of approximately 530,000 square feet of office
space. Current zoning permits up to an additional 500,000 square feet of
development. The facility features 24-hour on-site security and management,
parking for over 1,900

85
<PAGE>

vehicles, computer training and consultation, travel agencies, a 24-hour
restaurant and an airport shuttle service that is free to tenants. As of
September 30, 1996, SeaTac had approximately 308,000 rentable square feet of
available office space. Major tenants include First Nationwide Mortgage
Corporation, Lynden, Inc., National Chemsearch, Northwest Airlines, Inc.,
Rayonier, Inc., Seattle-First National Bank and Transamerica Financial
Services, Inc.

SeaTac is situated on an approximately 17-acre site subject to two long-term
ground leases and an airspace lease. The initial term of the ground leases
runs through December 31, 2032, and may be extended for an additional period
of thirty years. Payments under the ground leases are subject to adjustment
for increases in the CPI every five years. Payments under the airspace lease
are made monthly. Aggregate payments under the two ground leases and the
airspace lease for the year ended December 31, 1995 totaled approximately
$317,500. As of September 30, 1996, the SeaTac Properties were encumbered by a
first mortgage loan having an outstanding principal balance of $20,162,000.
The loan bears interest at a rate of 9.75% per year and is scheduled to mature
on May 15, 2001.

INDUSTRIAL PROPERTIES

Like the Office Properties, the Industrial Properties were designed and
developed to provide above-standard quality and meet the long-term needs of
tenants. The Company was among the first Southern California developers to
air-condition its Industrial Properties, increasing each facility's
multidimensional use while providing environments for increased tenant
operating efficiency and comfort. The Industrial Properties, all but one of
which are located in Southern California, are primarily comprised of single-
story, tilt-up concrete buildings ranging in size from approximately 57,000 to
277,000 square feet. The Industrial Properties feature high-tech assembly
areas and supporting office space for management and administrative functions.
While most of the buildings are occupied by a single tenant, they were
designed for multi-tenant operations and can be reconfigured for such use.

The Industrial Property leases are written on a triple net basis with
initial terms of five to eleven years and options to renew for up to an
additional five years at the then current fair market value. The leases
generally provide for rent increases based on the applicable regional CPI or
contain specific contractual increases. The leases do not contain purchase
options.

Certain of the Industrial Properties can support additional development and
the Company presently is planning to develop in the next two years, subject to
substantial pre-leasing, approximately 105,000 square feet of additional
leasable area. The Company anticipates that any such development would be
funded with amounts available under the Credit Facility. There can be no
assurance, however, that the Company will be able to successfully develop any
of the Industrial Properties, or obtain financing for any such development on
terms favorable to the Company. See "Risk Factors--Real Estate Financing
Risks" and "--No Limitation on Debt."

DEVELOPMENT, LEASING AND MANAGEMENT ACTIVITIES

Since 1947, the Company and its affiliates have developed millions of square
feet of office and industrial space, including high technology facilities,
primarily located in Southern California, for its own portfolio and for third
parties. Development activities include site selection, land entitlement,
project design and construction, build-to-suit activities and tenant
renovations. The Company has successfully developed numerous sophisticated
development projects for some of the nation's most prominent corporations both
in Southern California and around the country. The Company's extensive
experience has enabled it to form key alliances with major corporate tenants,
municipalities and landowners in Southern California with respect to the
Development Properties described below. As a result of these relationships,
the Company has various rights to a significant source of developable land in
key locations where a substantial portion of the costs of carry are, in most
cases, the obligation of the respective landowner. The Company's relationships
with tenants and users has enabled it to receive fees in connection with its
role as developer of these projects, or, in the case of Kilroy Long Beach and
the Thousand Oaks Civic Arts Plaza Retail and Entertainment Center, to develop
the land for its own account

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<PAGE>

where such development will result in a favorable risk adjusted return on
investment. In connection with the Formation Transactions, the Company will
succeed to the Kilroy Group's rights in and to the Development Properties.

The Company or the Operating Partnership will be the manager of the
Properties and may provide building management services for independent
building owners for terms that vary in length but which generally provide for
management fees of 4% to 5% of collected revenue and may also provide for
reimbursement of expenses.

The following is a description of the Development Properties as presently
contemplated.

Kilroy Airport Center Long Beach. In conjunction with the Company's role as
master ground lessee of Kilroy Long Beach, the Company manages all ongoing
leasing and development activities for the four-phase, approximately 53-acre
office and retail development project, including sole development rights to
the approximately 24 remaining developable acres. To date the Company has
developed Phases I and II. See "--Office Properties--Kilroy Airport Center
Long Beach" and "Acquisition Properties." Current development activities are
focused on Phase III of the project ("Kilroy Long Beach Phase III") which will
be developed and owned by the Company. Kilroy Long Beach Phase III presently
is contemplated to initially include a seven-story office building with
approximately 186,000 rentable square feet and a five-story office building
with approximately 132,000 rentable square feet. In addition, Kilroy Long
Beach Phase III may be developed, subject to site plan approval by the City of
Long Beach, to include an additional office building with up to 150,000
rentable square feet of space. The Company is currently in discussions with
several prospective tenants for office space presently planned to be included
in Long Beach Phase III. Development of Phase III is subject to substantial
predevelopment leasing activity and, therefore, the timing for the
commencement of development of Phase III is uncertain.

Kilroy Long Beach also is planned to include Phase IV ("Kilroy Long Beach
Phase IV"), which will be developed and owned by the Company. Kilroy Long
Beach Phase IV presently is contemplated to include an aggregate of up to
550,000 rentable square feet of office and retail space including high quality
retail and specialty shops, sit-down and convenience restaurants and, subject
to site-plan approval by the City of Long Beach, a multitheater and virtual
reality entertainment center. Development of Phase IV is subject to
substantial predevelopment leasing activity and, therefore, the timing for the
commencement of development of Phase IV is uncertain.

To date the Company has invested approximately $8.8 million in
infrastructure improvements which are in place for Kilroy Long Beach Phases
III and IV and has available an additional approximately $2.6 million of
revenue bond proceeds held by the City of Long Beach which the Company
believes is sufficient to provide for further traffic mitigation improvements,
if any, which may be required by the City in connection with the future
development. Because of the over 900,000 aggregate rentable square feet
entitled at Kilroy Long Beach Phases III and IV, and the significant
infrastructure improvements already in place, the Company believes that Kilroy
Long Beach offers substantial opportunity for tenant expansion from a location
servicing both Los Angeles and Orange Counties. See "--Office Properties--
Kilroy Long Beach."

Kilroy Long Beach Phase III and Phase IV will be developed by the Company or
the Services Company for the benefit of the Company. Prior to the Formation
Transactions, the Kilroy Group and its affiliates acquired construction
materials at a cost of approximately $6.5 million in connection with the
development of Kilroy Long Beach Phase III. These construction materials will
not be contributed to the Company and the Company will have no obligation to
purchase the materials from the Kilroy Group or to in any way use the
materials in the development and completion of the project. Any decision on
the part of the Company to purchase the materials from the Kilroy Group in the
future will be determined by a majority of the Independent Directors.

Kilroy Airport Center Long Beach is subject to three long-term ground leases
under which the Company is ground lessee. The City of Long Beach is the ground
lessor with respect to Kilroy Long Beach Phase III and the Board of Water
Commissioners of the City of Long Beach, acting on behalf of the City of Long
Beach, is the ground lessor with respect to Kilroy Long Beach Phase IV. The
basic term under each of the ground leases

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<PAGE>

expires on July 17, 2035, with four 10-year renewals and a final renewal term
of 9 years. Primary rent under the leases for Kilroy Long Beach Phases III and
IV is currently approximately $75,000 per year and $76,764 per year,
respectively, with such amounts adjusted periodically to take account of
changes in the fair market rental value of the land underlying each lease.

Thousand Oaks Civic Arts Plaza Retail and Entertainment Center. The Kilroy
Group has entered into an exclusive agreement with the City of Thousand Oaks
Redevelopment Agency to negotiate a Development and Disposition Agreement with
respect to a private-public partnership to develop the Thousand Oaks Civic
Arts Plaza Retail and Entertainment Center, an approximately 11-acre
commercial property (representing approximately six developable acres net of
acreage reserved for open areas) directly adjacent to the City's recently
completed Civic Arts Plaza complex. The Thousand Oaks Civic Arts complex was
constructed by the City at a cost of approximately $65 million and includes an
1,800-seat main auditorium designed for theater and concert performances. The
complex also includes a second 400-seat theater. The Company's proposed
project is planned to contain a mixed-use entertainment and retail center and
is expected to be under construction in 1997. Upon consummation of the
Formation Transactions, the Kilroy Group will assign to the Services Company
the exclusive negotiation agreement to enter into a Development and
Disposition Agreement and related documents and agreements pursuant to which
the Company would acquire, develop and lease the Thousand Oaks Civic Arts
Plaza Retail and Entertainment Center. The Thousand Oaks Civic Arts Plaza
Retail and Entertainment Center is expected to have easy freeway access to and
from U.S. Highway 101, the major highway running through the City of Thousand
Oaks, and the only major coastal highway between the City of Los Angeles and
northern communities including Oxnard, Ventura, Santa Barbara and the San
Francisco Bay Area ("U.S. Highway 101").

The Civic Arts Plaza Retail and Entertainment Center is anticipated to be
anchored by a state-of-the art movie theater and virtual reality venue and
will include high quality retail and specialty shops. The project is presently
planned to include a total of approximately 170,000 gross square feet of
building area in three primary, single-story structures, supported by an
above-grade parking structure with approximately 1,000 vehicle spaces.
Approximately 90,000 square feet of the project is expected to be developed as
the entertainment component and would include approximately 60,000 square feet
within a 2-story, 12- to 14-auditorium movie theater, containing approximately
3,100 seats and approximately 30,000 square feet as the virtual reality venue.
See "--Agreement with United Artists Theater Circuit, Inc." The remaining
building area of the project (totaling approximately 80,000 square feet) is
expected to be incorporated within several single-story structures. These
buildings will include a total of approximately 54,000 square feet which will
be occupied by retail and specialty shops, while the remaining approximately
26,000 square feet will be occupied by both formal and casual sit down
restaurants and convenience food restaurants.

Riverside Judicial Center. In a unique "public-private partnership" with the
City of Riverside Redevelopment Agency and the County of Riverside, the
Company has entered into a Development Management Agreement to develop and
manage for a fee a comprehensive master planning, design, entitlement and
development effort for a multi-jurisdictional judicial center complex (the
"Riverside Judicial Center") in downtown Riverside that is expected to serve
the entire greater Riverside and San Bernardino area. Riverside is located
approximately 56 miles east of Los Angeles. The project is expected to include
a United States Bankruptcy Court and administrative complexes. In addition,
the site may also include a United States District Court. Construction of the
Riverside Judicial Center began in February 1996. Upon consummation of the
Formation Transactions, the Services Company will be assigned the Development
Management Agreement in connection with the project.

Northrop Grumman. The Company has been retained on a fee basis by Northrop
Grumman Corporation ("Northrop Grumman") to undertake a comprehensive, multi-
phased effort to analyze, entitle and manage the future reuse, planning,
entitlement, marketing and disposition of the approximately 200-acre property
located in the City of Pico Rivera, located approximately 13 miles east of Los
Angeles, which currently serves as Northrop Grumman's headquarters for
activities related to the U.S Air Force's B-2 "Stealth" Bomber Program. Early
stages of the project are underway, including the execution of a Memorandum of
Understanding with the City of Pico Rivera and a community outreach program
and submission of a conceptual reuse plan to the City of Pico

88
<PAGE>

Rivera. Under the terms of the agreement, the Company, including its
predecessor, will receive up to $653,930 in fees and reimbursable expenses for
the services performed. The agreement runs through February 15, 1997, unless
earlier terminated by the parties.

Agreement with United Artists Theater Circuit, Inc. The Company has recently
entered into a lease with United Artists Theater Circuit, Inc. in connection
with the development of a multiplex theater complex and virtual reality
entertainment center at the Thousand Oaks Civic Arts Plaza Retail and
Entertainment Center. In addition, the Company presently is negotiating with
United Artists Theater Circuit, Inc. to lease sites to develop similar
entertainment centers at Kilroy Long Beach (which would be included as part of
Kilroy Long Beach Phase IV). See "--Development, Leasing and Management
Activities--Kilroy Long Beach" and "--Thousand Oaks Civic Arts Plaza Retail
and Entertainment Center." The proposed entertainment element would provide a
major, regional-scale, state-of-the-art attraction for local residents in the
respective communities and provide an additional amenity to users of office
buildings at Kilroy Long Beach.

ACQUISITION PROPERTIES

The Company has entered into agreements to acquire four office properties
and three industrial properties (the "Acquisition Properties"). In the event
one or more of the Acquisition Properties are purchased, the Company expects
to finance the acquisition cost (approximately $48.8 million in the aggregate)
with long-term borrowings, new mortgage financing and/or the proceeds of the
Offering. Acquisition of each of these properties is subject to the
satisfactory completion of certain closing conditions. Although each of the
acquisitions is expected to be completed prior to or concurrent with
consummation of the Offering there is no assurance that any of the Acquisition
Properties will be acquired. Unless otherwise indicated, all calculations and
information contained in this Prospectus give pro forma effect to the
acquisition of the Acquisition Properties.

Kilroy Long Beach Phase I. Two of the Acquisition Properties comprise Kilroy
Long Beach Phase I, a Class A office complex which includes a two-story office
building and a combination two/three-story office building encompassing an
aggregate of 225,000 rentable square feet. The Company has entered into an
agreement for the purchase of these Office Properties for an aggregate
purchase price of $23.5 million. Kilroy Long Beach Phase I was developed by
the Company in 1987 and sold by the Company to the current owner, a non-
affiliated third party, in 1993. The Company has overseen all leasing and
management activity at the property since its development. As of December 31,
1995, the properties were 96.6% leased to eight tenants at an average annual
base rent per net rentable square foot of $15.90. See "--Office Properties--
Kilroy Long Beach."

Thousand Oaks Office Property. Another Acquisition Property is a stand-alone
three-story Class A office property located in Thousand Oaks, California,
which encompasses approximately 81,100 rentable square feet and, as of
December 31, 1995, was 100.0% leased to eleven tenants at an average annual
base rent per net rentable square foot of $23.26. The Company has entered into
an agreement with a non-affiliated third party for the purchase of this Office
Property for a purchase price of $13.2 million.

Anaheim Office and Industrial Properties. The Company also has entered into
an agreement to purchase one office and two industrial properties located at
4123-4175 East La Palma Avenue, Anaheim, California. The Office Property
consists of approximately 42,800 rentable square feet. At September 30, 1996,
the Office Property was 93.2% leased to 12 tenants at an average annual base
rent per net rentable square foot of $11.72. The Industrial Properties
comprise an aggregate of approximately 144,000 rentable square feet. At
September 30, 1996, each of the Industrial Properties was 100% leased with an
aggregate annual base rent per net rentable square foot of $3.74. Pursuant to
the terms of the purchase agreement, the Company will acquire all of these
properties for an aggregate purchase price of $12.2 million in cash.

12752-12822 Monarch Street, Garden Grove, California. On behalf of the
Company, in December 1996 Kilroy Industries purchased an industrial building
located at 12752-12822 Monarch Street, Garden Grove, California. The building
contains an aggregate of approximately 277,000 rentable square feet. As of
September 30, 1996, the property was 100% leased to five tenants at an average
annual base rent per net rentable

89
<PAGE>

square foot of $3.41. Pursuant to the terms of the purchase agreement, the
Property was acquired on behalf of the Company (due to the scheduled closing
required by the seller) for a purchase price of $9.1 million in cash and will
be assigned to the Company upon consummation of the Offering for an amount
equal to reimbursement of the purchase price in connection with the
acquisition, plus related expenses. The purchase was completed in December of
1996 because of the closing schedule required by the Seller.

THE COMPANY'S SOUTHERN CALIFORNIA SUBMARKETS*

The Company believes that Los Angeles, Orange and Ventura Counties have been
and will continue to be excellent markets in which to own and operate Class A
office, industrial and retail property over the long term. The Company
believes that these counties are attractive for a number of reasons:

. These counties, together with Riverside and San Bernardino Counties,
comprise the second largest Consolidated Metropolitan Statistical Area
in the United States (the "Southern California Area") and rank as the
world's 12th largest economy;

. The continuing expansion of the service-producing sector of the economy;

. Employment sectors using Class A office and industrial properties
continue to expand with the Southern California Area's continuing growth
in foreign trade and diversification of industries;

. Since 1992 there has been virtually no increase in the Southern
California Area's inventory of office space; and

. The Southern California Area's demand for quality industrial space has
spurred new construction of industrial properties.

As of December 31, 1995, the Southern California Area had a total population
of approximately 15.6 million people which accounted for approximately 5.9% of
the total U.S. population. Annual population growth in the Southern California
Area since 1990 has averaged approximately 217,000 persons. Of the
approximately 15.6 million people in the Southern California Area,
approximately 9.2 million persons lived in Los Angeles County and
approximately 2.6 million persons lived in Orange County. Annual estimated
growth in population in these counties over the next five years is expected to
be approximately 94,000 and 32,000 persons, respectively. The following table
presents the total population as a proportion of the United States population
for the Southern California Area and California for 1980, 1990 and 1995 and
the estimated population for 2000 and 2010.
- --------
* The Company retained Robert Charles Lesser & Co. ("Lesser"), nationally
recognized experts in real estate consulting and urban economics, to study
the Company's Southern California submarkets, and the discussion of such
submarkets below and under the caption "Summary--The Company's Southern
California Submarkets" is based upon Lesser's findings. While the Company
believes that these estimates of economic trends are reasonable, there can
be no assurance that these trends will in fact continue.

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<PAGE>

TOTAL POPULATION AS A PROPORTION OF THE UNITED STATES
SOUTHERN CALIFORNIA AREA AND CALIFORNIA
1980-2010

[CHART APPEARS HERE]
<TABLE>
<CAPTION>
1980 1990 1995 2000 2010
<S> <C> <C> <C> <C> <C>
California 10.50% 12.00% 12.30% 12.70% 13.50%
Southern California Area 3.65% 5.80% 5.90% 6.10% 6.30%
</TABLE>

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<PAGE>

Increasing Employment. The Southern California Area economy experienced
significant recessionary conditions during the 1990-1993 period. While the
Southern California Area lagged behind the rest of the country in entering the
recession, it also lagged in the economic recovery, in part due to the
cutbacks in the aerospace and defense industries. Employment growth recovered
in 1995. The passage of the North American Free Trade Agreement (NAFTA) in the
first quarter of 1995 and the General Agreement on Tariffs and Trade (GATT) in
the fourth quarter of 1994 provide optimism for new jobs and economic growth
for California. In 1995, the Southern California Area experienced a net
increase in employment with the addition of approximately 113,000 jobs,
representing an approximately 1.9% increase over the prior year. Of the total,
approximately 61,000 jobs (approximately 53.9% of the total) were created in
Los Angeles County. Employment in the Southern California Area is expected to
increase during 1996 through 1998, with an expected average increase of
approximately 125,000 to 135,000 jobs annually, representing an annual growth
rate of approximately 2.1% to 2.2%, nearly twice the expected national growth
rate of 1.2%. The following table shows the annual non-agricultural change in
jobs for the Southern California Area for the period from 1980 through 1995,
and the expected change in jobs for the period from 1996 through 1998.

ANNUAL NON-AGRICULTURAL EMPLOYMENT CHANGE
SOUTHERN CALIFORNIA AREA
1980-1998

[CHART APPEARS HERE]
<TABLE>
<CAPTION>
ANNUAL CHANGE IN JOBS
Southern California Area
<S> <C>
1980 -0-
1981 67,900
1982 (127,300)
1983 42,100
1984 222,700
1985 190,800
1986 188,500
1987 194,700
1988 189,300
1989 155,700
1990 90,600
1991 (173,000)
1992 (189,000)
1993 (102,500)
1994 29,200
1995 112,800
1996 124,448
1997 127,062
1998 135,907
</TABLE>
Unemployment rate in the Southern California Area is moving downward from
its 1993 peak. For the U.S., the 1995 unemployment rate was approximately 6.2%
versus approximately 7.7% in California. By comparison, the 1993 unemployment
rates for the U.S. and California were approximately 6.9% and 9.2%,
respectively. While the unemployment rate in the Southern California Area has
been declining in the last couple of years, it probably will remain higher
than the unemployment rate for the nation as a whole. Within the Southern
California Area, the 1995 unemployment rates vary from a low of approximately
5.4% in Orange County to a high of approximately 8.7% in Riverside and San
Bernardino Counties. Los Angeles County's unemployment rate stood at
approximately 7.7%--the same as California's.

Diversification of Industries. Los Angeles and Orange Counties are widely
regarded as major centers for corporate and international business and the
growth of international trade through the Los Angeles-Long Beach port complex,
which presently ranks as the largest commercial port in the United States, is
driving the growth of business in the surrounding area. While the southern
coastal Los Angeles County market, including the El Segundo and Long Beach
submarkets, has historically been, and continues to be, associated with the

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<PAGE>

aerospace and defense industries, the downsizing of those industries has
resulted in the region becoming more diversified, with major corporations in
emerging industries such as telecommunications and healthcare. The Company
believes this diversity, which is reflected in the Company's tenant base, has
strengthened these submarkets in which the Properties are located.

Foreign Trade. The growth in the region's employment is attributable in part
to the increase in the volume of trade in the region's ports and airports,
which at the end of 1995 accounted for over 13.0% of the total trading volume
in the United States and which has grown at an average annual rate of
approximately 11.4% during the ten-year period ended in 1994 compared to an
approximately 8.0% growth rate nationally during the same period. In addition,
during 1995 the trading volume among the region's ports and airports increased
another approximately 16.0%, further securing the region's position as the
nation's leader in international trade activity. The following table shows the
growth in the Los Angeles Customs District's share of U.S. Trade for the
period from 1972 through 1994.

LOS ANGELES CUSTOMS DISTRICT SHARE OF U.S. TRADE
1972-1994

[CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
1972 6%
1973 6%
1974 7%
1975 6%
1976 7%
1977 7%
1978 7%
1979 7%
1980 8%
1981 8%
1982 8%
1983 9%
1984 9%
1985 11%
1986 12%
1987 12%
1988 12%
1989 12%
1990 12%
1991 12%
1992 12%
1993 12%
1994 13%
1995 12%
</TABLE>

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<PAGE>

Growing Service Economy. Over the last 15 years the composition of
employment in the Southern California Area has shifted, generally mirroring
national patterns. The goods-producing sector (mining, construction and
manufacturing) has declined from an approximately 28.7% share in 1980 to
approximately 20.1% in 1995. Within this sector, manufacturing accounted for
the entire decline. Correspondingly, the services-producing sector
(transportation, communications and utilities; wholesale and retail trade;
finance, insurance and real estate services; and government) has expanded from
approximately 71.3% of total employment in 1980 to approximately 79.9% in
1995. The following table presents the total employment growth from 1980 to
1995 for various employment sectors in the Southern California Area.

TOTAL NON-AGRICULTURAL EMPLOYMENT GROWTH BY INDUSTRY
SOUTHERN CALIFORNIA AREA
1980-1995

[CHART APPEARS HERE]

Mining -10.2
Construction 16.9
Manufacturing -260
Transportation and Public Utilities 38.2
Wholesale and Retail Trade 238.5
F.I.R.E. 32.9
Services 697.6
Government 138.5
Goods Producing Employment -253.3
Service Producing Employment 1145.7

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In particular, the entertainment industry now accounts for over 200,000 jobs
in the region. The following table shows the growth of tourism and
entertainment-related jobs for the period from 1972 through 1995.

GROWTH OF TOURISM AND ENTERTAINMENT-RELATED JOBS
SOUTHERN CALIFORNIA AREA
1972-1995

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
YEAR Thousands of Jobs % Change
<S> <C> <C>
1972 110 ---
1973 120 9.1%
1974 120 0.0%
1975 123 2.5%
1976 130 5.7%
1977 140 7.7%
1978 145 3.6%
1979 150 3.4%
1980 148 -1.3%
1981 165 11.5%
1982 167 1.2%
1983 175 4.8%
1984 180 2.9%
1985 190 5.6%
1986 200 5.3%
1987 218 9.0%
1988 225 3.2%
1989 242 7.6%
1990 254 5.0%
1991 262 3.1%
1992 245 -6.5%
1993 251 2.4%
1994 263 4.8%
1995 297 12.9%
</TABLE>

In addition, recent developments in the Southern California Area aerospace
industry, such as additional orders for the McDonnell Douglas C-17 military
cargo jets and the announcements of new orders for McDonnell Douglas airliners
by commercial carriers and the hiring of up to 700 employees by TRW
Corporation, should help to stabilize related employment. The following table
shows the number of jobs in the aerospace/high technology industries in the
Southern California Area for the period from 1988 through 1995.

AEROSPACE/HIGH TECHNOLOGY EMPLOYMENT TRENDS
SOUTHERN CALIFORNIA AREA
1988-1997

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace/High Technology 274.2 265.6 253.3 228.6 199 168.7 146.7 135
</TABLE>

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<PAGE>

Office Submarkets. Total office space in the Southern California Area
amounts to approximately 222.7 million square feet. The Southern California
Area is the second largest office market in the country after the New York
City Metro Area (with over approximately 800 million square feet). Los Angeles
County comprises two-thirds of the metro office inventory, roughly 149.8
million square feet; Orange County accounts for approximately 54 million
square feet.

Vacancy rates in the office space market in the Southern California Area are
trending downward from a high in 1991 and 1992 of approximately 19.7% to a
level at the end of 1995 of approximately 18.0%. At December 31, 1995, the
vacancy rate for the Southern California Office Properties was approximately
10.5%. The following table shows the U.S. and Southern California Area office
vacancy rates for the period from 1988 through 1995.

OFFICE MARKET VACANCY TRENDS
SOUTHERN CALIFORNIA AREA VERSUS U.S.
1988-1995

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. 18.2% 18.6% 19.5% 19.4% 18.7% 17.0% 15.5% 14.1%
Southern California Area 0.0% 17.2% 0.0% 19.8% 19.7% 19.2% 18.3% 17.8%
</TABLE>

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<PAGE>

Net absorption in the Southern California Area in 1995 amounted to
approximately 2.2 million square feet, down from approximately 2.7 million
square feet in the prior year but ahead of 1993's approximately 1.7 million
square feet. By comparison, absorption in the Southern California Area ranged
from approximately 11.1 million to 11.7 million square feet during the mid- to
late 1980s. Annual increases in employment during the 1980s fluctuated between
approximately 160,000 and 200,000 jobs per year, as opposed to job losses
during 1991 to 1994. The following table shows the annual absorption of office
space in the Southern California Area for each of the years from 1986 through
1995.

ANNUAL NET ABSORPTION OF OFFICE SPACE
SOUTHERN CALIFORNIA AREA
1986-1995

[CHART APPEARS HERE]
1986 11,116
1987 11,684
1988 11,687
1989 11,260
1990 7,635
1991 5,005
1992 3,301
1993 1,689
1994 2,657
1995 2,153

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No Additional Supply of Office Space. During the last four years only
approximately 521,000 square feet of office space has been added to the
Southern California Area. The following table shows the additions in square
footage to the Southern California office market for each of the last six
years.

ADDITIONS TO THE SOUTHERN CALIFORNIA AREA'S OFFICE MARKET*

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
Year Square Feet
<S> <C>
1989 21,097
1990 11,033
1991 9,384
1992 3,188
1993 720
1994 -
1995 -
</TABLE>
- --------
* In 1994 and 1995, the total square footage in the market decreased by
approximately 2.0 million square feet and approximately 1.3 million square
feet, respectively.

The addition in the near-term of any new speculative office space to the
market remains unlikely as effective rents for multi-tenant properties are
currently well below the level needed to make new construction economically
feasible.

El Segundo Office Submarket. In the El Segundo submarket the Company owns
and operates three Office Properties at Kilroy LAX, and one stand alone two-
story office building. The aggregate rentable square feet of the Office
Properties in the El Segundo submarket represent approximately 21% of the
approximately 3.4 million rentable square feet of all Class A office
properties located in this submarket as of December 31, 1995.

The El Segundo submarket is an approximately 5.4 square mile area in the
southwestern coastal section of Los Angeles County. The El Segundo submarket
has the advantages of proximity to LAX without the disadvantages of being
located within the City of Los Angeles, as is the case with the submarket
located on the northeast side of LAX (the "LAX/Century Boulevard submarket").
The El Segundo submarket has a highly qualified computer and technology-based
work force. El Segundo's tax structure is as much as $6.00 per square foot per
annum lower than neighboring Los Angeles, principally attributable to lower
gross receipts and utility taxes. As a result, the El Segundo submarket has
historically enjoyed higher rental occupancy and tenant retention rates than
neighboring submarkets, such as LAX/Century Boulevard, Torrance and Carson.

The El Segundo submarket tenant base has broadened from its historic
concentration of aerospace industry tenants. A number of major corporations
have a significant presence in the El Segundo submarket, including

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<PAGE>

Xerox Corporation, Mattel, Inc., Chevron USA, Inc., AT&T, TRW Corporation and
Hughes Space & Communications.

Management believes that because of the high quality and strategic location
of the four Office Properties located in the El Segundo submarket, the El
Segundo Office Properties have had higher occupancy and tenant retention than
other properties within this submarket and have achieved higher rental rates.
As of December 31, 1995, the direct vacancy rate of Class A office buildings
in the El Segundo submarket was approximately 10.8% as compared to
approximately 7% for the Company's El Segundo Office Properties as a whole.
The average asking annual rental rate in the El Segundo submarket as of
December 31, 1995 was $21.00 per square foot for Class A office buildings
compared to an average asking annual rental rate of $23.50 per square foot for
the Company's Office Properties. For the year ended December 31, 1995, there
was net absorption of approximately 237,000 rentable square feet of Class A
office space. No new office buildings are under construction and, to the
Company's knowledge, no new construction is presently projected in the near
future in the El Segundo submarket. The following tables show the comparative
vacancy rates of Class A office space in the El Segundo submarket and Kilroy
LAX, and the comparative mean asking rents of Class A office space in the El
Segundo submarket and Kilroy LAX, respectively.

HISTORICAL CLASS A OFFICE VACANCY
KILROY PROPERTIES VERSUS EL SEGUNDO CLASS A
1990-1995

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
Year Kilroy Properties El Segundo Class A
<S> <C> <C>
1990 8.0% 8.3%
1991 6.9% 4.4%
1992 6.8% 8.5%
1993 5.5% 5.5%
1994 4.3% 19.5%
1995 4.3% 10.8%
</TABLE>

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<PAGE>

HISTORICAL CLASS A OFFICE RENTS
KILROY PROPERTIES VERSUS EL SEGUNDO CLASS A
1990-1995

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
Kilroy Properties El Segundo Class A
Mean Asking Rents Mean Asking Rents
<S> <C> <C>
1990 $23.30 $22.30
1991 $23.85 $22.65
1992 $23.91 $22.55
1993 $23.70 $21.30
1994 $23.40 $21.80
1995 $23.40 $21.10
</TABLE>

Subsequent to December 31, 1995, Hughes Space & Communications vacated an
approximately 502,000 square foot Class A office space owned by an
unaffiliated third-party located at 200 North Sepulveda Boulevard in El
Segundo. Through June 30, 1996, approximately 87,000 square feet had been
leased, leaving approximately 415,000 available, and putting the vacancy rate
for Class A office space in the El Segundo submarket at approximately 23.0%.
Local brokers indicate that the office property located at 200 North Sepulveda
Boulevard is among the lower quality Class A office buildings in the El
Segundo submarket. According to Lesser, the asking rents for quality Class A
office space in the El Segundo submarket should be relatively unaffected by
the addition of the lower quality office property space to the submarket's
available inventory.

Notwithstanding the increase in overall available Class A office space in
the El Segundo submarket through June 30, 1996, the decrease in the El Segundo
submarket vacancy rate for quality Class A office space, and the indications
of improvement and diversification in the submarket's economy, should apply
some short-term upward pressure on rents for quality Class A office space, by
as much as 5.0% within the next year. Asking rents with respect to lower
quality Class A office space should remain relatively flat until the related
vacancy rate drops to 15%.

Long Beach Airport Area Office Submarket. Upon consummation of the Offering
and the Formation Transactions, the Company will own five Office Properties at
Kilroy Long Beach Phases I and II which represent approximately 22% of the
total rentable square feet of all Class A office properties located in the
Long Beach Airport area submarket.

The Long Beach Airport area submarket is strategically located near the
border of Los Angeles and Orange Counties, adjacent to the I-405 Freeway and
is in close proximity to several other freeways which serve the area. The
submarket is also near the Long Beach Airport which, through AmericaWest
Airlines, provides commercial airline access to all regions of the country.
The Long Beach Airport area submarket provides tenants with the ability to
draw a workforce from and to provide services to clients in both Los Angeles
and Orange Counties, making it an ideal location for companies operating in
both counties to consolidate their operations to a convenient single location.
In addition, portions of the submarket, including the Properties located at
Kilroy

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<PAGE>

Airport Center Long Beach, are located within a favorable tax zone which
permits qualifying tenants to receive a variety of tax credits and deductions
not available in neighboring submarkets. The submarket also offers tenants a
secure environment within a first class office park with the potential for
substantial expansion, whereas the Long Beach central business district
submarket is hampered by traffic congestion and limited opportunities for
tenant expansion.

As of December 31, 1995, the direct vacancy rate of Class A office buildings
in the Long Beach Airport area submarket was approximately 17.4% as compared
to approximately 16% for the Company's Long Beach Office Properties as a
whole. For the year ended December 31, 1995, there was net absorption of
approximately 458,000 rentable square feet of Class A office space. The
current mean asking annual rental rate in the Long Beach Airport area
submarket is approximately $24.40 per rentable square foot for Class A office
buildings compared to the current mean asking annual rental rate at Kilroy
Long Beach of $24.30 per rentable square foot.

The decrease in the submarket's vacancy rate, the indications of improvement
in the submarket's aerospace industry and the present difficulty in locating
large blocks of contiguous space should apply some short-term upward pressure
on rents for Class A office space within the next two years. Available space
for technology companies is particularly difficult to find and buildings which
offer current telephone communication capabilities and electrical support are
more likely to benefit earlier.

Thousand Oaks Submarket. Upon consummation of the Offering and the Formation
Transactions, the Company will own a stand-alone three-story office building
located in Thousand Oaks, California. The City of Thousand Oaks has
approximately 112,600 residents, and is located 40 miles northwest of Los
Angeles in Ventura County, which is located along the coast immediately north
of Los Angeles County. As of December 31, 1995, Ventura County had a
population of approximately 720,000 persons. The County is home to companies
in various industries including high technology, pharmaceuticals and finance.
As of December 31, 1995, the vacancy rate of office space in the Ventura
County office submarket was approximately 14.1%. During 1995, there was net
absorption in the Ventura County office submarket of approximately 157,000
rentable square feet of office space. The average annual effective gross rent
for office space in the Ventura County office submarket as of December 31,
1995 was $15.00 per square foot.

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<PAGE>

Industrial Submarkets.

As of May 1996, available industrial space in the Southern California Area
totaled approximately 1.1 billion square feet. Vacancy rates in the industrial
space market in the Southern California Area have declined from a high of
approximately 13.8% in 1992 to approximately 9.2% at December 31, 1995. At
December 31, 1995, the vacancy rate for the Industrial Properties was
approximately 1.6%. The following table shows the U.S. and Southern California
Area industrial vacancy rates for the period from 1991 through 1995.

INDUSTRIAL MARKET VACANCY TRENDS
U.S. AND THE SOUTHERN CALIFORNIA AREA
1991-1995

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
U.S. 7.9% 8.7% 8.3% 7.4% 6.9%
Southern California Area 13.0% 13.8% 13.5% 12.6% 9.2%
</TABLE>

Much of the existing space on the market in the Southern California Area is
considered to be functionally obsolete due to its age, services, and/or
configuration. As a result, the Southern California Area inventory for
industrial space is beginning to experience a modest growth in new
construction primarily of build-to-suit. In addition, speculative construction
also grew modestly in 1995 with approximately 6.0 million square feet of new
construction representing approximately 0.5% of the region's inventory.
However, this amount still is relatively modest when compared to 1989 levels
when new construction for the year reached approximately 34.0 million square
feet, and the existing building inventory exceeded approximately 1.1 billion
square feet.

El Segundo Industrial Submarket. The Company owns four Industrial Properties
located in the City of El Segundo. At June 30, 1996, the Company's El Segundo
Industrial Properties were fully leased. The El Segundo industrial submarket
is part of the South Bay industrial market which includes the cities of
Torrance, Carson and Long Beach. At December 31, 1995, the South Bay
industrial market contained approximately 185 million rentable square feet of
industrial space, with a vacancy rate of approximately 8.2%.

Orange County Industrial Submarket. Upon consummation of the Offering, the
Company will own seven Industrial Properties in Orange County, five of which
are in the City of Anaheim and two of which is in the City of Garden Grove,
which contain an aggregate of approximately 816,877 rentable square feet.
These properties accounted for approximately 9.7% of the Company's base rent.
At June 30, 1996, the Company's Orange County Industrial Properties were 90.5%
leased to 13 tenants. At December 31, 1995, the Orange County industrial
submarket contained approximately 187 million rentable square feet, with a
vacancy rate of approximately 12.9%. The low current vacancy rate in the
Southern California industrial submarket as a whole is likely to put upward
pressure on rents for Southern California Class A buildings during 1996, with
increases by as much as 9% by the end of 1997.

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<PAGE>

Development Property Submarkets.

Thousand Oaks Submarket. The Company has entered into an exclusive agreement
to negotiate a Development and Disposition Agreement in connection with the
Thousand Oaks Civic Arts Plaza Retail and Entertainment Center, an
approximately 11-acre project in the City of Thousand Oaks. See "--Office
Submarkets--Thousand Oaks Submarket." As of December 31, 1995, the vacancy
rate of retail facilities in the greater City of Thousand Oaks (including
certain smaller surrounding communities and unincorporated areas) was
approximately 7.1% of a total of approximately 3.4 million rentable square
feet in the area. During 1995, there was net absorption of approximately
65,000 rentable square feet of retail space in this same area.

EXCLUDED PROPERTIES

The Company will hold options to acquire (i) parcels comprising an aggregate
of approximately 18 acres located at Calabasas Park Centre, in Calabasas,
California and (ii) a three-building office complex located on North Sepulveda
Boulevard in El Segundo, California at the respective purchase price for each
of the properties as discussed below. The office complex was developed and has
been leased and managed by the Kilroy Group and each option property is
currently owned by a partnership controlled by John B. Kilroy, Sr. and John B.
Kilroy, Jr. The option for Calabasas Park Centre is exercisable on or before
the first anniversary of the Offering. The option for the office complex
located on North Sepulveda Boulevard in El Segundo is exercisable on or before
the seventh anniversary of the consummation of the Offering. The purchase
price for each of the properties will be payable in cash, provided, however,
that if the option for the office complex in El Segundo is exercised after the
first anniversary of the consummation of the Offering, the purchase price will
be payable in cash or Units at the election of the seller.

In the event that the owner of a property receives an offer from a third
party for the master lease or purchase of such property, such owner may give
notice to the Company, which notice shall include the proposed purchase price,
leasing terms and/or other economic terms of the proposed transfer or lease of
such property. The Company shall then have 60 days to give notice of its
election to acquire or lease such property at the lower of the applicable
option price or the proposed purchase price or lease terms. In the event that
the Company does not give such notice, the option to such property shall be
suspended and the owner may proceed with the sale or lease of such parcel
pursuant to the terms of such offer, provided that the economic terms may be
up to 5% below that described in such notice; provided, however, that with
respect to any sale of the approximately 18 acres located at Calabasas Park
Centre discussed below, the Company shall have the right to acquire at the
option price the owners' rights and related monetary obligations under the
respective sales agreement. In the event the owners of such property (i) have
not entered into a letter of intent for the sale or lease of such property
within 180 days following the notice to the Company referenced above, or
(ii) have not completed the sale of the respective property within 270 days
following such notice, then the Company's option with respect to such property
shall be reinstated, up to the expiration date of the option. The Company's
options shall be subject to any arrangements entered into by the Kilroy Group
in connection with any financing, recapitalization or leasing of the
properties including, without limitation, any rights of the lender(s) with
respect to such properties with respect to a transfer pursuant to the
applicable option. In addition, the office complex will be managed by the
Operating Partnership pursuant to a management agreement on market terms.

Calabasas Park Centre. Kilroy Calabasas Associates, a limited partnership
owned by John B. Kilroy, Sr. and John B. Kilroy, Jr., owns Calabasas Park
Centre, an approximately 66-acre site (representing approximately 45
developable acres net of acreage required for streets and contractually
required open areas) in the City of Calabasas located immediately west of the
San Fernando Valley which is presently entitled for over one million rentable
square feet of office, retail and hotel development, and for which future
entitlements are expected to include residential development. The property has
substantially all significant infrastructure improvements in place. Kilroy
Calabasas Associates is actively marketing for sale various parcels totaling
approximately 27 acres for neighborhood retail, hotel and residential
development, of which approximately 1.7 acres is proposed to be dedicated to
the City of Calabasas for civic use. Kilroy Calabasas Associates has received
offers with respect to certain parcels and is pursuing such offers in the
ordinary course of business, although there is no assurance that

103
<PAGE>

any such transactions will be completed in the near term. John B. Kilroy, Sr.
and John B. Kilroy, Jr. each expect to spend an immaterial amount of time in
connection with any sales of parcels of Calabasas Park Centre. The remaining
approximately 18 acres for which the Company has been granted an option is
entitled for over 500,000 rentable square feet for office, hotel and limited
retail use. Because of the uncertainty that such property will be used
primarily as office space, this property is not appropriate for inclusion in
the Company's portfolio at this time.

Pursuant to the terms of the applicable option agreement, the purchase price
for the parcels located at Calabasas Park Centre will be equal to the total
accumulated costs, as of the date such option is exercised, in connection with
acquisition of rights with respect to, and the entitlement and development of
such property, including, without limitation, property taxes, predevelopment
and entitlement costs and fees, and related bond financing costs.

North Sepulveda Boulevard, El Segundo. The Kilroy Group developed and
operates a three-building office complex located on an over 3.5-acre parcel in
El Segundo, California, adjacent to LAX. The complex is comprised of an 11-
story office building (constructed in 1972), an eight-story office building
(constructed in 1962) and a seven-level parking structure with retail space on
the ground floor (constructed in 1972), encompassing an aggregate of
approximately 360,000 rentable square feet of office space and approximately
5,600 rentable square feet of retail space. The properties have convenient
access to LAX and the I-105 Freeway. As of September 30, 1996, the office space
was 100% leased to Hughes Space & Communications (of which approximately 60% is
occupied) at an average annual triple net base rent per net rentable square
foot of $17.91, subject to a lease scheduled to expire on February 28, 1998.
Management believes that in light of the near-term expiration of the current
lease and the uncertainty of whether the current rental rate will approximate
market rental rates at the time of expiration, this office complex is not
appropriate for inclusion in the Company's portfolio at this time. The property
is owned by Kilroy Airport Industrial Co., a limited partnership controlled by
John B. Kilroy, Sr. and John B. Kilroy, Jr., each of whom expects to spend an
immaterial amount of time in connection with the management of the property.

As of September 30, 1996, the office complex was encumbered by a first
mortgage loan having an outstanding principal balance of approximately $61.4
million. The loan bears interest at a rate of 9.63% per year and is scheduled
to mature on February 1, 2005. This property is also encumbered by a second
mortgage loan having an outstanding principal balance as of June 30, 1996 of
$3.4 million. This loan bears interest at a rate of 9.75% per year and is
scheduled to mature on February 28, 1998.

Pursuant to the terms of the applicable option agreement, the purchase price
for the North Sepulveda Boulevard properties is equal to the sum of (i) the
then outstanding mortgage indebtedness secured by the respective properties,
plus (ii) $1, plus (iii) the aggregate amount of capital contributed by the
beneficial owners of the property, net of actual cash distributions distributed
in respect of such beneficial owners, during the period beginning on the date
of the consummation of the Offering and ending on the date of exercise of the
option, plus (iv) an annualized return of 8.0% on the amount in excess of $5.0
million, if any, as determined pursuant to clause (iii) preceding. The
Company's option to purchase the North Sepulveda Boulevard properties is
subject to a right of first offer held by Hughes Space & Communications.

Other Excluded Properties. In addition to the properties described above, the
Company will not acquire the following properties, each of which is owned and
controlled by members of the Kilroy Group, which are not of a type appropriate
for inclusion in the Company's portfolio or consistent with the Company's
strategy: (i) an approximately three-acre undeveloped parcel located in Tampa,
Florida, which management believes is not appropriate for inclusion in the
Company's portfolio because of the long-term uncertainty of demand for office
and industrial property in the local market; and (ii) an approximately one-
half-acre parcel located in Santa Ana, California which management believes is
not appropriate for inclusion in the Company's portfolio because the parcel is
subject to an easement for railroad use, making the property undesirable for
development for office or industrial use. Each of the principals of KI who are
directors and/or executive officers of the Company will spend an immaterial
amount of time managing these properties.

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<PAGE>

INSURANCE

Management believes that the Properties are covered by adequate
comprehensive liability, rental loss, and all-risk (at full replacement cost)
insurance, provided by reputable companies, with commercially reasonable
deductibles, limits and policy specifications customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as losses due to floods, riots
or acts of war. Should an uninsured loss occur, the Company could lose both
its invested capital in and anticipated profits from the property.

UNINSURED LOSSES FROM SEISMIC ACTIVITY

The Properties are located in areas that are subject to seismic activity.
Although the Company expects to have earthquake insurance on certain of the
Properties, should any Property sustain damage as a result of an earthquake,
or should losses exceed the amount of such coverage, the Company may incur
uninsured losses or losses due to deductibles or co-payments on insured
losses.

All of the Properties were reviewed by an independent engineering
consultant. The review of each of the Properties included a review of the
probable loss associated with certain seismic activity. The estimated loss for
each of the Properties was determined based upon magnitudes for once in 50
year seismic event and once in 200 year seismic event. This analysis indicated
that in a once in 50 year seismic event, none of the Office Properties would
be expected to suffer damage loss in excess of 6% of the Properties'
respective estimated replacement cost, and only two of the Industrial
Properties would be expected to suffer damage loss in excess of 10% of the
Properties' respective estimated replacement cost. These two Industrial
Properties, located at 12691 Pala Drive, Garden Grove, California and 1230
South Lewis Street, Anaheim, California, are expected to suffer damage of
approximately 13% and 16%, respectively, of their estimated replacement cost
in a once in 50 year seismic event. In a once in 200 year seismic event, only
one of the Office Properties would be expected to suffer damage loss in excess
of 16% of its respective estimated replacement cost, while the Office Property
located at 185 South Douglas Street, El Segundo, California would be expected
to suffer damage loss of approximately 35% of its respective estimated
replacement cost. With respect to the Industrial Properties, only four would
be expected to suffer damage loss in excess of 25% of their respective
estimated replacement cost in a once in 200 year event, while the Industrial
Properties located at 12691 Pala Drive, Garden Grove, California and 1230
South Lewis Street, Anaheim, California, 2260 East El Segundo Boulevard, El
Segundo, California, 2270 East El Segundo Boulevard, El Segundo, California,
each would be expected to suffer damage loss of approximately 40% of their
respective estimated replacement cost.

During the January 17, 1994 Northridge earthquake in the Los Angeles area,
which had a magnitude of approximately 6.7 on the Richter scale, one of the
the Properties in the Southern California area sustained damage which was
repaired at a cost of approximately $5,000.

GOVERNMENT REGULATIONS

Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.

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<PAGE>

Environmental Matters. Under various federal, state and local laws,
ordinances and regulations relating to the protection of the environment, an
owner or operator of real estate may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose liability without regard to whether the
owner was responsible for, or even knew of, the presence of such hazardous or
toxic substances. The costs of investigation, removal or remediation of such
substances may be substantial and, the presence of such substances may
adversely affect the owner's ability to rent or sell the property or to borrow
using such property as collateral. In addition, the presence of such
substances may expose it to liability resulting from any release or exposure
of such substances. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at another location may also be liable for the
costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Certain environmental laws impose liability for release of asbestos-
containing materials into the air, and third parties may also seek recovery
from owners or operators of real properties for personal injury associated
with asbestos-containing materials and other hazardous or toxic substances. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental penalties and injuries to persons and property.

All of the Properties were subject to Phase I or similar environmental
assessments by independent environmental consultants in connection with the
formation of the Company. Phase I assessments are intended to discover
information regarding, and to evaluate the environmental condition of, the
surveyed property and surrounding properties. Phase I assessments generally
include an historical review, a public records review, an investigation of the
surveyed site and surrounding properties, and preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
In connection with the preparation of the Phase I environmental survey with
respect to Kilroy Long Beach Phase I, interviews of certain individuals
formerly employed at the site documented in a historical site assessment
survey revealed the site's possible prior use as a Nike missile storage
facility. Further investigation performed by the Company's environmental
consultants did not reveal any additional information with respect to such use
of the site. The Company's further investigation into the use and storage of
Nike missiles, including their possible use with nuclear warheads, did not
reveal any facts that would indicate that such a prior use of the site would
result in a material risk of environmental liability. Consequently, the
Company does not believe that this site constitutes a risk of a liability that
would have a material adverse effect on the Company's business, assets or
results of operations taken as a whole. In addition, none of the Company's
environmental assessments of the Properties have revealed any environmental
liability that the Company believes would have a material adverse effect on
the Company's business, assets or results of operations taken as a whole, nor
is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company. If
compliance with the various laws and regulations, now existing or hereafter
adopted, exceeds the Company's budgets for such items, the Company's ability
to make expected distributions to stockholders could be adversely affected.

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<PAGE>

Company believes that the Properties are currently in material compliance with
all such regulatory requirements. However, the requirements will not be
changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by the Company and could have an
adverse effect on the Company's Funds from Operations and expected
distributions.

The City of Los Angeles has enacted certain regulations relating to the
repair of welded steel moment frame buildings located in certain areas damaged
as a result of the Northridge Earthquake. As currently enacted, such
regulations do not apply to the Properties. There can be no assurance,
however, that similar regulations will not be adopted by other cities in which
the Properties are located or that new requirements will not be imposed which
would require significant unanticipated expenditures by the Company and could
have a material adverse effect on the Company's Funds from Operations and cash
available for distribution.

Except as described in this Prospectus, there are no other laws or
regulations which have a material effect on the Company's operations, other
than typical state and local laws affecting the development and operation of
real property, such as zoning laws. See "Risk Factors--Government
Regulations," "Certain Provisions of Maryland Law and of the Company's
Articles of Incorporation and Bylaws," "Partnership Agreement of Operating
Partnership," "Federal Income Tax Consequences" and "ERISA Considerations."

MANAGEMENT AND EMPLOYEES

The Operating Partnership has been structured as the entity through which
the Company will conduct substantially all of its operations. The Services
Company has been structured as an entity through which the Company will
conduct substantially all of its development activities and related
operations. The Company generally has full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, but not the Services Company.

The Company (primarily through the Operating Partnership and the Services
Company) initially will employ approximately 47 persons. The Company, the
Operating Partnership and the Services Company will employ substantially all
of the professional employees of KI that are currently engaged in asset
management and administration. The Operating Partnership will employ
approximately 18 on-site building employees who currently provide services for
the Properties. The Company, the Operating Partnership and the Services
Company believe that relations with their employees are good.

LEGAL PROCEEDINGS

Neither the Company nor any of the Properties is subject to any material
litigation nor, to the Company's knowledge, is any material litigation
threatened against any of them, other than routine litigation arising in the
ordinary course of business, which is expected to be covered by liability
insurance. In May 1994, KI permitted an uncontested foreclosure by the Bank of
America on a five-story office building located in El Segundo, California as
part of an overall renegotiation of KI's loans and lines of credit. In July
1993, KI sold Kilroy Long Beach Phase I to the mortgagee thereof, at a
purchase price slightly in excess of the outstanding balance of such mortgage.
KI continued to lease and manage such facility after such sale. In December
1994, the owner of Hidden River Corporate Park located in Tampa, Florida
permitted the uncontested foreclosure of the deeds of trust and certain other
property pledged as collateral to secure certain development loans related to
such property. KI developed the property, an approximately 210-acre office
park, and at the time of the foreclosure John B. Kilroy, Sr. and John B.
Kilroy, Jr. were limited partners in the company which owned the property.

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The Company's policies with respect to the following activities have been
determined by the Board of Directors of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors, without
a vote of the stockholders of the Company, if they determine in the future
that such a change is in the best interests of the Company and its
stockholders.

INVESTMENT POLICIES

Investment in Real Estate or Interests in Real Estate. The Company will
conduct all its investment activities through the purchase of interests in the
Operating Partnership until all Units have been redeemed or exchanged for
shares of Common Stock and the Operating Partnership ceases to exist. During
such period, the proceeds of all equity capital raised by the Company will be
contributed to the Operating Partnership in exchange for Units in the
Operating Partnership. The investment objectives of the Company are to achieve
stable cash flow available for distributions and, over time, to increase cash
flow and portfolio value by actively managing the Properties, developing
properties, acquiring additional properties that, either as acquired or after
value-added activities by the Company (such as improved management and leasing
services and renovations), will produce additional cash flows and by extending
its management, development and leasing business with third-parties. The
Company's policy is to develop and acquire properties primarily for generation
of current income and appreciation of long-term value.

The Company expects to pursue its investment objectives primarily through
the ownership of quality office, industrial and retail properties. The
Properties will initially consist of 14 Office Properties and 12 Industrial
Properties. The Company currently contemplates developing and acquiring
additional office buildings and industrial buildings primarily in Southern
California, although future investments could be made outside of such area or
in different property categories if the Board of Directors determines that
such acquisitions and developments would be desirable. The Company also will
be developing retail properties in connection with the development of the
Thousand Oaks Civic Arts Plaza, and may develop other retail properties as
favorable development opportunities arise. The Company will not have any limit
on the amount or percentage of its assets invested in any single property or
group of related properties. The Board of Directors may establish limitations
as it deems appropriate from time to time. No limitations have been set on the
number of properties in which the Company will seek to invest or on the
concentration of investments in any one geographic region.

The Company may develop, purchase or lease income-producing properties for
long-term investment and expand, improve or sell its Properties, in whole or
in part, when circumstances warrant. The Company may also participate with
other entities in property ownership through joint ventures or other types of
co-ownership. Equity investments by the Company may be subject to existing or
future mortgage financing and other indebtedness which will have priority over
the equity interests of the Company.

As the sole general partner of the Operating Partnership, the Company will
also determine the investment policies of the Operating Partnership. Under the
Partnership Agreement, all future investments must be made through the
Operating Partnership. See "Partnership Agreement of the Operating
Partnership--Management."

Investments in Real Estate Mortgages. While the Company will emphasize
equity real estate investments, the Company may, in its discretion, invest in
mortgages and other real estate interests consistent with the Company's
qualification as a REIT. The Company has not previously invested in mortgages
and does not presently intend to invest in mortgages or deeds of trust, but
may invest in participating or convertible mortgages if the Company concludes
that it may benefit from the cash flow or any appreciation in the value of the
subject property. Such mortgages are similar to equity participations.
Investments in real estate mortgages run the risk that one or more borrowers
may default under such mortgages and that the collateral securing such
mortgages may not be sufficient to enable the Company to recoup its full
investment.

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Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage of ownership
limitations and gross income tests necessary for the Company to qualify and
maintain its status as a REIT, the Company may invest in securities of other
entities engaged in real estate activities or securities of other issuers. See
"Federal Income Tax Considerations--Taxation of the Company." The Company does
not currently intend to invest in the securities of other issuers except in
connection with acquisitions of indirect interests in properties (normally
general or limited partnership interests in special purpose partnerships
owning properties) and in connection with the acquisition of substantially all
of the economic interest in a real estate-related operating business where
such investments would be consistent with the Company's investment policies.
Investment in these securities is also subject to the Company's policy not to
be treated as an investment company under the Investment Company Act of 1940.
The risks of investing in real estate-related operating businesses include the
risk that contracts with third parties may be terminated by such third
parties, not renewed upon expiration or renewed on less favorable terms, and
the risk that fee income will decrease as a result of a decline in general
real estate market conditions.

DISPOSITIONS

The Company has no current intention to cause the disposition of any of the
Properties, although it reserves the right to do so if the Board of Directors
determines that such action would be in the best interests of the Company.

FINANCING

The Company has established its debt policy relative to the market
capitalization of the Company rather than to the book value of its assets, a
ratio that is frequently employed. Upon completion of the Offering and the
Formation Transactions, the debt to total market capitalization ratio (i.e.,
the total consolidated debt of the Company as a percentage of the market value
of the issued and outstanding shares of Common Stock and Units plus total
consolidated debt) of the Company will be approximately 25.2% (assuming an
initial public offering price of $20.00 per share of Common Stock). This ratio
will fluctuate with changes in the price of the Common Stock (and the issuance
of additional shares of Common Stock) and differs from the debt-to-book
capitalization ratio, which is based upon book value. As the debt-to-book
capitalization ratio may not reflect the current income potential of a
company's assets and operations, the Company believes that debt-to-total
market capitalization ratio provides a more appropriate indication of leverage
for a company whose assets are primarily income-producing real estate. The
total market capitalization of the Company, however, is more variable than
book value, and does not necessarily reflect the fair market value of the
underlying assets of the Company at all times. Although the Company will
consider factors other than total market capitalization in making decisions
regarding the incurrence of indebtedness (such as the purchase price of
properties to be acquired with debt financing, the estimated market value of
such properties upon refinancing and the ability of particular properties and
the Company as a whole to generate cash flow to cover expected debt service),
there can be no assurance that the ratio of indebtedness to total market
capitalization (or to any other measure of asset value) will be consistent
with the expected level of distributions to the Company's stockholders.

The Board of Directors has adopted a policy of limiting the Company's
indebtedness to approximately 50% of its total market capitalization, but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness, funded or otherwise, that the Company
may incur. In addition, the Company may from time to time modify its debt
policy in light of then current economic conditions, relative costs of debt
and equity capital, market values of its properties, general conditions in the
market for debt and equity securities, fluctuations in the market price of its
Common Stock, growth and acquisition opportunities, the Company's continued
REIT qualification requirements and other presently unknown factors which may
arise in the future which, in the judgment of the Board of Directors, require
a revision in such policy. Accordingly, the Company may increase or decrease
its debt to market capitalization ratio beyond the limits described above.

To the extent that the Board of Directors decides to obtain additional
capital, the Company may raise such capital through additional equity
offerings (including offerings of senior or convertible securities and
preferred

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stock), sales of investments, bank and other institutional borrowings, the
issuance of debt securities (which may be convertible into or exchangeable for
shares of Common Stock or be accompanied by warrants to purchase shares of
Common Stock) or retention of cash flow (subject to provisions in the Code
concerning taxability of undistributed REIT income), or a combination of these
methods. In the event that the Board of Directors determines to raise
additional equity capital, the Board has the authority, without stockholder
approval, to issue additional shares of Common Stock or other capital stock
(including securities senior to the Common Stock) of the Company in any
manner, and on such terms and for such consideration, it deems appropriate,
including in exchange for property. Existing stockholders would have no
preemptive right to purchase shares issued in any offering, and any such
offering might cause a dilution of a stockholder's investment in the Company.
As long as the Operating Partnership is in existence, the net proceeds of the
sale of Common Stock by the Company will be contributed to the Operating
Partnership as a contribution to capital in exchange for a number of Units in
the Operating Partnership equal to the number of shares of Common Stock sold
by the Company. The Company presently anticipates that any additional
borrowings would be made by the Operating Partnership, although the Company
might incur indebtedness, the proceeds of which would be re-loaned to the
Operating Partnership on the same terms and conditions as are applicable to
the Company's borrowing of such funds. See "Partnership Agreement of the
Operating Partnership--Capital Contribution."

Borrowings may be unsecured or may be secured by any or all of the assets of
the Company, the Operating Partnership or any existing or new property-owning
partnership and may have full or limited recourse to all or any portion of the
assets of the Company, the Operating Partnership or any existing or new
property-owning partnership. Indebtedness incurred by the Company may be in
the form of bank borrowings, purchase money obligations to the sellers of the
properties, publicly or privately placed debt instruments or financing from
institutional investors or other lenders. There are no limits on the number or
amount of mortgages or interests which may be placed on any one property. In
addition, such indebtedness may be recourse to all or any part of the property
of the Company or may be limited to the particular property for which the
indebtedness relates. The proceeds from any borrowings by the Company may be
used for working capital, to refinance existing indebtedness, to finance the
acquisition, expansion or development of properties and for the payment of
distributions.

The Board of Directors also has the authority to cause the Operating
Partnership to issue additional Units in any manner (and on such terms and for
such consideration) as it deems appropriate, including in exchange for
property. See "Partnership Agreement of the Operating Partnership--Issuance of
Additional Units."

In the future, the Company may seek to extend, expand, reduce or renew the
Credit Facility, or obtain new credit facilities or lines of credit, subject
to its general policy of debt capitalization. Future credit facilities and
lines of credit may be used for the purpose of making acquisitions or capital
improvements, providing working capital or meeting the taxable income
distribution requirements for REITs under the Code if the Company has taxable
income without receipt of cash sufficient to enable the Company to meet such
distribution requirements.

WORKING CAPITAL RESERVES

The Company will maintain working capital reserves (and when not sufficient,
access to borrowings) in amounts that the Board of Directors determines from
time to time to be adequate to meet normal contingencies in connection with
the operation of the Company's business and investments.

CONFLICT OF INTEREST POLICIES

Directors and officers of the Company may be subject to certain conflicts of
interests in fulfilling their responsibilities to the Company. The Company has
adopted certain policies designed to minimize potential conflicts of interest.

Terms of Transfers. The terms of the transfers of the Properties to the
Operating Partnership by the Continuing Investors, and the terms of each of
the option agreements relating to the Excluded Properties, were not determined
through arm's-length negotiation. Partners and affiliates of the Kilroy Group
who are directors

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and officers of the Company had a substantial economic interest in the
entities transferring the Properties and granting the options. Consequently,
such directors and officers may be subject to a conflict of interest with
respect to their obligations as management of the Company to enforce the terms
of the agreements relating to such transfers, including the indemnification
provisions thereof. However, the Independent Directors must approve any
transactions between the Company and members of the Kilroy Group including the
enforcement of the terms of the transfers. See "Risk Factors--Conflicts of
Interests" and "Management."

Sale or Refinancing of Properties. The sale of certain of the Properties may
cause adverse tax consequences to members of the Kilroy Group, as compared to
the effects on the Company. In addition, a significant reduction in debt
encumbering such Properties could cause adverse tax consequences to the
members of the Kilroy Group, as compared to the effects on the holders of
Units or shares of Common Stock. As a result, certain officers and directors
who are members of the Kilroy Group might not favor such a sale of the
Properties or a significant reduction in debt even though such sale or debt
reduction could be beneficial to the Company. The decision as to whether to
proceed with any such sale or debt reduction would be made by the Board of
Directors.

Noncompetition Agreements. John B. Kilroy, Sr. has agreed, during the term
of his service as a member of the Company's Board of Directors, not to conduct
property development, acquisition or management activities with respect to
office and industrial property in greater Southern California or in any other
market in which the Company owns, develops or manages property. John B.
Kilroy, Sr. will not be restricted, however, from continuing to own, manage
and lease certain other existing real estate investments owned by him
including, without limitation, certain properties described under "Business
and Properties--Excluded Properties."

John B. Kilroy, Jr. has agreed, during the term of his employment agreement
and for one year thereafter (unless terminated by the Company without cause),
and for so long as he is a member of the Company's Board of Directors, not to
conduct property development, acquisition, sale or management activities in
any market. Notwithstanding the foregoing, John B. Kilroy, Jr. will not be
restricted from continuing to own, manage, lease, transfer and exchange
certain existing real estate investments owned by him described under the
caption "Business and Properties--Excluded Properties" or owning interests in
real property not competitive with the Company.

In addition, with respect to the property located at Calabasas Park Centre,
each of Mr. John B. Kilroy, Sr. and Mr. John B. Kilroy, Jr. has agreed to be
limited solely to activities related to the marketing, entitlement and sale of
such properties. Such properties are being actively marketed for sale and are
expected to be sold in the ordinary course of business. Mr. John B. Kilroy,
Sr. and Mr. John B. Kilroy, Jr. each will spend an immaterial amount of time
in connection with the sale of such properties. In addition, each has agreed
not to sell such properties located at Calabasas Park Centre to a real estate
investment trust with an existing portfolio of office or industrial properties
unless first offered to the Company on the same economic terms.

Policies Applicable to All Directors. Under the Company's Articles of
Incorporation and Maryland law, a contract or transaction between the Company
and any of its directors or between the Company and any other corporation,
firm or other entity in which any of its directors is a director, officer,
stockholder, member or partner or has a material financial interest is not
void or voidable solely because of such interest if (i) the contract or
transaction is approved, after disclosure of the interest, by the affirmative
vote of a majority of the disinterested directors, or by the affirmative vote
of a majority of the votes cast by disinterested stockholders, or (ii) the
contract or transaction is established to have been fair and reasonable to the
Company.

The Company's Bylaws provide that a majority of the Company's Board of
Directors must be Independent Directors. See "Certain Provisions of Maryland
Law and of the Company's Articles of Incorporation and Bylaws--Board of
Directors."

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OTHER POLICIES

The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not
intend (i) to invest in the securities of other issuers (other than the
Operating Partnership and the Services Company) for the purpose of exercising
control over such issuer, (ii) to underwrite securities of other issuers or
(iii) to trade actively in loans or other investments.

The Company has authority to offer shares of Common Stock or other
securities and to repurchase or otherwise reacquire shares of Common Stock or
any other securities in the open market or otherwise and may engage in such
activities in the future. The Company may, under certain circumstances,
purchase shares of Common Stock in the open market, if such purchases are
approved by the Board of Directors. The Board of Directors has no present
intention of causing the Company to repurchase any of the shares of Common
Stock, and any such action would be taken only in conformity with applicable
federal and state laws and the requirements for qualifying as a REIT under the
Code and the Treasury Regulations. Although it may do so in the future, except
in connection with the Formation Transactions, the Company has not issued
Common Stock or any other securities in exchange for property, nor has it
reacquired any of its Common Stock or any other securities. The Company
expects to issue shares of Common Stock to holders of Units upon exercise of
their exchange rights in the Partnership Agreement of the Operating
Partnership. The Company has not made loans to other entities or persons,
including its officers and directors. The Company may in the future make loans
to joint ventures in which it participates in order to meet working capital
needs. The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers other than the Operating
Partnership, nor has the Company invested in the securities of other issuers
other than the Operating Partnership and the Services Company for the purposes
of exercising control, and does not intend to do so.

At all times, the Company intends to make investments in such a manner as to
be consistent with the requirements of the Code for the Company to qualify as
a REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board of Directors of the Company determines that
it is no longer in the best interests of the Company to qualify as a REIT and
such determination is approved by the affirmative vote of at least two-thirds
of the shares of the Company's capital stock outstanding and entitled to vote
thereon.

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THE FINANCING

THE MORTGAGE LOAN

The Company, on behalf of the Operating Partnership, intends to obtain a
written commitment for a mortgage loan of $96.0 million (the "Mortgage Loan"),
the closing of which is a condition to the consummation of the Offering. The
proceeds of the Mortgage Loan will principally be used to repay existing
indebtedness on the Properties. Payment of principal and interest on the
Mortgage Loan is expected to be secured by certain Properties. The Mortgage
Loan is expected to require monthly principal and interest payments based on a
fixed rate, amortizing over a 25-year period, maturing in 2005.

Subject to certain limited exceptions, the Mortgage Loan will be non-
recourse to the Company. In addition, the terms of the Mortgage Loan will
include customary representations, warranties and events of default and will
require the Operating Partnership to comply with certain affirmative and
negative covenants. The Company and the Operating Partnership will be
responsible for payment of the lender's fees and expenses associated with
providing the Mortgage Loan.

THE CREDIT FACILITY

The Company, on behalf of the Operating Partnership, expects to obtain a
written commitment to establish a two-year, $75 million revolving credit
facility (the "Credit Facility") which the Company and the Operating
Partnership expect to enter into concurrently with the consummation of the
Offering. The Credit Facility will be used primarily to finance acquisitions
of additional properties. Payment of principal and interest is expected to be
secured by certain Properties. In addition, borrowings under the Credit
Facility are expected to be recourse obligations to the Operating Partnership
and the Company.

The Operating Partnership's ability to borrow under the Credit Facility will
be subject to its compliance with a number of customary financial and other
covenants on an ongoing basis, including maintenance of loan-to-value and debt
service coverage ratios, limitations on additional indebtedness and a minimum
net worth requirement. The Credit Facility is expected to require monthly
interest only (LIBOR based) payments on the total borrowings outstanding under
the Credit Facility each month. The Company and the Operating Partnership
anticipate that the Credit Facility will be either extended, renewed or
refinanced through the issuance of debt or equity securities at its maturity.
The Company and the Operating Partnership will be responsible for payment of
the lender's fees and expenses associated with providing the Credit Facility.
Neither the Company nor the Operating Partnership will have any variable rate
debt at the time of the Offering.

If the initial public offering price for the Common Stock is less than the
midpoint of the range set forth on the cover page of this Prospectus, the
Company expects to make up any shortfall between the aggregate net proceeds of
the Offering and the Mortgage Loan, and the intended uses thereof, with
borrowings under the Credit Facility or by reducing its working capital cash
reserves or its capital expenditure cash reserves. See "Use of Proceeds."

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Upon consummation of the Offering, the Board of Directors will consist of
five members, including a majority of directors who are Independent Directors.
Directors of the Company will be divided into three classes serving staggered
three-year terms (except initial terms expiring in 1997 and 1998) with
directors serving until the election and qualification of their successors.
The first annual meeting of stockholders of the Company after the Offering
will be held in 1997. Each of the proposed directors named below has been
nominated for election upon the consummation of the Offering and has consented
to serve. See "Certain Provisions of Maryland Law and of the Company's
Articles of Incorporation and Bylaws--Board of Directors." Subject to rights
pursuant to any employment agreements, officers of the Company serve at the
pleasure of the Board of Directors.

The following table sets forth certain information with respect to the
directors, proposed directors and executive officers of the Company
immediately following the completion of the Formation Transactions and
consummation of the Offering:

<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
---- --- -------- -------
<S> <C> <C> <C>
John B. Kilroy, Sr...... 74 Chairman of the Board of Directors 1999
John B. Kilroy, Jr...... 48 President, Chief Executive Officer and Director 1999
Jeffrey C. Hawken....... 37 Executive Vice President and Chief Operating Officer
Campbell Hugh Greenup,
Esq. .................. 43 General Counsel
Richard E. Moran Jr. ... 45 Executive Vice President and Chief Financial Officer
A. Christian Krogh...... 48 Vice President, Asset Management
William P. Dickey,
Esq.................... 53 Director Nominee [ ]
Matthew J. Hart......... [ ] Director Nominee [ ]
Dale F. Kinsella, Esq... 48 Director Nominee [ ]
</TABLE>

The following is a biographical summary of the experience of the directors,
proposed directors and executive officers of the Company:

JOHN B. KILROY, SR., age 74, founded, in 1947, the businesses which were
incorporated in 1952 as the entity today known as Kilroy Industries. Mr.
Kilroy has served as Kilroy Industries' President since its incorporation,
and 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 broadly-based network of
relationships. Mr. Kilroy is a trustee of the Independent Colleges of
Southern California, serves on the Board of Directors of Pepperdine
University, and is a past trustee of Harvey Mudd College.

JOHN B. KILROY, JR., age 48, has been 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 acquisition, sales, development, construction, leasing, financing,
and entitlement since 1967 and has worked for KI for over twenty-five
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
member of the National Realty Committee and the Urban Land Institute, and
is a trustee of the El Segundo Employers Association, and a past trustee of
Viewpoint School, the Jefferson Center For Character Education and of the
National Fitness Foundation.

JEFFREY C. HAWKEN, age 37, has been responsible for the management and
operations of KI's real estate portfolio. Mr. Hawken's activities have
included leasing, asset and facility management, with an emphasis on
quality of service, operational cost reduction and code compliance. He has
also served on KI's acquisitions and executive committees. Mr. Hawken
joined KI in 1980, as a Senior Financial Analyst, and

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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 (RPA) through the Building Owner's and Manager's Association
(BOMA).

CAMPBELL HUGH GREENUP, age 43, has over fourteen years of experience in
the real estate industry. Mr. Greenup joined KI in 1986 as Assistant
General Counsel and had responsibility for a significant portion of the
Company's legal affairs, including transaction negotiation and
documentation. In addition, he has been responsible for all the Company's
development activities, including land acquisition and entitlement, project
development, leasing and disposition. In this role, he was also President
of Kilroy Technologies Company, LLC, the Kilroy services entity, and
directed all of the Company's fee development activities. Mr. Greenup is a
member of the American Bar Association, the Urban Land Institute-IOPC Gold
Committee, the National Association of Corporate Real Estate Executives and
the Los Angeles County Beach Advisory Commission.

RICHARD E. MORAN, JR., age 45, was Executive Vice President, Chief
Financial Officer and Secretary of the Irvine Apartment Communities, Inc.
from 1993 to 1996. Previously, Mr. Moran was affiliated with The Irvine
Company from 1977 to 1993. He served as Treasurer of The Irvine Company
from 1983 to 1993, was named Vice President in 1984, Senior Vice President
in 1990, and Executive Vice President of Corporate Finance in 1992.
Previously, he was a certified public accountant with Coopers & Lybrand. He
is a member of the Urban Land Institute. Mr. Moran received his Master of
Business Administration degree from the Harvard University and his
undergraduate degree from Boston College.

A. CHRISTIAN KROGH, age 48, has over 20 years of experience in the real
estate industry. Mr. Krogh joined KI in 1990 as Treasurer and was
responsible for all cash flow forecasting, preparing variance reports,
monitoring short-term cash needs and investments, interfacing with lenders,
performing credit analysis for prospective tenants, interfacing with asset
management on the day-to-day activities of the Company, as well as other
traditional treasurer's functions. Mr. Krogh also was responsible for
overseeing KI's personnel functions, obtaining and monitoring property
insurance and coordinating employee benefit programs. In the 15 years prior
to joining KI Mr. Krogh held similar positions with two other real estate
companies.

WILLIAM P. DICKEY, age 53, has agreed to serve as a member of the Board
of Directors of the Company commencing upon the consummation of the
Offering. Mr. Dickey has been the president of The Dermot Company, Inc., a
real estate investment and management company. From 1986 to 1990, Mr.
Dickey was a managing director of real estate for The First Boston
Corporation (now CS First Boston). From 1974 to 1986, Mr. Dickey was an
attorney at the New York law firm of Cravath, Swaine & Moore. Mr. Dickey is
a member of the board of directors of Horizon Group, Inc., Price
Enterprises, Inc. and Mezzanine Capital Property Investors, Inc., and is a
member of the board of trustees of Retail Property Trust. 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.

MATTHEW J. HART, age , has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering.
Mr. Hart joined Hilton Hotel Corporation in 1996 and is its Executive Vice
President and Chief Financial Officer. Mr. Hart is primarily responsible
for Hilton's corporate finance and development activities. Prior to joining
Hilton, Mr. Hart was Senior Vice President and Treasurer of the Walt Disney
Company from 1995 to 1996. Prior to joining Disney, Mr. Hart was Executive
Vice President and Chief Financial Officer of Host Marriott Corporation
(formerly known as Marriott Corporation). He was responsible for the
company's corporate and project financing activities, as well as the
corporate control and the corporate tax functions. Before joining Marriott
Corporation, Mr. Hart had been a lending officer with Bankers Trust Company
in New York. Mr. Hart is a member of the board of directors of First
Washington Realty Trust, Inc. Mr. Hart received his undergraduate degree
from Vanderbilt University and a Master's of Business Administration from
Columbia University.

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DALE F. KINSELLA, age 48, has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering.
Mr. Kinsella is a partner with the law firm of Kinsella, Boesch, Fujikawa &
Towle. Mr. Kinsella received his undergraduate degree from the University
of Santa Barbara and his Juris Doctor Degree from the University of
California at Los Angeles.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. Promptly following the consummation of the Offering, the
Board of Directors will establish an audit committee (the "Audit Committee").
The Audit Committee will be established to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the scope and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls. The Audit Committee will initially consist of two or more
Independent Directors.

Independent Committee. Promptly following the consummation of the Offering,
the Board of Directors will establish an independent committee (the
"Independent Committee") consisting solely of Independent Directors. The
Independent Committee will be established to approve transactions between the
Company and John B. Kilroy, Sr. or John B. Kilroy, Jr. and their respective
affiliates.

Executive Committee. Promptly following the consummation of the Offering, the
Board of Directors will establish an executive committee (the "Executive
Committee"). Subject to the Company's conflict of interest policies, the
Executive Committee will be granted the authority to acquire and dispose of
real property and the power to authorize, on behalf of the full Board of
Directors, the execution of certain contracts and agreements, including those
related to the borrowing of money by the Company (and, consistent with the
Partnership Agreement of the Operating Partnership, to cause the Operating
Partnership to take such actions.) The Executive Committee will include John B.
Kilroy, Sr., John B. Kilroy, Jr. and at least one Independent Director.

Executive Compensation Committee. Promptly following the consummation of the
Offering, the Board of Directors will establish an executive compensation
committee (the "Executive Compensation Committee") to establish remuneration
levels for executive officers of the Company and implementation of the
Company's Stock Incentive Plan (as defined) and any other incentive programs.
The Executive Compensation Committee will initially consist of two or more
Independent Directors.

The membership of the committees of the Board of Directors will be
established after the completion of the Formation Transactions and the
Offering. The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.

COMPENSATION OF DIRECTORS

The Company intends to pay its directors who are not officers of the Company
annual compensation which may include options to purchase shares of Common
Stock at the then current market value on the date of grant. These options will
have a term of ten years from the date of grant. Such directors will also be
reimbursed for expenses incurred to attend director and committee meetings.
Officers of the Company who are directors will not be paid any directors' fees.

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<PAGE>

EXECUTIVE COMPENSATION

Since the Company has no operating history, meaningful individual
compensation information for executive officers is not available for prior
periods. The compensation table below sets forth the annual base salary rates
and other compensation expected to be paid in 1997 to the Chief Executive
Officer and the Company's other executive officers who are expected to have a
total annual salary and bonus in excess of $100,000. The Company has entered
into employment agreements with certain of its executive officers as described
below. See "--Employment Agreements."

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY BONUS COMPENSATION(2) OPTIONS/SARS(3)
------------------ ------- ------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John B. Kilroy, Jr. .... 1997 $ $ $
Director, President and
Chief Executive Officer
Richard E. Moran, Jr. .. 1997
Executive Vice
President,
Chief Financial Officer
and Secretary
Jeffrey C. Hawken....... 1997
Executive Vice
President and
Chief Operating Officer
Campbell Hugh Greenup... 1997
General Counsel
A. Christian Krogh...... 1997
Vice President, Asset
Management
</TABLE>
- --------

(1) Amounts given are annualized projections for the year ending December 31,
1997.

(2) Represents automobile lease payments and insurance premiums.

(3) Options to purchase an aggregate of 650,000 shares of Common Stock will be
granted to directors, executive officers and other employees of the
Company effective upon closing of the Offering. A maximum of 750,000
additional shares of Common Stock will be reserved for issuance under the
Stock Incentive Plan. See "--Stock Incentive Plan."

EMPLOYMENT AGREEMENTS

Each of John B. Kilroy, Jr., Jeffrey C. Hawken, Richard E. Moran, Jr. and
Campbell Hugh Greenup, Esq. will enter into employment agreements with the
Company providing for annual compensation in the amounts set forth under
"Executive Compensation" above with the amount of any bonus to be determined
by the Executive Compensation Committee. Each executive officer's compensation
may be increased in accordance with criteria to be established by the
Executive Compensation Committee. Each employment agreement will require the
executive officer to devote substantially all of such executive's time to the
affairs of the Company. The employment agreements also will provide for
certain severance payments and continued receipt of certain benefits including
medical insurance, life and disability insurance and participation in all
pension, 401(k) and other employee plans and benefits established by the
Company for a specified period of time following the date of termination. In
addition, John B. Kilroy, Jr.'s employment agreement will contain certain
noncompete provisions which will restrict his conduct during the term of his
employment and for one year thereafter, and for so long as he is a member of
the Company's Board of Directors. See "Policies With Respect to Certain
Activities--Conflict of Interest Policies."

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<PAGE>

STOCK INCENTIVE PLAN

The Company has established the Stock Incentive Plan to enable executive
officers, key employees and directors of the Company, the Operating
Partnership and the Services Company to participate in the ownership of the
Company. The Stock Incentive Plan is designed to attract and retain executive
officers, other key employees and directors of the Company, the Operating
Partnership and the Services Company and to provide incentives to such persons
to maximize the Company's cash flow available for distribution. The Stock
Incentive Plan provides for the award to such executive officers and employees
of the Company, the Operating Partnership and the Services Company (subject to
the Ownership Limit, or such other limit as provided in the Company's Articles
of Incorporation or as otherwise permitted by the Board of Directors) of a
broad variety of stock-based compensation alternatives such as nonqualified
stock options, incentive stock options and restricted stock, and provides for
the grant to Independent Directors and directors of the Services Company
(subject to the Ownership Limit, or such other limit as provided in the
Company's Articles of Incorporation or as otherwise permitted by the Board of
Directors) of nonqualified stock options.

The Stock Incentive Plan will be administered by the Executive Compensation
Committee, which is authorized to select from among the eligible employees of
the Company, the Operating Partnership and the Services Company the
individuals to whom options, restricted stock purchase rights and performance
awards are to be granted and to determine the number of shares to be subject
thereto and the terms and conditions thereof. The Executive Compensation
Committee is also authorized to adopt, amend and rescind rules relating to the
administration of the Stock Incentive Plan. Nonqualified stock options shall
be granted to Independent Directors in accordance with the formula set forth
in the Stock Incentive Plan.

Awards under the Stock Incentive Plan

Nonqualified stock options. Nonqualified stock options will provide for the
right to purchase Common Stock at a specified price which may be less than
fair market value on the date of grant (but not less than par value), and
usually will become exercisable in installments after the grant date.
Nonqualified stock options may be granted for any reasonable term. Option
grants to Independent Directors are limited to automatic awards of
nonqualified options to purchase shares of Common Stock at the fair market
value on the date of grant. See "--Compensation of Directors."

Incentive stock options. Incentive stock options, if granted, will be
designed to comply with the provisions of the Code and will be subject to
restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Common Stock on the grant date and a ten-
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option.

Restricted stock. Restricted stock may be sold to participants at various
prices (but not below par value) and made subject to such restrictions as may
be determined by the Executive Compensation Committee. Restricted stock,
typically, may be repurchased by the Company at the original purchase price if
the conditions or restrictions are not met. In general, restricted stock may
not be sold, or otherwise transferred or hypothecated, until restrictions are
removed or expire. Purchasers of restricted stock, unlike recipients of
options, will have voting rights and will receive dividends prior to the time
when the restrictions lapse.

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<PAGE>

Promptly after the closing of the Offering, the Company expects to issue to
certain officers, directors and key employees of the Company, the Operating
Partnership and the Services Company options to purchase, subject to the
Ownership Limit, or such other limit as provided in the Company's Articles of
Incorporation or as otherwise permitted by the Board of Directors, 650,000
shares of Common Stock pursuant to the Stock Incentive Plan. The term of each
of such option will be ten years from the date of grant. Each such option will
vest 33% per year over three years and is exercisable at a price per share
equal to the initial public offering price per share of Common Stock in the
Offering. The table below sets forth the expected allocation of the options to
such persons.

<TABLE>
<CAPTION>
NAME OPTIONS
---- -------
<S> <C>
John B. Kilroy, Sr................................................. --
John B. Kilroy, Jr................................................. 250,000
Independent Directors (as a group).................................
Other employees (as a group)....................................... 400,000
</TABLE>

A maximum of 750,000 additional shares of Common Stock will be reserved for
issuance under the Stock Incentive Plan. There is no limit on the number of
awards that may be granted to any one individual so long as the aggregate fair
market value (determined at the time of grant) of shares with respect to which
an incentive stock option is first exercisable by an optionee during any
calendar year cannot exceed $ and the grant does not violate the Ownership
Limit or cause the Company to fail to qualify as a REIT for federal income tax
purposes. See "Description of Capital Stock--Restrictions on Ownership and
Transfer."

SECTION 401(K) PLAN

Effective upon the consummation of the Offering, the Company intends to
establish the Company's Section 401(k) Savings/Retirement Plan (the "Section
401(k) Plan") to cover eligible employees of the Company and any designated
affiliate.

The Section 401(k) Plan will permit eligible employees of the Company to
defer up to 15% of their annual compensation, subject to certain limitations
imposed by the Code. The employees' elective deferrals are immediately vested
and non-forfeitable upon contribution to the Section 401(k) Plan. The Company
currently does not intend to make matching contributions to the Section 401(k)
Plan; however, it reserves the right to make matching contributions or
discretionary profit sharing contributions in the future.

INDEMNIFICATION

For a description of the limitation of liability and indemnification rights
of the Company's officers and directors, see "Certain Provisions of Maryland
Law and of the Company's Articles of Incorporation and Bylaws--Limitation of
Directors' and Officers' Liability" and "--Indemnification Agreements."

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain directors and executive officers of the Company (or members of their
immediate families) and persons who will hold more than 5% of the outstanding
shares of Common Stock (or interests exchangeable therefor) have direct or
indirect interests in transactions which have been or will be consummated by
the Company, the Operating Partnership or the Services Company, including the
transfer of certain Properties to the Operating Partnership by the Continuing
Investors, the grant of options with respect to the Excluded Properties and,
if exercised, the purchase by the Company of one or more of the Excluded
Properties from the respective Continuing Investors, the repayment of certain
indebtedness encumbering the Properties and the performance of management and
leasing activities by the Operating Partnership and certain development and
other activities by the Services Company at the Excluded Properties. See
"Formation Transactions." In addition, John B. Kilroy, Sr. has contributed
$1,000 to the Company in exchange for an aggregate of 50 shares of Common
Stock, and upon consummation of the Offering, John B. Kilroy, Jr. and John B.
Kilroy, Sr. each will have contributed cash to the Services Company, which,
upon consummation of the Offering and the Formation Transactions, will
represent a 5.0% economic interest in the Services Company.

PARTNERSHIP AGREEMENT

Concurrently with the completion of the Offering, the Company will enter
into the Partnership Agreement of the Operating Partnership with the various
limited partners of the Operating Partnership. See "Partnership Agreement of
Operating Partnership." John B. Kilroy, Sr. and John B. Kilroy, Jr., who are
limited partners of the Operating Partnership, are directors and/or officers
of the Company.

ASSIGNMENT OF LEASE; VARIOUS SERVICES PROVIDED BY THE SERVICES COMPANY TO THE
KILROY GROUP

Concurrently with the completion of the Offering, KI will assign to the
Services Company all of its interest as a tenant in a lease with a partnership
affiliated with the Continuing Investors covering the space currently serving
as the headquarters of KI at Kilroy LAX in El Segundo, California. The
Company, the Operating Partnership and the Services Company will occupy such
space, with the Company and the Operating Partnership subleasing some of such
space from the Services Company and paying rent to the Services Company
therefor, at rates which the Company believes are equal to the fair rental
value of the space.

Pursuant to management agreements, the Operating Partnership will provide
management and leasing services, and the Services Company will provide
development services, with respect to the Excluded Properties, each of which
is owned in whole or in part by entities controlled by John B. Kilroy, Sr. and
John B. Kilroy, Jr., for fees equivalent to the fair market value of such
services. See "Business and Properties--Development, Management and Leasing--
Excluded Properties."

BENEFITS OF THE FORMATION TRANSACTIONS TO CERTAIN EXECUTIVE OFFICERS

In connection with the Formation Transactions, John B. Kilroy, Sr., Chairman
of the Company's Board of Directors, will receive Units, the repayment of a
personal loan and the termination of guarantees of loans secured by certain of
the Properties. Also in connection with the Formation Transactions, John B.
Kilroy, Jr. will receive Units, as well as the termination of guarantees of
loans secured by certain of the Properties and certain benefits under his
employment agreement with the Company. See "Use of Proceeds". In addition,
each of John B. Kilroy, Sr. and John B. Kilroy, Jr. holds interests in Kilroy
Calabasas Associates, a California limited partnership, and Kilroy Airport
Imperial Co., a California limited partnership, which, upon the exercise of
certain options by the Company, may transfer certain of the Excluded
Properties to the Operating Partnership in exchange for cash or Units. In the
event that the Independent Directors determine to cause the Company to
exercise its options to purchase these properties, John B. Kilroy, Sr. and
John B. Kilroy, Jr. may receive a portion of the consideration paid therefor.
See "Business and Properties--Development, Management and Leasing--Excluded
Properties."

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of shares of Common
Stock immediately following the consummation of the Offering and the Formation
Transactions for (i) each person who is expected to be the beneficial owner of
5% or more of the outstanding Common Stock immediately following the
consummation of the Offering, (ii) directors, proposed directors and certain
executive officers of the Company, and (iii) directors, proposed directors and
executive officers of the Company as a group. None of the persons or entities
listed below currently owns any shares of Common Stock, but rather owns Units
exchangeable for shares of Common Stock. See "Partnership Agreement of the
Operating Partnership--Redemption/Exchange Rights." This table assumes that
(i) the Formation Transactions and the Offering are completed and (ii) the
Underwriters' over-allotment option will not be exercised. Each person named
in the table has sole voting and investment power with respect to all of the
shares of Common Stock shown as beneficially owned by such person, except as
otherwise set forth in the notes to the table. This table reflects the
ownership interests each of the following persons would have if each person
exchanged all of his Units for shares of Common Stock at an initial exchange
ratio of one Unit for each share of Common Stock (without regard to the
Ownership Limit and the prohibition on redemption or exchange of Units until
two years after the date of the Offering). See "Partnership Agreement of the
Operating Partnership--Redemption/Exchange Rights." Unless otherwise
indicated, the address of each named person is c/o Kilroy Realty Corporation,
2250 East Imperial Highway, Suite 1200, El Segundo, California 90245.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF COMMON STOCK(2)
------------------------ --------------------- ------------------
<S> <C> <C>
John B. Kilroy, Sr................ 1,404,150(3) 9.9%
John B. Kilroy, Jr................ 1,404,150(3) 9.9%
Other directors and executive
officers as a group (7 persons).. -- [ ]%
</TABLE>
- --------

(1) Includes the beneficial ownership of Units to be received by KI allocated
to John B. Kilroy, Sr. and John B. Kilroy, Jr. in accordance with their
respective percentage ownership of KI. Excludes options to purchase
650,000 shares of Common Stock granted to executive officers and directors
at the consummation of the Offering.

(2) Assuming exchange of the 2,974,500 Units outstanding upon consummation of
the Offering.

(3) These Units have been pledged to secure certain indemnification
obligations to the Company arising in connection with the Formation
Transactions. See "Certain Relationships and Related Transactions."

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of the Company's capital stock does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Company's Articles of Incorporation and Bylaws, copies of
which are attached as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."

GENERAL

Under the Articles of Incorporation, the authorized capital stock of the
Company consists of 150,000,000 shares of Common Stock, par value $.01 per
share, and 30,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"). Upon completion of the Offering and Formation
Transactions, there will be 11,250,000 shares of Common Stock issued and
outstanding (12,937,500 shares if the Underwriters' over-allotment option is
exercised in full), excluding shares that may be issued upon the exchange of
outstanding Units, and no shares of Preferred Stock will be issued and
outstanding.

COMMON STOCK

Each outstanding share of Common Stock will entitle the holder to one vote
on all matters presented to stockholders for a vote, including the election of
directors, and, except as otherwise required by law and except as provided in
any resolution adopted by the Board of Directors with respect to any other
class or series of stock establishing the designation, powers, preferences and
relative, participating, optional or other special rights and powers of such
series, the holders of such shares will possess the exclusive voting power,
subject to the provisions of the Company's Articles of Incorporation regarding
the ownership of shares of Common Stock in excess of the Ownership Limit, or
such other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors described below. Holders of
shares of Common Stock will have no conversion, exchange, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company or cumulative voting rights in the election of
directors. All shares of Common Stock to be issued and outstanding following
the consummation of the Offering will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or
series of stock and to the provisions of the Articles of Incorporation
regarding ownership of shares of Common Stock in excess of the Ownership
Limit, or such other limit as provided in the Company's Articles of
Incorporation or as otherwise permitted by the Board of Directors described
below, distributions may be paid to the holders of shares of Common Stock if
and when authorized and declared by the Board of Directors of the Company out
of funds legally available therefor. The Company intends to make quarterly
distributions, beginning with distributions for the portion of the quarter
from the consummation of the Offering through , 1997. See "Distribution
Policy."

Under Maryland law, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of
any holders of Preferred Stock to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company, including debts and liabilities arising
out of its status as general partner of the Operating Partnership.

Subject to the provisions of the Articles of Incorporation regarding the
ownership of shares of Common Stock in excess of the Ownership Limit, or such
other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors described below, all shares of
Common Stock will have equal distribution, liquidation and voting rights, and
will have no preference or exchange rights. See "--Restrictions on Ownership
and Transfer."

Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the

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<PAGE>

shares entitled to vote on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set
forth in the corporation's charter. Under the MGCL, the term "substantially
all of the Company's assets" is not defined and is, therefore, subject to
Maryland common law and to judicial interpretation and review in the context
of the unique facts and circumstances of any particular transaction. The
Articles of Incorporation of the Company do not provide for a lesser
percentage in any such situation.

The Articles of Incorporation authorize the Board of Directors to reclassify
any unissued shares of Common Stock into other classes or series of classes of
stock and to establish the number of shares in each class or series and to set
the preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption for
each such class or series.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock will be .

PREFERRED STOCK

Preferred Stock may be issued from time to time, in one or more series, as
authorized by the Board of Directors. No Preferred Stock is currently issued
or outstanding. Prior to the issuance of shares of each series, the Board of
Directors is required by the MGCL and the Company's Articles of Incorporation
to fix for each series the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption, as permitted by Maryland law. Because
the Board of Directors has the power to establish the preferences, powers and
rights of each series of Preferred Stock, it may afford the holders of any
series of Preferred Stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of shares of Common Stock. The issuance of
Preferred Stock could have the effect of delaying or preventing a change of
control of the Company that might involve a premium price for holders of
Common Stock or otherwise be in their best interest. The Board of Directors
has no present plans to issue any Preferred Stock.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

Ownership Limits. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding shares of stock may be owned,
actually or constructively, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year
(other than the first year for which an election to be treated as a REIT has
been made). In addition, if the Company, or an owner of 10% or more of the
Company, actually or constructively owns 10% or more of a tenant of the
Company (or a tenant of any partnership in which the Company is a partner),
the rent received by the Company (either directly or through any such
partnership) from such tenant will not be qualifying income for purposes of
the REIT gross income tests of the Code. A REIT's stock must also be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months or during a proportionate part of a shorter
taxable year (other than the first year for which an election to be treated as
a REIT has been made).

Because the Company expects to qualify as a REIT, the Articles of
Incorporation contain restrictions on the ownership and transfer of Common
Stock which are intended to assist the Company in complying with these
requirements. The Ownership Limit set forth in the Company's Articles of
Incorporation provides that, subject to certain specified exceptions, no
person or entity may own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Code, more than 7.0% (by number or
value, whichever is more restrictive) of the outstanding shares of Common
Stock. The constructive ownership rules are complex, and may cause shares of
Common Stock owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 7.0% of the shares of Common
Stock (or the acquisition of an interest in an entity that owns, actually or
constructively, Common

123
<PAGE>

Stock) by an individual or entity, could, nevertheless cause that individual
or entity, or another individual or entity, to own constructively in excess of
7.0% of the outstanding Common Stock and thus violate the Ownership Limit, or
such other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors. The Board of Directors may, but
in no event will be required to, waive the Ownership Limit with respect to a
particular stockholder if it determines that such ownership will not
jeopardize the Company's status as a REIT and the Board of Directors otherwise
decides such action would be in the best interest of the Company. As a
condition of such waiver, the Board of Directors may require a ruling from the
IRS or opinions of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to preserving the REIT status
of the Company. The Board of Directors has obtained such undertakings and
representations from John B. Kilroy, Sr., John B. Kilroy, Jr., members of
their families and certain affiliated entities and, as a result, has waived
the Ownership Limit with respect to such individuals and entities. John B.
Kilroy, Sr., John B. Kilroy, Jr., members of their families and certain
affiliated entities (including the Operating Partnership) will be permitted to
own, in the aggregate, actually or constructively, up to 21% (by number of
shares or value, whichever is more restrictive) of the outstanding Common
Stock.

The Company's Articles of Incorporation further prohibits (i) any person
from actually or constructively owning shares of stock of the Company that
would result in the Company being "closely held" under Section 856(h) of the
Code or otherwise cause the Company to fail to qualify as a REIT, and (ii) any
person from transferring shares of stock of the Company if such transfer would
result in shares of stock of the Company being owned by fewer than 100
persons. Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of stock of the Company that will or may
violate any of the foregoing restrictions on transferability and ownership is
required to give notice immediately to the Company and provide the Company
with such other information as the Company may request in order to determine
the effect of such transfer on the Company's status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interest of the Company
to attempt to qualify, or to continue to qualify, as a REIT. Except as
otherwise described above, any change in the Ownership Limit would require an
amendment to the Articles of Incorporation. Amendments to the Articles of
Incorporation require the affirmative vote of holders owning 66 2/3% of the
outstanding Common Stock.

Pursuant to the Articles of Incorporation, if any purported transfer of
Common Stock of the Company or any other event would otherwise result in any
person violating the Ownership Limit or such other limit as provided in the
Company's Articles of Incorporation or as otherwise permitted by the Board of
Directors, then any such purported transfer will be void and of no force or
effect with respect to the purported transferee (the "Prohibited Transferee")
as to that number of shares in excess of the Ownership Limit or such other
limit, and the Prohibited Transferee shall acquire no right or interest (or,
in the case of any event other than a purported transfer, the person or entity
holding record title to any such excess shares (the "Prohibited Owner") shall
cease to own any right or interest) in such excess shares. Any such excess
shares described above will be transferred automatically, by operation of law,
to a trust, the beneficiary of which will be a qualified charitable
organization selected by the Company (the "Beneficiary"). Such automatic
transfer shall be deemed to be effective as of the close of business on the
business day prior to the date of such violative transfer. Within 20 days of
receiving notice from the Company of the transfer of shares to the trust, the
trustee of the trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner) will be required to sell such excess shares to a person or entity who
could own such shares without violating the Ownership Limit, or such other
limit as provided in the Company's Articles of Incorporation or as otherwise
permitted by the Board of Directors, and distribute to the Prohibited
Transferee or Prohibited Owner an amount equal to the lesser of the price paid
by the Prohibited Transferee or Prohibited Owner for such excess shares or the
sales proceeds received by the trust for such excess shares. In the case of
any excess shares resulting from any event other than a transfer, or from a
transfer for no consideration (such as a gift), the trustee will be required
to sell such excess shares to a qualified person or entity and distribute to
the Prohibited Owner an amount equal to the lesser of the Market Price (as
defined in the Company's Articles of Incorporation) of such excess shares as
of the date of such event or the sales proceeds received by the trust for such
excess shares. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner, as applicable,

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<PAGE>

will be distributed to the Beneficiary. Prior to a sale of any such excess
shares by the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such excess shares, and also will be entitled to exercise all
voting rights with respect to such excess shares. Subject to Maryland law,
effective as of the date that such shares have been transferred to the trust,
the trustee shall have the authority (at the trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Transferee or Prohibited Owner,
as applicable, prior to the discovery by the Company that such shares have
been transferred to the trust and (ii) to recast such vote in accordance with
the desires of the trustee acting for the benefit of the Beneficiary. However,
if the Company has already taken irreversible corporate action, then the
trustee shall not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the Prohibited Transferee or Prohibited
Owner (prior to the discovery by the Company that such shares had been
automatically transferred to a trust as described above) will be required to
be repaid to the trustee upon demand for distribution to the Beneficiary. In
the event that the transfer to the trust as described above is not
automatically effective (for any reason) to prevent violation of the Ownership
Limit or such other limit as provided in the Company's Articles of
Incorporation or as otherwise permitted by the Board of Directors, then the
Articles of Incorporation provide that the transfer of the excess shares will
be void.

In addition, shares of stock of the Company held in the trust shall be
deemed to have been offered for sale to the Company, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the trust (or, in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date the Company, or its designee, accepts such offer.
The Company shall have the right to accept such offer until the trustee has
sold the shares of stock held in the trust. Upon such a sale to the Company,
the interest of the Beneficiary in the shares sold shall terminate and the
trustee shall distribute the net proceeds of the sale to the Prohibited
Transferee or Prohibited Owner.

If any purported transfer of shares of Common Stock would cause the Company
to be beneficially owned by fewer than 100 persons, such transfer will be null
and void in its entirety and the intended transferee will acquire no rights to
the stock.

All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above. The foregoing ownership
limitations could delay, defer or prevent a transaction or a change in control
of the Company that might involve a premium price for the Common Stock or
otherwise be in the best interest of stockholders.

Under the Articles of Incorporation, every owner of a specified percentage
(or more) of the outstanding shares of Common Stock must file a completed
questionnaire with the Company containing information regarding their
ownership of such shares, as set forth in the Treasury Regulations. Under
current Treasury Regulations, the percentage will be set between 0.5% and
5.0%, depending upon the number of record holders of the Company's shares. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in order to
determine the effect, if any, of such stockholder's actual and constructive
ownership of Common Stock on the Company's status as a REIT and to ensure
compliance with the Ownership Limit, or such other limit as provided in the
Company's Articles of Incorporation or as otherwise permitted by the Board of
Directors.

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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS

The following paragraphs summarize certain provisions of the MGCL and the
Company's Articles of Incorporation and Bylaws. The summary does not purport
to be complete and is subject to and qualified in its entirety by reference to
the MGCL and the Company's Articles of Incorporation and Bylaws, copies of
which are exhibits to the Registration Statement of which this Prospectus is a
part.

BOARD OF DIRECTORS

The Company's Articles of Incorporation provide that the number of directors
of the Company shall be established by the Bylaws but shall not be less than
the minimum number required by the MGCL, which in the case of the Company is
three. The Bylaws currently provide that the Board of Directors will consist
of not fewer than five nor more than 13 members. Any vacancy (except for a
vacancy caused by removal) will be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
directors or, in the case of a vacancy resulting from an increase in the
number of directors, by a majority of the entire Board of Directors. A vacancy
resulting from removal will be filled by the stockholders at the next annual
meeting of stockholders or at a special meeting of the stockholders called for
that purpose. The Bylaws provide that a majority of the Board must be
"Independent Directors." An "Independent Director" is a director who is not an
employee or officer of the Company or a subsidiary or division thereof, or a
relative of a principal executive officer, or who is not an individual member
of an organization acting as advisor, consultant or legal counsel receiving
compensation on a continuing basis from the Company in addition to director's
fees.

Pursuant to the Articles of Incorporation, the directors are divided into
three classes as nearly equal in size as practicable. One class will hold
office initially for a term expiring at the annual meeting of stockholders to
be held in 1997, another class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1998 and another class
will hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1999. As the term of each class expires, directors
in that class will be elected for a term of three years and until their
successors are duly elected and qualified and the directors in the other two
classes will continue in office. The Company believes that classification of
the Board of Directors will help to assure the continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors.

The classified director provision could have the effect of making the
removal of incumbent directors more time consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Common Stock will have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term
expires at that meeting.

REMOVAL OF DIRECTORS

The Company's Articles of Incorporation provide that a director may be
removed only for cause and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast in the election of directors. Under the MGCL,
the term "cause" is not defined and is, therefore, subject to Maryland common
law and to judicial interpretation and review in the context of the unique
facts and circumstances of any particular situation. This provision, when
coupled with the provision in the Bylaws authorizing the Board of Directors to
fill vacant directorships, precludes stockholders from removing incumbent
directors except upon a substantial affirmative vote and filling the vacancies
created by such removal with their own nominees.

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BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between the Company and
any person who beneficially owns, directly or indirectly, 10% or more of the
voting power of the Company's shares, or an affiliate of the Company who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the Company's then
outstanding shares (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the Board of Directors and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by
holders of outstanding shares of the Company's voting stock and (ii) two-
thirds of the votes entitled to be cast by holders of outstanding shares of
the Company's voting stock other than shares held by the Interested
Stockholder with whom the business combination is to be effected, unless,
among other things, the Company's stockholders receive a minimum price (as
defined in the MGCL) for their shares of stock and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of the MGCL do not apply,
however, to business combinations that are approved or exempted by the Board
of Directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. An amendment to a Maryland corporation's charter
electing not to be subject to the foregoing requirements must be approved by
the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding voting shares and two-thirds of the votes entitled to
be cast by holders of outstanding voting shares who are not Interested
Stockholders. Any such amendment is not effective until 18 months after the
vote of stockholders and does not apply to any business combination of a
corporation with a stockholder who was an Interested Stockholder on the date
of the stockholder vote.

The Company has exempted from these provisions of the MGCL any business
combination involving the members of the Kilroy Group and their affiliates and
associates, present or future, or any other person acting in concert or as a
group with any of the foregoing persons. As a result, the members of the
Kilroy Group, any present or future affiliate or associate thereof or any
other person acting in concert or as a group with any of the foregoing persons
may be able to enter into business combinations with the Company, which may or
may not be in the best interest of the stockholders.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of the Company acquired in a
"control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror or by officers or directors who
are employees of the Company. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired
by the acquiror, or in respect of which the acquiror is able to exercise or
direct the exercise of voting power (except solely by revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third; (ii) one-third or more but less than a majority; or (iii) a
majority of all voting power. "Control shares" do not include shares of stock
the acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider voting rights for the shares. If
no request for a meeting is made, the Company may itself present the question
at any stockholders' meeting.

If voting rights are not approved at the stockholders' meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the MGCL, then, subject to certain conditions and limitations, the Company may
redeem any or all of the control shares (except those for which voting rights
have previously

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been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders' meeting and the acquiror
becomes entitled to vote a majority of the shares of stock entitled to vote,
all other stockholders may exercise appraisal rights. The fair value of the
shares of stock as determined for purposes of such appraisal rights may not be
less than the highest price per share paid by the acquiror in the control
share acquisition, and certain limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context
of a control share acquisition.

The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the Company is a party to the
transaction, or to acquisitions approved or exempted by the Company's Articles
of Incorporation or Bylaws. Pursuant to the MGCL, the Company has exempted
control share acquisitions involving any member of the Kilroy Group and its
affiliates and associates. As a result, any members of the Kilroy Group and
its affiliates and associates may be able to effect a control share
acquisition of the Company, which may or may not be in the best interest of
the stockholders.

AMENDMENT TO THE ARTICLES OF INCORPORATION AND BYLAWS

The Company's Articles of Incorporation may not be amended without the
affirmative vote of at least two-thirds of the shares of capital stock
outstanding and entitled to vote thereon voting together as a single class.
The Company's Bylaws may be amended by the vote of a majority of the Board of
Directors.

MEETINGS OF STOCKHOLDERS

The Company's Bylaws provide for annual meetings of stockholders, commencing
with the year 1997, to elect the Board of Directors and transact such other
business as may properly be brought before the meeting. Special meetings of
stockholders may be called by the President, the Board of Directors or the
Chairman of the Board and shall be called at the request in writing of the
holders of 25% or more of the outstanding stock of the Company entitled to
vote.

The MGCL provides that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Company's Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by or at the
direction of the Board of Directors or (c) by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws, and (ii) with respect to special meetings of
stockholders, only the business specified in the Company's notice of meeting
may be brought before the meeting of stockholders.

The provisions in the Company's Articles of Incorporation on classification
of the Board of Directors, amendments to the Articles of Incorporation, the
business combination and control share acquisition provisions of the MGCL and
the advance notice provisions of the Bylaws could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then prevailing market price or which such
holders might believe to be otherwise in their best interests.

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DISSOLUTION OF THE COMPANY

Under the MGCL, the Company may be dissolved by (i) the affirmative vote of
a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at any annual or special meeting of stockholders, and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of
two-thirds of the total number of shares of capital stock outstanding and
entitled to vote thereon voting as a single class.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY

The Company's officers and directors are and will be indemnified under
Maryland law, the Company's Articles of Incorporation of the Company and the
Partnership Agreement (as defined) of the Operating Partnership against
certain liabilities. The Articles of Incorporation and Bylaws require the
Company to indemnify its directors and officers to the fullest extent
permitted from time to time by the laws of Maryland.

The MGCL permits a corporation to indemnify its directors and officers and
certain other parties against judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (i) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services, or (iii) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the
proceeding; provided, however, that if the proceeding is one by or in the
right of the corporation, indemnification may not be made with respect to any
proceeding in which the director or officer has been adjudged to be liable to
the corporation. In addition, a director or officer may not be indemnified
with respect to any proceeding charging improper personal benefit to the
director or officer in which the director or officer was adjudged to be liable
on the basis that personal benefit was received. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard
of conduct required for indemnification to be permitted.

The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages, subject to specified
restrictions, and the Articles of Incorporation of the Company contain this
provision. The law does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent
that (i) it is proved that the person actually received an improper personal
benefit in money, property or services, (ii) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person's
action, or failure to act, was committed in bad faith or was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding or (iii) in the case of any criminal proceeding,
the director had reasonable cause to believe that the act or failure to act
was unlawful. This provision does not limit the ability of the Company or its
stockholders to obtain other relief, such as an injunction or rescission.

The Partnership Agreement also provides for indemnification of the Company,
as general partner, and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership and the partners of the
Operating Partnership to the same extent liability of officers and directors
of the Company to the Company and its stockholders is limited under the
Company's Articles of Incorporation. See "Partnership Agreement of the
Operating Partnership--Indemnification."

Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

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INDEMNIFICATION AGREEMENTS

The Company will enter into indemnification agreements with each of its
executive officers and directors. The indemnification agreements will require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under the
agreements, the Company must also indemnify and advance all expenses incurred
by executive officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors
under the Company's directors' and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by law, it provides greater assurance to directors and
executive officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.

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PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP

The following summary of the Agreement of Limited Partnership of the
Operating Partnership (the "Partnership Agreement") and the descriptions of
certain provisions set forth elsewhere in this Prospectus, are qualified in
their entirety by reference to the Partnership Agreement, which will be filed
as an exhibit to the Registration Statement of which this Prospectus is a
part.

MANAGEMENT

The Operating Partnership will be organized as a Delaware limited
partnership pursuant to the terms of the Partnership Agreement. The Company
will be the sole general partner of, and will initially hold approximately
79.1% of the economic interests in, the Operating Partnership. The Company
will conduct substantially all of its business through the Operating
Partnership, except for development and certain other services (which will be
conducted through the Services Company) in order to preserve the Company's
REIT status. The Operating Partnership will own a 95% economic interest in the
Services Company. Generally, pursuant to the Partnership Agreement, the
Company, as the sole general partner of the Operating Partnership, will have
full, exclusive and complete responsibility and discretion in the management
and control of the Operating Partnership, including the ability to cause the
Operating Partnership to enter into certain major transactions including
acquisitions, dispositions and refinancings and to cause changes in the
Operating Partnership's line of business and distribution policies.

The Continuing Investors, as limited partners of the Operating Partnership,
will have no authority to transact business for, or participate in the
management activities or decisions of, the Operating Partnership, except as
provided in the Partnership Agreement and as required by applicable law.

INDEMNIFICATION

To the extent permitted by law, the Partnership Agreement provides for
indemnification of the Company, as general partner, its officers and directors
and such other persons as the Company may designate to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership to the same extent
liability of officers and directors of the Company is limited under the
Articles of Incorporation.

TRANSFERABILITY OF INTERESTS

Except for a transaction described in the following two paragraphs, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership, without the consent of the holders of at least 60% of
the partner interests. Pursuant to the Partnership Agreement, the Limited
Partners have agreed not to transfer, assign, sell, encumber or otherwise
dispose of, without the consent of the Company, their interest in the
Operating Partnership, other than to family members or accredited investors
who agree to assume the obligations of the transferor under the Partnership
Agreement subject to a right of first refusal for the benefit of the Company.
The Continuing Investors are subject to additional restrictions on their
ability to transfer shares of Common Stock. See "Underwriting."

The Company may not engage in any merger, consolidation or other combination
with or into another person, sale of all or substantially all of its assets or
any reclassification, recapitalization or change of its outstanding equity
interests (each a "Termination Transaction") unless the Termination
Transaction has been approved by holders of at least 60% of the Units
(including Units held by the Company which will represent 79.1% of all Units
outstanding upon consummation of the Offering) and in connection with which
all Limited Partners either will receive, or will have the right to elect to
receive, for each Unit an amount of cash, securities or other property equal
to the product of the number of shares of Common Stock into which each Unit is
then exchangeable and the greatest amount of cash, secuities or other property
paid to the holder of one share of

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Common Stock in consideration of one share of Common Stock pursuant to the
Termination Transaction. If, in connection with the Termination Transaction, a
purchase, tender or exchange offer shall have been made to and accepted by the
holders of more than 33 1/3% of the outstanding shares of Common Stock, each
holder of Units will receive, or will have the right to elect to receive, the
greatest amount of cash, securities or other property which such holder would
have received had it exercised its right to redemption and received shares of
Common Stock in exchange for its Units immediately prior to the expiration of
such purchase, tender or exchange offer and had thereupon accepted such
purchase, tender or exchange offer.

The Company may also merge or otherwise combine its assets with another
entity if the following conditions are met: (i) substantially all of the
assets directly or indirectly owned by the surviving entity are held directly
or indirectly by the Operating Partnership or another limited partnership or
limited liability company which is the survivor of a merger, consolidation or
combination of assets with the Operating Partnership (in each case, the
"Surviving Partnership"); (ii) the Limited Partners own a percentage interest
of the Surviving Partnership based on the relative fair market value of the
net assets of the Operating Partnership and the other net assets of the
Surviving Partnership immediately prior to the consummation of such
transaction; (iii) the rights, preferences and privileges of the Limited
Partners in the Surviving Partnership are at least as favorable as those in
effect immediately prior to the consummation of such transaction and as those
applicable to any other limited partners or non-managing members of the
Surviving Partnership; and (iv) such rights of the Limited Partners include
the right to exchange their interests in the Surviving Partnership for at
least one of the following: (a) the consideration available to such persons
pursuant to the preceding paragraph, or (b) if the ultimate controlling person
of the Surviving Partnership has publicly traded common equity securities,
such common equity securities, with an exchange ratio based on the relative
fair market value of such securities and the Common Stock. For purposes of
this paragraph, the determination of relative fair market values shall be
reasonably determined by the Company as of the time of the Termination
Transaction and, to the extent applicable, shall be no less favorable to the
Limited Partners than the relative values reflected in the terms of the
Termination Transaction.

In respect of any transaction described in the preceding two paragraphs, the
Company is required to use its commercially reasonable efforts to structure
such transaction to avoid causing the Limited Partners to recognize gain for
federal income tax purposes by virtue of the occurrence of or their
participation in such transaction. The Operating Partnership will also use
commercially reasonable efforts to cooperate with the Limited Partners to
minimize any taxes payable in connection with any repayment, refinancing,
replacement or restructuring of indebtedness of the Operating Partnership.

ISSUANCE OF ADDITIONAL UNITS

As sole general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional Units
representing general and limited partnership interests in the Operating
Partnership.

CAPITAL CONTRIBUTION

The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital
contributions, the Company may borrow such funds from a financial institution
or other lender or through public or private debt offerings and lend such
funds to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. As an alternative to
borrowing funds required by the Operating Partnership, the Company may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate
basis. Conversely, the partnership interests of the limited partners will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company. See "Policies With Respect to Certain
Activities--Financing."

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AWARDS UNDER STOCK INCENTIVE PLAN

If options granted in connection with the Stock Incentive Plan are exercised
at any time or from time to time, the Partnership Agreement requires the
Company to contribute to the Operating Partnership as an additional
contribution the exercise price received by the Company in connection with the
issuance of shares of Common Stock to such exercising participant. Upon such
contribution the Company will be issued a number of Units in the Operating
Partnership equal to the number of shares of Common Stock so issued.

REDEMPTION/EXCHANGE RIGHTS

Limited partners will have rights to require the Operating Partnership to
redeem part or all of their Units for cash (based upon the fair market value
of an equivalent number of shares of Common Stock at the time of such
redemption) or the Company may elect to exchange such Units for shares of
Common Stock (on a one-for-one basis, subject to adjustment in the event of
stock splits, stock dividends, issuance of certain rights, certain
extraordinary distributions and similar events), provided, however, that if
the Company does not elect to exchange such Units for shares of Common Stock,
a holder of Units that is a corporation or a limited liability company may
require the Company to issue Common Stock in lieu thereof, subject to the
Ownership Limit or such other limit as provided in the Company's Articles of
Incorporation or as otherwise permitted by the Board of Directors, as
applicable. The Company presently anticipates that it will elect to issue
Common Stock in exchange for Units in connection with each such redemption
request, rather than having the Operating Partnership pay cash. With each such
redemption or exchange, the Company's percentage ownership interest in the
Operating Partnership will increase. This redemption/exchange right may be
exercised by limited partners from time to time, in whole or in part, subject
to the limitations that such right may not be exercised (i) prior to the
expiration of two years following the consummation of the Offering or (ii) at
any time to the extent such exercise would result in any person actually or
constructively owning Common Stock in excess of the Ownership Limit or such
other amount as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors, as applicable, assuming Common
Stock was issued in such exchange. See "Description of Capital Stock--
Restrictions on Ownership and Transfer." In addition, under certain
circumstances the Units may be redeemed prior to the second anniversary of the
consummation of the Offering in connection with the obligation of certain of
the Continuing Investors to indemnify the Company in connection with the
Formation Transactions. See "Formation and Structure of the Company--
Allocation of Consideration in the Formation Transactions."

REGISTRATION RIGHTS

For a description of certain registration rights held by the Continuing
Investors, see "Shares Available for Future Sale--Redemption/Exchange
Rights/Registration Rights."

TAX MATTERS

Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and, as such, will have authority to make
tax elections under the Code on behalf of the Operating Partnership.

The net income or net loss of the Operating Partnership will generally be
allocated to the Company and the limited partners in accordance with their
respective percentage interests in the Operating Partnership, subject to
compliance with the provisions of Sections 704(b) and 704(c) of the Code and
the Treasury Regulations promulgated thereunder. See "Federal Income Tax
Consequences--Tax Aspects of the Operating Partnership."

OPERATIONS

The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income tax

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liability. The Partnership Agreement provides that the net operating cash
revenues of the Operating Partnership, as well as net sales and refinancing
proceeds, will be distributed from time to time as determined by the Company
(but not less frequently than quarterly) pro rata in accordance with the
partners' respective percentage interests. Pursuant to the Partnership
Agreement, the Operating Partnership will assume and pay when due, or
reimburse the Company for payment of, all expenses it incurs relating to the
ownership and operation of, or for the benefit of, the Operating Partnership
and all costs and expenses relating to the operations of the Company.

DUTIES AND CONFLICTS

Except as otherwise set forth in "Policies with Respect to Certain
Activities--Conflicts of Interest Policies" and "Management--Employment
Agreements," any limited partner of the Operating Partnership may engage in
other business activities outside the Operating Partnership, including
business activities that directly compete with the Operating Partnership.

CERTAIN LIMITED PARTNER APPROVAL RIGHTS

The Partnership Agreement provides that if the Limited Partners own at least
5% of the outstanding Units (including Units held by the Company), the Company
shall not, on behalf of the Operating Partnership, take any of the following
actions without the prior consent of the holders of more than 50% of the Units
representing limited partner interests: (i) dissolve the Operating
Partnership, other than incident to a merger or sale of substantially all of
the Company's assets; or (ii) prior to the seventh anniversary of the
consummation of the Offering, sell certain specified assets, other than
incident to a merger or sale of substantially all of the Company's assets.

TERM

The Operating Partnership will continue in full force and effect for 99
years or until sooner dissolved pursuant to the terms of the Partnership
Agreement.

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SHARES AVAILABLE FOR FUTURE SALE

GENERAL

Each of the Continuing Investors has agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer to
sell, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) of any Units or shares of Common Stock or other capital stock
of the Company, or any securities convertible or exercisable or exchangeable
for any Units or shares of Common Stock or other capital stock for a period of
two years from the date of this Prospectus, and the Company has agreed not to
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) of any (other than pursuant to the Stock Incentive Plan)
shares of Common Stock or other capital stock of the Company, or any
securities convertible or exercisable or exchangeable for any Units or shares
of Common Stock or other capital stock of the Company, for a period of one
year from the date of this Prospectus, in each case without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
subject to certain limited exceptions. Notwithstanding the foregoing, the
Units received by certain of the Continuing Investors in connection with the
Formation Transactions will be pledged to secure their indemnification
obligations pursuant to an agreement with the Company. See "Formation and
Structure of the Company."

The shares of Common Stock owned by "affiliates" of the Company, and the
shares of Common Stock issuable upon exchange of Units (other than those
issued pursuant to registration rights, as described below), will be subject
to Rule 144 promulgated under the Securities Act ("Rule 144") and may not be
sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including exemptions contained in
Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with them in accordance with Rule 144) who has
beneficially owned "restricted shares" (defined generally as shares acquired
from the issuer or an affiliate in a non-public transaction) for at least two
years, as well as any person who purchased unrestricted shares on the open
market who may be deemed an affiliate of the Company, would be entitled to
sell, subject to certain manner of sale, public information and notice
requirements, within any three-month period, a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding number of
shares of Common Stock or 1% of the average weekly trading volume of those
shares during the four calendar weeks preceding each such sale. After
restricted shares are held for three years, a person who is not then deemed an
affiliate of the Company is entitled to sell such shares under Rule 144
without regard to these volume limitations. Sales of shares of Common Stock by
affiliates of the Company will continue to be subject to the volume
limitations, unless resold under an effective registration statement under the
Securities Act. The Commission has published a notice of proposed rulemaking
which, if adopted as proposed, would shorten the applicable holding period
under Rule 144(d) and Rule 144(k) to one and two years, respectively (from the
current two- and three-year periods described above). The Company cannot
predict whether such amendments will be adopted or the effect thereof on the
trading market for its Common Stock.

The Company has established the Stock Incentive Plan for the purpose of
attracting and retaining executive officers, directors and other key
employees. See "Management--Stock Incentive Plan." Upon the consummation of
the Offering, the Company will issue in the aggregate options to purchase
650,000 shares of Common Stock to executive officers, directors and certain
key employees and has reserved 750,000 additional shares of Common Stock for
future issuance under the Stock Incentive Plan.

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Prior to the date of this Prospectus, there has been no public market for
the shares of Common Stock. The shares of Common Stock have been approved for
listing on the NYSE, subject to official notice of issuance. No prediction can
be made as to the effect, if any, that future sales of shares of Common Stock
(including sales pursuant to Rule 144) or the availability of shares of Common
Stock for future sale will have on the market price prevailing from time to
time. Sales of substantial amounts of shares of Common Stock (including shares
of Common Stock issued upon the exercise of options or the exchange of Units),
or the perception that such sales could occur, could adversely affect
prevailing market prices of the shares of Common Stock and impair the
Company's ability to obtain additional capital through the sale of equity
securities. See "Risk Factors--Shares Available for Future Sale." For a
description of certain restrictions on transfers of Common Stock held by
certain stockholders of the Company, see "Underwriting" and "Description of
Capital Stock--Restrictions on Ownership and Transfer."

REDEMPTION/EXCHANGE RIGHTS/REGISTRATION RIGHTS

Each limited partner of the Operating Partnership will have the right to
require the Operating Partnership to redeem part or all of their Units for
cash (based on the fair market value of an equivalent number of shares of
Common Stock at the time of such redemption) or, at the election of the
Company, to exchange such Units for shares of Common Stock, at any time
beginning two years after the completion of the Offering subject to the
obligation of certain of the Continuing Investors to indemnify the Company in
connection with the Formation Transactions. See "Formation and Structure of
the Company--Allocation of Consideration in the Formation Transactions." If
the corporation does not elect to exchange such Units for shares of Common
Stock, a Unitholder that is a corporation or a limited liability company may
require the Company to issue shares of Common Stock in lieu of cash, subject
to the Ownership Limit or such other amount as provided in the Company's
Articles of Incorporation, as applicable. Upon completion of the Formation
Transactions, an aggregate of approximately 2,974,500 Units will be held by
limited partners of the Operating Partnership. If the Company elects to
exchange Units for Common Stock, each Unit will be exchangeable for one share
of Common Stock, subject to adjustment in the event of stock splits,
distribution of rights, extraordinary dividends and similar events.

In order to protect the Company's status as a REIT, a holder of Units is
prohibited from exchanging such Units for shares of Common Stock, to the
extent that as a result of such exchange any person would own or would be
deemed to own, actually or constructively, more than 7.0% of the Common Stock,
except to the extent such holder has been granted an exception to the
Ownership Limit. See "Description of Capital Stock--Restrictions on Ownership
and Transfer."

The Company has granted the Continuing Investors receiving Units in
connection with the Formation Transactions certain registration rights
(collectively, the "Registration Rights") with respect to the shares of Common
Stock acquired upon exchange of Units (the "Registrable Shares"). The Company
has agreed to file and generally keep continuously effective beginning two
years after the completion of the Offering a registration statement covering
the issuance of shares upon exchange of Units and the resale thereof. The
Company will bear expenses incident to its registration obligations upon
exercise of the Registration Rights, including the payment of federal
securities law and state Blue Sky registration fees, except that it will not
bear any underwriting discounts or commissions or transfer taxes relating to
registration of Registrable Shares.

REINVESTMENT AND SHARE PURCHASE PLAN

The Company is considering the adoption of a Distribution Reinvestment and
Share Purchase Plan that would allow stockholders to automatically reinvest
cash distributions on their outstanding shares of Common Stock and/or Units to
purchase additional shares of Common Stock at a discounted price and without
the payment of any brokerage commission or service charge. Stockholders would
also have the option of investing limited additional amounts by making cash
payments. No decision has been made yet by the Company whether or not to adopt
such a plan and there can be no assurance that such a plan will ever be
adopted by the Company.

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FEDERAL INCOME TAX CONSEQUENCES

The following summary of material federal income tax considerations
regarding the Company and the Offering is based on current law, is for general
information only and is not tax advice. The information set forth below, to
the extent that it constitutes matters of law, summaries of legal matters or
legal conclusions, is the opinion of Latham & Watkins, tax counsel to the
Company, as to the material federal income tax considerations relevant to
purchasers of the Common Stock. This discussion does not purport to deal with
all aspects of taxation that may be relevant to particular stockholders in
light of their personal investment or tax circumstances, or to certain types
of stockholders subject to special treatment under the federal income tax
laws, including, without limitation, certain financial institutions, life
insurance companies, dealers in securities or currencies, stockholders holding
Common Stock as part of a conversion transaction, as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes, tax-
exempt organizations (except to the extent discussed under the heading "--
Taxation of Tax-Exempt Stockholders") or foreign corporations, foreign
partnerships and persons who are not citizens or residents of the United
States (except to the extent discussed under the heading "Taxation of Non-U.S.
Stockholders"). In addition, the summary below does not consider the effect of
any foreign, state, local or other tax laws that may be applicable to
prospective stockholders.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

General. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code commencing with its taxable year ending
December 31, 1997. The Company believes that, commencing with its taxable year
ending December 31, 1997, it will be organized and will operate in such a
manner as to qualify for taxation as a REIT under the Code commencing with
such taxable year, and the Company intends to continue to operate in such a
manner, but no assurance can be given that it will operate or continue to
operate in such a manner so as to qualify or remain qualified.

These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.

Latham & Watkins has acted as tax counsel to the Company in connection with
the Offering and the Company's election to be taxed as a REIT. In the opinion
of Latham & Watkins, commencing with the Company's taxable year ending
December 31, 1997, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion is based on
various factual assumptions relating to the organization and operation of the
Company, the Operating Partnership and the Services Company, and is
conditioned upon certain representations made by the Company as to factual
matters. In addition, this opinion is based upon the factual representations
of the Company concerning its business and properties as set forth in this
Prospectus and assumes that the actions described in this Prospectus are
completed in a timely fashion. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet (through actual annual
operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Latham & Watkins. Accordingly, no
assurance can be given that the actual results of the Company's operation for
any particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at
any time. See "--Failure to Qualify."

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If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, the Company will be
subject to federal income tax as follows. First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (defined generally as property acquired
by the Company through foreclosure or otherwise after a default on a loan
secured by the property or a lease of the property) which is held primarily
for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, with
respect to any asset (a "Built-In Gain Asset") acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of the Company is determined by
reference to the basis of the asset in the hands of the C corporation, if the
Company recognizes gain on the disposition of such asset during the ten-year
period (the "Recognition Period") beginning on the date on which such asset
was acquired by the Company, then, to the extent of the Built-In Gain (i.e.,
the excess of (a) the fair market value of such asset over (b) the Company's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain will be subject to tax at the highest regular
corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Company will make an election pursuant to IRS
Notice 88-19 and that such treatment is not modified by certain revenue
proposals in the Administration's 1997 Budget Proposal.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association; (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities); and (vii) which meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi)
will not apply until after the first taxable year for which an election is
made to be taxed as a REIT. For purposes of conditions (v) and (vi), pension
funds and certain other tax-exempt entities are treated as individuals,
subject to a "look-through" exception in the case of condition (vi).

The Company believes that upon consummation of the Offering it will have
issued sufficient shares of Common Stock with sufficient diversity of
ownership pursuant to the Offering to allow it to satisfy conditions (v) and
(vi). In addition, the Company's Articles of Incorporation provides for
restrictions regarding the transfer and ownership of shares, which
restrictions are intended to assist the Company in continuing to satisfy the
share

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ownership requirements described in (v) and (vi) above. Such ownership and
transfer restrictions are described in "Description of Capital Stock--
Restrictions on Ownership and Transfer." These restrictions, however, may not
ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above. If the Company fails to satisfy such
share ownership requirements, the Company's status as a REIT will terminate.
See "--Failure to Qualify." In addition, a corporation may not elect to become
a REIT unless its taxable year is the calendar year. The Company will have a
calendar taxable year.

Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and
will be deemed to be entitled to the income of the partnership attributable to
such share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income
tests and the asset tests. Thus, the Company's proportionate share of the
assets and items of income of the Operating Partnership (including the
Operating Partnership's share of such items of any subsidiary partnerships)
will be treated as assets and items of income of the Company for purposes of
applying the requirements described herein. A summary of the rules governing
the federal income taxation of partnerships and their partners is provided
below in "--Tax Aspects of the Operating Partnership." The Company has direct
control of the Operating Partnership and intends to operate it consistent with
the requirements for qualification as a REIT.

Income Tests. In order to maintain its qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). Third, subject to
certain exceptions in the year in which the Company is liquidated, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year. For purposes of applying the 30% gross income test, the holding
period of Properties acquired by the Operating Partnership in the Formation
Transactions will be deemed to have commenced on the date of acquisition.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more
of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion
of rent attributable to such personal property will not qualify as "rents from
real property." Finally, for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the property or
furnish or render services to the tenants of such property, other than through
an independent contractor from whom the REIT derives no revenue. The REIT may,
however, directly perform certain services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant" of the property. The
Company does not and will not; (i) charge rent for any property that is based
in whole or in part on the income or profits of any person (except by reason
of being based on a percentage of receipts or sales, as described above); (ii)
rent any property to a Related Party Tenant (unless the Board of Directors
determines in its discretion that the rent received from such Related Party
Tenant is not material and

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will not jeopardize the Company's status as a REIT); (iii) derive rental
income attributable to personal property (other than personal property leased
in connection with the lease of real property, the amount of which is less
than 15% of the total rent received under the lease); or (iv) perform services
considered to be rendered to the occupant of the property, other than through
an independent contractor from whom the Company derives no revenue.

The Services Company will receive fees in exchange for the performance of
certain development activities. Such fees will not accrue to the Company, but
the Company will derive its allocable share of dividends from the Services
Company through its interest in the Operating Partnership, which qualify under
the 95% gross income test, but not the 75% gross income test. The Company
believes that the aggregate amount of any nonqualifying income in any taxable
year will not exceed the limit on nonqualifying income under the gross income
tests.

The Operating Partnership will receive fees in exchange for the performance
of certain management activities for third parties with respect to properties
in which the Operating Partnership does not own an interest, including certain
of the Excluded Properties. Such fees will result in nonqualifying income to
the Company under the 95% and 75% gross income tests. The Company believes
that the aggregate amount of nonqualifying income, including such fees, in any
taxable year will not exceed the limit on nonqualifying income under the gross
income tests.

The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will be generally available if the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its federal income
tax return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs
exceeds the limits on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. If these relief
provisions are inapplicable to a particular set of circumstances involving the
Company, the Company would not qualify as a REIT. As discussed above in
"Federal Income Tax Considerations--Taxation of the Company--General," even if
these relief provisions apply, a 100% tax would be imposed on an amount equal
to (a) the gross income attributable to the greater of the amount by which the
Company failed the 75% or 95% test multiplied by (b) a fraction intended to
reflect the Company's profitability. No similar mitigation provision provides
relief if the Company fails the 30% gross income test. In such case, the
Company would cease to qualify as a REIT.

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the
ordinary course of business (including the Company's share of any such gain
realized by the Operating Partnership) will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income may also have an adverse effect upon the Company's ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in
the ordinary course of a trade or business is a question of fact that depends
on all the facts and circumstances with respect to the particular transaction.
The Operating Partnership intends to hold the Properties for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating the Properties (and other properties) and to
make such occasional sales of the Properties as are consistent with the
Operating Partnership's investment objectives. There can be no assurance,
however, that the IRS might not contend that one or more of such sales is
subject to the 100% penalty tax.

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Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including its allocable
share of the assets held by the Operating Partnership) must be represented by
real estate assets including (i) its allocable share of real estate assets
held by partnerships in which the Company owns a direct or indirect interest
(such as the Operating Partnership) and (ii) stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) public debt offering of the Company, cash,
cash items and government securities. Second, not more than 25% of the
Company's total assets (including its allocable share of the assets held by
the Operating Partnership) may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not
own more than 10% of any one issuer's outstanding voting securities.

As described above, the Operating Partnership owns 100% of the non-voting
preferred stock of the Services Company, and by virtue of its ownership of
interests in the Operating Partnership, the Company will be considered to own
its pro rata share of such stock. See "Structure and Formation of the
Company." The Operating Partnership does not and will not own any of the
voting securities of the Services Company, and therefore the Company will not
be considered to own more than 10% of the voting securities of the Services
Company. In addition, the Company believes (and has represented to tax counsel
to the Company for purposes of its opinion, as described above) that the value
of its pro rata share of the securities of the Services Company to be held by
the Operating Partnership will not exceed, at the closing of the Offering, 5%
of the total value of the Company's assets, and will not exceed such amount in
the future. Latham & Watkins, in rendering its opinion as to the qualification
of the Company as a REIT, is relying on the representation of the Company to
such effect. No independent appraisals have been obtained to support this
conclusion. There can be no assurance that the IRS will not contend that the
value of the securities of the Services Company held by the Company (through
the Operating Partnership) exceeds the 5% value limitation.

The 5% value test must be satisfied not only on the date that the Company
(directly or through the Operating Partnership) acquires securities in the
Services Company, but also each time the Company increases its ownership of
securities of the Services Company (including as a result of increasing its
interest in the Operating Partnership as a result of Company capital
contributions to the Operating Partnership or as limited partners exercise
their redemption/exchange rights). Although the Company plans to take steps to
ensure that it satisfies the 5% value test for any quarter with respect to
which retesting is to occur, there can be no assurance that such steps will
always be successful, or will not require a reduction in the Operating
Partnership's overall interest in the Services Company.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by the disposition of sufficient nonqualifying assets within 30 days
after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests
and to take such other actions within 30 days after the close of any quarter
as may be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and by excluding the Company's net capital gain) and (b) 95% of
the excess of the net income, if any, from foreclosure property over the tax
imposed on such income, minus (ii) the excess of the sum of certain items of
noncash income (i.e., income attributable to leveled stepped rents, original
issue discount or purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT Taxable Income" as described in
clause (i)(a) above. In addition, if the Company disposes of any Built-In Gain
Asset during its

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Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Such distributions are taxable to
holders of Common Stock (other than tax-exempt entities, as discussed below)
in the year in which paid, even though such distributions relate to the prior
year for purposes of the Company's 95% distribution requirement. The amount
distributed must not be preferential--i.e., each holder of shares of Common
Stock must receive the same distribution per share. A REIT may have more than
one class of capital stock, as long as distributions within each class are pro
rata and non-preferential. To the extent that the Company does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%,
of its "REIT taxable income," as adjusted, it will be subject to tax thereon
at regular ordinary and capital gain corporate tax rates. The Company intends
to make timely distributions sufficient to satisfy these annual distribution
requirements. In this regard, the Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause
the Operating Partnership to distribute to its partners an amount sufficient
to permit the Company to meet these distribution requirements.

It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the distribution requirements described above. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses
in arriving at taxable income of the Company. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange for short-term, or possibly long-term,
borrowings, to pay dividends in the form of taxable stock dividends.

If the Company fails to meet the 95% distribution test due to certain
adjustments (e.g., an increase in the Company's income or a decrease in its
deduction for dividends paid) by reason of a judicial decision or by agreement
with the IRS, the Company may pay a "deficiency dividend" to holders of shares
of Common Stock in the taxable year of the adjustment, which dividend would
relate back to the year being adjusted. In such case, the Company would also
be required to pay interest to the IRS and would be subject to any applicable
penalty provisions.

Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will
they be required to be made. As a result, the Company's failure to qualify as
a REIT would reduce the cash available for distribution by the Company to its
stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the
extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.

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TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY

As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, or (iii) is an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source.

As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends received deduction otherwise available with respect
to dividends received by U.S. Stockholders that are corporations.
Distributions made by the Company that are properly designated by the Company
as capital gain dividends will be taxable to taxable U.S. Stockholders as
long-term capital gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which a U.S. Stockholder has held his shares of Common Stock. U.S.
Stockholders that are corporations may, however, be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
the Company makes distributions (not designated as capital gain dividends) in
excess of its current and accumulated earnings and profits, such distributions
will be treated first as a tax-free return of capital to each U.S.
Stockholder, reducing the adjusted basis which such U.S. Stockholder has in
his shares of Common Stock for tax purposes by the amount of such distribution
(but not below zero), with distributions in excess of a U.S. Stockholder's
adjusted basis in his shares taxable as long-term capital gains (or short-term
capital gain if the shares have been held for one year or less), provided that
the shares have been held as a capital asset. Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the stockholder on December 31 of
such year, provided that the dividend is actually paid by the Company on or
before January 31 of the following calendar year. Stockholders may not include
in their own income tax returns any net operating losses or capital losses of
the Company.

Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of Common Stock, however, will not be treated as investment income unless the
U.S. Stockholder elects to reduce the amount of such U.S. Stockholder's total
net capital gain eligible for the 28% maximum capital gains rate by the amount
of such gain with respect to such Common Stock.

Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if such
shares have been held for more than one year. In general, any loss recognized
by a U.S. Stockholder upon the sale or other disposition of shares of Common
Stock that have been held for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the
extent of capital gain dividends received by such U.S. Stockholder from the
Company which were required to be treated as long-term capital gains.

BACKUP WITHHOLDING

The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless
such holder (a) is a

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corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A U.S. Stockholder that does not provide the Company with his correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, the Company may be required
to withhold a portion of capital gain distributions to any stockholders who
fail to certify their non-foreign status to the Company. See "--Taxation of
Non-U.S. Stockholders."

TAXATION OF TAX-EXEMPT STOCKHOLDERS

The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by
a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its shares of Common Stock as "debt financed property" within the meaning
of the Code and such shares are not otherwise used in a trade or business, the
dividend income from the Company will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of Common Stock will not constitute UBTI
unless such tax-exempt shareholder has held such shares as "debt financed
property" within the meaning of the Code or has used the shares in a trade or
business.

For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code, and (iii) holds more than 10% (by value) of the interests
in the REIT. Tax-exempt pension funds that are described in Section 401(a) of
the Code are referred to below as "qualified trusts."

A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code provides that stock owned
by qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself), and (ii) either (a) at least one such qualified trust holds
more than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of which owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests
in the REIT. The percentage of any REIT dividend treated as UBTI is equal to
the ratio of (i) the UBTI earned by the REIT (treating the REIT as if it were
a qualified trust and therefore subject to tax on UBTI) to (ii) the total
gross income of the REIT. A de minimis exception applies where the percentage
is less than 5% for any year. The provisions requiring qualified trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is
able to satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock contained in the
Articles of Incorporation, the Company does not expect to be classified as a
"pension held REIT."

TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that

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may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances, including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Stockholder of a U.S. trade or
business. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income
tax laws with regard to an investment in Common Stock, including any reporting
requirements.

Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
of deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States
trade or business. Dividends that are effectively connected with such a trade
or business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic stockholders
are taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax
treaty.

Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.

Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholders's Common Stock, but
rather will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to gain from the sale or exchange of his stock, the
tax treatment of which is described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current or accumulated earnings and profits, the distribution will
generally be treated as a dividend for withholding purposes. However, amounts
thus withheld are generally refundable if it is subsequently determined that
such distribution was, in fact, in excess of current or accumulated earnings
and profits of the Company.

Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) investment in the Common Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic stockholders
with respect to such gain (except that a stockholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
above), or (ii) the Non-U.S. Stockholder is a nonresident alien individual who
is present in the United States for 183 days or more during the taxable year
and has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.

Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
will cause the Non-U.S. Stockholder to be treated as recognizing such gain as
income effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be entitled to offset its gross income by
allowable deductions and would pay

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tax on the resulting taxable income at the same rates applicable to domestic
stockholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a Non-U.S. Stockholder that is a corporation and
is not entitled to treaty relief or exemption, as discussed above. The Company
is required to withhold 35% of any such distribution. That amount is
creditable against the Non-U.S. Stockholder's United States federal income tax
liability. To the extent that such withholding exceeds the actual tax owed by
the Non-U.S. Stockholder, the Non-U.S. Stockholder may claim a refund from the
IRS.

The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the
disposition of United States real property interests. A domestic person who
holds shares of Common Stock on behalf of a Non-U.S. Stockholder will bear the
burden of withholding, provided that the Company has properly designated the
appropriate portion of a distribution as a capital gain dividend.

Sale of Common Stock. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of shares of Common Stock generally will not be subject to
United States taxation unless such shares constitute a "United States real
property interest" within the meaning of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). The Common Stock will not constitute a
"United States real property interest" so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock is held directly or indirectly by Non- U.S. Stockholders. The
Company believes that at the closing of the Offering it will be a
"domestically controlled REIT," and therefore that the sale of shares of
Common Stock will not be subject to taxation under FIRPTA. However, because
the shares of Common Stock will be publicly traded, no assurance can be given
that the Company will continue to be a "domestically-controlled REIT."
Notwithstanding the foregoing, gain from the sale or exchange of shares of
Common Stock not otherwise subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if the Non-U.S. Stockholder is a nonresident alien individual who
is present in the United States for 183 days or more during the taxable year
and has a "tax home" in the United States. In such case, the nonresident alien
individual will be subject to a 30% United States withholding tax on the
amount of such individual's gain.

If the Company does not qualify as or ceases to be a "domestically-
controlled REIT," gain arising from the sale or exchange by a Non-U.S.
Stockholder of shares of Common Stock would be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest"
unless the shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and the selling Non-U.S. Stockholder held no more than 5% (after
applying certain constructive ownership rules) of the shares of Common Stock
during the shorter of (i) the period during which the taxpayer held such
shares, or (ii) the 5-year period ending on the date of the disposition of
such shares. If gain on the sale or exchange of shares of Common Stock were
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
regular United States income tax with respect to such gain in the same manner
as a U.S. Stockholder (subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals
and the possible application of the 30% branch profits tax in the case of
foreign corporations), and the purchaser of the stock would be required to
withhold and remit to the IRS 10% of the purchase price.

Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Common Stock by a foreign
office

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of a broker that (a) is a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in
the United States or (c) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by United States stockholders) for United
States tax purposes, unless the broker has documentary evidence in its records
that the holder is a Non-U.S. Stockholder and certain other conditions are
met, or the stockholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless
the stockholder certifies under penalty of perjury that the stockholder is a
Non-U.S. Stockholder, or otherwise establishes an exemption. A Non-U.S.
Stockholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.

New Proposed Regulations. The United States Treasury has recently issued
proposed Treasury Regulations regarding the withholding and information
reporting rules discussed above. In general, the proposed Treasury Regulations
do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
and modify reliance standards. If finalized in their current form, the
proposed Treasury Regulations would generally be effective for payments made
after December 31, 1997, subject to certain transition rules.

TAX ASPECTS OF THE OPERATING PARTNERSHIP

General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership, and are potentially subject
to tax thereon, without regard to whether the partners receive a distribution
from the partnership. The Company will include in its income its proportionate
share of the foregoing partnership items for purposes of the various REIT
income tests and in the computation of its REIT taxable income. Moreover, for
purposes of the REIT asset tests, the Company will include its proportionate
share of assets held by the Operating Partnership. See "--Taxation of the
Company."

Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge
by the IRS of the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation) for federal income tax
purposes. If the Operating Partnership was treated as an association, it would
be taxable as a corporation and therefore be subject to an entity-level tax on
its income. In such a situation, the character of the Company's assets and
items of gross income would change and preclude the Company from satisfying
the asset tests and possibly the income tests (see "--Taxation of the
Company--Asset Tests" and "--Income Tests"), and in turn would prevent the
Company from qualifying as a REIT. See "Federal Income Tax Consequences--
Taxation of the Company--Failure to Qualify" above for a discussion of the
effect of the Company's failure to meet such tests for a taxable year. In
addition, a change in the Operating Partnership's status for tax purposes
might be treated as a taxable event in which case the Company might incur a
tax liability without any related cash distributions.

An organization formed as a partnership will be treated as a partnership for
federal income tax purposes rather than as a corporation only if it has no
more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are (i) continuity of life, (ii)
centralization of management, (iii) limited liability and (iv) free
transferability of interests. The Company has not requested, and does not
intend to request, a ruling from the IRS that the Operating Partnership will
be treated as a partnership for federal income tax purposes. However, in
connection with the closing of the Formation Transactions, Latham & Watkins
will deliver an opinion to the Company stating that based on the provisions of
the Partnership Agreement and certain factual assumptions and representations
described in the opinion, the Operating Partnership will be treated as a
partnership for federal income tax purposes (and not as an association or a
publicly traded partnership taxable as a corporation). Unlike a private letter
ruling, an opinion of counsel is not binding on the IRS, and no assurance can
be given that the IRS will not challenge the status of the Operating
Partnership as a partnership for federal income tax purposes.

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If such challenge were sustained by a court, the Operating Partnership could
be treated as a corporation for federal income tax purposes.

The IRS recently finalized and published certain Treasury Regulations (the
"Final Regulations") that eliminate the four factor test described above and,
in its place, permit a partnership or limited liability company to elect to be
taxed as a partnership for federal income tax purposes without regard to the
number of corporate characteristics possessed by such entity. The Final
Regulations apply for tax periods beginning on or after January 1, 1997. For
periods before that time, the existing regulations will continue to apply. The
Final Regulations provide that the IRS will not challenge the classification
of an existing partnership or limited liability company for tax periods to
which the existing Treasury Regulations apply if (i) the entity had a
reasonable basis for its claimed classification, (ii) the entity claimed that
same classification in all prior years, and (iii) as of the date that the
Final Regulations were published, neither the entity nor any partner or member
of the entity had been notified in writing that the classification of the
entity is under examination by the IRS. Therefore, if the Operating
Partnership meets the conditions above, the IRS will not challenge the status
of the Operating Partnership as a partnership for tax purposes.

Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic
arrangement of the partners.

If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of
Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder.

The Partnership Agreement provides that net income or net loss of the
Operating Partnership will generally be allocated to the Company and the
limited partners in accordance with their respective percentage interests in
the Operating Partnership. Notwithstanding the foregoing, such agreement
provides that certain interest deductions and income from the discharge of
certain indebtedness of the Operating Partnership, attributable to loans
transferred to the Operating Partnership by certain Continuing Investors, will
be allocated disproportionately to such Continuing Investors. In addition,
allocations of net income or net loss will be subject to compliance with the
provisions of Sections 704(b) and 704(c) of the Code and the Treasury
Regulations promulgated thereunder.

Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated
in a manner such that the contributing partner is charged with, or benefits
from, respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at such time (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including the Properties). Consequently, the Partnership
Agreement requires that such allocations be made in a manner consistent with
Section 704(c) of the Code.

In general, the principals of KI and other Continuing Investors who are
limited partners of the Operating Partnership will be allocated depreciation
deductions for tax purposes which are lower than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition
of any of the contributed

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assets which have a Book-Tax Difference, all income attributable to such Book-
Tax Difference will generally be allocated to such limited partners, and the
Company will generally be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the closing of the
Formation Transactions. This will tend to eliminate the Book-Tax Difference
over the life of the Operating Partnership. However, the special allocation
rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
assets in the hands the Operating Partnership may cause the Company to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds,
which might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "--Taxation of the Company--Annual Distribution
Requirements."

Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to
be entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have not
yet decided which will be used to account for Book-Tax Differences with
respect to the Properties initially contributed to the Operating Partnership.

With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Code will not apply.

Basis in Operating Partnership Interest. The Company's adjusted tax basis in
its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed to the Company
and (c) by constructive distributions resulting from a reduction in the
Company's share of indebtedness of the Operating Partnership.

If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss
will be deferred until such time and to the extent that the Company has
adjusted tax basis in its interest in the Operating Partnership. To the extent
that the Operating Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the Operating Partnership (such
decreases being considered a constructive cash distribution to the partners),
exceeds the Company's adjusted tax basis, such excess distributions (including
such constructive distributions) will constitute taxable income to the
Company. Such taxable income will normally be characterized as a capital gain,
and if the Company's interest in the Operating Partnership has been held for
longer than the long-term capital gain holding period (currently one year),
such distributions and constructive distributions will constitute long-term
capital gain.

SERVICES COMPANY

A portion of the cash to be used by the Operating Partnership to fund
distributions to partners, and in turn to fund distributions by the Company to
its stockholders, is expected to come from the Services Company, through
dividends on non-voting preferred stock to be held by the Operating
Partnership. The Services Company will not qualify as a REIT and will pay
federal, state and local income taxes on its taxable income at normal
corporate rates. The federal, state and local income taxes that the Services
Company is required to pay will reduce the cash available for distribution by
the Company to its stockholders.

As described above, the value of the Company's indirect interest in the
securities of the Services Company held by the Operating Partnership cannot
exceed 5% of the value of the Company's total assets at the end of any

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<PAGE>

calendar quarter in which the Company acquires such securities or increases
its interest in such securities (including as a result of the Company
increasing its interest in the Operating Partnership). See "--Taxation of the
Company--Asset Tests." This limitation may restrict the ability of the
Services Company to increase the size of its business unless the value of the
assets of the Company or the Operating Partnership is increasing at a
commensurate rate.

OTHER TAX CONSEQUENCES

The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.

ERISA CONSIDERATIONS

The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Section 4975 of the Code that may
be relevant to a prospective purchaser (including, with respect to the
discussion contained in "--Status of the Company, the Operating Partnership
and the Partnerships under ERISA," to a prospective purchaser that is not an
employee benefit plan, another tax-qualified retirement plan or an individual
retirement account ("IRA")). This discussion does not propose to deal with all
aspects of ERISA or Section 4975 of the Code or, to the extent not preempted,
state law that may be relevant to particular employee benefit plan
shareholders (including plans subject to Title I of ERISA, other employee
benefit plans and IRAs subject to the prohibited transaction provisions of
Section 4975 of the Code, and governmental plans and church plans that are
exempt from ERISA and Section 4975 of the Code but that may be subject to
state law requirements) in light of their particular circumstances.

A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT
ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER
ERISA, SECTION 4975 OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE LAW
WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF SHARES OF COMMON STOCK BY
SUCH PLAN OR IRA. Plans should also consider the entire discussion under the
heading "Federal Income Tax Considerations," as material contained therein is
relevant to any decision by an employee benefit plan, tax-qualified retirement
plan or IRA to purchase the Common Stock.

EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS

Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in shares of
Common Stock is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require
(i) an ERISA Plan's investments to be prudent and in the best interests of the
ERISA Plan, its participants and beneficiaries, (ii) an ERISA Plan's
investments to be diversified in order to reduce the risk of large losses,
unless it is clearly prudent not to do so, (iii) an ERISA Plan's investments
to be authorized under ERISA and the terms of the governing documents of the
ERISA Plan and (iv) that the fiduciary not cause the ERISA Plan to enter into
transactions prohibited under Section 406 of ERISA. In determining whether an
investment in shares of Common Stock is prudent for purposes of ERISA, the
appropriate fiduciary of an ERISA Plan should consider all of the facts and
circumstances, including whether the investment is reasonably designed, as a
part of the ERISA Plan's portfolio for which the fiduciary has investment
responsibility, to meet the objectives of the ERISA Plan, taking into
consideration the risk of loss and opportunity for gain (or other return) from
the investment, the diversification,

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<PAGE>

cash flow and funding requirements of the ERISA Plan, and the liquidity and
current return of the ERISA Plan's portfolio. A fiduciary should also take
into account the nature of the Company's business, the length of the Company's
operating history and other matters described under "Risk Factors."

The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan or because it does not
cover common law employees (a "Non-ERISA Plan") should consider that such an
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.

STATUS OF THE COMPANY, THE OPERATING PARTNERSHIP AND THE PARTNERSHIPS UNDER
ERISA

A prohibited transaction may occur if the assets of the Company are deemed
to be assets of the investing Plans and disqualified persons deal with such
assets. In certain circumstances where a Plan holds an interest in an entity,
the assets of the entity are deemed to be Plan assets (the "look-through
rule"). Under such circumstances, any person that exercises authority or
control with respect to the management or disposition of such assets is a Plan
fiduciary. Plan assets are not defined in ERISA or the Code, but the United
States Department of Labor has issued regulations, effective March 13, 1987
(the "Regulations"), that outline the circumstances under which a Plan's
interest in an entity will be subject to the look-through rule.

The Regulations apply only to the purchase by a Plan of an "equity interest"
in an entity, such as common stock of a REIT. However, the Regulations provide
an exception to the look-through rule for equity interests that are "publicly-
offered securities."

Under the Regulations, a "publicly-offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely-
held and (iii) either (a) part of a class of securities that is registered
under section 12(b) or 12(g) of the Exchange Act or (b) sold to a Plan as part
of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such longer period allowed by the Securities and Exchange Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. Whether a security is considered
"freely transferable" depends on the facts and circumstances of each case.
Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against any
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax
purposes will not of itself prevent the security from being considered freely
transferable. A class of securities is considered "widely-held" if it is a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another.

The Company anticipates that the Common Stock will meet the criteria of the
publicly-offered securities exception to the look-through rule. First, the
Company anticipates that the Common Stock will be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under federal tax laws to
maintain the Company's status as a REIT. Second, the Company believes that the
Common Stock will be held by 100 or more investors and that at least 100 or
more of these investors will be independent of the Company and of one another.
Third, the Common Stock will be part of an offering of securities to the
public pursuant to an effective registration statement under the Securities
Act and will be registered under the Exchange Act within 120 days after the
end of the fiscal year of the Company during which the offering of such
securities to the public occurs. Accordingly, the Company believes that if a
Plan purchases the Common Stock, the Company's assets should not be deemed to
be Plan assets and, therefore, that any person who exercises authority or
control with respect to the Company's assets should not be a Plan fiduciary.

151
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated ("Prudential Securities"), Donaldson, Lufkin &
Jenrette Securities Corporation, J.P. Morgan Securities Inc. and Smith Barney
Inc. are acting as representatives ("Representatives"), have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement,
to purchase from the Company the number of shares of Common Stock set forth
below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Prudential Securities Incorporated...............................
Donaldson, Lufkin & Jenrette Securities Corporation..............
J.P. Morgan Securities Inc.......................................
Smith Barney Inc.................................................
----------
Total.......................................................... 11,250,000
==========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are
purchased.

The Underwriters, through their Representatives, have advised the Company
that they propose to offer the shares of Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus;
that the Underwriters may allow to selected dealers a concession of $ per
share, and that such dealers may re-allow a concession of $ per share to
certain other dealers. After the initial public offering, the offering price
and the concessions may be changed by the Representatives.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 1,687,500 additional
shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose
of covering over-allotments incurred in the sale of shares of Common Stock
offered hereby. To the extent such option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such Underwriter's name in the preceding table
bears to 11,250,000.

The Company has agreed to indemnify the several Underwriters against or to
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act. In the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

Each of the Continuing Investors has agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer to
sell, pledge, grant of any option to purchase or other sale or disposition) of
any Units or shares of Common Stock or other capital stock of the Company, or
any securities convertible or exercisable or exchangeable for any Units or
shares of Common Stock or other capital stock for a period of two years from
the date of this Prospectus, and the Company has agreed not to offer, sell,
offer to sell, contract to sell, grant any option to purchase or otherwise
sell or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
(other than pursuant to the Stock Incentive Plan) shares of Common Stock or
other capital stock of the Company, or any securities convertible or
exercisable or exchangeable for any Units or shares of Common Stock or other
capital stock of the Company, for a period of one year from the date of this
Prospectus, in each case without the prior written consent of Prudential
Securities, on behalf of the Underwriters, subject to certain limited
exceptions. Notwithstanding the foregoing, the Units received by certain of
the Continuing Investors in connection with the Formation Transactions will

152
<PAGE>

be pledged to secure their indemnification obligations pursuant to an
agreement with the Company. See "Formation and Structure of the Company."

The shares of Common Stock have been approved for listing on the NYSE,
subject to official notice of issuance. In order to meet one of the
requirements for listing the shares of Common Stock on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. Among the factors to be
considered in such determination were prevailing market conditions, dividend
yields and financial characteristics of publicly traded REITs that the Company
and the Representatives believe to be comparable to the Company, the present
state of the Company's financial and business operations, the Company's
management, estimates of the business and earnings potential of the Company
and the prospects for the industry in which the Company operates.

An affiliate of J.P. Morgan & Co. is providing the Mortgage Loan and the
Credit Facility. The Company will pay (i) a debt placement fee to an affiliate
of J.P. Morgan & Co. for the Mortgage Loan equal to % of the principal
amount thereof and (ii) an origination fee to an affiliate of J.P. Morgan &
Co. for the Credit Facility equal to % of the maximum amount available
thereunder.

Upon consummation of the Offering, Prudential Securities will receive
approximately $31.0 of the net proceeds from the Offering as repayment of
indebtedness, fees and related interest expected to be accrued and unpaid as
of such date. See "Use of Proceeds."

The Prudential Insurance Company of America, an affiliate of Prudential
Securities, is a tenant in one of the Office Properties located in Kilroy Long
Beach, leasing approximately 2,189 square feet of space.

The Company will pay to the Representatives advisory fees equal, in the
aggregate, to 0.75% of the gross proceeds received by the Company in the
Offering, for investment banking services relating to, among other things, the
structuring of the Formation Transactions and the Offering.

LEGAL MATTERS

Certain legal matters in connection with the Offering will be passed upon
for the Company by Latham & Watkins, Los Angeles, California. Legal matters
relating to Maryland law, including the validity of the issuance of the shares
of Common Stock offered hereby, will be passed upon for the Company by Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal matters will be
passed upon for the Underwriters by Kaye, Scholer, Fierman, Hays & Handler,
LLP, New York, New York. In addition, the description of federal income tax
consequences contained in this Prospectus under "Federal Income Tax
Consequences" is, to the extent that it constitutes matters of law, summaries
of legal matters or legal conclusions, the opinion of Latham & Watkins,
special tax counsel to the Company as to the material federal income tax
consequences of the Offering.

EXPERTS

The financial statements of Kilroy Realty Corporation as of September 30,
1996, the Kilroy Group as of September 30, 1996, December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 and the
nine months ended September 30, 1995 and 1996 and the Acquisition Properties
for the year ended December 31, 1995 and the nine months ended September 30,
1996 included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing
herein and elsewhere in the registration statement, and are included in
reliance on the reports of such firm, given upon their authority as experts in
auditing and accounting.

In addition, certain statistical information provided under the captions
"Prospectus Summary--The Company's Southern California Submarkets" and
"Business and Properties--The Company's Southern California Submarkets" has
been prepared by Robert Charles Lesser & Co., and is included herein in
reliance upon the authority of such firm as expert in, among other things,
real estate consulting and urban economics.

153
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street N.W., Washington, D.C. 20599, a Registration
Statement (of which this Prospectus is a part) on Form S-11 under the
Securities Act and the rules and regulations promulgated thereunder with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
financial statements thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, copies of
which may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, or by way of the Commission's
Internet address, http://www.sec.gov.

Following the consummation of the Offering, the Company will be required to
file reports and other information with the Commission pursuant to the
Exchange Act. In addition to applicable legal or New York Stock Exchange
requirements, if any, the Company intends to furnish its stockholders with
annual reports containing consolidated audited financial statements with a
report thereon by the Company's independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.

154
<PAGE>

GLOSSARY

"Acquisition Properties" means the two office buildings and related assets
that comprise Kilroy Long Beach Phase I, the Thousand Oaks Office Property,
the Office and Industrial Properties located at 4123-4175 East La Palma,
Anaheim, California and the Industrial Property located at 15752-12822 Monarch
Street, Garden Grove, California that are expected to be acquired by the
Company concurrently with the completion of the Offering, including, with
respect to Kilroy Long Beach Phase I, the ground lease with respect thereto.

"ADA" means the Americans with Disabilities Act, enacted on July 26, 1990.

"Audit Committee" means the audit committee of the Board of Directors.

"base rent" means gross rent excluding payments by tenants on account of
real estate taxes, operating expenses and utility expenses.

"Class A office buildings" means office buildings that have excellent
location and access, attract major corporate tenants, have high quality
finishes, are well maintained, professionally managed and are either new
buildings or buildings that are competitive with new buildings.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means common stock, par value $.01 per share, of the Company.

"Company" means Kilroy Realty Corporation and its subsidiaries on a
consolidated basis, including the Operating Partnership and the Services
Company.

"Continuing Investors" shall mean the persons and entities receiving Units
in connection with the Formation Transactions.

"Credit Facility" means the $75.0 million revolving credit facility of the
Company which will be obtained concurrently with the consummation of the
Offering.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Executive Committee" means the executive committee of the Board of
Directors.

"Executive Compensation Committee" means the compensation committee of the
Board of Directors.

"Formation Transactions" means those transactions relating to the
organization of the Company and its subsidiaries, including the transfer of
the Properties and other assets to the Company, as described under "Formation
and Structure of the Company--Formation Transactions."

"Funds from Operations" means, in accordance with the resolution adopted by
the Board of Governors of NAREIT in its March 1996 White Paper, net income
(loss) computed in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs), and after
adjustments for unconsolidated partnerships and joint ventures.

"Independent Director" means a director of the Company who is not an
employee, officer or affiliate of the Company or a subsidiary or division
thereof, or a relative of a principal executive officer, and who is not an
individual member of an organization acting as advisor, consultant or legal
counsel, receiving compensation on a continuing basis from the Company in
addition to director's fees.

"Industrial Properties" means the 12 industrial properties in which the
Company will have an ownership interest upon completion of the Offering.

155
<PAGE>

"IRAs" means individual retirement accounts.

"IRS" means the Internal Revenue Service.

"KI" means Kilroy Industries, a California corporation, operating the
Company's business prior to the consummation of the Offering and the Formation
Transactions.

"Kilroy Group" means KI and the partnerships and trusts affiliated with KI
that prior to the Offering owned the Properties (other than the Acquisition
Properties) and other assets being transferred to the Company in the Formation
Transactions.

"Kilroy Realty Corporation" means Kilroy Realty Corporation, a Maryland
corporation with its principal office at 2250 East Imperial Highway, Suite
1200, El Segundo, California 90245.

"LAX" means Los Angeles International Airport.

"look-through rule" means the ERISA rule providing that in certain
circumstances where a Plan holds an interest in an entity, the assets of the
entity are deemed to be the Plan's assets.

"MGCL" means the Maryland General Corporation Law.

"Mortgage Loan" means the $96.0 million mortgage loan, the closing of which
is a condition to the completion of the Offering, to be obtained by the
Company concurrently with the consummation of the Offering.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"net absorption" means, with respect to a specified market area, the net
increase in occupied rentable space.

"NYSE" means the New York Stock Exchange, Inc.

"Offering" means the initial public offering of shares of Common Stock of
Kilroy Realty Corporation pursuant to and as described in this Prospectus.

"Office Properties" means the 14 office properties in which the Company will
have an ownership interest upon completion of the Offering, including
consummation of the Formation Transactions and acquisition of the Acquisition
Properties.

"Omnibus Agreement" means the agreement by and among each of the Continuing
Investors and the Company pursuant to which the Continuing Investors will
contribute their interests in the Properties (other than the Acquisition
Properties), and certain other assets, in exchange for Units representing
limited partnership interests in the Operating Partnership.

"Operating Partnership" means Kilroy Realty, L.P., a Delaware limited
partnership with its office at 2250 East Imperial Highway, Suite 1200, El
Segundo, California 90245, organized in the Formation Transactions and through
which all of the Company's interests in the Properties will be held and real
estate activities will be conducted.

"Ownership Limit" means the restriction contained in the Company's Articles
of Incorporation providing that, subject to certain exceptions, no holder may
own, or be deemed to own by virtue of the constructive ownership provisions of
the Code, more than 7.0% (by number or value, whichever is more restrictive)
of the outstanding shares of Common Stock.

"Partnership Agreement" means the Agreement of Limited Partnership of the
Operating Partnership, as amended from time to time.

"Partnerships" means those corporations, general and limited partnerships
and trusts affiliated with Kilroy Industries whose Properties are being
acquired by the Operating Partnership.

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<PAGE>

"Plans" means employee benefit plans and IRAs.

"Preferred Stock" means shares of preferred stock, par value $.01 per share,
of the Company.

"Properties" means the real property and related assets owned by the
Partnerships and contributed to the Company by the Continuing Investors in
connection with the Formation Transactions, including, but not limited to,
real property and the Acquisition Properties.

"Prospectus" means this prospectus relating to the sale of up to 11,250,000
shares of Common Stock of the Company in the Offering, plus the 1,687,500
shares subject to the Underwriters' over-allotment option.

"Regulations" means regulations issued by the United States Department of
Labor defining "plan assets."

"REIT" means a real estate investment trust as defined in Section 856 of the
Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.

"Related Party Tenant" means a tenant of a REIT in which the REIT, or an
owner of 10% or more of the REIT, actually or constructively owns a 10% or
greater ownership interest.

"rentable square feet" means a building's usable area plus common areas and
penetrations, expressed collectively in square feet which are allocated pro
rata to tenants.

"Representatives" means Prudential Securities Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, J.P. Morgan & Co. and Smith Barney
Inc., as representatives of the Underwriters.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Services Company" means Kilroy Services, Inc., a Maryland corporation with
its principal office at 2250 East Imperial Highway, El Segundo, CA 90245,
which will perform certain development services, and the economic value of
which will be owned 95% by the Operating Partnership and 5% collectively by
John B. Kilroy, Sr. and John B. Kilroy, Jr.

"Stock Incentive Plan" means the Company's stock incentive plan, as further
described in this Prospectus under the caption entitled "Management--Stock
Incentive Plan."

"Thousand Oaks Office Property" means the office building and related realty
located at 2829 Townsgate Road, Thousand Oaks, California.

"Treasury Regulations" means regulations of the U.S. Department of Treasury
under the Code.

"triple net lease" means a lease pursuant to which a tenant is responsible
for the base rent in addition to the costs and expenses in connection with and
related to property taxes, insurance and repairs and maintenance applicable to
the leased space.

"Underwriters" means each of the Underwriters named in the section of this
Prospectus entitled "Underwriting."

"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Representatives relating to the purchase of the Common Stock
offered hereby.

"Units" means limited and general partnership interests representing an
ownership interest in the Operating Partnership.

157
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Kilroy Realty Corporation
Pro Forma (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1996................................................................... F-2
Notes to Pro Forma Condensed Consolidated Balance Sheet................. F-3
Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended
September 30, 1996 and the year ended December 31, 1995................ F-5
Notes to Pro Forma Condensed Consolidated Statements of Operations...... F-7
Historical:
Independent Auditors' Report............................................ F-8
Balance Sheet as of September 30, 1996.................................. F-9
Notes to Balance Sheet.................................................. F-10
Kilroy Group (Predecessor Affiliates)
Independent Auditors' Report............................................ F-12
Combined Balance Sheets as of September 30, 1996, and December 31, 1995
and 1994............................................................... F-13
Combined Statements of Operations for the nine months ended September
30, 1996 and 1995 and the three years ended December 31, 1995, 1994 and
1993................................................................... F-14
Combined Statements of Accumulated Deficit for the three years ended
December 31, 1995, 1994 and 1993 and nine months ended September 30,
1996................................................................... F-15
Combined Statements of Cash Flows for the nine months ended September
30, 1996 and 1995 and the three years ended December 31, 1995, 1994 and
1993................................................................... F-16
Notes to Combined Financial Statements.................................. F-17
Acquisition Properties
Independent Auditors' Report............................................ F-27
Combined Historical Summaries of Certain Revenues and Certain Expenses
for the nine months ended September 30, 1996 and for the year ended
December 31, 1995...................................................... F-28
Notes to Combined Historical Summaries of Certain Revenues and Certain
Expenses............................................................... F-29
</TABLE>

F-1
<PAGE>

KILROY REALTY CORPORATION

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)

This unaudited pro forma condensed consolidated balance sheet is presented
as if (i) the transfer of the Properties and business and operations of the
Kilroy Group pursuant to the Formation Transactions and (ii) the Offering, the
Mortgage Loan and use of proceeds to repay indebtedness and purchase the
Acquisition Properties had each occurred on September 30, 1996. Such pro forma
information is based upon the historical balance sheet of the Kilroy Group at
September 30, 1996. The acquisition of the Properties (other than the
Acquisition Properties) and business and operations of the Kilroy Group will
be recorded by the Company at the historical cost reflected in the Kilroy
Group financial statements. The historical cost basis, similar to a pooling of
interests, will be used because these Properties have been under the common
control of John B. Kilroy, Sr. and John B. Kilroy, Jr. The purchase of the
Acquisition Properties will be accounted for as a purchase transaction. This
pro forma condensed balance sheet should be read in conjunction with the pro
forma condensed statement of operations of the Company and the historical
combined financial statements and notes thereto of the Kilroy Group and the
historical combined financial statements of the Acquisition Properties
included elsewhere in this Prospectus. See "The Company" and "Use of
Proceeds."

The unaudited pro forma condensed balance sheet is not necessarily
indicative of what the actual financial position of the Company would have
been assuming the Company had been formed and the consummation of the
Formation Transactions, the Offering and the Mortgage Loan and the use of
proceeds thereof, and the acquisition of the Acquisition Properties at
September 30, 1996, nor does it purport to represent the future financial
position of the Company.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------------
KILROY REALTY
KILROY REALTY KILROY CORPORATION
CORPORATION GROUP ACQUISITION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PROPERTIES ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ----------- -------------
(A) (B)
ASSETS
<S> <C> <C> <C> <C> <C>
Rental properties, net
of accumulated
depreciation and
amortization........... $ -- $ 119,405 $ 57,848 (C) $ -- $177,253
Cash and cash
equivalents............ 1 (57,848)(C) 76,942 (D) 19,095
Tenant receivables,
net.................... 3,363 3,363
Deferred charges and
other assets, net of
accumulated
amortization........... 8,294 174 (E) 8,468
--------- --------- -------- --------- --------
Total................ $ 1 $ 131,062 -- $ 77,116 $208,179
========= ========= ======== ========= ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Liabilities:
Debt................... $ -- $ 224,046 $(128,046)(F) $ 96,000
Accounts payable and
accrued expenses...... 2,600 2,600
Accrued construction
costs................. 460 (460)(G)
Accrued property
taxes................. 1,007 1,007
Accrued interest
payable............... 3,538 (3,538)(H)
Accrued cost of option
buy-out and tenant
improvements.......... 3,650 (2,260)(I) 1,390
Rent received in
advance and tenant
security deposits..... 8,984 8,984
--------- --------- -------- --------- --------
Total liabilities.... 244,285 (134,304) 109,981
--------- --------- -------- --------- --------
Minority interest....... 20,523 (J) 20,523
--------- --------
Stockholders' equity
(deficit):
Common stock........... 1 113 (K) 114
Additional paid-in
capital............... 211,307 (K) 77,561
(20,523)(J)
(113,223)(L)
Accumulated deficit.... (113,223) 113,223 (L)
--------- --------- -------- --------- --------
Total stockholders'
equity (deficit).... 1 (113,223) 190,897 77,675
--------- --------- -------- --------- --------
Total................ $ 1 $ 131,062 $ 77,116 $208,179
========= ========= ======== ========= ========
</TABLE>

F-2
<PAGE>

KILROY REALTY CORPORATION

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

PRO FORMA ADJUSTMENTS

These pro forma adjustments are to reflect the Offering, the Formation
Transactions, including the transfer of the Properties, the purchase of the
Acquisition Properties and the Mortgage Loan and the use of proceeds thereof.

(A) Reflects Kilroy Realty Corporation audited balance sheet as of September
30, 1996.

(B) Reflects Kilroy Group audited historical combined balance sheet as of
September 30, 1996.

The Acquisition Properties, all of which will be acquired from unaffiliated
third parties, are as follows:

<TABLE>
<CAPTION>
PROPERTY CASH PURCHASE PRICE SELLER
-------- ------------------- ------
<S> <C> <C>
Westlake Plaza Centre.... $13,160 Westlake Plaza Partners
Long Beach Phase I....... 23,450 The Northwestern Mutual Life
Insurance Company
La Palma Business
Center.................. 12,180 Horowitz Brothers 1975 Trust
Monarch Buildings........ 9,058 ARGO REO Limited Partnership
-------
Total................ $57,848
=======
</TABLE>

The acquisition of the Acquisition Properties will be accounted for as
purchase transactions. The cost of the properties will be allocated as
follows:

<TABLE>
<S> <C>
Land.............................................................. $19,297
Buildings and improvements........................................ 38,551
-------
$57,848
=======
</TABLE>

(D) The adjustment to pro forma cash and cash equivalents was determined as
follows:

<TABLE>
<S> <C>
. Net proceeds from the Offering after underwriting discount and
estimated issuance costs of $18,950........................... $ 206,050
. Net proceeds from the 8.00% Mortgage Loan after estimated
issuance cost of $480......................................... 95,520
---------
. Net proceeds.................................................. 301,570
. Repayment of mortgage debts net of forgiveness of $4,062 and
including $338 of additional loan fees ....................... (220,322)
. Purchase of Acquisition Properties............................ (57,848)
. Payment of accrued interest................................... (2,806)
. Payment of debt issuance costs................................ (1,500)
---------
Net increase in cash and cash equivalents....................... $ 19,094
=========
(E)Reflects the net increase as follows:
. Issuance costs of the Mortgage Loan and the Credit Facility... $ 1,980
. Write-off of loan costs relating to repayment of mortgage
debt........................................................... (1,806)
---------
Net increase in deferred charge................................. $ 174
=========
</TABLE>

F-3
<PAGE>

KILROY REALTY CORPORATION

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(F) Reflects the net decrease as follows:

<TABLE>
<S> <C>
. Issuance of $96,000 aggregate principal amount of 8.00%
Mortgage Loan payable monthly until maturity in 2005......... $ 96,000
. Repayment of mortgage debt from net proceeds of the Offering
and the Mortgage Loan........................................ (224,046)
---------
Net decrease in mortgage debt.................................. $(128,046)
=========

</TABLE>
(G) Amount represents a liability for construction costs which will not be
assumed by Kilroy Realty Corporation.

(H) Amount represents accrued interest which will not be assumed by Kilroy
Realty Corporation ($732) and accrued interest paid ($2,806) in connection
with the repayment of mortgage debt.

(I) Amount represents portion of accrued cost of option buy-out which will not
be assumed by Kilroy Realty Corporation.

(J) Reflects the estimated minority interest of the Continuing Investors in
the Operating Partnership computed as follows:

<TABLE>
<S> <C>
Pro forma total assets......................................... $ 208,178
Pro forma total liabilities.................................... (109,981)
---------
Pro forma net book value of Operating Partnership.............. $ 98,197
=========
Continuing Investors minority interest at 20.9%................ $ 20,523
=========
</TABLE>

(K) Reflects the issuance of 11,250,000 shares of Common Stock, par value $.01
per share, at an assumed initial Offering price of $20.00 per share. The
following table sets forth the adjustments to additional paid-in capital:

<TABLE>
<S> <C>
. Net proceeds from the Offering of Common Stock after
underwriting discounts and commissions and estimated issuance
costs of $18,950................................................ $206,050
Less: par value of Common Stock of 11,250,000 shares at $.01 per
share........................................................... (113)
. Accrued interest which will not be assumed by Kilroy Realty
Corporation..................................................... 732
. Write-off of loan costs relating to repayment of mortgage debt.. (1,806)
. Portion of liability for option buy-out cost which will not be
assumed by Kilroy Realty Corporation............................ 2,260
. Net gain on repayment of mortgage debt.......................... 3,724
. Liability for construction costs which will not be assumed by
Kilroy Realty Corporation....................................... 460
--------
Net adjustment to additional paid-in capital...................... $211,307
========
</TABLE>

(L) Reflects the reclassification of the accumulated deficit.

F-4
<PAGE>

KILROY REALTY CORPORATION

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The unaudited pro forma condensed consolidated statements of operations are
presented as if (i) the transfer of the Properties (other than the Acquisition
Properties) and business and operations of the Kilroy Group pursuant to the
Formation Transactions and (ii) the Offering and the Mortgage Loan, and the
use of proceeds thereof to repay indebtedness and purchase the Acquisition
Properties, each had occurred on January 1, 1995. Such pro forma information
is based upon the historical results of operations of the Kilroy Group for the
nine months ended September 30, 1996, and the year ended December 31, 1995.
This pro forma condensed consolidated statement of operations should be read
in conjunction with the pro forma condensed consolidated balance sheet of the
Company and the historical combined financial statements and notes thereto of
the Kilroy Group and the Combined Historical Summaries of Certain Revenues and
Certain Expenses of the Acquisition Properties and notes thereto included
elsewhere in this Prospectus. Reference is also made to "The Company" and "Use
of Proceeds."

The unaudited pro forma condensed consolidated statement of operations is
not necessarily indicative of what the actual results of operations of the
Company would have been assuming the Company had been formed and the
consummation of the Formation Transactions, the Offering and the Mortgage Loan
and the use of proceeds thereof, and the acquisition of the Acquisition
Properties at January 1, 1995, nor does it purport to represent the results of
operations of future periods of the Company.

F-5
<PAGE>

KILROY REALTY CORPORATION

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------
KILROY COMPANY PRO
GROUP ACQUISITION PRO FORMA PRO FORMA FORMA
HISTORICAL PROPERTIES SUBSIDIARY(B) ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income.... $25,156 $5,875 $ (396)(A) $ 30,635
Tenant
reimbursements... 2,583 743 3,326
Parking.......... 1,317 1,317
Development and
management
fees............ 580 $(580)(B)
Lease termination
fees.............
Sale of air
rights...........
Other income..... 65 299 364
------- ------ ----- ------- ----------
Total revenues.. 29,701 6,917 (580) (396) 35,642
------- ------ ----- ------- ----------
EXPENSES:
Property
expenses......... 5,042 1,315 (1,053)(C) 5,304
Real estate
taxes............ 970 417 70 (D) 1,457
General and
administrative.. 1,607 200 1,822 (E) 3,629
Ground lease..... 579 253 832
Option buy-out
cost............ 3,150 3,150
Development and
management
expenses........ 584 (584)(B)
Interest
expense.......... 16,234 (10,457)(F) 5,777
Depreciation and
amortization.... 6,838 813(I) 7,651
------- ------ ----- ------- ----------
Total expenses.. 35,004 2,998 (584) (9,618) 27,800
------- ------ ----- ------- ----------
Income (loss)
from operations
before equity in
income
of subsidiaries
and minority
interest........ (5,303) 3,919 4 9,222 7,842
Equity in income
of subsidiary... (58)(B) (58)
Minority
interest......... (1,627)(G) (1,627)
------- ------ ----- ------- ----------
Net income
(loss) $(5,303) $3,919 $ 4 $ 7,537 $ 6,157
======= ====== ===== ======= ==========
Average number of
shares
outstanding...... 11,250,000
==========
Net income per
common share(H).. $ 0.55
==========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
KILROY COMPANY PRO
GROUP ACQUISITION PRO FORMA PRO FORMA FORMA
HISTORICAL PROPERTIES SUBSIDIARY(B) ADJUSTMENTS CONSOLIDATED
---------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income.... $ 32,314 $7,355 $ (528)(A) $ 39,141
Tenant
reimbursements... 3,002 884 3,886
Parking.......... 1,582 1,582
Development and
management
fees............ 1,156 $(1,156)(B)
Lease termination
fees............. 100 100
Sale of air
rights........... 4,456 4,456
Other income..... 298 407 705
---------- ------------ -------------- -------------- ------------
Total revenues.. 42,908 8,646 (1,156) (528) 49,870
---------- ------------ -------------- -------------- ------------
EXPENSES:
Property
expenses......... 6,834 1,882 (1,524)(C) 7,192
Real estate
taxes............ 1,416 495 91 (D) 2,002
General and
administrative.. 2,152 303 2,384 (E) 4,839
Ground lease..... 789 338 1,127
Option buy-out
cost............
Development and
management
expenses........ 737 (737)(B)
Interest
expense.......... 24,159 (16,456)(F) 7,703
Depreciation and
amortization.... 9,474 1,084(I) 10,558
---------- ------------ -------------- -------------- ------------
Total expenses.. 45,561 4,102 (737) (15,505) 33,421
---------- ------------ -------------- -------------- ------------
Income (loss)
from operations
before equity in
income
of subsidiaries
and minority
interest........ (2,653) 4,544 (419) 14,977 16,449
Equity in income
of subsidiary... 136 (B) 136
Minority
interest......... (3,466)(G) (3,446)
---------- ------------ -------------- -------------- ------------
Net income
(loss) $(2,653) $4,544 $ (419) $ 11,647 $ 13,119
========== ============ ============== ============== ============
Average number of
shares
outstanding...... 11,250,000
============
Net income per
common share(H).. $ 1.17
============
</TABLE>

F-6
<PAGE>

KILROY REALTY CORPORATION

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (DOLLARS IN THOUSANDS)

(A) Represents the elimination of rental income received from Kilroy
Industries.

(B) Represents the elimination of the Services Company's gross revenues and
expenses and the recording of the equity in income of the Services Company
net of income taxes.

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------- ------------
<S> <C> <C>
Development and management fees........... $ 580 $1,156
Development and management expenses....... (584) (737)
Elimination of nonrecurring Services
Company expenses......................... 80
----- ------
76 419
Elimination of management fees earned on
one of the Acquisition Properties........ (137) (181)
----- ------
(61) 238
Income tax expense........................ (95)
----- ------
Estimated service company net income
(loss)................................... (61) 143
----- ------
At 95% economic interest.................. $ (58) $ 136
===== ======
</TABLE>

(D) Represents incremental property taxes on the Acquisition Properties due to
change of ownership.

(E) Estimated incremental general and administrative expenses to be incurred
as a public company and reclassification of general and administrative
expenses previously allocated to individual properties.

(F) Reflects reduction of interest expenses associated with the mortgage debts
assumed to be repaid using net proceeds from the Offering:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------- ------------
<S> <C> <C>
. Interest expense on the Mortgage Loan
(fixed interest rate of 8.00% on
$96,000)............................... $ 5,726 $ 7,635
. Amortization of the issuance costs on
the Mortgage Loan...................... 51 68
. Interest expense on debt assumed to be
retired................................ (16,234) (24,159)
-------- --------
Net interest expense reduction......... $(10,457) $(16,456)
======== ========
</TABLE>

(G) Represents the income allocated to the 20.9% minority interest (Units) in
the Operating Partnership owned by Continuing Investors.

(H) Pro forma net income per share of Common Stock is based upon 11,250,000
shares of Common Stock assumed to be outstanding in connection with the
Offering.

(I) Represents depreciation expense calculated based on the cost of the
Acquisition Properties' buildings depreciated on the straight-line method
over a 35 year life.

F-7
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Kilroy Realty Corporation:

We have audited the accompanying balance sheet of Kilroy Realty Corporation
(the "Company") as of September 30, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company at September 30, 1996 in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Los Angeles, California
October 25, 1996

F-8
<PAGE>

KILROY REALTY CORPORATION

BALANCE SHEET

SEPTEMBER 30, 1996

<TABLE>
<S> <C>
ASSETS
Cash............................................................... $1,000
======
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value, 10,000,000 shares authorized;
50 shares issued and outstanding.................................. $1,000
======
</TABLE>

See notes to balance sheet.

F-9
<PAGE>

KILROY REALTY CORPORATION

NOTES TO BALANCE SHEET

SEPTEMBER 30, 1996

1. FORMATION OF THE COMPANY

Kilroy Realty Corporation (the "Company") was incorporated in Maryland on
September 13, 1996. The Company will file a Registration Statement on Form S-
11 with the Securities and Exchange Commission with respect to a proposed
public offering (the "Offering") of 11,250,000 shares of Common Stock. The
Company has been formed to succeed to the business of the Kilroy Group
consisting of a portfolio of nineteen office and industrial properties (the
"Kilroy Properties") and the real estate ownership, acquisition, development,
leasing and management businesses historically conducted by Kilroy Industries
and related partnerships. The Company's assets will be owned and controlled
by, and all of its operations will be conducted through, Kilroy Realty, L.P.
(the "Operating Partnership") and other subsidiaries. The Company will
control, as the sole general partner, and will initially own a 79.1% interest
in, the Operating Partnership. The Operating Partnership will conduct certain
development services through Kilroy Services, Inc. ("Services Company"). The
Operating Partnership will own 100% of the nonvoting preferred stock
representing 95% of the economic interest in the Services Company. John B.
Kilroy, Sr. and John B. Kilroy, Jr. together will own 100% of the voting
common stock representing a 5% economic interest in the Services Company. The
Operating Partnership's investment in the Services Company will be accounted
for under the equity method. As of October 25, 1996, Services Company had not
yet been formed.

Prior to and simultaneous with the consummation of the Offering, the
Company, the Operating Partnership and the Continuing Investors intend to
engage in certain formation transactions (the "Formation Transactions")
summarized as follows:

(i) The Continuing Investors will contribute all of their interests in
the Kilroy Properties to the Operating Partnership in exchange for units
representing limited partnership interests in the Operating Partnership
("Units"). The transfer of the properties, which are under common control
of John B. Kilroy, Sr. and John B. Kilroy, Jr., to the Operating
Partnership will be accounted for at the historical cost of the Continuing
Investors' interests therein similar to a pooling of interests;

(ii) The Company will sell shares of Common Stock in the Offering and
will contribute the net proceeds from the Offering (estimated to be
approximately $209.3 million before expenses) to the Operating Partnership
in exchange for Units in the Operating Partnership. The Operating
Partnership will use substantially all of such net proceeds, together with
the net proceeds of borrowings under the Mortgage Loan, discussed below,
for the repayment of certain existing mortgage and loan indebtedness on the
Kilroy Properties, and the acquisition of certain properties (the
"Acquisition Properties");

(iii) The Operating Partnership will enter into a $96 million secured
mortgage financing (the "Mortgage Loan"), which will be a nonrecourse
obligation of the Operating Partnership; and

(iv) The Company will amend its charter and authorize 150,000,000 shares
of Common Stock, $.01 par value per share, and 30,000,000 shares of
Preferred Stock, par value $.01 per share.

2. INCOME TAXES

It is the intent of the Company to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended. As a REIT, the
Company generally will not be subject to federal income tax to the extent that
it distributes at least 95% of its REIT taxable income to its stockholders.
REITs are subject to a number of organizational and operational requirements.
If the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate tax rates.

F-10
<PAGE>

KILROY REALTY CORPORATION

NOTES TO BALANCE SHEET--(CONTINUED)

SEPTEMBER 30, 1996

3. OFFERING COSTS

In connection with the Offering, affiliates have or will incur legal,
accounting and related costs which will be reimbursed by the Company upon the
consummation of the Offering. These costs will be deducted from the gross
proceeds of the Offering.

4. STOCK INCENTIVE PLAN

Prior to the consummation of the Offering, the Company intends to adopt and
have its shareholders approve a stock incentive plan (the "Stock Incentive
Plan"), for the purpose of attracting and retaining executive officers,
directors and employees. A maximum of 1,400,000 shares of Common Stock
(subject to adjustment) will be reserved by the Company for issuance under the
Stock Option Plan. The exercise price may not be less than the market value of
the Common Stock on the date of the grant.

******

F-11
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Partners of Kilroy Group:

We have audited the accompanying combined balance sheets of Kilroy Group
(described in Note 1) as of September 30, 1996 and December 31, 1995 and 1994,
and the related combined statements of operations, accumulated deficit, and
cash flows for the nine months ended September 30, 1996 and each of the three
years in the period ended December 31, 1995 and the combined statements of
operations and cash flows for the nine months ended September 30, 1995. These
financial statements are the responsibility of the management of Kilroy Group.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kilroy Group as of September 30, 1996 and
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the nine months ended September 30, 1996 and 1995 and for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP
Los Angeles, California

December 20, 1996

F-12
<PAGE>

KILROY GROUP

COMBINED BALANCE SHEETS

SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
------------- --------- ---------
<S> <C> <C> <C>
ASSETS
RENTAL PROPERTIES (Notes 1, 2, 4, 5, 6 and
9):
Land..................................... $ 12,490 $ 12,490 $ 12,490
Buildings and improvements............... 214,637 212,493 211,331
--------- --------- ---------
Total rental properties................ 227,127 224,983 223,821
Accumulated depreciation and
amortization............................ (107,722) (101,774) (93,475)
--------- --------- ---------
Rental properties, net................. 119,405 123,209 130,346
TENANT RECEIVABLES, NET (Note 2)........... 3,363 3,973 3,961
DEFERRED CHARGES AND OTHER ASSETS, NET
(Notes 2, 3 and 7)........................ 8,294 5,675 8,944
--------- --------- ---------
TOTAL...................................... $ 131,062 $ 132,857 $ 143,251
========= ========= =========
LIABILITIES AND ACCUMULATED DEFICIT
LIABILITIES:
Debt (Notes 4, 8 and 9).................. $ 224,046 $ 233,857 $ 250,059
Accounts payable and accrued expenses.... 2,600 2,590 3,482
Accrued construction costs (Note 2)...... 460 874 --
Accrued property taxes (Note 2).......... 1,007 1,399 1,563
Property tax refund payable to tenants
(Note 3)................................ -- -- 1,500
Accrued interest payable (Note 4)........ 3,538 7,251 8,057
Accrued cost of option buy-out and tenant
improvements (Note 5)................... 3,650 -- --
Rents received in advance and tenant
security deposits (Note 2).............. 8,984 8,712 8,924
--------- --------- ---------
Total liabilities...................... 244,285 254,683 273,585
COMMITMENTS AND CONTINGENCIES (Note 6).....
ACCUMULATED DEFICIT (Note 1)............... (113,223) (121,826) (130,334)
--------- --------- ---------
TOTAL...................................... $ 131,062 $ 132,857 $ 143,251
========= ========= =========
</TABLE>

See notes to combined financial statements.

F-13
<PAGE>

KILROY GROUP

COMBINED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30, DECEMBER 31,
----------------- -------------------------
1996 1995 1995 1994 1993
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUES (Notes 2 and 5):
Rental income (Note 7).......... $25,156 $ 24,056 $32,314 $31,220 $34,239
Tenant reimbursements (Note 3).. 2,583 2,377 3,002 1,643 4,916
Parking......................... 1,317 1,193 1,582 1,357 1,360
Development and management
fees........................... 580 926 1,156 919 751
Sale of air rights (Note 2)..... -- 4,456 4,456 -- --
Lease termination fees.......... -- -- 100 300 5,190
Other income (Note 3)........... 65 211 298 784 188
------- -------- ------- ------- -------
Total revenues................ 29,701 33,219 42,908 36,223 46,644
------- -------- ------- ------- -------
EXPENSES:
Property expenses (Notes 2 and
7)............................. 5,042 5,045 6,834 6,000 6,391
Real estate taxes (Note 3)...... 970 1,088 1,416 (448) 2,984
General and administrative...... 1,607 1,554 2,152 2,467 1,113
Ground leases (Note 6).......... 579 542 789 913 941
Development and management
expenses....................... 584 564 737 468 581
Option buy-out cost (Note 5).... 3,150 -- -- -- --
Interest expense................ 16,234 18,660 24,159 25,376 25,805
Depreciation and amortization... 6,838 7,171 9,474 9,962 10,905
------- -------- ------- ------- -------
Total expenses................ 35,004 34,624 45,561 44,738 48,720
------- -------- ------- ------- -------
LOSS BEFORE EXTRAORDINARY GAINS.. (5,303) (1,405) (2,653) (8,515) (2,076)
EXTRAORDINARY GAINS
(Note 4)........................ 20,095 15,267 15,267 1,847 --
------- -------- ------- ------- -------
NET INCOME (LOSS)................ $14,792 $ 13,862 $12,614 $(6,668) $(2,076)
======= ======== ======= ======= =======
</TABLE>

See notes to combined financial statements.

F-14
<PAGE>

KILROY GROUP

COMBINED STATEMENTS OF ACCUMULATED DEFICIT

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1993............................................ $(102,148)
Deemed and actual distributions to partners, net of
contributions.................................................... (10,736)
Net loss.......................................................... (2,076)
---------
BALANCE, DECEMBER 31, 1993.......................................... (114,960)
Deemed and actual distributions to partners, net of
contributions.................................................... (8,706)
Net loss.......................................................... (6,668)
---------
BALANCE, DECEMBER 31, 1994.......................................... (130,334)
Deemed and actual distributions to partners, net of
contributions.................................................... (4,106)
Net income........................................................ 12,614
---------
BALANCE, DECEMBER 31, 1995.......................................... (121,826)
Deemed and actual distributions to partners, net of
contributions.................................................... (6,189)
Net income........................................................ 14,792
---------
BALANCE, SEPTEMBER 30, 1996......................................... $(113,223)
=========
</TABLE>

See notes to combined financial statements.

F-15
<PAGE>

KILROY GROUP

COMBINED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ---------------------------
1996 1995 1995 1994 1993
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ 14,792 $ 13,862 $ 12,614 $(6,668) $(2,076)
Adjustment to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............. 6,838 7,171 9,474 9,962 10,905
Net (increase) decrease:
Provision for bad debts.. 920 839 1,000 909 350
Extraordinary gains...... (20,095) (15,267) (15,267) (1,847) --
Changes in assets and
liabilities:
Tenant receivables....... (310) (571) (1,012) (760) (695)
Deferred charges and
other assets, net ...... (1,688) 2,331 2,095 (3,212) 34
Accounts payable and
accrued expenses........ 10 1,519 (892) 2,274 (698)
Accrued construction
costs................... (414) -- 874 -- --
Accrued property taxes... (392) (671) (164) (2,411) 1,676
Property tax refund
payable to tenants...... -- (1,500) (1,500) 1,500 --
Accrued interest
payable................. 1,945 2,274 3,061 1,846 1,368
Accrued cost of option
buy-out and tenant
improvements............ 3,650 -- -- -- --
Rents received in advance
and tenant security
deposits................ 272 (717) (212) 5,014 593
--------- --------- --------- ------- -------
Net cash provided by
operating activities... 5,528 9,270 10,071 6,607 11,457
--------- --------- --------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for rental
properties................ (2,140) (446) (1,162) (1,765) (633)
Reimbursement of tenant
improvements.............. -- -- -- -- 2,661
--------- --------- --------- ------- -------
Net cash (used in)
provided by investing
activities............. (2,140) (446) (1,162) (1,765) 2,028
--------- --------- --------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds received from
debt...................... 21,057 489 625 11,127 7,191
Principal payments on
debt...................... (18,256) (2,207) (5,428) (7,263) (9,940)
Deemed and actual
distributions to
partners.................. (6,189) (7,106) (4,106) (8,706) (10,736)
--------- --------- --------- ------- -------
Net cash (used in)
provided by financing
activities............. $ (3,388) $ (8,824) $ (8,909) (4,842) (13,485)
========= ========= ========= ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the period
for interest.............. $ (14,289) $ (16,386) $ (21,098) (23,530) (24,437)
========= ========= ========= ======= =======
</TABLE>

See notes to combined financial statements.

F-16
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization--Kilroy Group (not a legal entity) consists of the combination
of general and limited partnerships, limited liability company and trusts, the
properties of which were under common control of Kilroy Industries ("KI") or
its stockholders, John B. Kilroy, Sr. and John B. Kilroy, Jr. The entities
referred to collectively as Kilroy Group ("KG") are engaged in the
acquisition, development, ownership and operation of 19 office and industrial
properties (the "Kilroy Properties") located in California, Washington and
Arizona. KI has historically provided acquisition, financing, construction and
leasing services with respect to the Kilroy Properties. KI has also provided
development services to third-party owners of properties for a fee.

The names of the corporation, partnerships and trusts which directly own the
Kilroy Properties are as follows:

<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
BY KI,
JOHN B. KILROY, SR.,
AND/OR
ENTITY NAME JOHN B. KILROY, JR. PROPERTY LOCATION
----------- -------------------- -------- --------
<S> <C> <C> <C>
OFFICE:
Kilroy Airport
Partner II 100% Kilroy Airport Center at El Segundo:
2240 E. Imperial Highway El Segundo, California
2250 E. Imperial Highway El Segundo, California
2260 E. Imperial Highway El Segundo, California
Kilroy Long Beach
Associates 99%(1) Kilroy Airport Center Long Beach:
3750 Kilroy Airport Way Long Beach, California
3760 Kilroy Airport Way Long Beach, California
3780 Kilroy Airport Way Long Beach, California
Kilroy Freehold
Industrial
Development
Organization
("K-FIDO") 83%(2) 185/181 S. Douglas Street El Segundo, California
SeaTac Properties Ltd. 99%(1) SeaTac Office Center:
17900 Pacific Highway Seattle, Washington
17930 Pacific Highway Seattle, Washington
18000 Pacific Highway Seattle, Washington
INDUSTRIAL:
Kilroy Industries 100% 2031 E. Mariposa Avenue El Segundo, California
Kilroy Building 73
Partnership 100% 3332 E. La Palma Avenue Anaheim, California
K-FIDO 83%(2) 2260 E. El Segundo Boulevard El Segundo, California
K-FIDO 83%(2) 2265 E. El Segundo Boulevard El Segundo, California
K-FIDO 83%(2) 2270 E. El Segundo Boulevard El Segundo, California
A-102 Trust 20%(2) 5115 N. 27th Avenue Phoenix, Arizona
KI 1979 Trust 85%(2) 1000 E. Ball Road Anaheim, California
KI 1979 Trust 85%(2) 1230 S. Lewis Street Anaheim, California
Kilroy Garden Grove
Associates 100% 12681/12691 Pala Drive Garden Grove, California
</TABLE>
- --------

(1) The balance of the ownership interests are held by Marshall L. McDaniel.

(2) The balance of the ownership interests are held by the four adult
daughters of John B. Kilroy, Sr.

F-17
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The development services relating to non-owned properties have been
conducted by Kilroy Industries and Kilroy Technologies Company, LLC, both
wholly-owned by John B. Kilroy, Sr. and John B. Kilroy, Jr.

Certain of the named entities are owned by other entities. The Kilroy
Properties are ultimately owned beneficially in the proportions identified
above.

Basis of Presentation--The accompanying combined financial statements of KG
have been presented on a combined basis because of the common ownership and
management and because the entities are expected to be the subject of a
business combination with Kilroy Realty Corporation (the "Company"), a
recently formed Maryland corporation which is expected to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Concurrently with the business combination, the Company intends to raise
capital through an initial public offering of Common Stock, a mortgage loan
and a credit facility to be secured by mortgage liens on the properties. The
business combination has been structured to allow the beneficial owners of the
Kilroy Properties to receive limited partnership interests in Kilroy Realty,
L.P. (the "Operating Partnership") aggregating a 20.9% interest. The Company
will be the managing general partner of the Operating Partnership, which will
hold the operating assets and will manage the Kilroy Properties. Certain other
properties and operations affiliated with KI have been excluded as they are
not compatible with the investment purposes of the Company. Deemed and actual
cash distributions to partners, net of contributions, included in the combined
statements of accumulated deficit generally represent distributions of the
cash flows generated by KG, and advances to partners and KI, as well as
related-party transactions (see Note 7).

2. SIGNIFICANT ACCOUNTING POLICIES

Rental Properties--Rental properties are stated at historical cost less
accumulated depreciation, which, in the opinion of KG's management, is not in
excess of net realizable value. Net realizable value does not purport to
represent fair market value. Costs incurred for the acquisition, renovation
and betterment of the properties are capitalized. Maintenance and repairs are
charged to expense as incurred.

During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Under this standard, if impairment
conditions exist, the Company makes an assessment of the recoverability of the
carrying amounts of individual properties by estimating the future
undiscounted cash flows, excluding interest charges, on a property by property
basis. If the carrying amount exceeds the aggregate future cash flows, the
Company would recognize an impairment loss to the extent the carrying amount
exceeds the fair value of the property. Any long-lived assets to be disposed
of are to be valued at estimated fair value less costs to sell. Based on such
periodic assessments, no impairments have been determined and, therefore, no
real estate carrying amounts have been adjusted.

Depreciation and Amortization--The cost of buildings and improvements are
depreciated on the straight-line method over estimated useful lives, as
follows:

Buildings--25 to 40 years
Tenant improvements--shorter of lease term or useful lives ranging from 5
to 20 years

Deferred Charges--Deferred charges include deferred leasing costs and loan
fees. Leasing costs include leasing commissions that are amortized on the
straight-line basis over the initial lives of the leases, which range from 5
to 10 years. Deferred loan fees are amortized on a straight-line basis over
the terms of the respective loans, which approximates the effective interest
method.

Accrued Property Taxes--As of September 30, 1996 and December 31, 1995 and
1994, $40,000, $534,000 and $621,000, respectively, of accrued property taxes
were past due.

F-18
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Revenue Recognition and Tenant Receivables--Leases with tenants are accounted
for as operating leases. Minimum annual rentals are recognized on a straight-
line basis over the lease term. Unbilled deferred rent represents the amount
that expected straight-line rental income exceeds rents currently due under the
lease agreement. Total tenant receivables consists of the following amounts:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tenant rent and reimbursements receivable... $ 3,889 $ 3,171 $1,981
Allowance for uncollectible rent............ (2,757) (1,837) (837)
Unbilled deferred rent...................... 2,231 2,639 2,817
------- ------- ------
Tenants receivables, net.................... $ 3,363 $ 3,973 $3,961
======= ======= ======
</TABLE>

Included in tenant rent and reimbursements receivable are additional rentals
based on common area maintenance expenses and certain other expenses that are
accrued in the period in which the related expenses are incurred.

Rents Received in Advance and Tenant Security Deposits--The balances as of
September 30, 1996 and December 31, 1995 and 1994 include a $4,000,000 security
deposit to relieve a tenant of the obligation to remove certain tenant
improvements upon termination of the lease. The related lease expires in 1999,
subject to a five-year option to renew. Such payment has been deferred until
the termination of the lease.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Parking--The Kilroy Airport Center--LAX and the SeaTac Office Center include
parking facilities. KG records as revenue the gross parking receipts. KG
contracts with parking management companies to operate the parking facilities,
and such contract costs are included in property expenses.

Development Services--Development and management fees represent fees earned
by KG for supervision services provided for building development and management
of nonowned properties. Fees are typically a percentage of total development
costs plus reimbursement for certain expenses. Unreimbursed expenses are
recorded as development expenses and include items such as wages, equipment
rental, supplies, etc.

Sale of Air Rights--In 1995, based on an agreement between KG and the
California Transportation Commission, KG received $4,456,000, net of related
expenses, for granting temporary construction and permanent air right easements
over a portion of its property for the construction of a freeway on-ramp. In
connection with this transaction, KG accrued $874,000 as of December 31, 1995
for the costs of restoration of the property after construction of the on-ramp.

F-19
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

3. DEFERRED CHARGES AND OTHER ASSETS

Deferred charges and other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred assets:
Deferred financing costs................. $ 2,631 $ 3,436 $ 3,333
Deferred leasing costs (Note 7).......... 11,069 11,327 10,650
------- -------- -------
Total deferred assets.................. 13,700 14,763 13,983
Accumulated amortization................... (6,791) (10,142) (8,934)
------- -------- -------
Deferred assets, net....................... 6,909 4,621 5,049
Prepaid expenses........................... 1,385 1,054 1,075
Property tax refunds receivable............ --- --- 2,820
------- -------- -------
Total deferred charges and other
assets................................ $ 8,294 $ 5,675 $ 8,944
======= ======== =======
</TABLE>

Property tax refunds, which were collected in 1995, relate to appeals filed
by KG in the fourth quarter of 1994 for refunds of property taxes paid in 1990
through 1994 and include related interest income of $441,000. Such amounts
were recorded as a reduction of property taxes and as other income during the
year ended December 31, 1994. Of these property tax recoveries, approximately
$1,500,000 was refunded to tenants of the related properties and has been
recorded as a reduction to tenant reimbursements income during the year ended
December 31, 1994.

4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank notes payable, due in December 1994,
bearing interest at prime (8.5% at
December 31, 1995)(a)..................... --- $ 16,536 $ 30,536
Bank notes payable, due in January 1999,
bearing interest at LIBOR + 1.15% (6.4% at
September 30, 1996 and 6.9% at December
31, 1995)................................. $ 56,168 54,811 54,186
Notes payable to finance company and
related pension funds, maturing in 1997
and 1998, bearing interest at rates from
8.5% to 12.7%(b)(e)....................... 28,537 33,447 33,705
Note payable to insurance company, maturing
April 2001, bearing interest at 9.75%(c).. 20,162 20,162 21,173
Notes payable to insurance companies,
maturing March 2006, bearing interest at
9.5%(e)................................... 1,989 10,722 11,170
Note payable to insurance company due April
2002, bearing interest at 9.25%(d)........ 94,799 97,283 98,347
Notes payable to underwriter due in June
1997, bearing
interest at LIBOR + 3% (8.5% at September
30, 1996)(e).............................. 21,525 -- --
Bank notes payable, due in July 2008,
bearing interest at 10%................... 866 896 942
-------- -------- --------
$224,046 $233,857 $250,059
======== ======== ========
</TABLE>
- --------
(a) In September 1995, a note payable to a bank of $14,000,000 due in December
1994 and accrued interest payable of $3,867,000 was retired by a cash
payment of $2,600,000. KG recorded an extraordinary gain of

F-20
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

$15,267,000 as a result of this transaction. The remaining notes payable of
$16,536,000 were in default as of December 31, 1995 and 1994. Past due
interest on the remaining notes, approximately $5,003,000 at December 31,
1995, is included in accrued interest. See discussion below under (e)
regarding settlement of this loan and accrued interest.

(b) During the nine months ended September 30, 1996, three of the notes payable
totaling $16,608,000 were amended to extend the maturity dates from 1996 to
1997 and 1998. In May, 1996, an additional note with a principal balance of
$2,500,000 which was due in February 1996 was amended to extend the
maturity date from February 1996 to 1997. During June 1996, notes payable
of $5,765,000 were amended to extend the maturity date from June 1996 to
April 1998.

(c) KG is not currently making the required monthly principal installments of
$239,000 on this note and accrued interest of $1,894,000 is unpaid as of
September 30, 1996. The SeaTac Office Center is pledged as collateral for
the note payable. On October 25, 1996, KG and the insurance company entered
into a forbearance agreement which provides KG with the exclusive right to
purchase the note payable for $16,100,000 on or before January 31, 1997. In
the event KG does not acquire the loan, the fee owner of the property has
the right from February 1, 1997 through February 28, 1997 to pay off the
loan on the same terms and conditions. In the event KG is unable to acquire
the loan on or prior to January 31, 1997, the fee owner has assigned its
rights to KG for the period February 1, 1997 to February 10, 1997. If KG
fails to perform any of its obligations under the agreement, an event of
default shall occur and the insurance company shall have the right to
pursue any and all remedies available under the agreement and the note
payable including foreclosure. It is contemplated that a portion of the
proceeds from the initial public offering referred to in Note 1, will be
used to purchase this note. KG believes it will be able to meet this
commitment irrespective of the consummation of the Offering referred to in
Note 1 based upon discussions with other sources of financing.

(d) Under an agreement with the insurance company, monthly payments of
principal and interest are calculated based on gross receipts from leases
of the property that secures the loan. All receipts from the property are
deposited into a lock box account from which all operating costs, which
must be approved by the lender, are to be paid. Monthly installments of
principal and interest of $881,475 and property taxes are payable from the
lockbox account and any deficiency must be funded by KG. There are certain
provisions in the agreement that may require additional payments of
principal.

(e) On June 20, 1996, KG obtained a mortgage loan of $21,525,000 from one of
the underwriters of the proposed public offering of common stock referred
to in Note 1. Such loan is due on June 20, 1997 and bears interest at 3%
above LIBOR. Fees of $2,279,000 were incurred in connection with obtaining
this loan. An additional fee of $337,500 is payable if the loan is not
repaid within 150 days. The proceeds were used to pay: $2,100,000 as
settlement of bank notes with an aggregate principal balance of $16,536,000
and $5,659,000 of unpaid interest, a note payable to an insurance company
with a principal balance of $8,549,000 and a note payable to a finance
company with a principal balance of $4,600,000. The forgiveness of
$20,095,000 has been recorded as an extraordinary gain.

In 1994, two notes payable to insurance companies, with an aggregate unpaid
balance of $6,782,000 were paid after forgiveness of $1,847,000 of principal by
the lenders, which has been recorded as an extraordinary gain.

The notes payable are secured by deeds of trust on all Kilroy Properties and
the assignment of certain rents and leases associated with the related
properties. The notes are generally due in monthly installments of principal
and interest or interest only. As of September 30, 1996, approximately $37.2
million of notes payable are guaranteed by certain members of KG. Several notes
contain restrictive covenants with which KG has complied as well as penalties
for early repayment of principal equal to a percentage of the unpaid balance.

F-21
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Aggregate future principal payments on notes payable are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
YEAR ENDING 1996 1995
----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1996........................................... $ 41 $ 4,301
1997........................................... 64,174 69,935
1998........................................... 10,317 10,626
1999........................................... 58,658 57,301
2000........................................... 2,722 2,722
Thereafter..................................... 88,134 88,972
-------- --------
Total........................................ $224,046 $233,857
======== ========
</TABLE>

5. FUTURE MINIMUM RENT

KG has operating leases with tenants that expire at various dates through
2006 and are either subject to scheduled fixed increases or adjustments based
on the Consumer Price Index. Generally, the leases grant tenants renewal
options. Leases also provide for additional rents based on certain operating
expenses as well as sales volume of certain retail space within the office
buildings. Future minimum rent to be received under operating leases,
excluding tenant reimbursements of certain costs, are as follows as of:

<TABLE>
<CAPTION>
DECEMBER 31,
YEAR ENDING 1995
----------- ------------
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 33,359
1997....................................................... 33,013
1998....................................................... 30,750
1999....................................................... 26,999
2000....................................................... 23,297
Thereafter................................................. 67,612
--------
Total.................................................... $215,030
========
</TABLE>

Rental revenue from one tenant, Hughes Electronic Corporation's Space &
Communications Company ("Hughes"), was $8,161,142, $10,817,000, $11,395,000
and $12,258,000 for the nine months ended September 30, 1996 and the years
ended December 31, 1995, 1994 and 1993, respectively. Future minimum rents
from this tenant are $66,949,000 at December 31, 1995.

On September 18, 1996, KG and Hughes amended the terms of certain of their
lease agreements. Such amendments included the extension of one lease through
October 31, 2001 and a $500,000 allowance for tenant improvements. In
addition, KG agreed to pay Hughes $3,150,000 in consideration for the
cancellation of an option to purchase a 50% equity interest in Kilroy Airport
Center at El Segundo which has been reflected in the statement of operations
for the nine months ended September 30, 1996. In November 1996, $2,260,000 of
the total liability of $3,650,000 was paid by KI and its stockholders. The
remaining balance is payable in monthly installments of $100,000 commencing in
January 1997.

The majority of Kilroy Properties are located in Southern California. The
ability of the tenants to honor the terms of their respective leases is
dependent upon the economic, regulatory and social factors affecting the
communities and industries in which the tenants operate.

6. COMMITMENTS AND CONTINGENCIES

Guarantee--Pursuant to the terms of a promissory note for a related entity,
one of the Kilroy Properties, the rents received from it, and the personal
property located on or used in connection with it are held as collateral for
the loan up to a maximum of $2,000,000.

F-22
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Operating Leases--KG has noncancelable ground lease obligations on Kilroy
Airport Center--Long Beach with an initial lease period expiring on July 31,
2035, classified as an operating lease. KG has an option for four lease
extensions of ten years each and a final lease extension of nine years.
Further, KG has noncancelable ground lease obligations on the SeaTac Office
Center expiring on December 31, 2032 with an option to extend the leases for
an additional 30 years. Rentals are subject to adjustment every five years
based on the variation of the Consumer Price Index. The minimum commitment
under these leases at December 31, 1995 is as follows:

<TABLE>
<CAPTION>
YEAR ENDING
----------- (IN THOUSANDS)
<S> <C>
1996....................................................... $ 743
1997....................................................... 743
1998....................................................... 761
1999....................................................... 923
2000....................................................... 1,056
Thereafter................................................. 35,737
-------
Total.................................................... $39,963
=======
</TABLE>

Litigation--KG is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the financial position or results of
operations of KG.

7. RELATED-PARTY TRANSACTIONS

KI provides management, legal, accounting and general administrative
services pursuant to agreements that provide for management fees based upon a
percentage of gross revenues from the Kilroy Properties and reimbursement of
other costs incurred by KI in connection with providing the aforementioned
services. Kilroy Company ("KC"), an affiliated entity, provides marketing and
leasing services. Charges by KC include leasing commissions paid to employees
and outside leasing brokers as well as fees to cover its general
administrative costs. Management fees are expensed as incurred and are
included in property expenses. Leasing fees are capitalized and amortized over
the life of the related leases. In the opinion of KG management, the fees paid
to KI and KC for management and leasing services are comparable to the rates
which KG would have paid an independent company to provide similar services.
In addition, KI is a tenant at the Kilroy Airport Center--LAX, Kilroy Airport
Center--Long Beach and SeaTac Office Center, under month-to-month leases.
Charges for services provided by KI and KC and rental income from KI are
summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
-----------
SEPTEMBER YEAR ENDED DECEMBER
30, 31,
----------- --------------------
1996 1995 1995 1994 1993
------ ---- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Management fees................................ $ 916 $754 $1,343 $1,026 $1,359
Leasing fees................................... $1,372 $743 $ 804 $1,456 $ 431
Rental income.................................. $ 396 $396 $ 528 $ 528 $ 797
</TABLE>

Management fees in 1995 include a fourth quarter charge of $321,000 relating
to management time incurred for the renegotiation of loans.

F-23
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

8. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

The following disclosure of estimated fair value was determined by KG using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Receivables, accounts payable and other liabilities are carried at amounts
that reasonably approximate their fair value.

The fixed rate mortgage notes payable totaling $146,352,000, $162,510,000
and $165,325,000 as of September 30, 1996, December 31, 1995 and 1994 have
fair values of $149,600,000, $165,300,000 and $169,900,000, respectively
(excluding prepayment penalties), as estimated based upon interest rates
available for the issuance of debt with similar terms and remaining
maturities. These notes were subject to prepayment penalties of $542,000,
$722,000 and $757,000 at September 30, 1996, December 31, 1995 and 1994,
respectively, that would be required to retire these notes prior to maturity.
The carrying values of floating rate mortgages totaling $77,694,000,
$71,347,000 and $84,734,000 at September 30, 1996, December 31, 1995 and 1994,
respectively, reasonably approximate their fair values.

The fair value estimates presented herein are based on information available
to KG management as of September 30, 1996, December 31, 1995 and 1994.
Although KG management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.

F-24
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

9. SCHEDULE OF RENTAL PROPERTY

<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------
GROSS AMOUNTS
AT WHICH CARRIED AT CLOSE OF
INITIAL COST COSTS PERIOD
-------------------- CAPITALIZED -----------------------------
BUILDINGS SUBSEQUENT TO DATE OF
AND ACQUISITION/ BUILDING AND ACCUMULATED ACQUIS. (A)
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENT LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTR. (C)
-------- ------------ ------- ------------ ------------- ------- ------------ -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kilroy Airport
Center
El Segundo, CA..... $97,283 $ 6,141 $69,195 $18,884 $ 6,141 $88,079 $94,220 $42,495 1983(C)
Kilroy Airport
Center
Long Beach, CA..... 54,811 -- 47,387 11,041 -- 58,428 58,428 15,322 1989(C)
185/181 S. Douglas
Street
El Segundo,
California(1)...... 15,639 525 4,687 1,845 628 6,429 7,057 3,509 1978(C)
SeaTac Office
Center............. 26,999 -- 25,993 8,109 -- 33,239 33,239 22,523 1977(C)
2270 E. El Segundo
Boulevard
El Segundo,
California(1)...... -- 361 100 76 419 118 537 73 1977(C)
2260 E. El Segundo
Boulevard,
El Segundo,
California(1)...... -- 1,423 4,194 1,236 1,703 5,150 6,853 2,914 1979(C)
2031 E. Mariposa
Avenue,
El Segundo,
California......... 12,000 132 867 2,668 132 3,535 3,667 2,328 1954(C)
3332 E. La Palma
Avenue,
Anaheim,
California......... 7,683 67 1,521 2,851 67 4,372 4,439 3,028 1966(C)
2265 E. El Segundo
Boulevard,
El Segundo,
California......... 4,600 1,352 2,028 644 1,570 2,454 4,024 1,550 1978(C)
5115 N. 27th
Avenue,
Phoenix, Arizona... 3,000 125 1,206 (27) 126 1,178 1,304 1,168 1962(C)
1000 E. Ball Road,
Anaheim,
California(2)...... 5,846 838 1,984 719 838 2,703 3,541 1,563 1979(A)(3)
1956(C)
1230 S. Lewis
Street,
Anaheim,
California(2)...... -- 395 1,489 1,994 395 3,483 3,878 2,444 1982(C)
12681/12691 Pala
Drive,
Garden Grove,
California......... 5,996 471 2,115 1,210 471 3,325 3,796 2,857 1980(A)
1970(C)
-------- ------- -------- ------- ------- -------- -------- --------
Total........... $233,857 $11,830 $162,766 $51,250 $12,490 $212,493 $224,983 $101,774
======== ======= ======== ======= ======= ======== ======== ========
</TABLE>
- ----
(1) Two notes payable of $8,639,000 and $7,000,000 are secured by the
buildings located at 2260 and 2270 E. El Segundo Boulevard, El Segundo,
California, and the buildings located at 185/181 S. Douglas Street, El
Segundo, California.
(2) A note payable of $5,846,000 is secured by the buildings located at 1000
East Ball Road, Anaheim, California and 1230 South Lewis Street, Anaheim,
California .
(3) The Property located at 1000 E. Ball Road, Anaheim, California, was
developed for a third party by the Company in 1956, and acquired by the
Company in 1979.

F-25
<PAGE>

KILROY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The aggregate gross cost of property included above, for federal income tax
purposes, approximated $200,782,000 as of December 31, 1995.

The following table reconciles the historical cost of the Kilroy Properties
from January 1, 1993 to December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period................ $223,821 $222,056 $235,549
Additions during period--Acquisition,
improvements, etc........................ 1,162 1,765 633
Deductions during period--Write-off of
tenant improvements...................... -- -- (14,126)
-------- -------- --------
Balance, close of period.................... $224,983 $223,821 $222,056
======== ======== ========
</TABLE>

The following table reconciles the accumulated depreciation from January 1,
1993 to December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period................. $ 93,475 $84,759 $ 86,442
Additions during period--Depreciation and
amortization for the year................. 8,299 8,716 9,782
Deductions during period--Accumulated
depreciation of written-off tenant
improvements.............................. -- -- (11,465)
-------- ------- --------
Balance, close of period..................... $101,774 $93,475 $ 84,759
======== ======= ========
</TABLE>

F-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Partners of Kilroy Group:

We have audited the accompanying combined historical summaries of certain
revenues and certain expenses (defined as operating revenues less direct
operating expenses) of the Acquisition Properties for the nine months ended
September 30, 1996 and the year ended December 31, 1995. These financial
statements are the responsibility of the Acquisition Properties' management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined historical summary of
certain revenues and certain expenses is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined historical summary of certain revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the combined historical summary of certain revenues and
certain expenses. We believe our audits provide a reasonable basis for our
opinion.

The accompanying combined historical summaries of certain revenues and
certain expenses were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Form S-11 Registration Statement of Kilroy Realty Corporation. Material
amounts, described in Note 1 to the historical summaries of certain revenues
and certain expenses, that would not be comparable to those resulting from the
proposed future operation of the Acquisition Properties are excluded, and the
summaries are not intended to be a complete presentation of the revenues and
expenses of these properties.

In our opinion, such historical summaries of certain revenues and certain
expenses present fairly, in all material respects, the combined certain
revenues and certain expenses, as defined in Note 1, of the Acquisition
Properties for the nine months ended September 30, 1996 and the year ended
December 31, 1995 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Los Angeles, California

December 20, 1996

F-27
<PAGE>

ACQUISITION PROPERTIES

COMBINED HISTORICAL SUMMARIES OF CERTAIN REVENUES AND CERTAIN EXPENSES

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND

YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
CERTAIN REVENUES:
Rental income..................................... $5,875 $7,355
Tenant reimbursements............................. 743 884
Other income...................................... 299 407
------ ------
Total certain revenues.......................... 6,917 8,646
------ ------
CERTAIN EXPENSES:
Property expenses (Note 3)........................ 1,315 1,882
Real estate taxes................................. 417 495
Ground rent (Note 4).............................. 253 338
General and administrative........................ 200 303
------ ------
Total certain expenses.......................... 2,185 3,018
------ ------
CERTAIN REVENUES IN EXCESS OF CERTAIN EXPENSES...... $4,732 $5,628
====== ======
</TABLE>

See notes to combined statements of certain revenues and certain expenses.

F-28
<PAGE>

ACQUISITION PROPERTIES

NOTES TO COMBINED HISTORICAL SUMMARIES OF CERTAIN REVENUES AND CERTAIN
EXPENSES

1. BASIS OF PRESENTATION

The combined historical summaries of certain revenues and certain expenses
relate to the operations of four properties, Westlake Plaza Centre (located in
Thousand Oaks), Long Beach I, La Palma Business Center (located in Anaheim)
and the Monarch Buildings (located in Garden Grove) (collectively, the
"Acquisition Properties"), which are expected to be acquired by Kilroy Realty
Corporation (the "Company") from four unaffiliated third parties.

Operating revenues and operating expenses are presented on the accrual basis
of accounting. The accompanying statements of certain revenues and certain
expenses are not representative of the actual operations for the period
presented, as certain revenues and certain expenses that may not be comparable
to the revenues and expenses expected to be incurred by the Company in the
proposed future operation of the Acquisition Properties have been excluded.
Revenues excluded consist of termination fees and interest income. Expenses
excluded consist of interest, depreciation, professional fees and other costs
not directly related to the future operations of the Acquisition Properties.

Financial statements for the three years ended December 31, 1995, as
required by Rule 3-14(a)(1), have not been provided because:

(i) the properties were not acquired from a related party;

(ii) material factors such as rental markets and occupancy rates have
been disclosed in the Prospectus under the caption "Prospectus
Summary--The Office and Industrial Properties" and "Business and
Properties--General"; and

(iii) management is not aware of any material factors relating to the
properties that would cause the summaries of certain revenues and
certain expenses for the nine months ended September 30, 1996 and
the year ended December 31, 1995 not to be indicative of future
operating results.

2. OPERATING LEASES

Rental income is recognized on the accrual method as earned, which
approximates recognition on a straight line basis.

The Acquisition Properties are leased to tenants under operating leases with
expiration dates extending to the year 2009. Future minimum rents under the
Acquisition Property's office leases, excluding tenant reimbursements are as
follows as of September 30, 1996:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------ (IN THOUSANDS)
<S> <C>
1996 (three months)....................................... $ 1,988
1997...................................................... 8,244
1998...................................................... 8,119
1999...................................................... 7,270
2000...................................................... 6,413
Thereafter................................................ 25,768
-------
Total................................................... $57,802
=======
</TABLE>

F-29
<PAGE>

ACQUISITION PROPERTIES

NOTES TO COMBINED HISTORICAL SUMMARIES OF CERTAIN REVENUES AND CERTAIN
EXPENSES--(CONTINUED)

3. RELATED-PARTY TRANSACTIONS

Property expenses include $137,000 and $181,000 of management fees for the
nine months ended September 30, 1996 and for the year ended December 31, 1995,
respectively, related to Long Beach Phase I, which was paid to an affiliate of
the Company.

4. COMMITMENTS

Long Beach Phase I is located on land that is under a noncancelable ground
lease which expires in 2035 and is classified as an operating lease. The lease
has an option for four lease extensions of ten years each and a final lease
extension of nine years. Minimum annual lease payments are as follows as of
September 30, 1996:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------ (IN THOUSANDS)
<S> <C>
1996 (three months)....................................... $ 85
1997...................................................... 338
1998...................................................... 338
1999...................................................... 338
2000...................................................... 338
Thereafter................................................ 11,661
-------
Total................................................... $13,098
=======
</TABLE>

F-30
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.

UNTIL , 1997 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 21
Formation and Structure of the Company................................... 38
Formation of Kilroy Services, Inc........................................ 45
The Company.............................................................. 46
Use of Proceeds.......................................................... 52
Distribution Policy...................................................... 55
Capitalization........................................................... 60
Dilution................................................................. 61
Selected Financial Data.................................................. 62
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 64
Business and Properties.................................................. 70
Policies with Respect to Certain Activities.............................. 108
The Financing............................................................ 113
Management............................................................... 114
Certain Relationships and Related Transactions........................... 120
Principal Stockholders................................................... 121
Description of Capital Stock............................................. 122
Certain Provisions of Maryland Law and of the Company's Articles of
Incorporation and Bylaws................................................ 126
Partnership Agreement of the Operating Partnership....................... 131
Shares Available for Future Sale......................................... 135
Federal Income Tax Consequences.......................................... 137
Other Tax Consequences................................................... 150
ERISA Considerations..................................................... 150
Underwriting............................................................. 152
Legal Matters............................................................ 153
Experts.................................................................. 153
Additional Information................................................... 154
Glossary................................................................. 155
Index to Financial Statements............................................ F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

11,250,000 Shares

[LOGO]

KILROY REALTY CORPORATION

Common Stock

----------

PROSPECTUS

----------

PRUDENTIAL SECURITIES INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

J.P. MORGAN & CO.

SMITH BARNEY INC.

, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.

<TABLE>
<S> <C>
SEC Registration Fee.............................................. $64,539
NYSE Filing Fee...................................................
Printing and Engraving Expenses...................................
Legal Fees and Expenses...........................................
Accounting Fees and Expenses......................................
Registrar and Transfer Agent Fees and Expenses....................
Blue Sky Fees and Expenses........................................
Miscellaneous Expenses............................................
-------
Total........................................................... $
=======
</TABLE>

All of the costs identified above will be paid by the Company.

ITEM 31. SALES TO SPECIAL PARTIES.

See Item 32.

ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with the Formation Transactions, immediately prior to or
simultaneous with the consummation of the Offering an aggregate of 2,974,500
Units will be issued to Kilroy Industries, Kilroy Technologies Company, LLC, a
California limited liability company, John B. Kilroy, Sr., John B. Kilroy,
Jr., Ms. Patrice Bouzaid, Ms. Susan Hahn, Ms. Anne McCahon and Ms. Dana
Pantuso, the daughters of John B. Kilroy, Sr., and Marshall L. McDaniel, a
long-time employee of Kilroy Industries, each of which will be transferring
interests in the Properties and certain other assets to the Company in
consideration of the transfer of such Properties and assets. All of such
persons irrevocably committed to the exchange of Units for the contribution of
their respective interests in the Properties on November 3, 1996, prior to the
filing of the Registration Statement. The issuance of such Units will be
effected in reliance upon an exemption from registration under Section 4(2) of
the Securities Act as a transaction by an issuer not involving a public
offering. See "The Formation and Structure of the Company." In addition, 50
shares of Common Stock have been issued to John B. Kilroy, Sr. for an
aggregate purchase price of $1,000.

ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 2-418 of the MGCL permits a corporation to indemnify its directors
and officers and certain other parties against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (i) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty; (ii) the director or officer actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. Indemnification may be
made against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the
proceeding; provided, however, that if the proceeding is one by or in the
right of the corporation, indemnification may not be made with respect to any
proceeding in which the director or officer has been adjudged to be liable to
the corporation. In addition, a director or officer may not be indemnified
with respect to any proceeding charging improper personal benefit to the
director or officer, whether or not involving action in the director's or
officer's official capacity, in which the director or officer was adjudged to
be liable on the basis that personal benefit was received. The termination of
any proceeding by conviction, or upon a plea of nolo contendere or its

II-1
<PAGE>

equivalent, or an entry of any order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted.

In addition, Section 2-418 of the MGCL requires that, unless prohibited by
its charter, a corporation indemnify any director or officer who is made a
party to any proceeding by reason of service in that capacity against
reasonable expenses incurred by the director or officer in connection with the
proceeding, in the event that the director or officer is successful, on the
merits or otherwise, in the defense of the proceeding.

The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of the directors and officers of the Company to the fullest
extent permitted by applicable law. The Company is currently in the process of
purchasing directors' and officers' liability insurance for the benefit of its
directors and officers and expects such insurance to be in effect prior to
consummation of the Offering.

ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

Not applicable.

ITEM 35. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.

(a)(1) FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Kilroy Realty Corporation
Pro Forma (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended
September 30, 1996 and the Year Ended December 31, 1995
Notes to Pro Forma Condensed Consolidated Statements of Operations
Historical:
Independent Auditors' Report
Balance Sheet as of September 30, 1996
Notes to Balance Sheet
Kilroy Group (Predecessor Affiliates)
Independent Auditors' Report
Combined Balance Sheets as of September 30, 1996, and December 31, 1995
and 1994
Combined Statements of Operations for the nine months ended September 30,
1996 and 1995 and the three years ended December 31, 1995
Combined Statements of Partners' Deficit for the nine months ended
September 30, 1996 and for the three years ended December 31, 1995
Combined Statements of Cash Flows for the nine months ended September 30,
1996 and 1995 and the three years ended December 31, 1995
Notes to Combined Financial Statements
Acquisition Properties
Independent Auditors' Report
Combined Historical Summaries of Certain Revenues and Certain Expenses
for the nine months ended September 30, 1996 and for the year ended
December 31, 1995
Notes to Combined Historical Summaries of Certain Revenues and Certain
Expenses
</TABLE>

II-2
<PAGE>

(a)(2) FINANCIAL STATEMENT SCHEDULE

Schedule II--Valuation and qualifying accounts for the three years ended
December 31, 1995

(b) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement among the Registrant and the
Underwriters named therein.
**3.1 Articles of Incorporation of the Registrant.
**3.2 Bylaws of the Registrant.
*3.3 Form of Certificate for Common Stock of the Registrant.
*5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll regarding the validity
of the Common Stock being registered.
*8.1 Opinion of Latham & Watkins regarding certain federal income tax
matters.
*10.1 Form of Agreement of Limited Partnership of Kilroy Realty, L.P.
*10.2 Form of Registration Rights Agreement among the Registrant and the
persons named therein.
*10.3 Form of 1996 Stock Option and Incentive Plan for Key Employees of the
Registrant, Kilroy Realty, L.P. and Kilroy Services, Inc.
*10.4 Form of Indemnification Agreement between the Registrant and its
directors and officers.
*10.5 Employment Agreement between the Registrant and John B. Kilroy, Jr.
*10.6 Form of Employment Agreement.
*10.7 Form of Management Agreement between Kilroy Services, Inc. and Kilroy
Realty, L.P.
*10.8 [ ].
**10.9 Real Estate Purchase Agreement between Northwestern Mutual Life
Insurance Company and Kilroy Industries.
**10.10 Lease Agreement dated July 17, 1985 by and between Kilroy Long Beach
Associates and the City of Long Beach for Kilroy Long Beach Phase
III.
**10.11 Lease Agreement dated April 21, 1988 by and between Kilroy Long Beach
Associates and the Board of Water Commissioners of the city of Long
Beach, acting for and on behalf of the City of Long Beach, for Long
Beach Phase IV.
**10.12 Lease Agreement dated December 30, 1988 by and between Kilroy Long
Beach Associates and the City of Long Beach for Kilroy Long Beach
Phase II.
**10.13 First Amendment to Lease, dated January 24, 1989, by and between
Kilroy Long Beach Associates and the City of Long Beach for Kilroy
Long Beach Phase III.
**10.14 Second Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III.
**10.15 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase II.
**10.16 Third Amendment to Lease Agreement, dated October 10, 1994, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III.
**10.17 Development Agreement by and between Kilroy Long Beach Associates and
the City of Long Beach.
**10.18 Amendment No. 1 to Development Agreement by and between Kilroy Long
Beach Associates and the City of Long Beach.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
*10.19 Supplemental Representations, Warranties and Indemnity Agreement by
and between the parties named therein.
*10.20 Form of Option Properties Agreement by and between KAICO and Kilroy
Realty, L.P.
**10.21 Purchase and Sale Agreement and Joint Escrow Instructions by and
between Westlake Plaza Partners and Kilroy Industries.
**10.22 [First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions by and between Westlake Plaza Partners and Kilroy
Industries.]
**10.23 Development Management Agreement by and between Kilroy Technologies
Company, LLC and the Redevelopment Agency of the City of Riverside.
*10.24 Form of Mortgage Loan.
*10.25 Form of Revolving Credit Facility.
*10.26 [Form of Waiver and Recontribution Agreement between Kilroy Realty,
L.P. and the Registrant.]
*10.27 Form of Indemnity Agreement among Executive Officers and Kilroy
Realty, L.P.
*10.28 [ ].
*10.29 Development and Disposition Agreement by and between Kilroy
Industries and the City of Thousand Oaks Redevelopment Agency.
*10.30 Form of Option Properties Agreement by and between Kilroy Calabasas
Company and Kilroy Realty, L.P.
*21.1 List of Subsidiaries of the Registrant.
*23.1 Consent of Latham & Watkins.
*23.2 Consent of Ballard, Spahr, Andrews & Ingersoll.
***23.3 Consent of Deloitte & Touche LLP.
**23.4 Consent of Robert Charles Lesser & Co.
**24.1 Power of Attorney.
**27.1 Financial Data Schedule
</TABLE>
- --------
* To Be Filed By Amendment

** Previously Filed

*** Filed Herewith

ITEM 36. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described under Item 33
above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

II-4
<PAGE>

The Registrant hereby undertakes:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY
OF EL SEGUNDO, STATE OF CALIFORNIA, ON THE 27TH DAY OF DECEMBER, 1996.

Kilroy Realty Corporation

By: /s/ John B. Kilroy, Sr.
---------------------------------
JOHN B. KILROY, SR.
Chairman of the Board
and Director

Date: December 27, 1996

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

/s/ John B. Kilroy, Sr. Chairman of the
- ------------------------------------- Board and Director December 27,
JOHN B. KILROY, SR. 1996

/s/ John B. Kilroy, Jr.* President, Chief December ,
- ------------------------------------- Executive Officer, 1996
JOHN B. KILROY, JR.* Secretary and
Director (Principal
Executive Officer)

/s/ John B. Kilroy, Jr.* Treasurer (Principal December ,
- ------------------------------------- Accounting Officer) 1996
JOHN B. KILROY, JR.*

* By authority of power of attorney filed with this Registration Statement.

II-6
<PAGE>

KILROY GROUP

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

EACH OF THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE
BEGINNING EXPENSES OR AT END
OF PERIOD RENTAL REVENUE DEDUCTIONS OF PERIOD
---------- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for uncollectible
rent......................... $837 $1,000 $ -- $1,837
==== ====== ===== ======
Year Ended December 31, 1994
Allowance for uncollectible
rent......................... $514 $ 909 $(586) $ 837
==== ====== ===== ======
Year Ended December 31, 1993
Allowance for uncollectible
rent......................... $337 $ 350 $(173) $ 514
==== ====== ===== ======
</TABLE>

S-1
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement among the Registrant and
the Underwriters named therein.
**3.1 Articles of Incorporation of the Registrant.
**3.2 Bylaws of the Registrant.
*3.3 Form of Certificate for Common Stock of the Registrant.
*5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll regarding
the validity of the Common Stock being registered.
*8.1 Opinion of Latham & Watkins regarding certain federal
income tax matters.
*10.1 Form of Agreement of Limited Partnership of Kilroy
Realty, L.P.
*10.2 Form of Registration Rights Agreement among the
Registrant and the persons named therein.
*10.3 Form of 1996 Stock Option and Incentive Plan for Key
Employees of the Registrant, Kilroy Realty, L.P. and
Kilroy Services, Inc.
*10.4 Form of Indemnification Agreement between the Registrant
and its directors and officers.
*10.5 Employment Agreement between the Registrant and John B.
Kilroy, Jr.
*10.6 Form of Employment Agreement.
*10.7 Form of Management Agreement between Kilroy Services,
Inc. and Kilroy Realty, L.P.
*10.8 [Reserved].
**10.9 Real Estate Purchase Agreement between Northwestern
Mutual Life Insurance Company and Kilroy Industries.
**10.10 Lease Agreement dated July 17, 1985 by and between Kilroy
Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III.
**10.11 Lease Agreement dated April 21, 1988 by and between
Kilroy Long Beach Associates and the Board of Water
Commissioners of the city of Long Beach, acting for and
on behalf of the City of Long Beach, for Long Beach Phase
IV.
**10.12 Lease Agreement dated December 30, 1988 by and between
Kilroy Long Beach Associates and the City of Long Beach
for Kilroy Long Beach Phase II.
**10.13 First Amendment to Lease, dated January 24, 1989, by and
between Kilroy Long Beach Associates and the City of Long
Beach for Kilroy Long Beach Phase III.
**10.14 Second Amendment to Lease Agreement, dated December 28,
1990, by and between Kilroy Long Beach Associates and the
City of Long Beach for Kilroy Long Beach Phase III.
**10.15 First Amendment to Lease Agreement, dated December 28,
1990, by and between Kilroy Long Beach Associates and the
City of Long Beach for Kilroy Long Beach Phase II.
**10.16 Third Amendment to Lease Agreement, dated October 10,
1994, by and between Kilroy Long Beach Associates and the
City of Long Beach for Kilroy Long Beach Phase III.
**10.17 Development Agreement by and between Kilroy Long Beach
Associates and the City of Long Beach.
**10.18 Amendment No. 1 to Development Agreement by and between
Kilroy Long Beach Associates and the City of Long Beach.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.
-------- ---------------------- ----------
<C> <S> <C>
*10.19 Supplemental Representations, Warranties and Indemnity
Agreement by and between the parties named therein.
*10.20 Form of Option Properties Agreement by and between KAICO
and Kilroy Realty, L.P.
**10.21 Purchase and Sale Agreement and Joint Escrow
Instructions by and between Westlake Plaza Partners and
Kilroy Industries.
**10.22 First Amendment to Purchase and Sale Agreement and Joint
Escrow Instructions by and between Westlake Plaza
Partners and Kilroy Industries.
**10.23 Development Management Agreement by and between Kilroy
Technology Company and the Redevelopment Agency of the
City of Riverside.
*10.24 Form of Mortgage Loan.
*10.25 Form of Revolving Credit Facility.
*10.26 [Reserved]
*10.27 Form of Indemnity Agreement among Executive Officers and
Kilroy Realty, L.P.
*10.28 [Reserved]
*10.29 Development and Disposition Agreement by and between
Kilroy Industries and the City of Thousand Oaks
Redevelopment Agency.
*10.30 Form of Option Properties Agreement by and between
Kilroy Calabasas Company and Kilroy Realty, L.P.
*21.1 List of Subsidiaries of the Registrant.
*23.1 Consent of Latham & Watkins.
*23.2 Consent of Ballard, Spahr, Andrews & Ingersoll.
***23.3 Consent of Deloitte & Touche LLP.
**23.4 Consent of Robert Charles Lesser & Co.
**24.1 Power of Attorney.
**27.1 Financial Data Schedule
</TABLE>
- --------
* To Be Filed By Amendment

** Previously Filed

*** Filed Herewith

<PAGE>

EXHIBIT 23.3

REPORT AND CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Registration Statement of Kilroy Realty
Corporation on Form S-11 of our reports on Kilroy Realty Corporation, dated
October 25, 1996, Kilroy Group ("Predecessor Affiliates"), dated December 20,
1996, and the Acquisition Properties dated December 20, 1996, appearing in
this Registration Statement, and to the references to us under the captions
"Selected Combined Financial Data" and "Experts."

Our audits of the financial statements referred to in our aforementioned
report also included the combined financial statement schedule of Kilroy Group
listed in Item 35. This combined financial statement schedule is the
responsibility of the management of Kilroy Group. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP
Los Angeles, California

December 26, 1996