Q4 2019 Earnings Call

to a Fortune 50

Knology company, we commence construction on both projects and the first quarter of 2019 and both least up roughly seven months after construction commencement. That's just an indicator of the strength of our markets and the quality of our development. We also make good progress that are one Paseo mixed-use project in Delmar. The office space is now 80% leased and commands the highest will raise the region also two-thirds of the 237 residential units that we delivered in September are released with these fourth quarter inch transactions. We have effectively wage ninety percent of the office and life-science components of the two point two billion development projects under construction with strong credit and long leases to recap the whole program includes one per sale a one-of-a-kind mixed-use office residential and Retail development, San Diego's most sought-after Coastal Community Netflix on buying a mixed-used office and residential project in the home.

Hollywood 3 3 3

Extra two Tower state-of-the-art office project and Seattle's tech-centric South Lake Union neighborhood Gilroy store phase one the first of a multi-phase eleven building office and life-science development in the west coast leading life science Market 9455 Town Center Drive and office and life-science capable project in San Diego's University Town Center and finally our recently commenced 2100 Kettner and office and Retail complex and Little Italy want to San Diego's most popular downtown neighborhoods. All these six projects wage. Excuse me. I was the six projects are completed and stabilized over the next couple of years. We estimate they will generate total cash of approximately $150 roughly 55% from office and life science and fifteen percent from residential further at today's cap rates this translates into value creation of approximately 1.7 billion month.

Now let's turn.

It updates and our future development pipeline first in January, San Francisco Board of Supervisors unanimously approved our Flower Mart project, and we now have a fully executed divorce agreement that protects our entitlements into perpetuity. We also acquired a land site that will become the Flower Market vendors new permanent location with these pieces in place. We anticipating a 2021 start date on the first phase of the project second. We acquired a site in the heart of Seattle Central business district commonly referred to as the Vance site. The south campus is five Parcels situated on 1.37 acres and includes the 47,000 square foot historic Lloyd building a second 31,000 square foot office building in several parking lots. The location is Main and Main of downtown Seattle and one of the reasons we are so excited about this project. It is immediately adjacent to Seattle's most used Light Rail dead.

station and offers multiple

Transportation office options including the South Lake Union trolley the bus and convenient freeway access is just blocks from Amazon's headquarters. Seattle's iconic off like Pike Place Market, the city's newly renovated to retail core and finally lies at the center of a triangle connecting Seattle scored downtown amenities with two of its most important Innovations clusters, Denny, Triangle and South Lake Union these neighborhoods sport names like Facebook HBO Zillow Google amongst others. We paid $133 off the site and plan to seek entitlements of an urban mixed-use development anchored by a fully restored Lloyd building the project will include two Office Buildings, totaling approximately nine hundred thousand square feet twenty five thousand square feet of street-level retail and a residential development currently zoned for five hundred seventy-five thousand square feet, which equates to Summer.

between four and five hundred units

This is the third acquisition with excellent development potential that we've completed in the past six months. It follows the purchase purchase of purchases of our to block East Village site in downtown San Diego and the Blackwelder creative campus and Culver City with these three development opportunities. We have backfilled our Pipeline with tremendous infill opportunities in some of the West Coast most violent submarkets. These projects laid the groundwork for continued growth in both earnings and nav in our Capital recycling program. We completed the disposition of 2211 Michelson Drive off or last operating properly in Orange County the proceeds of approximately 116 million puts our total 2019 dispositions. It just under $134 million for 20 28 value waiting a handful of assets for potential disposition ranging between 150 million and 300 million of proceeds.

Wrapping up. We'll be focused on five key objectives in 20 21st delivering are two point two billion of under construction projects second maximizing value in our stable portfolio. This includes leasing up our vacancies driving rents and proactively addressing expirations. They're driving earnings and dividends growth fourth maintaining balance sheet strength and flexibility in fifth continuing to advance our strong relationships with some of the world's best and fastest growing companies that completes my remarks now turn the call over to Tyler.

Thanks.

Strong FL with a dollar per share in the fourth quarter and 391 for the year fourth quarter ffo largely benefited from additional occupancy and rents commandment at the exchange and included a penny and a half of one-time items turning to same-store results cash in a way. I grew 4.5% and Gap in a while. I was up 4.8% in the fourth quarter same for cash and wild growth was driven by higher rental rates and cash commencement of several large leases for the year cash in a while. I came in at negative 6% largely due to first-half Explorations on a gaap basis full your end. Oh, I grew 5.5% rising and stuff with strong rent increases. We enter 2020 with about seven hundred thousand square feet of lease expirations approximately 5.5% of the portfolio. The embedded rent in our 20 expirations are roughly 20% below market across our portfolio. We have to make that weighted-average in place for answer 21% below Market by region. We believe in place.

transfer approximately 30% full marketing

San Francisco 13% below market in Los Angeles 13% below Market in Seattle and 9% below market in San Diego and year-end 2019 are stabilized portfolio with 94.65% occupied in line with guidance and 97% least moving to the balance sheet. We completed several transactions since the end of the third quarter first is John noted we closed on the previously-announced Thursday. 2211 Michelson for proceeds of approximately 116 million seconds. We sold 160 million dollars of shares of equity under ratm issued on a Ford basis increase our total undrawn Ford Equity sales to approximately 250 million dollars. Third. We do Jaan approximately 350 million dollars on our bank line to fund our recent acquisitions our overall overall financial position remains found in addition to the 1 billion dollars of unused capacity under our credit facility. We have a large unencumbered portfolio with only two mortgages with very little floating-rate dead.

and no significant maturities until 2023

Our current that the market cap is in the mid twenties or fourth quarter annualized net debt-to-ebitda is approximately 6.5 x pro forma for the undrawn equity for position. And we expect our debt-to-ebitda ratio to decline further as our lease development projects. Come on stream before moving to guidance. I'd like to provide some color on Prop thirteen, as you know, the split roll is on the ballot coming November. Our advisors are telling us that while it looks like it close race given a negative impact it will have on the state the pulling indicated indicates that it's likely to lose. However, should it pass attempting to quantify a potential impact at this time is nearly impossible for too many variables and unknowns including how assessors will derive market value the status of our portfolio at the time including the issue of triple net lease is based here resets and what we own

Now, let's discuss discuss our initial 2020 guidance provided in yesterday's earnings release to begin. Let me remind you that we approach our near-term performance forecasting with a high degree, of course and given all the uncertainties in today's economy. Our current guidance reflect information and Market intelligence as we know it today any significant shifts in the economy our markets tenant demand construction costs and new Supply going off could have any meaningful impact on the results in where is not currently reflected in our analysis projected Revenue recognition dates are subject to several factors that we can't control including the timing of town occupancy.

for those caveats

Our initial assumptions for 2020 are as follows, as always. We don't forecast Acquisitions. We are targeting dispositions of 150 million to 300 million dollars in proceeds. We anticipate developments page to be between 500 to 6600000000 Dollars. We expect to come in for Revenue recognition for the following projects within the following time frames at the exchange on 16th the remaining thirty thousand square feet in the third quarter of 2020 Netflix on Vine at the end of the year at 333 Dexter the initial phase totaling 230000 square feet in the fourth quarter off and at one Paseo office, we expect revenue revenue commence minion phases starting in the third quarter.

With respect to delivery dates of the residential projects one Paseo residential phases two and three consisting of 371 units are projected to be delivered by mid-year and living on buying a hundred. Ninety three units is scheduled for delivery by the end of the year.

We are projecting total analyze contribution of approximately twenty to twenty-five million dollars this year from those twenty twenty development deliveries are forecast for your office occupancy is between 93000 ninety four percent. We project Gap same store noi growth of one and half to two and a half percent and cash same store noi growth of 6 and 1/2 to seven and a half percent. We expect to draw down across ninety million dollars of the equity Ford Sales in the first quarter and the remaining hundred sixty million dollars in the fourth quarter.

from a 2020

No prospective. Our fourth quarter ffo per share. Run rate was ninety eight point five cents adjusted for the one-time items or $3.94 on an annualized basis the dilution from our point. The disposition is that the estimated to be about eight cents per share subject actual timing the impact from new development and a y including the exchange on Vine through Dexter want to sail off and residential is estimated to be about $0.23 for sure positive and finally the impact from all other items including same story in Hawaii and financing is estimated to be about $0.02 for sure. Taking all those assumptions into account are earning our initial earnings guidance for 2020 is $4.01 to $4.21 per share with a mid-point of $4.11 per share.

That's the latest news from a r t. I will be happy to take your question operator. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If you'd like to withdraw your question, please press * then two at this time. We will pause momentarily to assist her roster. Our first question comes from Nick of Scotiabank, please go ahead.

Thanks you.

I was just in terms of the guidance. I was hoping you can just expand on some of the assumptions, you know driving the cash seems to and why growth this year picking up the you know about 7% of the midpoint versus last year.

Yeah, a lot of it's the free rent burn off that we had in the numbers in in the free rent in 2019. So you can see the difference between cast same store and gas station stores is mainly the free rent burn off.

Okay, and then in terms of I guess, you know San Francisco leasing market and any latest thoughts you can share on on you know demand in the market from home bigger users is we're thinking about you know, flowermart eventually starting and and and can you just remind us there? Is that still a earliest start possible? There is twenty-twenty 1021 morning Nick. This is Rob Paratha address the San Francisco market in terms of your question. The market is still extremely young and vibrant. I mean, we're tracking over nine million square feet of Demand right now in San Francisco and that's ranging in a lot of size ranges. But there's a healthy appetite in the I'd say 300000 to Greater market right now. There are some large transactions that are, you know close to being announced that have not yet.

announced and we think

We're poised really. Well. There's really no new products to compete with Flower Mart and you know the floor plates the design et cetera are going to be very attractive and you know, the last thing I'd say dead set on multiple calls being on Brandon Street particularly with the new Central subway system. There is really going to be an important factor in the whole development of the South Market and specifically Central some area. So we're really pleased given, you know, everything that's going on this year with elections and that kind of thing demand has remained strong and continues to be pretty much unabated.

Okay, it's awful. Just just one last question is you know, there was some news that came out about you know, the GM Cruise space. You have Brandon where I know when they signed that deal is a great deal. You guys got high rents. I think the highest rents in the market when when were signed and I guess now there's a news that they're subleasing a portion of that space to know tell he to just tell us what's going on there. What drove that decision? Yeah, it won't go into specific transactions and that sort of thing but it's it's one, you know, they basically I guess I would somewhat overshot the estimate for Need for space. It's a very small component of the total 375000 square feet that they've least and they have a lot of activity on it. So I thought about getting into you know specific comments on it. That's what's going on, but it's it's very active in terms of demand for the space.

and just in terms of

You know the what what type of rent you think they may get on the sublease versus where the GM cruise deal was done. I can't predict that I think you know, if you look at sub landlords throughout the city right now, I think they're trying to figure out where the market is for sublease space and and what kind of rinse they can achieve and they're trying to you know, Max maximize and do what we've done actually life, you know on Direct basis, which sometimes is hard to do.

Okay. Appreciate it. Thank you.

Our next question comes from Jamie Feldman with Bank of America Merrill Lynch, please go ahead.

Good morning. This is Elvis Rodriguez with Jamie. Can you talk a little bit about the risks and the potential there for future phases at The Flower Mart?

Yeah, hang on tight. Have you got that? We're in two different locations that I don't have my notes on what you went if you got that sure. This is Rob her again. So the way we look at projects, I won't comment on good or bad policy, you know just in terms of government, but the way we look at property is that it does accelerate development in the central Cemetery off it long-term may have an impact on you know, the ability of landlords to build new space in the city and get to the size that we're talking about at flowers Mark for existing property owners and development sites that have their profit allocation, you know, it's going to bode well for rental rates and asking rates because it just it's just to make San Francisco tougher to develop in

Okay. Thank you and with your portfolio.

development portfolio currently 89% pre-leased how do you feel going back on that project at the end of 21 or do you still expect to not start without any preset you know if if we could start right today we consider restarting it but I've always said I think we're going to do some substantial pre-leasing before we start it it's two years off before we can we can walk in essence before we can start A lot's going to happen between now and then we'll be taking a look obviously at the macro environment all the local demand-supply wage situations and and so forth so you know we don't need to make a decision right now but the market is very strong right now for big modern space the back of this the you're going to see some deals that are going to be done in this city at near $100 triple net

Great, just one more for me. And you made some comments on split row has that changed any conversations with tenants on Leasing and any new lease is going forward hasn't come up at all. Okay, thank you very much. Our next question comes from Craig Melman with keybanc capital markets, please. Go ahead. Thanks, Todd just talk a little bit about what's going into the the occupancy decline assumption. I think last call you guys said you have one expiration of a hundred thousand square feet and in 2020. Just give a little bit of color on how long you guys are assuming our if it's a known move out or just kind of lower retention expectation.

yeah, no, it's what we had mentioned last time which we have a

At least in Long Beach that rolls in the fourth quarter. So we're assuming at this point that won't be released and so oxygen see dips in the fourth quarter it also by the way dip a little bit in the first quarter cuz we have a move out in a battle which is already been least. So it'll the occupancy will come back up I think in the second quarter, so it'll be a little bumpy, but but but the reason that the guidance is down the page from that at least in Long Beach.

That's helpful. And then John your commentary sounds like the flower marks definitely moving to a new site. I know it's not a near-term start here, but you just talk about kind of your yield expectations going on that project. Now that you know rents ribbon two hundred bucks a square foot you get well, I'm not we're not we're not Craig. We're not performing a hundred bucks a square foot so long. I want to make that clear but on the other hand wouldn't mind getting that in terms of yields. If you think about it, we've had to buy another site. We're improving that we always had to move the month of March to a temporary location and bring him back. So, you know, the net cost is an increase on the other hand at the flower March the development project between fifth and sixth bran and we now have square footage that would have been the return of the Flower Mart that's now office in in Belize said, you know a yield that is that is you know,

No, probably.

Fifteen twenty times higher than what we would have gotten. We have a a significant reduction in cost because we now don't have all the three or four hundred parking places for the which would have been required for the job market is Subterranean and all the truck access ramps and so forth that had to go down below. So when you look at everything in terms of where our perform is, I think it's going to be right back where you've seen everything else that's come on stream over this cycle and that we have underway right now sort of that high seven low eight initial Roc uncovered and pretty strong Gap runs.

That's helpful. Then just I apologize if I missed it. Did you give any expected timing on the start and Seattle in the new mixed-use site? No, well, I think what I said is it's going to be two years we have to go through, you know, Seattle's a much simpler place than than San Francisco, you know what you can bill but you still go through a process that takes a little over a year may have a predictable outcome. We're working with a city to address how these sites that are all next door to one. Another will look and what the street Phil will be. I think it's going to be pretty exciting. So I'm anticipating that we could be under way in a couple of years it when we think about that site putting aside the little historic building which is, you know, kind of a neat little building we have I love this project. It's has two Office Buildings that total about nine hundred thousand square feet that can be phased and then it has a residential site down.

That I don't think we will develop. I think we'll probably be.

Might venture at or we might sell it will see but we want to plan it make sure it's planned sensibly with regards to the adjacent properties that we so it's just a fantastic site were really excited that this is one that I I think between the Flower Mart and the Vans property. We probably have the two best development sites on the West in the West on the west coast. The country just one more quick one for Tyler just you guys have been pretty successful at doing forward on the ATM, but given kind of the upward momentum the stock price. What's the appetite to kind of try to do just spot ATM issuance versus continuing to four words?

Well, we when we do our ATMs we look at it. You know what the cash needs are at the time so, you know the Fords are slightly more expensive than just doing a regular way ATM. So it's really a decision of the time every time we do a transaction for the cash needs as as I mentioned will be drawing down, you know, ninety million in the first quarter and the remaining hundred sixty and the name of the existing ATM, but we haven't decided to do anymore ATM at this point anyway, so that's a decision for the future right? Thank you.

for next

Question comes from Manny cordesman with City, please. Go ahead. Thanks John just if we think about Seattle and and the demand there for your new development and some others wage. Um, can you just talk about what the advanced pipeline looks like from tenants in Seattle?

Yeah. Hi Manny. This is Rob Barack. Again, you know Seattle has very similar, I guess story to San Francisco. And in fact some ways I think almost better because it's got off a room to go clearly big Tech has found Seattle and it's expanding there in in specific markets those being South Lake Union and Belleview and parts of downtown and I say parts of downtown because you can subdivide downtown into you know, what used to be traditional Financial District and then more creative office space. And so with as John was talking about the Vance project. It is a really exciting project that will be a modern office next Generation, which currently does not exist downtown. There are you know, a lot of high-rises, but this will be much more in line with what you've seen Kilroy do here in San Francisco and elsewhere. So,

Demand is very strong.

7.2 million feet in Seattle right now. There are a lot of tenants probably more than I've seen over a hundred thousand feet in search of space right now. So we're very excited about it. And you know, really can't wait to get our designed baked so we can start really getting out into the market.

Thanks, Rob and Tyler, if we just think about your fourth quarter of results, I think you said there was a penny and a half of one of them items in there. What else drove the Jeep to sort of your previous guidance. It's mainly The Exchange came online earlier than dissipated from a gap perspective, but $0.03 of that.

Okay, and then a tire to you again on Prop thirteen, I think previously you had given a range of 224 cents what's changed that you're less comfortable or uncomfortable with giving a range today?

Yeah, I mean it's still in that same general ballpark, but it just seems more and more uncertainty. There's there's drafting issues in the current in the current proposal that are uncertain about how small businesses are dead. But there's uncertainties about how the assessors are going to Value the properties and when they're going to Value the properties, so it just seems more and more uncertain almost every day. So it it, you know, it's harder for us. Thanks everyone.

Our next question comes from Blaine Huck with Wells Fargo, please go ahead.

Great. Thanks. Can you just talk about the dispositions? You guys are targeting for this year. Are there any specific properties? You can talk about that are up for disposition and I guess how should we think about timing in price on those sales?

Well in terms of all answer the first part is John we always have a handful of projects that we look at we evaluate everything. We have not yet made a a decision on what would constitute all three hundred million. If we go that high, we have a number of projects that we have identified, but we don't like get into indentified internally, but for a lot of reasons we don't like to get too specific until we have something that's that's the exact. It's it it can impact people here at Kilroy can impact tenants. It can impact other things going on with cities. So I'm not going to get specific in terms of the time you want to address that.

yeah, we

reflectively mid-year for the the proceeds from the disposition

All right, that's helpful. Maybe if I can ask just a little bit differently. Would you characterize the sales as more non-core or maybe more harvesting Value Inn properties that might be kind of stabilized at a at a high level of n a y or or a pretty even mix. Yeah, we look at both and there might be some about you know, one of the dilemmas right now is with the cost of land and with the cost of replacing assets unless something is in a in a market that you really don't care to be in any longer or a or a or a building that perhaps is and you know isn't going to see continuously better days. It's really hard to pull a trigger because rents have gone up so much and you want to harvest that and you know, if you have a new building for an example some of the buildings we've recently completed in the cycle, you know.

You know, well, you can sell them and make a profit.

But the trouble is you can't replace some of these things. So it gets harder to find which ones you know to identify which buildings you want to sell but we go through a rigorous process and we're going through that right now more to come.

All right, that's that's very helpful and and maybe for John or Rob you guys have clearly done a great job of backfilling some move out these had in the last couple of years and I know it's a small part of the portfolio but it seems as though there's still some vacancy in the I fifteen Corridor. Have you guys seen any of the incremental demand in the San Diego Market filter out to that submarket or is it kind of stuff to focus my thoughts and you know Delmar and downtown at this point now blame it definitely has this is Rob. It has filtered into the I fifteen Corridor. We have some activity that you know, I can't get specific on but you know stay tuned with what's going on and you know it with the renovations we've done and that sort of thing. It's become a very attractive submarket and and you know, I guess the other thing I'd say is that so much Tech has started to come into San Diego big Tech is going into San Diego and scale and Thursday.

Are you know looking at various opportunities in different parts of the county?

So we see demand as being very strong and getting stronger wait till next score.

Good to hear. Thanks.

Our next question comes from John Gainey with stifel please. Go ahead great. Thank you. Just more of a curiosity question in in Seattle with you know, the nine hundred thousand square foot office building six hundred thousand square feet of multi-family looks like about a twenty-five our project and you're you're clearly not building low-rise there. What's it going to be? What's it cost all in per unit and what's it cost all in four square foot when you start out with that sort of land basis of Life John. I don't have those numbers. We went through our whole DSP that which is our process to approve a project and so forth. I just don't have those numbers on my head I can get back to you with them. But do you have those from the chef?

Yeah, John, I think on a full project on the office basis. We're modeling roughly seven to eight hundred dollars per square foot in terms of months total and estimated investment.

right

And and where do you get sort of uncomfortable on a on a per-square-foot when you're building in these markets? Have you gotten closer to you think that the rents are so strong and the tenants month sale price insensitive that they'll just pay up for quality product. Yeah. I I've kind of I'm one of those Believers that you want to get a good strong yield wage up front and you want to have a a a valuation when you capitalize it that people that you know can can be supported. You know, there's some been some things that have traded that we've looked at and just said, you know, you gotta have too many things go right to get to a place where the cost is a little high the yields are a little thin and why do that, you know, I guess what I'm trying to say is John we're not at that point dead.

in any of the projects

That we have on the books. We're at a point where I think our our delivery cost is is less. Well less than the things are trusting 4 and our yields or projected to be pretty strong like the ones you know, if it's historically discuss. So I I I'm all I can talk about what we have and I I feel very comfortable about our underwriting and what are delivery prices are in all of our markets. You're seeing Seattle now trade Office Buildings in the $1,100 range for Quality projects and we took a look at all those some we didn't like for various reasons and is Michelle said we've got one of the best sites in town with the the buildings at total nine hundred thousand square feet. It's two different Office Buildings. Not one nine hundred thousand and she pointed out with with our land costs with you know highest birth.

all types

And here's the best and sustainability, you know, all the great stuff that we do in our buildings and a big amount of projected increase in construction costs and being in a seven or eight hundred bucks. I mean, that's that's pretty spectacular.

And then the second question along the same lines Culver City, you're paid $1,200 a foot for a bunch of eight thousand square foot buildings. That's clearly not the end game. It's just a covered land play. Are you at Liberty to talk about what the ultimate entitlement you expect in Culver City not in a political years, but but but but you can imagine it can accommodate with what are we have? There's seven eight acres and if you think about it the Flower Mart, we have seven acres. Okay, and I'm not saying it's going to be exactly the same size of Flower Mart, but it's going to be a lot more than what's there, but I just don't want to become a lightning rod for any political agendas.

Thank you.

Have a good day. Thank you. Our next question comes from John Kim with BMO Capital markets, please go ahead with Jim Crews your second largest wage now. Can you remind us if this lease is now fully contributing to ffo and cash theme store this year to you. Jim cruises are a second largest. What are they Michelle or Tyler their wage contributing a fully contributing as of the fourth quarter?

But last one, okay, so the note tells the police does not impact impact that at all. That's right.

On split role. I realize it's hard to assess the earnings impact given the moving pieces, but can you provide an estimate as to how much of the existing 78 million dollars in taxes you get reimbursed today from Tennessee.

Well, well one way to answer that is about 50% of our leases are triple-net, but that's not an exact number. You know, I don't have any details on that question.

Okay, and any any thoughts on I realize its multi-family is not a big part of your portfolio. But any views on the likelihood of this passing and how this would impact your mixed-use developments going for bath.

prop what top 10

this is Elliot trencher while we're not going to comment on whether it passes or not given the age of our product which is pretty new. We don't think it will have a material impact on off.

For next question comes from Steve with Epicor is I please go ahead I'm saying so just in terms of sublet in general, are there any other properties currently in the portfolio where you're maybe seeing sublet activity or just what a sublet activity your markets look like and maybe in your portfolio specifically sure Steve. This is Rob how you doing, you know in our in our portfolio, we've already talked about the cruise potential please drop box has some space on the market at the exchange its short-term space and I understand they've got activity on that if I can just take a step back on sublease space in general in San Francisco, you know, there are three things that I'm looking at the numbers picked up but really you've got three factors that affect how quickly that'll be absorbed one month.

the rate expectations of the stuff

Landlords secondly seven out of the 12 sublease space is in San Francisco right now have a term of less than 24 months and then thirdly given that the band of over nine million acre-feet sublease space as we've set on multiple calls that is built in what I would call Next Generation or Tech friendly sort of configuration. The same space is manageable given all the demand we've got so we we have you know now and then there are conversations where there are small Pockets, but nothing meaningful in the portfolio in San Francisco and I would say in general, you know on the west coast. We haven't seen a lot of sub-leasing

Okay, and then secondly just up in Seattle. I know know the big Focus has generally been more in in South Lake Union, but you do own two buildings in in Bellevue off and there seems to be you know, some shift of Amazon's activity over to the east side just curious John or anybody else, you know, how you're sort of looking at Bellevue and potential and opportunities in that market. Yeah, you know, we've looked at all of them and they're obviously quite a few people playing in Bellevue. We think it's a great market. We've we've we're hitting all-time high rental rates are now with our recent leasing I one thing about Belleville is you can build a lot of space there and you're going to see a lot of space built most of it is spoken for but some of it is not and they're going to you're going to see some projects come on stream that I think are inferior locations, and I think they'll be pushing hard to get Tenenbaums.

And I just think the Dynamics for us. We're much more compelling as an exam.

Advance, so I'm not in any way shape or form suggesting that we've lost enthusiasm for Bellevue. It kind of goes back to black John I think was behind used question of what point do you get uncomfortable? I look at what can be delivered what starting spec what costs are you sure you have four completed project what rental rates do you have to get and I'm not as enthused currently about Bellevue spec development. May I am about you know,

Got it. Thanks.

The next question will come from Dave Rogers with bared. Please go ahead and give you a question for you with some help from John but you looked at 2019. I think you guys came in relatively slow on the dispositions relative to guidance and Acquisitions kind of came in above you have issued some on the forward ATM and thanks for the details on the quarters. But I guess I'm wondering, you know between the two years nineteen and off it seems like you probably have issued or monetized fewer assets than maybe you thought a year ago. So one without putting words in your mouth, is that is that kind of true and then two are you seeing it longer to put money to work in the development pipeline or their Acquisitions that just haven't come to fruition that maybe make up that difference in your thinking?

Well, let me first start with.

You're coming in regarding Acquisitions came in above we don't give guidance on Acquisitions cuz it's you know, totally unpredictable on dispositions. We did give guidance between 150 and 300. We came in a little bit on the shy on the Lower Side. I've made comments throughout the year throughout 2019 that a couple of projects. We looked at them as candidates for sale, which would have pushed us to if we done both it would have pushed us well above the 300 we decided that there was some real opportunity to gain value an appreciable value by repositioning those assets at least, you know at much higher rates. So that's the course we took and we're going to be flexible like that Dave. It's it's you know, we we do not operate by we got allocate so much Capital to this of that in a year or that we have to go by this or that or sell this or that yep.

as far more of a

Of I think a much more thoughtful process than that in terms of twenty-twenty, you know, we gave the guidance of a hundred fifty to three hundred that seems like a reasonable range on Disco that made the comment that we haven't, you know, we're not going to identify for all of you until they close which ones those are Acquisitions. We're not really we look at everything the three that we did here were very compelling for the reasons I mentioned and I think they set the company up in development projects and one with a covered lamp lay off where we're going to have a terrific cost per square foot of comparatively and great locations where there is just tremendous demand. So I think it really positions as well. And you know, we don't we're not looking at at acquiring existing Court type assets and whatnot. But you know, it's not the right place for us to put our money unless they're they're being so dead.

based upon you know, uh

Very low in place rent, you know, but then it's going to be so competitive. I doubt we'd be successful. So I hope that helps but it's it's it's each year is different. This here's what we did in the choir anything and years when we acquired something in this case with the success of our development program, we felt comfortable with no re upping refilling the the pipeline in these very strong markets where we have a really good, you know, good business good platform.

Any change in your thinking on timing for you know phase two through four or any of these additional pipeline assets you already addressed Flower Mart in Seattle. So yeah, that's a good question on Oyster Point wage. Um the timing for phase two or three four, we actually have a v days that we will talk about it in future the we submitted the size plan for phases to through Thursday or earlier this or rather this last year. We anticipate approval very soon and design work is underway for phase two months early as potential start would be the end of this year Phase 2 consists of approximately nine hundred thousand square feet, but it can be phased within the phase. So we we haven't determined off just what we're going to pull the trigger on and obviously we'll make that assessment as the timing in square footage when we get further into the year based upon what we're seeing in the mod.

Demand there is very strong.

And it's you know, if I had it up today, I think we'd be leased a very quickly and I think we've got just the greatest position in that market of anybody and we're real excited so more to come. Thanks, John.

Our next question comes from Daniel e smell with Green Street advisors, please go ahead great. Thank you. Just a few quick ones for me, It looks like construction costs fell slightly quarter of a quarter for a few projects. Can you describe what what was the cause of Decline and was mostly a result of going from Light Signs to traditional office tenants off.

Yeah, that's the both 1955 and Dexter the overall construction cost. We're coming in lower n k o p as well come in lower cuz they're not dead. It wasn't decks with kop I came in lower because of non-licensed TI's well, it also came in lower because a lot less scary because we leased him up so quickly so

Okay, and it looks like retention rates were a bit lower than historical average in 2019 was this more of a function of the leases that ruled in nineteen or anything really notable in that figure?

No, I think it's it. You know, we we we don't have much to lease but there's nothing specific that went on in 2019. It's any different than any other year, but just in terms of construction costs, you know, it seems like you know the last few years I've seen mid-single-digit type increases in construction overall construction costs. Can you should be share your thoughts on what you guys are projecting going forward for total total development cost increases

Michelle you want to handle that

Yeah, I think it's going to be.

Range we said it's been that five to seven per-cent of its past few years and I think we expect that the same going forward. Yeah actually talking with Justin Bieber who's our Executive Vice President development runs all our developers construction activities. He's mentioning that we're actually doing he thinks we're going to do better than that. Now, there's been some changes wage and notwithstanding all the construction that's going on our markets. There's been some positive changes in some of the areas and by the way that five to seven percent doesn't mean the projects five to seven percent of it means that that you know various way kind of all flows through when you look at burden and you look at design and you look at construction wage is the ones that are going up going down and labor that's going up or whatever it is. It's been translating into about a 3% three and a half percent increase in the cost of the delivered project. We talked in Jersey.

Please 5 to 7 and whatnot insurance.

Labor and materials but it's not uniform it that's not 5.7% on the total project cost.

Great. Thanks, John.

Our next question comes from Tony pohlen with JPMorgan, please go ahead.

Thanks on Culver City. Is there any sort of timeline we should think about before you know, we start to see some change in the state of play there?

You mean in terms of redeveloping it? Yeah, or just even coming up with a a little more specificity on the plan and what you think you can do there. Yeah. I'm going to wait for a non-political year off and we have tenants remind me Elliot the the tenants don't roll out of there until 2026. Is that right?

Yeah over the next 36 months or so. Yeah, so we have a strategy on how Prince by the way when we bought it or something like thirty-five forty percent below Market wage in the buildings are you know, it's kind of a cool little place. If you haven't seen it go look at its really a neat environment. So we have a strategy to put ourselves in a position to win those tenants get when they when they roll out that we are capable of proceeding with, you know, a an enhanced development team and that means that will be submitting our plans and what not the city in due course so that we can be ready to go by that 2024. I'm so working backwards. You'll probably see something and

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we might have some we might have some things earlier than that to show but you know, we we're pretty good at getting through all this stuff even though it may look like it takes an awful long time and it does and it's frustrating and so forth. It's just a it's just a unfortunate process that we have to go through here in this environment. I would imagine you were probably similar.

Okay, and then just a few numbers items hopefully quickly. I may miss this. Did you give DNA guidance for 2020?

Yeah, it's roughly eighty-five million.

Okay, and that's that's excluding leasing costs just just pure GNA. So including leasing office. Okay, it's a portion of it. It's a portion the leasing cost get split between stabilized and development. Okay, if I can save it was like pushing in a 96 million combined and 2019. So that goes down a decent amount.

yeah, that's

And then capitalized interest any number for that.

around eighty million

And then last question, can you give us a sense as to what residential Noy was in in four q and then what that might look like when all the projects underway stabilize?

Yeah, I mean, we don't really comment on specific project. I mean we don't have one project so we don't comment on The Noy of a specific asset. So, you know when we have all three up and running probably be breaking that out.

Okay, so there was no contribution from the the second project in the fourth quarter then.

No.

Okay, that's it. Thanks. Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Tyler res for any closing remarks.

Thank you for joining us today. We appreciate your interest in krta. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.