Good day ladies and gentlemen and welcome to the First Quarter 2008 Kilroy Realty Earnings Conference Call. My name is Katy and I will be your coordinator for today. At this time all participants are on a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. [Operator Instructions] I would like to now turn the call over to your host for today. Mr. Richard Moran, sir you may proceed.

Thank you very much, good morning everyone. Thank you for joining us with me today are John Kilroy our CEO; Jeff Hawken our Chief Operating Officer; and Tyler Rose our Treasurer and Heidi Roth our Controller. AT the outset, I need to say that some of the information we will be discussing this morning is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information in this call and in the supplemental. This call is being telecast live on our website and will be available for replay in the next 10 days both by phone and over the internet. Our press release and supplemental package have been filed on Form 8-K with the SEC and both are also available on our website. John will start the call with an overview of the quarter and our key markets, I will add financial highlights and updated 2008 earnings guidance and then we will be happy to take your questions, John.

Thanks Dave, hello everyone and thanks for joining us. We had a good first quarter at KRC, our leasing program produced solid results. In February we announced our 290,000 square foot lease with Bridgepoint Education that included the entirety of the 147,000 square foot third phase, Kilroy Sabre Springs, which is currently under construction. During the quarter we had new or renewing leases commence on just over 375,000 square feet of space, at average rental rates 49% higher than expiring leases on a GAAP basis. Of the 1.4 million square feet of space schedule to expire in our stabilized portfolio during 2008 [indiscernible] approximately 750,000 square feet of that space, we ended the first quarter with 94.8 million occupancy rate which was better than we projected. And our properties under construction remain on track. With deliveries scheduled throughout the second half of the year. Our combined end process development and redevelopment program encompasses about 611,000 square feet and six projects for total estimated investment of approximately $186 million. With the Bridgepoint transaction, these projects are now 65% leased. Now withstanding our strong leasing results as we look at the broader economic environment, we do remain concerned about the direction of the economy, as we have reported over the last several quarters, potential tenants continue to stretch out their real estate decisions, unemployment's rates have moved up slightly to 5.8% in Los Angeles, 4.6% in Orange County and 5.3% in San Diego County. So while we had good first quarter leasing results, we don't know that we will be able to maintain these results throughout the remainder of the year. Having said that, we do continue to see reasonably good demand, in most of our markets, Long Beach and El Segundo are performing particularly well and we are pursuing several potential…

Thanks John. FFO was $0.87 per share in the first quarter that was higher than forecast primarily due to two factors, higher occupancy and lower G&A than reflected lower accrued incentive compensation expense than initially forecast. The lower accrued incentive compensation expense is mainly the result of our comp plan, the slowing economy has caused us to lower some of our operating projects a bit which in turned leads to lower projected incentive compensation. We ended the quarter with stabilized occupancy of 94.8% up from 94% at year-end by product type both office and industrial occupancy ended the quarter at 94.8%. First quarter occupancy was a bit higher than we had expected, as we reported last quarter, we had expected one of our industrial tenants that is experiencing financial problem to either vacate of downsize that hasn't happened at least not yet and as of the end of the quarter, they were current on their rent. If the tenant does vacate the 150,000 foot industrial project that it currently occupies, it would impact our overall occupancy rate by 1.3%. We also had an unusual development in the first quarter, when one of our tenants stop paying rent and attempted to surrender its leased premises back to us. The negative affect of the missing rent on earnings in the first quarter was a penny a share. We won't be able to say anything beyond that, regarding this issue since its obviously now a legal matter. Although, vacancy rates have moved up in some of our markets, based on our latest detailed analysis of our portfolio, we haven't seen any material change in market rents since last quarter. We believe that rent levels on our overall portfolio remain about 15% under markets and our 2008 expirations are about 10 to 15% under…

Hello operator.

Yes I am sorry. Ladies and gentlemen [Operator Instructions] Your first question comes the line of Lou Taylor from Deutsche Bank. Please proceed.

Thanks. Good morning guys. Lets see John can you talk a little bit about what was the anomaly that drove the Q1 rents so much higher.

Well,Jeff you want to comment on that.

Louis, this is Jeff, we had one particular lease in San Diego that had very strong increases in both cash and cap rent, that was the big driver.

Okay. And was there a corresponding big TI cost or leasing cost associated with that?

No, it was pretty much in line about, it was $25 a foot for that transaction.

Okay. Next question, Dick with regards to the tenant that just stop paying rent, was that flowing through lower revenue or did that flow through the bad debt expense.

Well the rent loss is just shown as lower revenue.

Okay and then what drove the bad debt expense higher in the quarter?

Well, we just in reflecting the general economic conditions, we are taking somewhat more conservative positions assuming that we will have a...but we would expect to be typical for the cycle or more bad debt expense, softer economy. The individual tenant that stopped paying rent is obviously...that is obvious anomaly because that's simply a contractual dispute.

Okay. Are you recognizing bad debt in terms of your specific items or you just creating a general reserve.

Specific items, we do specific identification kind of a watch list concept, working closely with our asset management group to evaluate tenant credit.

Okay. So you got some other tenancy, you may be worried about collecting other than the one that you can't reference in your remarks?

Yes, and that is entirely natural, I characterize our overall view as entirely what we would expect for this point in the cycle. Other than that one anomaly, I think we have, we would characterize our watch list is entirely typical for this point in the cycle with no other significant surprises.

Okay. And last question is...you did have an increase in the same-store expense but it looks like you are reimbursements did not grow as much, which I was a little surprised that given your increase in occupancy. So what kind of grow the lower expense recoveries?

Well actually I mean, tenant reimbursement were not quite as much as expenses were up. But you don't typically recover all of your expense increases.

Maybe what I was striving [ph] I mean you had higher occupancy, so you should have a higher overall recovery rate, shouldn't you?

Lou this is Dick, we have one particular utility agreement that expired, that had given us benefit in the utility cost and to some extent, there some of that impacts vacant spaces well. So that was part of it, other than that it was just, I don't think it was any line item to which it was attributable.

Okay. Thank you.

[Operator Instructions] The next question comes the line of Erwin Gorman [ph] from Citi. Please proceed.

Hi, this is Mark Montanan [ph] on behalf of Erwin. Quick question on lower G&A expenses assumption for the year. Just trying to get a little clarification, I think you might have mentioned, how much was core versus just your low estimate for comp plan expense?

I think...well it's lower projected incentive compensation expense Mark for the entire company including everyone.

So that's the major incremental difference between now and the previous guidance.

Other than that, the G&A for the year is essentially as we have expected.

Okay, great and then. Secondly, could you provide a little update on the level of interest in Sorrento Gateway or Sabre Springs, both stabilized this year but are currently on lease.

Yeah, this is John Mark.

Hi.

On Sorrento Gateway, we have two projects, one that was shell was recently completed, we call that Lot 3, its about 55,000 square feet. We...frankly I am surprise the building hasn't been leased by now. We had a number of tours, but we do have some strong interest right now from a couple of different folks, one is full four user, I mean the full building user, the other instances are partial building users. We may end up breaking the building up our first desire was to lease it to one user. But we are seeing some decent activity, I just make a comment that generally in that throughout the portfolio in all areas, that we are seeing a lengthening of the decision process. So we are reluctant at times to pull the trigger, which is again typical for this kind of...this point of cycle. The other building that under construction at Sorrento Gateway is Lot 1 which is about 52,000 feet, that is a three storey medical office building, it is one of the only sites in San Diego, that's zone four medical offices. We have very strong demand from a couple of different doctor groups, as well as from a major health provider in that building. So it's a different product, it's not competing with the Lot 3, I think the other question was about Sabre Spring. Sabre Springs there is two properties, we have up there, Kilroy Sabre Springs, which is the Class A office space, which is now with the Bridgepoint lease is essentially fully leased and the new building is entirely leased and then we have Sabre Spring Corporate Center, which is in our redevelopment category, that project is about 100,000 feet, its 19% leased and the balance of the space is available. We continue to tour people, but the I-15 market has been slow, just a general comment about the I-15 market. There are three transactions in the market place right now, all of them household names, in terms of the companies that total well over 500,000 square feet and all of them say, they are going to sign deals within the next couple of months. So that's a significant change or improvement in that I-15 market over the last several quarters, I think that answered all the projects you referenced.

Perfect, thanks very much.

You welcome.

The next question comes the line of George Elback [ph] from Merrill Lynch. Please proceed

Hi, good afternoon. Dick just a follow-up on Lou's question. We should back out two sets of revenue from the first quarter number to get a good run-rate going forward?

George could you amplify that on your question please. Just to make sure, I got it right.

Just, in terms of the revenue run-rate going forward?

Go ahead.

Back in action

Go ahead please, I am sorry you said $0.10.

I am sorry, $0.02 out of the first quarter number.

Well if our tenant stop paying around was a penny and there will be $0.09 for the balance of the year.

So that would be...they weren't paying for one month?

Essentially.

Okay. And John could you give us an update on the Par-D site, I guess first how far or long are you in the development site work. And second what are your thoughts on when you might begin construction?

Well, from a site work standpoint. We haven't commenced anything there, what we have been doing is working with, we bought and I think we talked a little bit about this last call, property zone for 500,000 square feet of office space and that's a matter of right. We have been working with the homeowner groups in the cities towards a mixed use project and there seems to be a great deal of support both of those areas for and expanded project, can't say for sure, we will get it approved, we have been interviewing architects, we are about ready to select the architect as a master plan, mixed use expert for the site and it could be that we end up with a project that is significantly larger and encompasses more users than that which the properties entitled for today. So that effort is going to go on for several months, the cities say they want it, like I say the homeowner groups they want it, traffic seems to support it. We have done an analysis on that, and now the question becomes what the mix will be. So I don't think, we will any construction on that site, this year.

Okay. Thank you.

You welcome.

At this time, I am sure, you have no further questions. I would now like to turn the call back over to management for closing remark.

Thank you all very much for joining us today. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, you may now disconnect, have a great day.