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Kilroy Realty Corp – ‘S-4’ on 7/21/14

On:  Monday, 7/21/14, at 5:15pm ET   ·   Accession #:  1193125-14-274366   ·   File #:  333-197546

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/21/14  Kilroy Realty Corp                S-4                    7:1.5M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Registration of Securities Issued in a              HTML   1.13M 
                          Business-Combination Transaction                       
 2: EX-3.II     Articles of Incorporation/Organization or By-Laws   HTML     99K 
 3: EX-5.1      Opinion re: Legality                                HTML     27K 
 4: EX-8.1      Opinion re: Tax Matters                             HTML     15K 
 5: EX-23.2     Consent of Experts or Counsel                       HTML      6K 
 6: EX-23.3     Consent of Experts or Counsel                       HTML      6K 
 7: EX-99.1     Miscellaneous Exhibit                               HTML     11K 

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As filed with the Securities and Exchange Commission on July 21, 2014

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

KILROY REALTY CORPORATION

(Exact name of registrant as specified in its charter)

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

(310) 481-8400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Tyler H. Rose

Executive Vice President and Chief Financial Officer

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

(310) 481-8400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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:  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

CALCULATION OF REGISTRATION FEE

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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The information in this document is not complete and may be changed. We may not sell the securities offered by this document until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities, and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION DATED JULY 21, 2014

PROXY STATEMENT OF SAN FRANCISCO FLOWER GROWERS’ ASSOCIATION

PROSPECTUS OF KILROY REALTY CORPORATION

Merger Proposal—Your Vote Is Important

We are pleased to report that the board of directors of San Francisco Flower Growers’ Association, a California Corporation, which we refer to as SFFGA, has approved a merger involving SFFGA and KR SFFGA, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Kilroy Realty Corporation, a Maryland corporation, which we refer to as Kilroy Realty. Before we can complete the merger we must obtain the approval of the shareholders of SFFGA. We are sending you this proxy statement-prospectus to invite you to attend a special meeting of the shareholders of SFFGA, which will be held on [—], 2014, at 4:00 P.M. Pacific time, at [—].

At the special meeting, you will be asked to adopt the merger agreement between Kilroy Realty, KR SFFGA, LLC, SFFGA and the SFFGA Representative, that provides for Kilroy Realty’s acquisition of SFFGA through the merger of SFFGA with and into KR SFFGA, LLC, which we refer to as the merger, and approve the principal terms of the merger. If the merger is completed, each share of common stock of SFFGA, no par value per share, which we refer to as SFFGA common stock, will be converted into the right to receive shares of common stock of Kilroy Realty, $0.01 par value per share, which we refer to as Kilroy Realty common stock, based on the calculation described in “Description of the Merger Agreement—Consideration to be Received in the Merger” in this proxy statement-prospectus. The aggregate merger consideration to be paid by Kilroy Realty to all of SFFGA’s shareholders is expected to be approximately $22.0 million (subject to adjustment as described herein). Subject to the payment of cash in lieu of fractional shares, Kilroy Realty will pay 100% of the merger consideration in shares of Kilroy Realty common stock.

A portion of the aggregate merger consideration equal to $2.5 million in Kilroy Realty common stock, which we refer to as the escrowed merger consideration, will be withheld from payment to the SFFGA shareholders at closing and contributed to an escrow account to support certain indemnification and reimbursement obligations of the SFFGA shareholders under the merger agreement. Shares of Kilroy Realty common stock will be released from the escrow account in accordance with the terms and conditions set forth in the merger agreement and an escrow agreement to be entered into at the closing. We refer to the remaining merger consideration (the shares of Kilroy Realty common stock not delivered to the escrow account) which you shall receive in common stock, as the closing merger consideration.

The exchange ratio used to determine the number of shares of Kilroy Realty common stock to be received for each share of SFFGA common stock will be determined based on the average closing price per share of Kilroy Realty common stock on the New York Stock Exchange, as reported by the Wall Street Journal during the 10 trading day period ending on the second trading day prior to completion of the merger, which we refer to as the reference period and the average closing price during such period is referred to as the reference price. The merger consideration is subject to proration and adjustment as described in this proxy statement-prospectus, and the exchange ratio will not be determined until after the date of the special meeting. Therefore, at the time of the special meeting, you will not know the precise value of the merger consideration you may receive on the date the merger is completed.

Assuming (i) no adjustment to the aggregate merger consideration approximated above, (ii) the 540.88 shares of SFFGA common stock currently outstanding remain unchanged at the closing, based upon a reference price of $62.30, which is equal to the reference price if it were calculated as of July 15, 2014, the latest practicable date prior to the date of this proxy statement-prospectus and (iii) that the SFFGA shareholders are entitled to receive the full amount of the escrowed merger consideration, the merger consideration that a SFFGA shareholder would be entitled to receive for each share of SFFGA common stock, would be 652.9783 shares of Kilroy Realty common stock for each share of SFFGA common stock. Assuming no adjustment to the aggregate merger consideration and a reference price of $62.30, we estimate that Kilroy Realty may issue up to 353,182.8834 shares of Kilroy Realty common stock to SFFGA shareholders as contemplated by the merger agreement.

Kilroy Realty common stock is traded on the New York Stock Exchange under the symbol “KRC.” The closing price of Kilroy Realty common stock on July 15, 2014 was $62.97 per share.

The merger cannot be completed unless the holders of at least a majority of the outstanding shares of SFFGA common stock entitled to vote adopt the merger agreement and approve the principal terms of the merger. Your board of directors has adopted the merger agreement and recommends that you vote “FOR” the adoption of the merger agreement and the approval of the principal terms of the merger at the special meeting. Your board of directors also recommends that you vote “FOR” the approval to adjourn the special meeting to permit further solicitation in the event that an insufficient number of shares entitled to vote are present in person or by proxy to adopt the merger agreement and approve the principal terms of the merger.

Additional information regarding the merger, the merger agreement, the sale of the investment properties, SFFGA and Kilroy Realty is set forth in the attached proxy statement-prospectus. We urge you to read this entire document carefully, including the section entitled “Risk Factors” beginning on page 18.

Neither the Securities and Exchange Commission nor any state securities regulatory body has approved or disapproved of the securities to be issued by Kilroy Realty in connection with the merger or determined if this proxy statement-prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE

This proxy statement-prospectus is dated [—], 2014, and is first being mailed to the SFFGA shareholders on or about [—], 2014.

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San Francisco Flower Growers’ Association

644 Brannan Street

San Francisco, California 94107

Notice of Special Meeting of Shareholders

Date: [—], 2014

Time: 4:00 P.M., Pacific time

Place: [—]

TO SAN FRANCISCO FLOWER GROWERS’ ASSOCIATION SHAREHOLDERS:

NOTICE IS HEREBY GIVEN that San Francisco Flower Growers’ Association will hold a special meeting of shareholders on [—], 2014 at 4:00 P.M., Pacific time, at [—]. The purpose of the meeting is to consider and vote on the following matters:

Holders of record of SFFGA common stock at the close of business on [—], 2014 are entitled to receive this notice and to vote at the special meeting and any adjournments or postponements thereof. Adoption of the merger agreement and the approval of the principal terms of the merger requires the affirmative vote at the special meeting of holders of at least a majority of the outstanding shares of SFFGA common stock entitled to vote. If the merger agreement is adopted and the principal terms of the merger contemplated thereby are approved by the required vote of SFFGA shareholders, holders of shares of SFFGA common stock who do not vote to adopt the merger agreement and approve the principal terms of the merger may be entitled to dissenter’s rights and receive cash for the fair market value of their shares of SFFGA common stock. A summary of the dissenter’s rights that may be available to you pursuant to Sections 1300 through 1313 of the California General Corporation Law is provided in the section entitled “The Merger—SFFGA Shareholder Dissenter’s Rights” on page 50.

Approval of the proposal to adjourn the special meeting, if necessary, requires the affirmative vote of holders of at least a majority of the shares of SFFGA common stock entitled to vote, present in person or by proxy, if a quorum is present. In the absence of a quorum, the holders of a majority of the shares of SFFGA common stock entitled to vote present in person or by proxy may adjourn the special meeting.

The board of directors of SFFGA recommends that you vote “FOR” the adoption of the merger agreement and the approval of the principal terms of the merger. The board of directors also recommends that you vote “FOR” the approval to adjourn the special meeting to permit further solicitation in the event that an insufficient number of shares entitled to vote are present in person or by proxy to adopt the merger agreement and approve the principal terms of the merger.

Your vote is important. To ensure that your shares are voted at the special meeting, please promptly complete, sign and return the proxy form in the enclosed prepaid envelope whether or not you plan to attend the meeting in person. Stockholders who attend the special meeting may revoke their proxies and vote in person, if they so desire.

San Francisco, California

[—], 2014

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ADDITIONAL INFORMATION

This proxy statement-prospectus incorporates important business and financial information about Kilroy Realty from documents that are not included in or delivered with this proxy statement-prospectus. You can obtain the documents incorporated by reference in this proxy statement-prospectus without charge through the Securities and Exchange Commission, or SEC, website (http://www.sec.gov) or upon written or oral request to Kilroy Realty as follows:

Attention: Investor Relations

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

(310) 481-8400

To obtain information in time for the special meeting, your request should be received by [—], 2014.

For additional details about where you can find information about Kilroy Realty or SFFGA, see “Where You Can Find More Information” on page 98.

You should rely only on the information contained or incorporated by reference in this proxy statement-prospectus. We have not authorized anyone to provide you with different information. This proxy statement-prospectus is dated [—], 2014. You should not assume that information contained or incorporated by reference in this proxy statement-prospectus is accurate as of any date other than that date. Neither the mailing of this proxy statement-prospectus to the SFFGA shareholders nor the issuance by Kilroy Realty of its common stock in the merger will create any implication to the contrary.

SFFGA has supplied all information relating to SFFGA contained in this proxy statement-prospectus, and Kilroy Realty has supplied all information relating to Kilroy Realty contained or incorporated by reference in this proxy statement-prospectus.

Information on the Internet websites of Kilroy Realty or SFFGA is not part of this proxy statement-prospectus. You should not rely on that information in deciding how to vote on the proposal to approve the merger agreement unless that information is in this proxy statement-prospectus or has been incorporated by reference into this proxy statement-prospectus.

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(iii)

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QUESTIONS AND ANSWERS ABOUT THE MERGER

For each share of SFFGA common stock you hold, you will receive the per share merger consideration to be calculated as set forth in the merger agreement. The exchange ratio used to determine the number of shares of Kilroy Realty common stock that you will be entitled to receive for each share of SFFGA common stock which you hold will be determined based upon the average closing price per share of Kilroy Realty common stock on the New York Stock Exchange, or NYSE, as reported by the Wall Street Journal, during the 10 trading day period ending on the second trading day prior to completion of the merger, which we refer to as the reference period. We refer to the average closing price calculated during such period as the reference price. Assuming (i) no adjustment to the aggregate merger consideration approximated above, (ii) the 540.88 shares of SFFGA common stock currently outstanding remain unchanged at the closing, based upon a reference price of $62.30, which is equal to the reference price if it were calculated as of July 15, 2014, the latest practicable date prior to the date of this proxy statement-prospectus and (iii) that the SFFGA shareholders are entitled to receive the full amount of the escrowed merger consideration, the merger consideration that a SFFGA shareholder would be entitled to receive for each share of SFFGA common stock, would be 652.9783 shares of Kilroy Realty common stock for each share of SFFGA common stock. Assuming no adjustment to the aggregate merger consideration and a reference price of $62.30, we estimate that Kilroy Realty may issue up to 353,182.8834 shares of Kilroy Realty common stock to the SFFGA shareholders as contemplated by the merger agreement. For a description of how the per share merger consideration will be calculated, see “Description of the Merger Agreement—Consideration to be Received in the Merger.”

The aggregate merger consideration is determined by taking $27.0 million and adjusting it downward by (i) the sum of (A) any outstanding principal balance of the indebtedness on the SFFGA property, plus all accrued and unpaid interest thereon on and as of the closing date of the merger, plus any prepayment fees or other amounts payable in connection therewith, (B) the proration amounts debited to SFFGA, and (C) the SFFGA expenses assumed by Kilroy Realty, (ii) further adjusting downward by any expenses of SFFGA which were not taken into account in calculating the merger consideration and (iii) adjusting upward to the extent of any proration amounts credited to SFFGA and the cash amount reserved for the payment of certain taxes arising from the sale of the investment properties (in the approximate amount of $[—]). Pursuant to the

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merger agreement, the outstanding indebtedness on the SFFGA property (in the approximate amount of $4.6 million) will be deducted from the amount paid by Kilroy Realty in the merger and will be paid in full at closing. The aggregate merger consideration of approximately $22.0 million is net of the retirement or assumption of such indebtedness. For a description of the possible adjustment of the merger consideration, see “Description of the Merger Agreement—Adjustment to Merger Consideration” on page 54.

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At the effective time of the merger, following the sale of the investment properties (and subsequent distribution of a portion of the proceeds therefrom) and completion of other actions to be taken by SFFGA under the terms of the merger agreement (including distribution of any remaining cash other than the reserve established for the payment of taxes arising from the sale of the investment properties), the only material asset of SFFGA will consist of the 1.9 acre land site in Central SOMA on which a portion of the San Francisco Flower Mart is currently situated. At such time, all other assets and liabilities of SFFGA will be immaterial to the transaction and SFFGA will effectively only own the land site. There will be no employees, employee related costs, or employee benefit plans transferring in connection with the merger. The merger transaction was structured to allow the SFFGA shareholders to defer a portion of the U.S. federal income tax that would have otherwise resulted from a taxable sale of the 1.9 acre land site followed by a distribution of the proceeds of the sale to the SFFGA shareholders.

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RISK FACTORS

Before deciding whether to vote for the adoption of the merger agreement and the approval of the principal terms of the merger, you should carefully consider the following risk factors, in addition to the other information contained or incorporated by reference in this proxy statement-prospectus, including the discussion under “Risk Factors” in Kilroy Realty’s Annual Report on Form 10-K/A for the year ended December 31, 2013, as such discussion may be updated in Kilroy Realty’s subsequent Quarterly Reports on Form 10-Q. See “Where You Can Find More Information” on page 98.

Risks Relating to the Merger

Because the aggregate merger consideration is subject to adjustment, the value of the merger consideration you may receive in the merger may be less than you expect.

The merger consideration to be received by the SFFGA shareholders following the effective time of the merger is subject to downward adjustment as provided in the merger agreement. Consequently, the value of the merger consideration you may receive in the merger may be less than you expect and you will not know the exact value of the merger consideration you will receive at the time of the special meeting of the SFFGA shareholders. For a description of the possible adjustment of the merger consideration, see “Description of the Merger Agreement—Adjustment to Merger Consideration” on page 54.

SFFGA shareholders may not receive the escrowed merger consideration or the escrowed investment properties consideration.

A portion of the aggregate merger consideration equal to $2.5 million in Kilroy Realty common stock will be deposited at the closing with the escrow agent to serve as security for the benefit of Kilroy Realty against the indemnification afforded Kilroy Realty in the merger agreement and to reimburse Kilroy Realty for certain fees and expenses that were not able to be calculated at the closing of the merger. An amount equal to $0.5 million in Kilroy Realty common stock of the $2.5 million in escrowed merger consideration will be held by the escrow agent for a period of 36 months from the closing to serve as security for the benefit of Kilroy Realty in respect of indemnification claims arising out of environmental matters. The balance of the escrowed merger consideration (in the amount equal to $2.0 million in Kilroy Realty common stock) will be held for a period of 18 months from the closing. If any payment is required to be made from the escrow account to Kilroy Realty, the SFFGA shareholders as of the closing date of the merger will not be entitled to receive such shares of Kilroy Realty common stock, and because this portion of the merger consideration is contingent upon the determination of any indemnification claims against the SFFGA shareholders, there are no assurances of the number of shares of Kilroy Realty common stock, if any, beyond the closing merger consideration payable at the closing that SFFGA shareholders will receive for their SFFGA common stock. In addition, the price per share of Kilroy Realty common stock on the date of distribution from the escrow account may be more or less than the reference price. As a result, SFFGA shareholders will not know the amount of escrowed merger consideration, if any, that may be payable to SFFGA shareholders until approximately 36 months after the effective time of the merger.

A portion of the investment properties consideration equal to $0.4 million in cash will be deposited at the closing with the escrow agent to serve as security for the benefit of Kilroy Realty in respect of indemnification obligations arising under the Agreement of Purchase and Sale in connection with the sale of the investment properties to Flair. This amount, which we refer to as the escrowed investment properties consideration, will be held by the escrow agent for a period of four months from the July 18, 2014 closing of the sale of the investment properties to Flair. If any portion of the escrowed investment properties consideration is required to be disbursed to Kilroy Realty (as a result of the satisfaction by Kilroy Realty of indemnification claims asserted by Flair), the SFFGA shareholders as of the closing date of the merger will not be entitled to receive the portion of the escrowed investment properties consideration disbursed to Kilroy Realty. As a result, SFFGA shareholders will not know the amount of escrowed investment properties consideration, if any, that may be payable to SFFGA shareholders until the date approximately four months from the July 18, 2014 closing of the sale of the investment properties.

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The SFFGA Representative will have the ability to take actions in connection with the merger and the merger agreement on behalf of the SFFGA shareholders without further notice to or approval by the SFFGA shareholders.

In connection with the adoption of the merger agreement and approval of the principal terms of the merger by the SFFGA shareholders, Angelo Stagnaro, Jr. and Ronald Chiappari and any successors thereto will be appointed as the SFFGA shareholders’ exclusive agent and attorney-in-fact, or the SFFGA Representative, with respect to any actions specified or contemplated by the merger agreement and the escrow agreement. The appointment of the SFFGA Representative will constitute the authorization by each holder of SFFGA common stock, even if a SFFGA shareholder did not vote to approve the merger and thereby appoint the SFFGA Representative. The SFFGA Representative may take action or decline to do so as he may determine in his sole discretion without any notice to or further approval by the SFFGA shareholders, and will be indemnified by the SFFGA shareholders in taking or declining to take such action. For example, the SFFGA Representative may settle indemnification claims pursuant to the merger agreement and the escrow agreement, which would reduce the escrowed merger consideration to be received by the SFFGA shareholders. SFFGA will establish an escrow account (independent of the escrow established with respect to the escrowed merger consideration) into which SFFGA will deposit an amount reasonably anticipated to be necessary to cover the costs and expenses of the SFFGA Representative subsequent to the closing of the merger. Any amounts remaining after termination of the duties of the SFFGA Representative will be distributed to the SFFGA shareholders on a pro rata basis.

Because there is no public market for the SFFGA common stock, it is difficult to determine how the fair value of SFFGA common stock compares with the merger consideration being paid by Kilroy Realty in connection with the merger.

The outstanding shares of SFFGA common stock are privately held and are not traded in any public market. This lack of a public market makes it difficult to determine the fair value of the outstanding SFFGA common stock. Although the SFFGA board of directors has received advice from its financial advisor and obtained appraisals of the real property comprising the SFFGA property, the board of directors did not obtain a formal opinion from a financial advisor regarding the fairness, from a financial point of view, of the merger consideration being received by the holders of SFFGA common stock. Because the merger consideration was determined based on negotiations between SFFGA and Kilroy Realty, it may not be more or less than the fair value of the shares of SFFGA common stock.

SFFGA’s shareholders will not control Kilroy Realty’s future operations.

Currently, SFFGA’s shareholders own 100% of SFFGA and have the power to approve or reject any matters requiring shareholder approval under California law and SFFGA’s articles of incorporation and bylaws. After the merger, SFFGA shareholders are expected to become owners of less than 0.5% of the outstanding shares of Kilroy Realty common stock. Even if all former SFFGA shareholders voted together on all matters presented to Kilroy Realty’s stockholders, from time to time, the former SFFGA shareholders would not have an impact on the approval or rejection of future Kilroy Realty proposals submitted to a vote of the Kilroy Realty stockholders.

Because the market price of Kilroy Realty’s stock will fluctuate, the SFFGA shareholders cannot be certain of the price of Kilroy Realty common stock after completion of the merger.

The exchange ratio used to determine the number of shares of Kilroy Realty common stock that you will be entitled to receive for each share of SFFGA common stock which you hold will be determined based upon the average closing price per share of Kilroy Realty common stock on the NYSE, as reported by the Wall Street Journal, which we refer to as the reference price, during the 10 trading day period ending on the second trading day prior to completion of the merger. As such, the reference price will likely differ from the price at which shares of Kilroy Realty common stock will trade on the date of the special meeting of the SFFGA shareholders, on the closing date or on the date you receive the closing merger consideration. The value of the closing merger

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consideration will not be adjusted to reflect any changes in the market price of Kilroy Realty common stock prior to the closing date and the number of shares of Kilroy Realty common stock issued in the merger may be higher or lower than what would be issued had the merger occurred on a different date. In addition, because the price of Kilroy Realty common stock will continue to fluctuate after completion of the merger, the aggregate value of Kilroy Realty common stock received by you may, at any particular time, be higher or lower than the closing merger consideration.

There is no assurance when or even if the merger will be completed.

Completion of the merger is subject to satisfaction or waiver of a number of conditions. See “Description of the Merger Agreement—Conditions to the Merger” on page 60. There can be no assurance that Kilroy Realty and SFFGA will satisfy or waive the closing conditions or that closing conditions beyond their control will be satisfied or waived. Kilroy Realty and SFFGA can agree at any time to terminate the merger agreement, even if SFFGA shareholders have already voted to approve the merger agreement. Kilroy Realty and SFFGA can also terminate the merger agreement under other specified circumstances.

The merger agreement limits SFFGA’s ability to pursue alternative transactions to the merger.

The merger agreement prohibits SFFGA and its affiliates, directors, officers, representatives, and agents from soliciting, initiating, encouraging, facilitating or inducing any inquiry with respect to any offer or proposal reasonably expected to lead to any alternative competing transaction. The prohibition limits SFFGA’s ability to pursue offers from other possible acquirers that may be superior from a financial point of view to the merger with Kilroy Realty.

The rights of SFFGA shareholders who become Kilroy Realty shareholders in the merger will be governed by Maryland law and by Kilroy Realty’s Articles of Restatement, as supplemented, and Second Amended and Restated Bylaws, as amended.

The SFFGA shareholders who receive shares of Kilroy Realty common stock in the merger will become Kilroy Realty stockholders. Kilroy Realty currently is a corporation formed under the laws of Maryland. As a result, the SFFGA shareholders who become shareholders of Kilroy Realty will be governed by the Maryland General Corporation Law and Kilroy Realty’s Articles of Restatement, as supplemented and as may be supplemented from time to time, and Kilroy Realty’s Second Amended and Restated Bylaws, as amended and as may be amended from time to time, rather than being governed by the CGCL and the SFFGA’s articles of incorporation and SFFGA’s bylaws. There may be material differences between the current rights of the SFFGA shareholders, as compared to the rights they will have as stockholders of Kilroy Realty. For more information, see “Comparison of Shareholder Rights” beginning on page 81 of this proxy statement-prospectus.

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FORWARD-LOOKING STATEMENTS

This proxy statement-prospectus, including the documents incorporated by reference, contain, and documents Kilroy Realty subsequently files with the SEC and incorporate by reference, may contain, certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act. Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty’s and SFFGA’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty’s and SFFGA’s control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events.

The factors included in this proxy statement-prospectus, including the documents incorporated by reference, and documents Kilroy Realty subsequently files with the SEC and incorporates by reference, are not exhaustive. For a discussion of additional risk factors that could adversely affect Kilroy Realty’s and SFFGA’s business and financial performance, see the factors included under the caption “Risk Factors” in this proxy statement-prospectus, and in Kilroy Realty’s Annual Report on Form 10-K/A for the year ended December 31, 2013 and in Kilroy Realty’s subsequent Quarterly Reports on Form 10-Q and the documents incorporated by reference in each. All forward-looking statements are based on information that was available, and speak only, as of the date on which they were made. Neither Kilroy Realty nor SFFGA assumes any obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise.

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INFORMATION ABOUT THE SPECIAL MEETING OF SFFGA STOCKHOLDERS

The SFFGA board of directors is using this proxy statement-prospectus to solicit proxies from the holders of SFFGA common stock for use at the special meeting of the SFFGA shareholders.

Date, Time and Place of the Special Meeting

The special meeting will be held at [—], on [—], 2014 at 4:00 P.M., Pacific time.

Purpose of the Special Meeting

At the special meeting, SFFGA board of directors will ask you to vote upon the following:

Record Date and Voting Rights for the Special Meeting

The SFFGA board of directors has set the close of business on [—], 2014, as the record date for determining the holders of its common stock entitled to notice of and to vote at the special meeting. Only the SFFGA shareholders of record at the close of business on the record date are entitled to notice of and to vote at the special meeting. As of the record date, there were 540.88 shares of SFFGA common stock outstanding and entitled to vote at the special meeting.

Quorum

The presence in person or by proxy of at least a majority of SFFGA’s shares issued and outstanding and entitled to vote at the special meeting is required for a quorum to be present at the special meeting. Abstentions will count toward the establishment of a quorum.

Vote Required

Adoption of the merger agreement and approval of the principal terms of the merger requires the affirmative vote of at least a majority of SFFGA’s outstanding shares entitled to vote. In addition, Kilroy Realty is not required to complete the merger unless holders of not more than 10% of the total shares of SFFGA common stock are, or have the ability to become, dissenting shares pursuant to the CGCL, meaning that holders of shares representing at least 90% of the shares of SFFGA common stock outstanding immediately prior to the effective time of the merger have voted to adopt the merger agreement and approve the principal terms of the merger, allowed their dissenter’s rights to lapse under California law or otherwise do not have dissenter’s rights because such shares were not issued and outstanding as of the record date for the special meeting of the SFFGA shareholders.

Approval of the proposal to adjourn the special meeting, if necessary, requires the affirmative vote of holders of at least a majority of the shares of SFFGA common stock entitled to vote, present in person or by proxy, if a quorum is present. In the absence of a quorum, the holders of a majority of the shares of SFFGA common stock present in person or by proxy may adjourn the special meeting. To satisfy the quorum requirements set forth in SFFGA’s bylaws, shareholders holding at least a majority of the voting power of the outstanding shares of SFFGA common stock entitled to vote at the special meeting must be present in person or by proxy at the special meeting. The SFFGA shareholders may vote their shares in person at the special meeting or by signing and returning the enclosed proxy form.

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The failure of a SFFGA shareholder to vote will have the same effect as voting against the proposals to adopt the merger agreement and approve the principal terms of the merger and to approve the meeting adjournment proposal. For purposes of the shareholder vote, an abstention, which occurs when a shareholder attends a meeting, either in person or by proxy, but abstains from voting, will have the same effect as voting against the proposals to adopt the merger agreement and approve the principal terms of the merger and to adjourn the special meeting.

The sale of the investment properties to Flair has been approved by the board of directors of SFFGA. Approval of the outstanding shares of SFFGA common stock is not required in connection with the sale of the investment properties.

Ownership of Directors and Officers

As of the record date, SFFGA’s directors and executive officers and their affiliates beneficially owned a total of [—] shares of SFFGA common stock (excluding shares issuable upon the exercise of outstanding options), representing approximately [—]% of the outstanding shares of SFFGA common stock entitled to vote at the special meeting.

How to Vote

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, we recommend you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the meeting.

Voting instructions are included on your proxy form, which should be returned in the enclosed prepaid envelope. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the approval of the merger and the other proposals. If you are the record holder of your shares and submit your proxy without specifying a voting instruction, your shares will be voted as the SFFGA board of directors recommends and will be voted “FOR” the adoption of the merger agreement and the approval of the principal terms of the merger, “FOR” the approval to adjourn the special meeting to permit further solicitation in the event that an insufficient number of shares entitled to vote are present in person or by proxy to adopt the merger agreement and the approve of the principal terms of the merger.

Revocability of Proxies

You may revoke your proxy at any time before it is voted by:

Attendance at the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to: San Francisco Flower Growers’ Association, 644 Brannan Street, San Francisco, CA 94107, Attention: Angelo Stagnaro, Jr.

Proxy Solicitation

In addition to this mailing, proxies may be solicited by directors, officers or employees of SFFGA in person or by telephone or electronic transmission. None of such directors, officers or employees will be directly compensated for such services. SFFGA will pay the costs associated with the solicitation of proxies for the special meeting.

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Other Business; Adjournments

SFFGA is not currently aware of any other business to be acted upon at the SFFGA special meeting. If, however, other matters are properly brought before the special meeting, or any adjournment or postponement thereof, your proxies include discretionary authority on the part of the individuals appointed to vote your shares to act on those matters according to their best judgment.

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time by the affirmative vote of the holders of a majority of the shares of SFFGA common stock present in person or by proxy at the special meeting, whether or not a quorum is present, without further notice other than by announcement at the special meeting.

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THE MERGER

This section of the proxy statement-prospectus describes material aspects of the merger. While Kilroy Realty and SFFGA believe that the description covers the material terms of the merger and the related transactions, this summary may not contain all of the information that is important to you. You should carefully read this entire proxy statement-prospectus, the attached Annexes, and the other documents to which this proxy statement-prospectus refers for a more complete understanding of the merger. The agreement and plan of merger attached hereto as Annex A, not this summary, is the legal document which governs the merger.

General

The SFFGA board of directors is using this proxy statement-prospectus to solicit proxies from the holders of SFFGA common stock for use at the SFFGA special meeting, at which the SFFGA shareholders will be asked to vote on the adoption of the merger agreement and approve the principal terms of the merger. When the merger is consummated, SFFGA will merge with and into KR SFFGA, LLC, a wholly-owned subsidiary of Kilroy Realty, which we refer to as merger sub and SFFGA will cease to exist. Merger sub will survive the merger and remain a wholly-owned subsidiary of Kilroy Realty. At the effective time of the merger, shares of SFFGA common stock will be cancelled and the holders of such shares immediately prior to the effective time of the merger will be exchanged for shares of Kilroy Realty common stock. The exact number of shares of Kilroy Realty common stock comprising the merger consideration cannot be determined until two trading days before completion of the merger and will be based on the calculation of the aggregate merger consideration. See “Description of the Merger Agreement—Consideration to be Received in the Merger” for a detailed description of the method for determining the per share merger consideration.

SFFGA shareholders will not receive fractional shares of Kilroy Realty common stock and instead, they will receive a cash payment for any fractional share based on the reference price of the Kilroy Realty common stock. Shares of SFFGA common stock held by SFFGA shareholders who properly elect to exercise their dissenter’s rights will not be converted into merger consideration.

The Companies

Kilroy Realty Corporation

Kilroy Realty Corporation, a Maryland corporation, or Kilroy Realty, was incorporated in 1996. Kilroy Realty is a self-administered real estate investment trust, or REIT, that owns, develops, acquires and manages real estate assets, consisting primarily of Class A real estate properties in the coastal regions of Los Angeles, Orange County, San Diego County, San Francisco Bay Area, and greater Seattle. Kilroy Realty’s portfolio has in excess of 100 office properties. Kilroy Realty owns its interests in all its properties directly or indirectly through Kilroy Realty, L.P. and Kilroy Realty Finance Partnership, L.P. Unless otherwise expressly stated or the context otherwise requires, in this proxy statement-prospectus “Kilroy Realty” refers collectively to Kilroy Realty and its subsidiaries, including Kilroy Realty, L.P. and Kilroy Realty Finance Partnership, L.P.

As of March 31, 2014, Kilroy Realty had total assets of approximately $5.1 billion, total liabilities of $2.5 billion, and total shareholders’ equity of approximately $2.6 billion.

Kilroy Realty common stock is traded on the NYSE under the ticker symbol “KRC.”

Financial and other information relating to Kilroy Realty, including information relating to Kilroy Realty’s current directors and executive officers, is set forth in Kilroy Realty’s 2013 Annual Report on Form 10-K/A, Kilroy Realty’s Proxy Statement for its 2014 Annual Meeting of Stockholders filed with the SEC on April 11, 2014 and Kilroy Realty’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2014, which are incorporated by reference to this proxy statement-prospectus. Copies of these documents may be obtained from Kilroy Realty as indicated under “Where You Can Find More Information” on page 98.

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KR SFFGA, LLC

KR SFFGA, LLC, a Delaware limited liability company, is a wholly-owned subsidiary of Kilroy Realty and was formed solely for the purpose of consummating the merger, and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the merger.

San Francisco Flower Growers’ Association

San Francisco Flower Growers’ Association, a California corporation, is headquartered in San Francisco, California. SFFGA was incorporated in 1923 as a cooperative organized by local flower and fern growers. Its primary business is to own and operate a portion of the real estate on which the San Francisco Flower Mart is situated. SFFGA and an adjacent property owner occupy two contiguous sites to the northeast fronting Brannan Street near Sixth Street in San Francisco. The combined operations are commonly referred to as the San Francisco Flower Mart. Together they represent the largest wholesale flower distributorship operation in San Francisco.

As of June 30, 2014, SFFGA had total assets of approximately $6.8 million, liabilities of $6.3 million and shareholders’ equity of $0.5 million. SFFGA is not a public company and, accordingly, there is no established trading market for SFFGA’s common stock.

In 2006, following the sale of the Villa dei Fiori project, a mixed use rental project located adjacent to the existing San Francisco Flower Mart property that was developed by SFFGA, SFFGA acquired four investment properties with the proceeds from the sale. Two of the properties are in North Carolina, one in Virginia and one in Rhode Island. We refer to these properties as the Kernersville Property, the Winston-Salem Property, the VA Property and the RI Property, and collectively, as the investment properties. The VA Property, the Kernersville Property, and the Winston-Salem properties are leased to Walgreens and the RI Property is leased to Lowe’s. SFFGA anticipates that the sale of the investment properties will occur on or about July 18, 2014.

At the effective time of the merger, following the sale of the investment properties (and subsequent distribution of a portion of the proceeds therefrom) and completion of other actions to be taken by SFFGA under the terms of the merger agreement (including distribution of any remaining cash other than the reserve established for the payment of taxes arising from the sale of the investment properties), the only material asset of SFFGA will consist of the 1.9 acre land site in Central SOMA on which a portion of the San Francisco Flower Mart is currently situated. At such time, all other assets and liabilities of SFFGA will be immaterial to the transaction and SFFGA will effectively only own the land site. There will be no employees, employee related costs, or employee benefit plans transferring in connection with the merger. The merger transaction was structured to allow the SFFGA shareholders to defer a portion of the U.S. federal income tax that would have otherwise resulted from a taxable sale of the 1.9 acre land site followed by a distribution of the proceeds of the sale to the SFFGA shareholders.

SFFGA’s Proposals

At the SFFGA special meeting, SFFGA’s shareholders will be asked to vote on the adoption of the merger agreement and the approval of the principal terms of the merger. The merger will not be completed unless the holders of a majority of the outstanding SFFGA common stock vote to adopt the merger agreement and approve the principal terms of the merger.

Background of the Merger

The board of directors of SFFGA regularly reviews SFFGA’s performance, future growth prospects and overall strategic direction and considers potential opportunities to enhance shareholder value. These reviews have included, from time to time, consideration of potential transactions with third parties involving the sale of the SFFGA property, and the potential benefits and risks of those transactions.

In particular, over the years a number of potential developers expressed an interest in acquiring the SFFGA property. However, the applicable zoning for the SFFGA property limited the use of the SFFGA property to service, arts and light industrial uses and prevented any high density office development. This limited the interest by potential purchasers in the SFFGA property.

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In June 2012, representatives of a group, which we refer to as Party A, invited representatives of SFFGA to a meeting with San Francisco political and administrative officials and other adjacent landowners to discuss issues related to the development of the numerous properties being used for the distribution of flowers and related products and services as part of the large San Francisco Flower Mart complex.

Party A and SFFGA thereafter continued to discuss development issues related to the various adjacent properties. Party A on several occasions expressed an interest in acquiring the SFFGA property for $15.5 million in cash. Subsequently, verbal offers were received at $17.0 million and eventually $20.0 million, but no evidence of financing was provided and no firm offer was ever received by SFFGA.

In December 2012, SFFGA retained James Reuben and the law firm of Reuben, Junius & Rose, LLP to advise SFFGA with respect to ongoing efforts by the City and County of San Francisco to rezone areas along and nearby the 4^th Street transportation corridor to encourage additional commercial development, such rezoning referred to as the Central SoMa Plan. Mr. Reuben has previously worked with SFFGA on the development of the Villa dei Fiori project.

In early 2013, representatives of SFFGA, including its legal counsel, were invited to a meeting at the offices of a local development firm, which we refer to as Party B, to discuss development of the SFFGA property and adjacent properties including the property owned by Party A.

Discussions between Party B and SFFGA continued into 2013 and in August 2013 SFFGA received a written letter of intent from Party B to purchase the SFFGA property for a cash purchase price of $19.5 million, subsequently increased to $20.0 million. Because of the uncertainty of Party B’s financing, the SFFGA board of directors determined that the offer was not acceptable.

In the third quarter of 2013, SFFGA was introduced to Kilroy Realty by Mr. Reuben. As a result of conversations between SFFGA and representatives from Kilroy Realty, in November 2013, SFFGA received a draft offer to purchase the SFFGA property for $22.0 million in cash. In evaluating the offer, the SFFGA board of directors determined that a substantial tax savings to SFFGA and its shareholders could potentially be achieved if the transaction were structured as a tax free reorganization. On January 13, 2014, SFFGA and its legal advisors met with representatives of Kilroy Realty to discuss the potential issues related to structuring the transaction in a tax free manner.

On January 17, 2014, SFFGA entered into a Confidentiality Agreement with Kilroy Realty and thereafter provided to Kilroy Realty certain information concerning SFFGA.

On February 19, 2014, SFFGA received a draft letter of intent from Kilroy Realty offering to purchase SFFGA by means of a merger with a wholly-owned subsidiary of Kilroy Realty in a tax free transaction for an aggregate consideration of $22.0 million. Thereafter the parties proceeded to negotiate a definitive letter of intent. A condition of the transaction was that all of SFFGA’s assets, other than the SFFGA property, be distributed to the SFFGA shareholders prior to closing.

On February 26, 2014, SFFGA retained Fabbro, Moore & Associates, a real estate appraisal firm to update an earlier appraisal related to the SFFGA property. On February 24, 2014 SFFGA retained Cabrillo Advisors, LLC, to advise the board of directors of SFFGA regarding the proposed structure of the transaction, including advantages and disadvantages, and general information regarding Kilroy Realty. On April 26, 2014, SFFGA retained an appraisal firm to advise the board of directors of SFFGA regarding the value of the SFFGA property taking into account the ongoing City and County of San Francisco Central SoMa Plan.

During this period, SFFGA, in conjunction with its legal and accounting advisors, proceeded to evaluate the financial and tax implications of the proposed Kilroy Realty offer.

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On March 3, 2014, SFFGA and Kilroy Realty entered into a Cooperation Agreement pursuant to which the parties agreed to cooperate with respect to planning matters to ensure that the City and County of San Francisco Central SoMa Plan incorporates elements beneficial to both parties.

On March 4, 2014, SFFGA received a revised letter of intent reflecting the results of certain negotiations between counsel for SFFGA and Kilroy Realty, but containing terms the board of directors of SFFGA did not agree with related to the reimbursement to Kilroy Realty of substantial amounts in the event the transaction was not approved by SFFGA’s shareholders.

On March 6, 2014, SFFGA received a further revised draft letter of intent addressing a number of issues that the board of directors of SFFGA had indicated were objectionable.

On March 7, 2014, SFFGA’s board of directors met to review the March 6, 2014 draft letter of intent from Kilroy Realty. In the course of the meeting, the board of directors was advised that one of the directors had again been approached by Party B and Party A regarding the possible acquisition of the SFFGA property. He recommended that the board of directors of SFFGA meet with Party B before taking any further action with respect to the proposal from Kilroy Realty.

On March 10, 2014, SFFGA’s board of directors and its legal counsel, Roger Mertz, met with representatives of Party B to review a presentation by Party B. In connection with that meeting, Party B’s representatives presented a $25.0 million all-cash offer to SFFGA, including the alternative of making the offer directly to SFFGA’s shareholders, which could potentially eliminate any taxes at the corporate level. The directors proceeded to consider the offer and requested Mr. Mertz, to contact Kilroy Realty’s representatives and indicate that it was not prepared to accept the $22.0 million offer.

On March 13, 2014, Kilroy Realty representatives provided to SFFGA a revised offer from Kilroy Realty increasing the purchase price from $22.0 million to $27.0 million with deductions only for existing debt and a portion of normal real estate closing costs associated with the sale of commercial real property in San Francisco. They indicated that the transaction would be structured as a tax free reorganization such that the SFFGA would not incur any taxes on the sale of SFFGA. Upon receipt of the revised offer, SFFGA management discussed the terms with each of the directors. The directors also informally reviewed the sale process.

Thereafter, Kilroy Realty requested an in person meeting with SFFGA’s board of directors to formally present the offer. On March 14, 2014, the board of directors of SFFGA met with John Kilroy, Jr. and Mike Sanford of Kilroy Realty and thoroughly discussed the offer. Following this presentation, the board of directors carefully considered the revised offer of Kilroy Realty, in light of the other existing offers for the SFFGA property.

On March 14, 2014, SFFGA entered into a letter of intent with Kilroy Realty pursuant to which all of the outstanding shares of SFFGA would be acquired by Kilroy Realty in a tax free transaction for an aggregate consideration of $27.0 million in Kilroy Realty common stock, with the value determined immediately prior to the closing of the merger.

On April 14, 2014, SFFGA entered into an agreement with California Pacific Real Estate Brokerage Company to sell all four of its investment properties. SFFGA had previously entered into an agreement with California Pacific to sell its Rhode Island investment property.

On May 21, 2014, SFFGA received the report and presentation from David P. Rhoades of David P. Rhoades & Associates, Inc. indicating that the fair market value was not more than $27.0 million (taking into consideration the current status of the Central SoMa Plan) and on June 25, 2014, SFFGA received a report from Cabrillo Advisors evaluating the structure, financial and tax implications of the transaction and reporting on the transaction.

On June 25, 2014, the board of directors of SFFGA held a meeting. The members of the board of directors reviewed the Rhoades report and the investment advisor’s report and discussed several considerations with

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respect to the merger agreement and the proposed transaction with Kilroy Realty including: the current significantly appreciated value of SFFGA’s property; the ability of SFFGA’s shareholders to receive consideration for their SFFGA shares in a tax free transaction; the value of the proposed cash dividend from the sale of SFFGA’s investment properties; the value of Kilroy Realty’s common stock and the fact that it is traded on the NYSE and would offer SFFGA shareholders liquidity; and the advice received from Fabbro Moore & Co., David P. Rhoades & Associates, Inc. and Cabrillo Advisors, LLC. Following the discussion, the board of directors approved the merger with Kilroy Realty, authorized the officers to enter into a definitive merger agreement on substantially the terms set forth in the March 14, 2014 letter of intent with such modifications as they approve, and directed that a proposal to approve and adopt the Merger Agreement be submitted to a vote at a special meeting of the holders of SFFGA’s common stock.

SFFGA’s Reasons for the Merger and Recommendation of the Board of Directors

The SFFGA board of directors has concluded that the merger offers the SFFGA shareholders an attractive opportunity to achieve the SFFGA board of directors’ strategic business objectives, including increasing shareholder value, and enhancing liquidity for the SFFGA shareholders.

In deciding to adopt the merger agreement and approve the principal terms of the merger, the SFFGA board of directors consulted with SFFGA’s management, as well as its appraisal firms, financial advisor and legal counsel, and considered numerous factors, including the following:

The above discussion of the information and factors considered by the SFFGA board of directors is not intended to be exhaustive, but includes a description of the material factors considered by the SFFGA board of directors. In view of the wide variety of factors considered by the SFFGA board of directors in connection with its evaluation of the merger, the SFFGA board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered. In considering the factors described above, individual directors may have given differing weights to different factors. The SFFGA board of directors collectively made its determination with respect to the merger based on the conclusion reached by its members, based on the factors that each of them considered appropriate, that the merger is in the best interests of the SFFGA shareholders.

The SFFGA board of directors believes that the merger is fair to, and in the best interests of, SFFGA and its shareholders. The SFFGA board of directors approved the merger agreement and recommends that shareholders vote “FOR” the adoption of the merger agreement and the approval of the principal terms of the merger. The SFFGA board of directors also recommends that shareholders vote “FOR” the approval to adjourn the special meeting to permit further solicitation in the event that an insufficient number of shares entitled to vote are present in person or by proxy to adopt the merger agreement and approve the principal terms of the merger.

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Structure

The transaction was structured as a merger that qualified as a reorganization within the meaning of Section 368(a) of the Code at the request of SFFGA to allow the SFFGA shareholders to defer a portion of the U.S. federal income tax that would have otherwise resulted from a taxable sale of the real property followed by a distribution of the proceeds of the sale to the SFFGA shareholders.

Material U.S. Federal Income Tax Consequences of the Merger

The following summary describes the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of SFFGA common stock and of the ownership and disposition of Kilroy Realty common stock received in the merger. The summary is based upon the Code, legislative history of the Code, applicable Treasury Regulations, judicial decisions and administrative rulings and practice, all as in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. This summary does not address any tax consequences of the merger under state, local or foreign laws, or any federal laws other than those pertaining to income tax, and does not discuss any tax reporting requirements.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of SFFGA common stock (or, following the effective time of the merger, of Kilroy Realty common stock) that is: an individual who is a citizen or resident of the United States; a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions; a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or an estate that is subject to U.S. federal income taxation on its income regardless of its source.

This discussion addresses only those holders of SFFGA common stock that hold their SFFGA common stock, and will hold their shares of Kilroy Realty common stock received in the merger, as a capital asset within the meaning of Section 1221 of the Code and does not address all the U.S. federal income tax consequences that may be relevant to particular holders of SFFGA common stock, or Kilroy Realty common stock received in the merger, in light of their individual circumstances or to holders of SFFGA common stock or Kilroy Realty common stock received in the merger that are subject to special rules, including, but not limited to:

If a partnership (or other entity or arrangement that is treated as a partnership for federal income tax purposes) holds SFFGA common stock or Kilroy Realty common stock received in the merger, the tax treatment of a partner in that partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships and partners in partnerships should consult their tax advisors regarding the tax consequences of the merger and the ownership and disposition of Kilroy Realty common stock to them.

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The parties intend for the merger to be treated as a “reorganization” for U.S. federal income tax purposes. It is a condition to SFFGA’s obligation to complete the merger that SFFGA receive an opinion from Allen Matkins Leck Gamble Mallory and Natsis LLP, counsel to SFFGA, dated the closing date of the merger, to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Kilroy Realty’s obligation to complete the merger that Kilroy Realty receive an opinion from Latham & Watkins, LLP, counsel to Kilroy Realty, dated the closing date of the merger, to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Code. These opinions will be based upon representation letters provided by Kilroy Realty and SFFGA and upon customary factual assumptions. Neither Kilroy Realty nor SFFGA has sought, and neither of them will seek, any ruling from the IRS regarding any matters relating to the merger, and the opinion described above will not be binding on the IRS or any court. Consequently, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which the opinion is based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected.

The actual tax consequences of the merger to you may be complex and will depend upon your specific situation and upon factors that are not within the control of Kilroy Realty or SFFGA. We urge you to consult your tax advisor as to the tax consequences of the merger and the ownership and disposition of Kilroy Realty common stock received in the merger in light of your particular circumstances, including the applicability and effect of other federal tax laws, such as estate and gift tax laws, the Medicare tax on unearned income and the alternative minimum tax as well as any state, local, foreign or other tax laws and any tax reporting requirements.

Tax Consequences of the Merger Generally. Assuming the merger constitutes a “reorganization” within the meaning of Section 368(a) of the Code, the material U.S. federal income tax consequences of the merger will be as follows:

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If the merger were not treated as a reorganization within the meaning of Section 368(a) of the Code, it would be a fully taxable transaction to SFFGA and all SFFGA shareholders, and each SFFGA shareholder would recognize capital gain or loss in an amount equal to the difference between (i) the sum of the fair market value of the Kilroy Realty common stock and any cash received pursuant to the merger and (ii) the SFFGA shareholder’s tax basis in its shares of SFFGA common stock. In that event, the aggregate tax basis of the Kilroy Realty common stock received by an SFFGA shareholder in connection with the merger would be equal to the fair market value of such Kilroy Realty common stock and the holding period of that Kilroy Realty stock would begin on the day after the merger.

Receipt of Cash Instead of a Fractional Share of Kilroy Realty Common Stock. A U.S. holder of SFFGA common stock who receives cash in lieu of a fractional share of Kilroy Realty common stock will be treated as having received the fractional share pursuant to the merger and then as having exchanged the fractional share for cash in a redemption by Kilroy Realty. As a result, such U.S. holder of SFFGA common stock will generally recognize gain or loss equal to the difference between the amount of cash received and the basis in his or her fractional share interest as set forth above. The gain or loss recognized by the U.S. holders described in this paragraph will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the U.S. holder’s holding period for the relevant shares is greater than one year. The deductibility of capital losses is subject to limitations.

Tax Consequences of the Escrow Account. Pursuant to the terms of the escrow agreement, for U.S. federal income tax purposes, former SFFGA shareholders will be treated as the owners of the cash and Kilroy Realty common stock placed into escrow at the closing of the merger. At the closing of the merger, an SFFGA shareholder will be treated as receiving his or her pro rata share of the Kilroy Realty common stock and cash placed into escrow in exchange for his or her shares of SFFGA common stock. Such cash or Kilroy Realty common stock will generally be taxable to a U.S. holder at the closing of the merger and in the manner described above under “—Tax Consequences of the Merger Generally.” U.S. holders should consult their tax advisors regarding the tax treatment of the escrow, including in the event the amount of cash or Kilroy Realty common stock released to a U.S. holder from the escrow is less than the amount included in such holder’s income in connection with the closing of the merger. In addition, pursuant to the terms of the escrow agreement, each former SFFGA shareholder will be taxed on his or her proportionate share of any interest income earned on the escrow account in a given taxable year and will be required to report such interest on its U.S. federal income tax return, regardless of whether such holder ever receives any distributions from the escrow account. The former SFFGA shareholders will be entitled to receive any distributions paid by Kilroy Realty with respect to the Kilroy Realty common stock held in the escrow account. Any such distributions received by U.S. holders will generally be taxable to the shareholders of SFFGA in the manner described below under “Material U.S. Federal Income Tax Considerations Applicable to Holders of Kilroy Realty Common Stock—Taxation of Taxable U.S. holder of Kilroy Realty Common Stock—Distributions Generally.”

Certain Other Cash Amounts. Pursuant to the merger agreement, at the closing of the merger, SFFGA is required to transfer $350,000 to an account designated by the shareholders’ agent to pay the costs and expenses

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of the shareholders’ agent subsequent to the closing of the merger. Kilroy Realty and SFFGA intend to take the position that a U.S. holder will be treated as receiving his or her pro rata share of such cash in exchange for his or her shares of SFFGA common stock, and that such cash will generally be taxable to a U.S. holder at the closing of the merger and in the manner described above under “—Tax Consequences of the Merger Generally.” Notwithstanding the discussion in this paragraph, the federal income tax treatment of the cash amount reserved to pay the costs and expenses of the shareholders’ agent is not entirely clear, and U.S. holders should consult their tax advisors regarding the tax treatment of such cash amount, including with respect to the payment of some or all of such cash as a fee to the shareholders’ agent.

Former holders of SFFGA common stock may receive cash distributions after the closing of the merger in respect of any tax refunds for a Pre-Closing Period or any excess reserves for taxes arising from the sale of the investment properties. A former holder of SFFGA common stock who receives a cash distribution as a result of a tax refund for a Pre-Closing Period or from any excess reserve for taxes will generally be treated as having received such distribution in exchange for his or her shares of SFFGA common stock, and such amount shall generally be taxable to a U.S. holder, if and when it is received, in the manner described above under “—Tax Consequences of the Merger Generally.” A portion of any such distribution may also be treated as interest income to such U.S. holder, taxable at ordinary income tax rates. U.S. holders should consult their tax advisors regarding the tax treatment of any cash they receive after the closing of the merger.

Receipt of Cash Upon Exercise of Dissenter’s Rights. SFFGA shareholders who receive cash for their SFFGA common stock as a result of exercising statutory dissenter’s rights will generally be treated as having received a distribution and redemption of their stock subject to Section 302 of the Code. Assuming the requirements of Section 302 are satisfied, a shareholder exercising dissenter’s rights will recognize capital gain (or capital loss), measured by the difference between the cash payment received by such shareholder and such shareholder’s tax basis in his or her shares of SFFGA common stock. In general, such shareholder should also be able to reduce the capital gain (or increase the capital loss) by the amount of any expenses the shareholder incurred in pursuing or prosecuting dissenter’s rights. Dissenting shareholders should consult their tax advisors regarding the tax consequences of exercising statutory dissenter’s rights, including the application of Section 302.

Backup Withholding and Information Reporting. Payments of cash to a U.S. holder of SFFGA common stock pursuant to the merger may, under certain circumstances, be subject to information reporting and backup withholding unless the holder provides proof of an applicable exemption or, in the case of backup withholding, furnishes its taxpayer identification number and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not additional tax and generally will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Tax Consequences of the Dividend from the investment properties. It is intended that the distributions of the after-tax cash proceeds from the sale of the investment properties will be treated as distributions to a U.S. holder from SFFGA. In such case, such distribution will generally be treated, for U.S. federal income tax purposes, as follows:

Gain recognized by a U.S. holder will be a long-term capital gain if, as of the date of receipt of such distributions, the U.S. holder’s holding period for the relevant shares is greater than one year. Dividend income

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that satisfies the definition of “qualified dividend income” (as defined in the Code) and long-term capital gain are taxed to non-corporate U.S. holders of SFFGA common stock at a maximum U.S. federal income tax rate of 20%.

Notwithstanding the intended U.S. federal income tax treatment described above, the proper federal income tax treatment of the sale of the investment properties and the distribution of proceeds from the sale to SFFGA shareholders is not entirely clear. It is possible that the IRS could treat the distribution as additional cash consideration in the merger. The consequences upon a recharacterization of the distribution as additional merger consideration would generally be as described under “—Tax Consequences of the Merger Generally” treating the amount of such distribution as cash received in the merger and not as a distribution by SFFGA.

Medicare Tax on Unearned Income. A U.S. holder that is an individual is subject to a 3.8% tax on the lesser of (i) his or her “net investment income” for the relevant taxable year or (ii) the excess of his or her modified gross income for the taxable year over a certain threshold (between $125,000 and $250,000 depending on the individual’s U.S. federal income tax filing status). A similar regime applies to estates and trusts. Net investment income generally would include any capital gain incurred in connection with the merger (including any gain treated as a dividend or any dividends received in respect of the investment properties as described above under “—Tax Consequences of the Dividend from the investment properties”).

Material U.S. Federal Income Tax Considerations Applicable to Holders of Kilroy Realty Common Stock

This section summarizes the material U.S. federal income tax consequences generally resulting from the election of Kilroy Realty to be taxed as a REIT and the ownership of Kilroy Realty common stock. The sections of the Code and the corresponding Treasury Regulations that relate to qualification and operation as a REIT are highly technical and complex. The following sets forth the material aspects of the sections of the Code that govern the U.S. federal income tax treatment of a REIT and the holders of certain of its common stock under current law. This summary is qualified in its entirety by the applicable Code provisions, relevant rules and regulations promulgated under the Code, and administrative and judicial interpretations of the Code and these rules and regulations. Kilroy Realty has not sought and does not plan to seek any rulings from the IRS that it qualifies as a REIT, or otherwise regarding the matters discussed below. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. Future legislation, Treasury regulations, administrative interpretations and practices and/or court decisions may adversely affect the tax considerations contained in this discussion. Any such change could apply retroactively in a manner that could adversely affect a holder of Kilroy Realty common stock. Thus, Kilroy Realty can provide no assurance that the tax considerations contained in this summary will not be challenged by the IRS or will be sustained by a court if so challenged.

U.S. holders are urged to consult their tax advisors regarding the tax consequences to them of:

Taxation of Kilroy Realty in General

Kilroy Realty elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ended December 31, 1997. Kilroy Realty believes it has been organized and has operated in a manner which will allow it to qualify for taxation as a REIT under the Code commencing with its taxable year

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ended December 31, 1997, and Kilroy Realty intends to continue to be organized and operate in this manner. However, qualification and taxation as a REIT depend upon Kilroy Realty’s ability to meet the various qualification tests imposed under the Code, including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that Kilroy Realty has been organized and has operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a REIT. See “—Failure to Qualify.”

Provided Kilroy Realty qualifies for taxation as a REIT, it generally will not be required to pay U.S. federal corporate income taxes on its net income that is currently distributed to Kilroy Realty’s stockholders. This treatment substantially eliminates the “double taxation” that ordinarily results from investment in a C corporation. A C corporation is a corporation that is generally required to pay tax at the corporate-level. Double taxation generally means taxation that occurs once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. Kilroy Realty will be required to pay U.S. federal income tax, however, as follows:

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Requirements for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:

1) that is managed by one or more trustees or directors;

2) that issues transferable shares or transferable certificates to evidence its beneficial ownership;

3) that would be taxable as a domestic corporation but for special Code provisions applicable to REITs;

4) that is not a financial institution or an insurance company within the meaning of certain provisions of the Code;

5) that is beneficially owned by 100 or more persons;

6) not more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including specified entities, during the last half of each taxable year; and

7) that meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.

The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term “individual” generally includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust.

Kilroy Realty believes that it has been organized, has operated and has issued sufficient shares of capital stock with sufficient diversity of ownership to allow it to satisfy conditions (1) through (7) inclusive, during the relevant time periods. In addition, Kilroy Realty’s charter with respect to its common stock, and the articles

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supplementary with respect to preferred stock that Kilroy Realty may issue from time to time, provide for restrictions regarding the ownership and transfer of Kilroy Realty’s shares which are intended to assist it in continuing to satisfy the share ownership requirements described in conditions (5) and (6) above. These stock ownership and transfer restrictions with respect to Kilroy Realty’s common stock are described in Article IV of its charter. These restrictions, however, may not ensure that Kilroy Realty will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If Kilroy Realty fails to satisfy these share ownership requirements, except as provided in the next sentence, its status as a REIT will terminate. If, however, Kilroy Realty complies with the rules contained in applicable Treasury regulations that require it to ascertain the actual ownership of its shares and Kilroy Realty does not know, or would not have known through the exercise of reasonable diligence, that it failed to meet the requirement described in condition (6) above, Kilroy Realty will be treated as having met this requirement. See “—Failure to Qualify.”

In addition, Kilroy Realty may not maintain its status as a REIT unless its taxable year is the calendar year. Kilroy Realty has and will continue to have a calendar taxable year.

Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. Kilroy Realty owns and operates one or more properties through partnerships and limited liability companies. Treasury regulations generally provide that, in the case of a REIT which is a partner in a partnership or a member in a limited liability company that is treated as a partnership for U.S. federal income tax purposes, the REIT will be deemed to own its proportionate share of the assets of the partnership or limited liability company, as the case may be, based on its interest in partnership capital, subject to special rules relating to the 10% REIT asset test described below. Also, pursuant to Treasury regulations, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of the partnership or limited liability company retain the same character in the hands of the REIT, including for purposes of satisfying the gross income tests and the asset tests. In addition, for these purposes, the assets and items of income of any partnership or limited liability company treated as a partnership or disregarded entity for U.S. federal income tax purposes in which Kilroy Realty directly or indirectly owns an interest include such entity’s share of assets and items of income of any partnership or limited liability company in which it owns an interest. See “—Tax Aspects of the Operating Partnership, the Subsidiary Partnerships and Limited Liability Companies” below.

Kilroy Realty has direct control of the operating partnership and certain subsidiary partnerships and limited liability companies and it intends to continue to operate them in a manner consistent with the requirements for Kilroy Realty’s qualification as a REIT. From time to time, Kilroy Realty may be a limited partner or non-managing member in certain partnerships and limited liability companies. If any such partnership or limited liability company were to take actions that could jeopardize Kilroy Realty’s status as a REIT or require it to pay tax, Kilroy Realty could be forced to dispose of its interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause Kilroy Realty to fail a REIT income or asset test, and that Kilroy Realty would not become aware of such action in time to dispose of its interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, Kilroy Realty could fail to qualify as a REIT unless it was entitled to relief, as described below. See “—Failure to Qualify” below.

Kilroy Realty may from time to time own and operate certain properties through wholly-owned subsidiaries that it intends to be treated as “qualified REIT subsidiaries” under the Code. A corporation will qualify as a qualified REIT subsidiary if a REIT owns 100% of the corporation’s outstanding stock and does not elect with the corporation to treat it as a “taxable REIT subsidiary,” as described below. A qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and items of income, gain, loss, deduction and credit of Kilroy Realty’s qualified REIT subsidiaries will be treated as Kilroy Realty’s assets, liabilities and such items, for all purposes of the Code, including the REIT qualification tests. Thus, in applying the U.S. federal tax requirements described in this discussion, any corporations in which Kilroy Realty owns a 100% interest (other than any taxable REIT subsidiaries) are ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as Kilroy Realty’s assets, liabilities, and items of income,

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gain, loss, deduction and credit. A qualified REIT subsidiary is not required to pay U.S. federal income tax, and Kilroy Realty’s ownership of the stock of a qualified REIT subsidiary does not violate the restrictions on ownership of securities, as described below under “—Asset Tests.”

Ownership of Interests in Taxable REIT Subsidiaries. A taxable REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with the REIT to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any corporation other than a REIT with respect to which a taxable REIT subsidiary owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to income tax as a regular C corporation. In addition, a taxable REIT subsidiary may be prevented from deducting interest on debt that the parent REIT directly or indirectly funds if certain tests regarding the taxable REIT subsidiary’s debt-to-equity ratio and interest expense are satisfied. Kilroy Realty’s ownership of securities of its taxable REIT subsidiaries will not be subject to the 10% or 5% asset tests described below. See “—Asset Tests.” Kilroy Realty currently own interests in Kilroy Realty TRS, Inc., and it has jointly elected with Kilroy Realty TRS, Inc. to have it be treated as a taxable REIT subsidiary. Kilroy Realty may acquire interests in additional taxable REIT subsidiaries in the future.

Income Tests. Kilroy Realty must satisfy two gross income requirements annually to maintain its qualification as a REIT. First, in each taxable year Kilroy Realty must derive directly or indirectly at least 75% of its gross income, excluding gross income from prohibited transactions, certain hedging transactions entered into after July 30, 2008, and certain foreign currency gains recognized after July 30, 2008, from (a) investments relating to real property or mortgages on real property, including “rents from real property” and, in certain circumstances, interest, or (b) certain types of temporary investments. Second, in each taxable year Kilroy Realty must derive at least 95% of its gross income, excluding gross income from prohibited transactions, certain hedging transactions entered into on or after January 1, 2005, and certain foreign currency gains recognized after July 30, 2008, from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing.

For these purposes, the term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way 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.

Rents that Kilroy Realty receives from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if all of the following conditions are met:

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Kilroy Realty generally does not intend, and as a general partner of the operating partnership does not intend to permit the operating partnership, to take actions it believes will cause Kilroy Realty to fail to satisfy the rental conditions described above. However, Kilroy Realty may intentionally fail to satisfy some of these conditions to the extent such failure will not, based on the advice of its tax counsel, jeopardize Kilroy Realty’s tax status as a REIT. In addition, with respect to the limitation on the rental of personal property, Kilroy Realty has not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the IRS will agree with Kilroy Realty’s determinations of value.

Income Kilroy Realty receives that is attributable to the rental of parking spaces at its properties will constitute rents from real property for purposes of the REIT gross income tests if certain services provided with respect to the parking facilities are performed by independent contractors from whom Kilroy Realty derives no income, either directly or indirectly, or by a taxable REIT subsidiary, and certain other conditions are met. Kilroy Realty believes that the income it receives that is attributable to parking facilities meets these tests and, accordingly, will constitute rents from real property for purposes of the REIT gross income tests.

From time to time, Kilroy Realty may enter into hedging transactions with respect to one or more of its assets or liabilities. The term “hedging transaction” generally means any transaction Kilroy Realty enters into in the normal course of its business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be made by Kilroy Realty to acquire or carry real estate assets, or (2) for hedging transactions entered into after July 30, 2008, currency fluctuations with respect to an item of qualifying income under the 75% or 95% gross income test. The hedging activities may include entering into interest rate swaps, caps and floors, options to purchase these items, and futures and forward contracts. Income Kilroy Realty derives from a hedging transaction, including gain from the sale or disposition thereof, that is clearly identified as a hedging transaction as specified in the Code will not constitute gross income and thus will be exempt from the 95% gross income test to the extent such a hedging transaction is entered into on or after January 1, 2005, and will not constitute gross income and thus will be exempt from the 75% gross income test to the extent such hedging transaction is entered into after July 30, 2008.

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Income and gain from a hedging transaction, including gain from the sale or disposition of such a transaction, entered into on or prior to July 30, 2008 will be treated as nonqualifying income for purposes of the 75% gross income test. Income and gain from a hedging transaction, including gain from the sale or disposition of such a transaction, entered into prior to January 1, 2005, will be qualifying income for purposes of the 95% gross income test. To the extent that Kilroy Realty does not properly identify such transactions as hedges or it hedges with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. Kilroy Realty intends to structure any hedging transactions in a manner that does not jeopardize its status as a REIT.

To the extent Kilroy Realty’s taxable REIT subsidiary, Kilroy Realty TRS, Inc., pays dividends, Kilroy Realty generally will derive its allocable share of such dividend income through its interest in the operating partnership. Such dividend income will qualify under the 95%, but not the 75%, REIT gross income test.

Kilroy Realty will monitor the amount of the dividend and other income from its taxable REIT subsidiaries and will take actions intended to keep this income, and any other nonqualifying income, within the limitations of the REIT income tests. While Kilroy Realty expects these actions will prevent a violation of the REIT income tests, it cannot guarantee that such actions will in all cases prevent such a violation. If Kilroy Realty 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 the year if it is entitled to relief under certain provisions of the Code. Kilroy Realty generally may avail itself of the relief provisions if:

It is not possible, however, to state whether in all circumstances Kilroy Realty would be entitled to the benefit of these relief provisions. For example, if Kilroy Realty fails to satisfy the gross income tests because nonqualifying income that it intentionally accrued or received exceeds the limits on nonqualifying income, the IRS could conclude that Kilroy Realty’s failure to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set of circumstances, Kilroy Realty will not qualify as a REIT. As discussed above in “—Taxation of Kilroy Realty in General,” even if these relief provisions apply, and Kilroy Realty retains its status as a REIT, a tax would be imposed with respect to Kilroy Realty’s nonqualifying income. Kilroy Realty may not always be able to comply with the gross income tests for REIT qualification despite periodic monitoring of its income.

Prohibited Transaction Income. Any gain that Kilroy Realty realizes on the sale of property held as inventory or otherwise held primarily for sale to customers in the ordinary course of business, including Kilroy Realty’s share of any such gain realized by the operating partnership, either directly or through its subsidiary partnerships and limited liability companies, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. This prohibited transaction income may also adversely affect Kilroy Realty’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 surrounding the particular transaction. Kilroy Realty intends to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning properties and to make occasional sales of its properties consistent with its investment objectives. Kilroy Realty does not intend to enter into any sales that are prohibited transactions. However, the IRS may successfully contend that some or all of the sales made by Kilroy Realty or by Kilroy Realty’s subsidiary partnerships or limited liability companies are prohibited transactions. Kilroy Realty would be required to pay the 100% penalty tax on its allocable share of the gains from any such sales.

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Penalty Tax. Any redetermined rents, redetermined deductions or excess interest Kilroy Realty generates will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished to any of Kilroy Realty’s tenants by one of Kilroy Realty’s taxable REIT subsidiaries, and redetermined deductions and excess interest represent any amounts that are deducted by a taxable REIT subsidiary for amounts paid to Kilroy Realty that are in excess of the amounts that would have been deducted based on arm’s length negotiations. Rents Kilroy Realty receives will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Code.

Kilroy Realty believes that, in all instances in which Kilroy Realty TRS, Inc. provides services to Kilroy Realty’s tenants, the fees paid to Kilroy Realty TRS, Inc. for such services are at arm’s-length rates, although the fees paid may not satisfy the safe-harbor provisions contained in the Code. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective incomes. If the IRS successfully made such an assertion, Kilroy Realty would be required to pay a 100% penalty tax on the excess of an arm’s-length fee for tenant services over the amount actually paid.

Asset Tests. At the close of each quarter of Kilroy Realty’s taxable year, Kilroy Realty must also satisfy four tests relating to the nature and diversification of its assets.

First, at least 75% of the value of Kilroy Realty’s total assets, including assets held by its qualified REIT subsidiaries and its allocable share of the assets held by the operating partnership and its subsidiary partnerships and other entities treated as partnerships for U.S. federal income tax purposes, must be represented by real estate assets, cash, cash items and government securities. For purposes of this test, the term “real estate assets” generally means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other REITs, as well as any stock or debt instrument attributable to investment of the proceeds of a stock offering or a public offering of debt with a term of at least five years, but only for the one-year period beginning on the date Kilroy Realty receives such proceeds.

Second, not more than 25% of the value of Kilroy Realty’s total assets may be represented by securities, other than those securities includable in the 75% asset test.

Third, of the investments included in the 25% asset class, and except for investments in other REITs, Kilroy Realty’s qualified REIT subsidiaries and its taxable REIT subsidiaries, the value of any one issuer’s securities may not exceed 5% of the value of Kilroy Realty’s total assets and Kilroy Realty may not own more than 10% of the total vote or value of the outstanding securities of any one issuer, except, in the case of the 10% value test, securities satisfying the “straight debt” safe-harbor. Certain types of securities that Kilroy Realty may own are disregarded as securities solely for purposes of the 10% value test, including but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of Kilroy Realty’s interest in the assets of a partnership or limited liability company in which it owns an interest will be based on Kilroy Realty’s proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose, certain securities described in the Code.

Fourth, not more than 25% (20% for taxable years beginning before January 1, 2009) of the value of Kilroy Realty’s total assets may be represented by the securities of one or more taxable REIT subsidiaries.

The operating partnership owns 100% of the outstanding stock of Kilroy Realty TRS, Inc. Kilroy Realty TRS, Inc. elected, together with Kilroy Realty, to be treated as a taxable REIT subsidiary. So long as Kilroy Realty TRS, Inc. qualifies as Kilroy Realty’s taxable REIT subsidiary, Kilroy Realty will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to its ownership of securities in Kilroy Realty TRS, Inc. Kilroy or Kilroy Realty TRS, Inc. may acquire securities in other taxable

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REIT subsidiaries in the future. Kilroy Realty believes that the aggregate value of its taxable REIT subsidiaries will not exceed 25% (or 20% for taxable years beginning before January 1, 2009) of the aggregate value of its gross assets. With respect to each issuer in which Kilroy Realty currently owns an interest that does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary, Kilroy Realty believes that its ownership of the securities of any such issuer has complied with the 5% asset test, the 10% voting securities limitation, 10% value limitation, and the 75% asset test. No independent appraisals have been obtained to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with Kilroy Realty’s determinations of value.

The asset tests described above must be satisfied at the close of each calendar quarter of Kilroy Realty’s taxable year in which it (directly or through the operating partnership or Kilroy Realty’s subsidiary partnerships and limited liability companies) acquires securities in the applicable issuer, and also at the close of each calendar quarter in which Kilroy Realty increases its ownership of securities of such issuer (including as a result of increasing its interest in the operating partnership or in its subsidiary partnerships and limited liability companies). For example, Kilroy Realty’s indirect ownership of securities of each issuer will increase as a result of its capital contributions to the operating partnership and as limited partners exercise their redemption/exchange rights. After initially meeting the asset tests at the close of any quarter, Kilroy Realty 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 Kilroy Realty fails to satisfy an asset test because it acquired securities or other property during a quarter (including as a result of an increase in its interests in the operating partnership or in its subsidiary partnerships and limited liability companies), Kilroy Realty may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. Kilroy Realty believes that it has maintained and it intends to maintain adequate records of the value of its assets to ensure compliance with the asset tests. In addition, Kilroy Realty intends to take such actions within 30 days after the close of any quarter as may be required to cure any noncompliance.

Certain relief provisions may be available to Kilroy Realty if it fails to satisfy the asset tests described above after the 30 day cure period. Under these provisions, Kilroy Realty will be deemed to have met the 5% and 10% REIT asset tests if the value of its nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of its assets at the end of the applicable quarter or (b) $10,000,000, and (ii) Kilroy Realty disposes of the nonqualifying assets or otherwise satisfies such asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset test, in excess of the de minimis exception described above, Kilroy Realty may avoid disqualification as a REIT, after the 30 day cure period, by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow Kilroy Realty to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued, and (ii) disclosing certain information to the IRS. In such case, Kilroy Realty will be required to pay a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets.

Although Kilroy Realty believes that it has satisfied the asset tests described above and plans to take steps to ensure that it satisfies such tests for any quarter with respect to which retesting is to occur, there can be no assurance that it will always be successful, or will not require a reduction in the operating partnership’s overall interest in an issuer (including in a taxable REIT subsidiary). If Kilroy Realty fails to cure any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, Kilroy Realty would cease to qualify as a REIT. See “—Failure to Qualify” below.

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Annual Distribution Requirements. To maintain Kilroy Realty’s qualification as a REIT, it is required to distribute dividends, other than capital gain dividends, to its stockholders in an amount at least equal to the sum of:

For these purposes, Kilroy Realty’s “REIT taxable income” is computed without regard to the dividends paid deduction and Kilroy Realty’s net capital gain. In addition, for purposes of this test, non-cash income means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness or a like-kind exchange that is later determined to be taxable.

Also, Kilroy Realty’s “REIT taxable income” will be reduced by any taxes Kilroy Realty is required to pay on any gain it recognizes from the disposition of any asset it acquired from a corporation which is or has been a C corporation in a transaction in which Kilroy Realty’s basis in the asset is less than the fair market value of the asset, in each case determined at the time Kilroy Realty acquired the asset, within the 10-year period following its acquisition of such asset. See “—General” above.

Kilroy Realty generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At Kilroy Realty’s election, a distribution for a taxable year may be declared before it timely files its tax return for such year and paid on or before the first regular dividend payment after such declaration, provided such payment is made during the 12-month period following the close of such year. These distributions generally are taxable to Kilroy Realty’s stockholders, other than tax-exempt entities, in the year in which paid. This is so even though these distributions relate to the prior year for purposes of the 90% distribution requirement. The amount distributed must not be preferential (i.e., every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated other than in according to its dividend rights as a class). To the extent that Kilroy Realty does not distribute all of its net capital gain or distribute at least 90%, but less than 100%, of its “REIT taxable income,” as adjusted, it will be required to pay tax on the undistributed amount at regular corporate tax rates. Kilroy Realty believes it has made, and intends to continue to make, timely distributions sufficient to satisfy these annual distribution requirements and to minimize its corporate tax obligations. In this regard, the partnership agreement of the operating partnership authorizes Kilroy Realty, as general partner of the operating partnership, to take such steps as may be necessary to cause the operating partnership to distribute to its partners an amount sufficient to permit Kilroy Realty to meet these distribution requirements.

Kilroy Realty expects that its REIT taxable income will be less than its cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, Kilroy Realty anticipates that it will generally have sufficient cash or liquid assets to enable it to satisfy the distribution requirements described above. However, from time to time, Kilroy Realty may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in arriving at its taxable income. If these timing differences occur, Kilroy Realty may be required to borrow funds to pay cash dividends or to pay dividends in the form of taxable stock dividends in order to meet the distribution requirements, while preserving its cash. In addition, Kilroy Realty may decide to retain its cash, rather than distribute it, in order to repay debt or for other reasons.

Under some circumstances, Kilroy Realty may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency dividends” to its stockholders in a later year, which may be included in Kilroy Realty’s deduction for dividends paid for the earlier year. Thus, Kilroy Realty may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described below. However, Kilroy Realty will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.

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Furthermore, Kilroy Realty will be required to pay a 4% excise tax to the extent it fails to distribute during each calendar year, at least the sum of 85% of its REIT ordinary income for such year, 95% of its REIT capital gain net income for the year and any undistributed taxable income from prior periods. Any REIT taxable income and net capital gain on which this excise tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating such tax.

For purposes of the distribution requirements and excise tax described above, dividends declared during the last three months of the taxable year, payable to stockholders of record on a specified date during such period, and paid during January of the following year, will be treated as paid by Kilroy Realty and received by its stockholders on December 31 of the year in which they are declared.

Like-Kind Exchanges. Kilroy Realty has in the past disposed of properties in transactions intended to qualify as like-kind exchanges under the Code, and may continue this practice in the future. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could subject Kilroy Realty to U.S. federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.

Failure to Qualify

Specified cure provisions are available to Kilroy Realty in the event that Kilroy Realty discovers a violation of a provision of the Code that would result in its failure to qualify as a REIT. Except with respect to violations of the REIT income tests and asset tests (for which the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status.

If Kilroy Realty fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, Kilroy Realty will be required to pay tax, including any applicable alternative minimum tax, on its taxable income at regular corporate rates. Distributions to stockholders in any year in which Kilroy Realty fails to qualify as a REIT will not be deductible by Kilroy Realty, and Kilroy Realty will not be required to distribute any amounts to its stockholders. As a result, Kilroy Realty anticipates that its failure to qualify as a REIT would reduce the cash available for distribution by it to its stockholders. In addition, if Kilroy Realty fails to qualify as a REIT, all distributions to stockholders will be taxable as regular corporate dividends to the extent of Kilroy Realty’s current and accumulated earnings and profits. In this event, corporate distributees may be eligible for the dividends-received deduction. In addition, individuals may be eligible for the preferential rates on qualified dividend income. Unless entitled to relief under specific statutory provisions, Kilroy Realty will also be disqualified from taxation as a REIT for the four taxable years following the year during which it lost its qualification. It is not possible to state whether in all circumstances Kilroy Realty would be entitled to this statutory relief.

Tax Aspects of the Operating Partnership, the Subsidiary Partnerships and Limited Liability Companies

General. Substantially all of Kilroy Realty’s investments are held indirectly through the operating partnership. In addition, the operating partnership holds certain of its investments indirectly through subsidiary partnerships and limited liability companies which Kilroy Realty expects will be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are classified as partnerships (or disregarded entities) for U.S. federal income tax purposes are “pass-through” entities which are not required to pay U.S. federal income tax. Rather, partners or members of such entities are allocated their shares of the items of income, gain, loss, deduction and credit of the entity, and are potentially required to pay tax on this income, without regard to whether the partners or members receive a distribution of cash from the entity. Kilroy Realty will include in its income its proportionate share of the foregoing items for purposes of the various REIT income tests and in the computation of Kilroy Realty’s REIT taxable income. Moreover, as described above

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under “—Asset Tests,” for purposes of the REIT asset tests, Kilroy Realty will generally include its proportionate share of assets held by the operating partnership, including its share of assets held by its subsidiary partnerships and limited liability companies, based on its capital interests. See “—Taxation of Kilroy Realty in General.”

Entity Classification. Kilroy Realty’s interests in the operating partnership and its subsidiary partnerships and limited liability companies involve special tax considerations, including the possibility that the IRS might challenge the status of any of these entities as a partnership (or disregarded entity), as opposed to an association taxable as a corporation for U.S. federal income tax purposes. If the operating partnership, a subsidiary partnership or a limited liability company were treated as an association, it would be taxable as a corporation and would be required to pay an entity-level tax on its income. In this situation, the character of Kilroy Realty’s assets and items of gross income would change and could preclude Kilroy Realty from satisfying the asset tests and possibly the income tests (see “—Taxation of Kilroy Realty in General—Asset Tests” and “—Income Tests”). This, in turn, could prevent Kilroy Realty from qualifying as a REIT. See “—Failure to Qualify” for a discussion of the effect of Kilroy Realty’s failure to meet these tests for a taxable year. In addition, a change in the operating partnership’s, a subsidiary partnership’s or a subsidiary limited liability company’s status for tax purposes might be treated as a taxable event. If so, Kilroy Realty might incur a tax liability without any related cash distributions.

Kilroy Realty believes the operating partnership and each of its other partnerships and limited liability companies will be classified as partnerships or disregarded entities for U.S. federal income tax purposes.

Allocations of Income, Gain, Loss and Deduction. A partnership or limited liability company agreement will generally determine the allocation of income and losses among partners or members. These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Code and the related Treasury regulations. Generally, Section 704(b) of the Code and the related Treasury regulations require that partnership and limited liability company allocations respect the economic arrangement of the partners or members.

The partnership agreement of the operating partnership provides for preferred distributions of cash and preferred allocations of income to the holders of its preferred units. Preferred units have been issued to Kilroy Realty in connection with its issuance of preferred stock. Upon Kilroy Realty’s issuance of additional shares of preferred stock for cash or other consideration, Kilroy Realty will contribute the net proceeds or other consideration from such issuance to the operating partnership in exchange for additional preferred units with similar terms. In general, all remaining items of income and loss will be allocated to the holders of common units in proportion to the number of common units held by each unit holder. Some limited partners have agreed to guarantee debt of the operating partnership, either directly or indirectly through an agreement to make capital contributions to the operating partnership under limited circumstances. As a result, and notwithstanding the above discussion of allocations of income and loss to holders of common units, these limited partners could under limited circumstances be allocated a disproportionate amount of net loss of the operating partnership or a disproportionate amount of net income of the operating partnership to offset any such allocations of net loss.

If an allocation is not recognized by the IRS for U.S. federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners’ or members’ interests in the partnership or limited liability company. This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners or members 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.

Tax Allocations with Respect to Contributed Properties. Under Section 704(c) of the Code, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership or limited liability company in exchange for an interest in the partnership or limited liability company, must be allocated in a manner so that the contributing partner or member is charged with the unrealized gain, or benefits

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from the unrealized loss, associated with the property at the time of the contribution, as adjusted from time to time. The amount of the unrealized gain or unrealized loss is generally equal to the difference between the fair market value or book value and the adjusted tax basis of the property at the time of contribution. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners or members. The operating partnership was formed by way of contributions of appreciated property (i.e., property having an adjusted tax basis less than its fair market value at the time of contribution). Moreover, subsequent to the formation of the operating partnership, additional appreciated property has been contributed to the operating partnership in exchange for interests in the operating partnership. The partnership agreement requires that these allocations be made in a manner consistent with Section 704(c) of the Code.

Treasury regulations issued under Section 704(c) of the Code provide partnerships and limited liability companies 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. Kilroy Realty and the operating partnership have determined to use the “traditional method” for accounting for book-tax differences for the properties initially contributed to the operating partnership and for certain assets contributed subsequently. Kilroy Realty and the operating partnership have not yet decided what method will be used to account for book-tax differences for properties acquired by the operating partnership in the future.

In general, the partners of the operating partnership who acquired their limited partnership interests through a contribution of appreciated property will be allocated depreciation deductions for tax purposes that are lower than such deductions would have been if they had been determined on a pro rata basis. In addition, in the event of the disposition of any of the contributed assets which have such a book-tax difference, all income attributable to such book-tax difference (as adjusted) generally will be allocated to the contributing partners. These allocations will tend to eliminate the book-tax difference over the life of the operating partnership. However, under the traditional method, the special allocation rules of Section 704(c) of the Code 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 of the operating partnership may cause Kilroy Realty or other partners 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 Kilroy Realty or other partners as a result of the sale. Such an allocation might cause Kilroy Realty or other partners to recognize taxable income in excess of cash proceeds, which might adversely affect Kilroy Realty’s ability to comply with the REIT distribution requirements. See “—Taxation of Kilroy Realty in General—Requirements for Qualification as a Real Estate Investment Trust” and “—Annual Distribution Requirements.”

Any property acquired by the operating partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code will not apply.

Material U.S. Federal Income Tax Consequences for Holders of Kilroy Realty Common Stock

The following discussion is a summary of certain U.S. federal income tax consequences of owning and disposing of Kilroy Realty common stock received in the merger.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. SFFGA SHAREHOLDERS WHO RECEIVE KILROY COMMON STOCK IN THE MERGER SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF KILROY COMMON STOCK ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

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Taxation of Taxable U.S. Holders of Kilroy Realty Common Stock

Distributions Generally. Distributions out of Kilroy Realty’s current or accumulated earnings and profits, other than capital gain dividends and certain amounts previously subject to corporate level taxation as discussed below, will constitute dividends taxable to Kilroy Realty’s taxable U.S. holders as ordinary income when actually or constructively received. See “—Tax Rates” below. As long as Kilroy Realty qualifies as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent provided in “—Tax Rates” below, the preferential rates on qualified dividend income applicable to individuals. For purposes of determining whether distributions to holders of Kilroy Realty’s stock are out of current or accumulated earnings and profits, Kilroy Realty’s earnings and profits will be allocated first to its outstanding preferred stock and then to its outstanding common stock.

To the extent that Kilroy Realty makes distributions on its common stock in excess of its current and accumulated earnings and profits, these distributions will be treated first as a tax-free return of capital to a U.S. holder. This treatment will reduce the U.S. holder’s adjusted tax basis in its shares of Kilroy Realty common stock by the amount of the distribution, but not below zero. Distributions in excess of Kilroy Realty’s current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year. Dividends Kilroy Realty declares in October, November, or December of any year and which are payable to a stockholder of record on a specified date in any of these months will be treated as both paid by Kilroy Realty and received by the stockholder on December 31 of that year, provided Kilroy Realty actually pay the dividend on or before January 31 of the following year. U.S. holders may not include in their own income tax returns any of Kilroy Realty’s net operating losses or capital losses.

U.S. holders who receive taxable stock dividends, as described above under “Taxation of Kilroy Realty in General—Annual Distribution Requirements,” including dividends partially payable in Kilroy Realty common stock and partially payable in cash, would be required to include the full amount of the dividend (i.e., the cash and the stock portion) as ordinary income (subject to limited exceptions) to the extent of Kilroy Realty’s current and accumulated earnings and profits for U.S. federal income tax purposes, as described above. The amount of any dividend payable in Kilroy Realty common stock generally is equal to the amount of cash that could have been received instead of the common stock. Depending on the circumstances of a U.S. holder, the tax on the distribution may exceed the amount of the distribution received in cash, in which case such a U.S. holder would have to pay the tax using cash from other sources. If a U.S. holder sells the common stock it receives as a dividend in order to pay this tax and the sales proceeds are less than the amount required to be included in income with respect to the dividend, such U.S. holder could have a capital loss with respect to the common stock sale that could not be used to offset such dividend income. A U.S. holder that receives common stock pursuant to a distribution generally has a tax basis in such common stock equal to the amount of cash that could have been received instead of such common stock as described above, and has a holding period in such common stock that begins on the day immediately following the payment date for the distribution.

Capital Gain Dividends. Dividends that Kilroy Realty properly designates as capital gain dividends will be taxable to taxable U.S. holders as a gain from the sale or disposition of a capital asset, to the extent that such gain does not exceed Kilroy Realty’s actual net capital gain for the taxable year. If Kilroy Realty properly designates any portion of a dividend as a capital gain dividend then, except as otherwise required by law, Kilroy Realty presently intends to allocate a portion of the total capital gain dividends paid or made available to holders of all classes of its common stock for the year to the holders of each class of its common stock in proportion to the amount that Kilroy Realty’s total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of Kilroy Realty common stock for the year.

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Retention of Net Capital Gains. Kilroy Realty may elect to retain, rather than distribute as a capital gain dividend, all or a portion of its net capital gains. If Kilroy Realty makes this election, it would pay tax on its retained net capital gains. In addition, to the extent Kilroy Realty so elect, a U.S. holder generally would:

Passive Activity Losses and Investment Interest Limitations. Distributions Kilroy Realty makes and gain arising from the sale or exchange by a U.S. holder of Kilroy Realty common stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any “passive losses” against this income or gain. A U.S. holder may elect to treat capital gain dividends, capital gains from the disposition of stock and qualified dividend income as investment income for purposes of computing the investment interest limitation, but in such case, the stockholder will be taxed at ordinary income rates on such amount. Other distributions made by Kilroy Realty, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Dispositions of Kilroy Realty Common stock. If a U.S. holder sells or disposes of shares of common stock to a person other than Kilroy Realty, it will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder’s adjusted tax basis in the shares for tax purposes. This gain or loss, except as provided below, will be long-term capital gain or loss if the holder has held the common stock for more than one year at the time of such sale or disposition. However, if a U.S. holder recognizes loss upon the sale or other disposition of Kilroy Realty common stock that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions from Kilroy Realty which were required to be treated as long-term capital gains.

Backup Withholding. Kilroy Realty reports to its U.S. holders and the IRS the amount of dividends paid during each calendar year, and the amount of any tax withheld. Under the backup withholding rules, a U.S. holder may be subject to backup withholding with respect to dividends paid unless the U.S. holder is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or 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. holder that does not provide Kilroy Realty with its correct taxpayer identification number may also be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. Any amount paid as backup withholding will be creditable against the U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. In addition, Kilroy Realty may be required to withhold a portion of capital gain distributions to any holders who fail to certify their non-foreign status.

Tax Rates

The maximum tax rate for non-corporate taxpayers for capital gains, including certain “capital gain dividends,” is generally 20% (although depending on the characteristics of the assets that produced these gains and on designations made, certain capital gain dividends may be taxed at a 25% rate). Capital gain dividends paid

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by a REIT will only be eligible for the rates described above to the extent they are properly designated by the REIT as “capital gain dividends.” The maximum tax rate for non-corporate taxpayers for income that a REIT properly designates as “qualified dividend income” is generally 20%. However, dividends payable by REITs are not eligible for the 20% tax rate on qualified dividend income, except to the extent that certain holding requirements have been met and the REIT’s dividends are attributable to dividends received from taxable corporations (such as its taxable REIT subsidiaries) or to income that was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). In addition, U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income.

Medicare Tax on Unearned Income. Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of, stock. U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of Kilroy Realty common stock.

Foreign Accounts

Withholding taxes may apply to certain types of payments made to “foreign financial institutions” (as defined in the Code) and certain other non-United States entities (including payments to U.S. holders who hold shares of Kilroy Realty common stock through such a foreign financial institution or non-United States entity). Specifically, a 30% withholding tax may be imposed on dividends on, and gross proceeds from the sale or other disposition of, Kilroy Realty common stock paid to a foreign financial institution or to a non-financial foreign entity, unless (1) the foreign financial institution undertakes certain diligence and reporting, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, in order to avoid the imposition of such withholding, it generally must undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts to the IRS (or, in some cases, local tax authorities), and withhold 30% on payments it makes to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules.

The IRS issued final Treasury regulations and additional guidance providing that the withholding provisions described above will generally apply to payments of dividends made on or after July 1, 2014 and to payments of gross proceeds from a sale or other disposition of common stock on or after January 1, 2017. Because Kilroy Realty may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules it may treat the entire distribution as a dividend. Prospective investors should consult their tax advisors regarding these withholding provisions.

Other Tax Consequences

State, local and foreign income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does not purport to describe any aspect of the tax laws of any state, local or foreign jurisdiction. U.S. holders should consult their tax advisors regarding the effect of state, local and foreign tax laws with respect to Kilroy’s tax treatment as a REIT and on an investment in Kilroy common stock.

Accounting Treatment

Kilroy Realty intends to account for the transaction as an asset acquisition, and it will allocate the purchase price to the acquired assets and liabilities based on their relative fair values. As discussed above, the SFFGA

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assets, liabilities and San Francisco Flower Mart operations excluding the land being acquired are immaterial and inconsequential to the overall transaction. Kilroy Realty’s intent is to acquire the land site for future development opportunities.

Approvals and Consents

The merger cannot proceed without obtaining all requisite third party consents and approvals. Kilroy Realty and SFFGA have agreed to take all appropriate actions necessary to obtain such approvals and consents.

No Restrictions on Resale of Kilroy Realty Common Stock

The shares of Kilroy Realty common stock to be issued in connection with the merger will be registered under the Securities Act, and will be freely transferable by the recipients of such shares.

Release of SFFGA Officers and Directors

Concurrent with the approval of the merger, each holder of shares of SFFGA common stock voting in favor of the merger will be required to release each director and officer of SFFGA for any and all actions taken by those individuals prior to the effective time of the merger.

SFFGA Shareholder Dissenter’s Rights

Any shares of SFFGA common stock that are issued and outstanding immediately prior to the effective time of the merger and that have not approved the merger (or with respect to which the holder has not otherwise waived his rights under Chapter 13 of the CGCL), and with respect to which a demand for payment and appraisal has been properly made in accordance with Chapter 13 of the CGCL, will not be converted into the right to receive the merger consideration otherwise payable with respect to such shares of SFFGA common stock, except as set forth in the following discussion. The record holders of SFFGA common stock that are eligible to, and do, exercise their dissenter’s rights with respect to the merger are referred to herein as dissenting shareholders, and the shares with respect to which they exercise dissenter’s rights are referred to herein as dissenting shares.

The following discussion is not a complete statement of the law pertaining to dissenter’s rights under the CGCL and is qualified in its entirety by reference to Sections 1300 through 1313 of the CGCL, the full text of which are attached to this proxy statement-prospectus as Annex B and incorporated herein by reference. Annex B should be reviewed carefully by any SFFGA shareholder who wishes to exercise dissenter’s rights or who wishes to preserve the right to do so, since failure to comply with the procedures of the relevant statute will result in the loss of dissenter’s rights.

ANY HOLDER OF SFFGA COMMON STOCK WISHING TO EXERCISE DISSENTER’S RIGHTS IS URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.

Shares of SFFGA common stock must satisfy each of the following requirements to qualify as dissenting shares under California law:

Refusal to approve the merger does not in and of itself constitute a demand for appraisal under California law.

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Pursuant to Sections 1300 through 1313 of the CGCL, holders of dissenting shares may require SFFGA to repurchase their dissenting shares at a price equal to the fair market value of such shares determined as of the day before the first announcement of the terms of the merger, excluding any appreciation or depreciation as a consequence of the proposed merger, but adjusted for any stock split, reverse stock split or stock dividend that becomes effective thereafter.

Within 10 days following approval of the merger by the SFFGA shareholders, SFFGA is required to mail a dissenter’s notice to each person who did not vote in favor of the merger. The dissenter’s notice must contain the following:

Within 30 days after the date on which the notice of the approval of the merger by the outstanding shares is mailed to dissenting shareholders, a dissenting shareholder must:

San Francisco Flower Growers’ Association

c/o Kilroy Realty Corporation

12200 W. Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Secretary

If upon the dissenting shareholder’s surrender of the certificates representing the dissenting shares, SFFGA and a dissenting shareholder agree upon the price to be paid for the dissenting shares and agree that such shares are dissenting shares, then the agreed price is required by law to be paid (with interest thereon at the legal rate on judgments from the date of the agreement) to the dissenting shareholder within the later of 30 days after the date of such agreement or 30 days after any statutory or contractual conditions to the completion of the merger are satisfied.

If SFFGA and a dissenting shareholder disagree as to the price for such dissenting shares or disagree as to whether such shares are entitled to be classified as dissenting shares, such holder has the right to bring an action in California Superior Court of the proper county, within six months after the date on which the notice of the

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shareholders’ approval of the merger is mailed, to resolve such dispute. In such action, the court will determine whether the shares of SFFGA common stock held by such shareholder are dissenting shares, and the fair market value of such shares of SFFGA common stock.

In determining the fair market value for the dissenting SFFGA shares, the court may appoint one or more impartial appraisers to make the determination. Within a time fixed by the court, the appraiser, or a majority of them, will make and file a report with the court. If the appraisers cannot determine the fair market value within 10 days of their appointment, or within a longer time determined by the court, or the court does not confirm their report, then the court will determine the fair market value. The costs of the appraisal action, including reasonable compensation to the appraisers appointed by the court, will be allocated between SFFGA and dissenting shareholder(s) as the court deems equitable. However, if the appraisal of the fair market value of SFFGA shares exceeds the price offered by SFFGA in the notice of approval, then SFFGA shall pay the costs. If the fair market value of the shares awarded by the court exceeds 125% of the price offered by SFFGA, then the court may in its discretion impose additional costs on SFFGA, including attorneys’ fees, fees of expert witnesses and interest.

SFFGA shareholders considering whether to exercise dissenter’s rights should consider that the fair market value of their SFFGA common stock determined under Chapter 13 of the CGCL could be more than, the same as or less than the value of merger consideration to be paid in connection with the merger, as set forth in the merger agreement. Also, SFFGA reserves the right to assert in any appraisal proceeding that, for purposes thereof, the fair market value of SFFGA common stock is less than the value of the merger consideration to be issued and paid in connection with the merger, as set forth in the merger agreement. SFFGA shareholders considering whether to exercise dissenter’s rights should consult with their tax advisors for the specific tax consequences of the exercise of dissenter’s rights.

Strict compliance with certain technical prerequisites is required to exercise dissenter’s rights. SFFGA shareholders wishing to exercise dissenter’s rights should consult with their own legal counsel in connection with compliance with Chapter 13 of the CGCL. Any SFFGA shareholder who fails to comply with the requirements of Chapter 13 of the CGCL, attached as Annex B to this proxy statement-prospectus, will forfeit the right to exercise dissenter’s rights and will, instead, receive the merger consideration to be issued and paid in connection with the merger, as set forth in the merger agreement.

SFFGA shareholders should be aware that California law provides, among other things, that a dissenting shareholder may not withdraw the demand for payment of the fair market value of dissenting shares unless SFFGA consents to such request for withdrawal.

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DESCRIPTION OF THE MERGER AGREEMENT

The following is a summary of the material terms of the merger agreement. While Kilroy Realty and SFFGA believe this summary covers all material terms of the merger agreement, this summary may not cover topics important to you. This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete text of the merger agreement which is attached as Annex A to this proxy statement-prospectus and is incorporated by reference into this proxy statement-prospectus. You should read the merger agreement completely and carefully as it, rather than this description, is the legal document that governs the merger.

General

The merger agreement provides that upon the consummation of the merger, SFFGA will be merged with and into merger sub and SFFGA will cease to exist. After the consummation of the merger, merger sub will continue as the surviving entity and remain a wholly-owned subsidiary of Kilroy Realty.

Closing and Effective Time

The closing of the merger will take place on the third business day following the satisfaction of the conditions to closing set forth in the merger agreement, or at another time that both parties mutually agree upon; provided that Kilroy Realty may elect to delay the closing of the merger for up to 30 calendar days. See “Conditions to the Merger” below for a more complete description of the conditions that must be satisfied prior to closing. The completion of the merger sometimes is referred to in this proxy statement-prospectus as the closing date.

The merger will become effective on the date when the certificate of merger filed by the parties is duly filed by the California and Delaware Secretaries of State, or at such later date and time specified in such filing as the parties mutually agree upon. The time at which the merger becomes effective is sometimes referred to in this proxy statement-prospectus as the effective time.

Consideration to be Received in the Merger

If the merger is completed, the shares of SFFGA common stock that you own immediately prior to the effective date of the merger will be automatically cancelled and converted into the right to receive shares of Kilroy Realty common stock and cash in lieu of any fractional shares. The aggregate merger consideration paid by Kilroy Realty to SFFGA shareholders is expected to be approximately $22.0 million (subject to adjustment). In addition, a portion of the merger consideration equal to $2.5 million in Kilroy Realty common stock, which we refer to as the escrowed merger consideration, will be withheld from payment at closing and contributed to an escrow account to secure certain indemnification and reimbursement obligations of the SFFGA shareholders under the merger agreement, as described below under “—Escrowed Merger Consideration.” We refer to the remaining merger consideration (the shares of Kilroy Realty common stock not delivered to the escrow account), which you shall receive in common stock, as the closing merger consideration.

The following table illustrates the per share value of merger consideration that SFFGA’s shareholders will receive in the merger based on a range of reference prices, assuming (i) no downward adjustment to the merger consideration, (ii) that the currently outstanding 540.88 shares of SFFGA common stock remain unchanged as of immediately prior to the effective time of the merger and (iii) that shareholders are entitled to receive the full amount of the escrowed merger consideration. The table is for illustrative purposes only. The exchange ratio used to determine the number of shares of Kilroy Realty common stock that you will be entitled to receive for each share of SFFGA common stock will be determined based upon the average closing price per share of Kilroy Realty common stock on the NYSE, as reported by the Wall Street Journal, during the 10 trading day period

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ending on the second trading day prior to completion of the merger. The actual prices at which Kilroy Realty common stock trades during the reference period will establish the actual reference price and therefore the actual aggregate share amount. The table assumes that the closing price of Kilroy Realty’s common stock on the date of the merger is the same as the reference price during the reference period. The actual trading price of Kilroy Realty common stock is subject to market fluctuations, and SFFGA shareholders will not be entitled to receive additional shares in the merger if the trading price of Kilroy Realty’s common stock on the closing date of the merger is less than the average price during the reference period nor will they receive fewer shares in the merger if the trading price of Kilroy Realty’s common stock on the closing date is greater than the average price during the reference period.

Adjustment to Merger Consideration

The aggregate merger consideration is determined by taking $27.0 million and adjusting it downward by (i) the sum of (A) any outstanding principal balance of the indebtedness on the SFFGA property, plus all accrued and unpaid interest thereon on and as of the closing date of the merger, plus any prepayment fees or other amounts payable in connection therewith, (B) the proration amounts debited to SFFGA, and (C) the SFFGA expenses assumed by Kilroy Realty, (ii) further adjusting downward by any expenses of SFFGA which were not taken into account in calculating the merger consideration and (iii) adjusting upward to the extent of any proration amounts credited to SFFGA and the cash amount reserved for the payment of certain taxes arising from the sale of the investment properties (in the approximate amount of $[—] million). Pursuant to the merger agreement, the outstanding indebtedness on the SFFGA property (in the approximate amount of $4.6 million) will be deducted from the amount paid by Kilroy Realty in the merger and will be paid in full by Kilroy Realty at closing. The aggregate merger consideration of approximately $22.0 million is net of the retirement or assumption of such indebtedness.

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Escrowed Merger Consideration

A portion of the aggregate merger consideration equal to $2.5 million in Kilroy Realty common stock, which we refer to as the escrowed merger consideration, will be withheld from the merger consideration deliverable to SFFGA shareholders on the closing date, to serve as security for the benefit of Kilroy Realty against the indemnification afforded Kilroy Realty in the merger agreement and to reimburse Kilroy Realty for certain fees and expenses that were not able to be calculated at the closing of the merger. On the closing date, the escrowed merger consideration will be deposited by Kilroy Realty with Computershare Trust Company, N.A., which we refer to as the escrow agent, in an escrow account, established in accordance with the escrow agreement to be entered into among Kilroy Realty, the escrow agent and the SFFGA Representative. If any payment is required to be made to Kilroy Realty from the escrow account, Kilroy Realty and the SFFGA Representative will promptly provide written instructions to the escrow agent to deliver to Kilroy Realty out of the escrow account.

Eighteen months following the closing date, Kilroy Realty will provide written instructions to the escrow agent to deliver to the SFFGA shareholders’ agent for the benefit of the former SFFGA shareholders the remaining escrowed merger consideration in the escrow account, except for (i) an amount equal to $0.5 million in Kilroy Realty common stock, which amount shall be withheld for an additional 18 months as security for the benefit of Kilroy Realty in respect of indemnification claims arising out of environmental matters; and (ii) amounts subject to claims for indemnification or reimbursement by Kilroy Realty. Amounts distributed by the escrow agent, whether on the day 18 months following the closing date or on the date 36 months following the closing date (with respect to the $0.5 million in Kilroy Realty common stock withheld in respect of indemnification claims arising out of environmental matters) are referred to herein as the escrow disbursement. The exchange agent will distribute any escrow disbursement to the former SFFGA shareholders on a pro rata basis, calculated by dividing the total escrow disbursement by the number of shares of SFFGA common stock issued and outstanding immediately prior to the effective time of the merger, which we refer to as the per share escrowed merger consideration. Pursuant to the merger agreement, shares of Kilroy Realty common stock paid from the escrow account in satisfaction of indemnification claims, will be valued at a price per share equal to the reference price as of the closing of the merger. The former SFFGA shareholders will be entitled to receive any distributions paid by Kilroy Realty with respect to the Kilroy Realty common stock held in the escrow account and such shareholders shall be entitled to vote such shares on any matters submitted to a vote of the holders of Kilroy Realty common stock.

A portion of the investment properties consideration equal to $0.4 million in cash will be deposited at the closing with the escrow agent to serve as security for the benefit of Kilroy Realty in respect of indemnification obligations arising under the Agreement of Purchase and Sale in connection with the sale of the investment properties to Flair. This amount, which we refer to as the escrowed investment properties consideration, will be held by the escrow agent for a period of four months from the July 18, 2014 closing of the sale of the investment properties to Flair. The escrowed investment properties consideration will be released from the escrow account in accordance with the terms of the escrow agreement. If any portion of the escrowed investment properties consideration is required to be disbursed to Kilroy Realty (as a result of the satisfaction by Kilroy Realty of indemnification plans asserted by Flair), the SFFGA shareholders as of the closing date of the merger will not be entitled to receive such portion of the escrowed investment properties consideration disbursed to Kilroy Realty. As a result, SFFGA shareholders will not know the amount of escrowed investment properties consideration, if any, that may be payable to SFFGA shareholders until the date approximately four months from the July 18, 2014 closing of the sale of the investment properties.

Fractional Shares

No fractional shares of Kilroy Realty common stock will be issued in the merger. Instead, Kilroy Realty will pay to each holder of SFFGA common stock who would otherwise be entitled to a fractional share of Kilroy Realty common stock an amount in cash (without interest) rounded to the nearest whole cent, determined by multiplying the reference price by such fraction of a share of Kilroy Realty common stock to which such SFFGA shareholder would otherwise be entitled.

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Appointment of Shareholder Representative

By virtue of the adoption of the merger agreement and approval of the principal terms of the merger, each of Angelo Stagnaro, Jr. and Ronald Chiappari will be constituted and appointed as the shareholders’ exclusive agent and attorney-in-fact, or the SFFGA Representative, with respect to taking any and all actions specified or contemplated by the merger agreement or as provided under the escrow agreement.

The actions of the SFFGA Representative pursuant to the merger agreement and the escrow agreement will bind each SFFGA shareholder, and no notice to or approval by the SFFGA shareholders of such action will be required. Kilroy Realty will be entitled to rely on any action taken by either Mr. Stagnaro, Jr. or Mr. Ronald Chiappari in his capacity as the SFFGA Representative for the benefit of all SFFGA shareholders. The SFFGA Representative will be fully protected, held harmless and indemnified by SFFGA’s shareholders in exercising, or in declining to exercise, a power provided for or contemplated by the merger agreement or as provided for in the escrow agreement for the benefit of all SFFGA shareholders, as he shall determine, whether upon consultation with the SFFGA shareholders or in his sole discretion, to be in the interests of all SFFGA shareholders. SFFGA will establish an account (independent of the escrow established with respect to the escrowed merger consideration) into which SFFGA will deposit an amount reasonably anticipated to be necessary to cover the costs and expenses of the SFFGA Representative subsequent to the closing of the merger. Any amounts remaining after termination of the duties of the SFFGA Representative will be distributed to the SFFGA shareholders. In the event of death or disability of the SFFGA representative or his resignation, a successor representative will be elected by a majority of the former shareholders of SFFGA.

Exchange of Certificates

Kilroy Realty has engaged Computershare Trust Company, N.A. to act as its exchange agent to handle the exchange of SFFGA common stock for the merger consideration and the payment of cash for any fractional shares. Within three business days after the effective time, the exchange agent will send to each SFFGA shareholder a letter of transmittal for use in the exchange with instructions explaining how to surrender SFFGA common stock certificates to the exchange agent in exchange for the applicable portion of the closing merger consideration. The SFFGA shareholders that surrender their certificates to the exchange agent, together with a properly completed letter of transmittal, will receive the applicable portion of the closing merger consideration. SFFGA shareholders that do not exchange their SFFGA common stock will not be entitled to receive the closing merger consideration or any dividends or other distributions by Kilroy Realty until their certificates are surrendered. After surrender of the certificates representing SFFGA shares, any unpaid dividends or distributions with respect to the Kilroy Realty common stock represented by the certificates will be paid without interest.

Representations and Warranties

The merger agreement contains various representations and warranties by SFFGA and/or Kilroy Realty. SFFGA is making representations and warranties concerning, among other things:

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Kilroy Realty is making representations and warranties concerning, among other things:

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The representations and warranties of each of SFFGA and Kilroy Realty have been made solely for the benefit of the other party and such representations and warranties should not be relied on by any other person. In addition, such representations and warranties:

Covenants

The merger agreement has a number of covenants and agreements that govern the actions of SFFGA and Kilroy Realty pending completion of the merger. Some of the more significant covenants and agreements are summarized below.

No Solicitation of Competing Transactions. The merger agreement contains provisions prohibiting SFFGA from seeking or discussing an alternative proposal to the merger. SFFGA has agreed that it will not, directly or indirectly solicit, encourage or facilitate any proposal or any inquiry or proposal or enter into any negotiations or discussions with any person or entity concerning any proposed acquisition of SFFGA, or furnish any information to any person or entity proposing or seeking such an acquisition.

Disposition of Assets. The merger agreement contains provisions requiring SFFGA to sell the investment properties, retaining reserves for taxes in connection with the sale and paying other expenses associated with the sale of such properties, including costs, commissions and the retirement payments of indebtedness served by the properties (together with prepayment fees in connection therewith).

Recommendation of Merger Agreement by SFFGA Board. SFFGA has agreed that its board of directors will recommend that SFFGA shareholders vote to approve the merger agreement and the principal terms of the merger and use its best efforts to solicit shareholder proxies in favor of the approval of the merger agreement and the approval of the principal terms of the merger.

Conduct of Business Pending Closing of the Merger. SFFGA will, except as otherwise permitted or required by the merger agreement, or as otherwise agreed to in writing by Kilroy Realty:

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Except as otherwise permitted or required by the merger agreement, or as otherwise agreed to in writing by Kilroy Realty, until the effective date of the merger, SFFGA will not:

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Directors’ and Officers’ Insurance. SFFGA has agreed that after the merger it will obtain and fully pay for “tail” insurance policies with respect to directors’ and officers’ liability insurance with a claims period of at least six years from the closing date in an amount and scope at least as favorable as SFFGA’s existing policies.

Registration of Shares. Kilroy Realty has filed a registration statement on Form S-4 to register with the SEC the issuance in the merger of the Kilroy Realty common stock. Kilroy Realty and SFFGA have agreed that they will use their reasonable best efforts to have the Form S-4 declared effective, ensure that the Form S-4 compiles in all material respects with the applicable provisions of the Exchange Act or Securities Act and keep the Form S-4 effective for so long as necessary to complete the merger.

Conditions to the Merger

Under the merger agreement, various conditions are required to be met before Kilroy Realty or SFFGA is obligated to complete the merger. These conditions are customary and include: