Q3 2023 Kilroy Realty Corp Earnings Call
[music].
Good afternoon. Thank you for attending the care C. Three Q twenty-three earnings conference call. My name is Victoria and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to basketball over to your host Bill Hutchins.
S VP Investor Relations and capital markets with KFC. Thank you you May proceed bill.
Thank you Victoria Good morning, everyone. Thanks for joining us on the call with me today are John Kilroy, Chairman and CEO, Justin Smart, our President, Rob Brock Chief leasing officer, and Elliott Trencher, our CIO and CFO at the outset I need to say that some of the information we will be discussed.
During this call is forward looking in nature. Please.
Please refer to our supplemental package for a statement regarding the forward looking information on this call and in the supplemental.
Our call is being telecast live on our website and will be available for replay for the next eight days by phone and over the Internet.
Our earnings release and supplemental package have been filed on a form 8-K with the SEC and both are available on our website.
John will start the call with our third quarter highlights.
<unk> will review our in process development pipeline and Elliot will discuss our financial results and provide you with updated guidance then we'll be happy to take your questions John.
Thanks, Bill and Hello, everybody.
Thank you for joining us today over the last several months, we have seen long term outlook for office business improve more companies are committing to and enforcing in person work.
As a result of higher physical occupancy levels increased foot traffic and commuter activity studies are heading towards recovery.
For example, New York City has been a leader in this regard as large corporations insisted their employees return to the office. This is not only positively impact of physical occupancy levels, but it is also restored our sense of urgency and vibrancy back to the city and I should say energy and vibrancy of the West coast markets and the tech.
Companies that dominate them have followed suit and we anticipate the west coast will follow a similar trend.
San Diego, which is was the first mover amongst our markets is a prime example of how high physical occupancy translates to leasing activity over the course of this year physical occupancy in San Diego has gone from 20 percentage points.
Gone up 20 percentage points and now sits above 80%. The region is 89% leased with our primary cluster in del Mar 97% leased.
Leasing activity in San Diego is amongst the best of any of our regions because higher physical occupancy is translating into tenant demand for space is important to note that the green shoots of increased demand are coming in the form of better tour of velocity and leasing interest in.
In times like these having the newest most modern assets is the best in the best locations is critical to attracting tenants at top of the market rents. Additionally.
Additionally, many of the cities in which we operate things are beginning to change to the better from a policy perspective, specifically recent data points in San Francisco demonstrate there is self awareness around the challenges the city is facing and that policymakers and voters continued to take steps to correct. The issues a few.
Notable examples within the last 12 months District Attorney Jenkins, one reelection which is an endorsement from voters over law and order philosophy. The city is hiring more police officers and increasing their pay and the board of Supervisors proved delays to payroll tax increases and provided discounts for new.
Mrs relocating to the city we.
We have much more work to do but the train is finally moving in the right direction shifting.
Shifting to the economy, the labor market remains tight and inflation, while lower is not yet at targeted levels. The market is suggesting that we are likely to be at a higher rate environment for longer any certainty on the trajectory of rates will take time, but ultimately will be good for the capital markets even.
If things stabilize at current levels.
However from a commercial real estate perspective, the same concerns persist higher rates are putting near term pressure on real estate valuations as loans originated in a low rate environment come due and need to be refinanced.
This dynamic coupled with a pullback in bank lending following the regional banking crisis earlier. This year has created softer conditions in the transit in the transaction markets.
We acknowledge there are going to be continued stress in refinancing risk in our sector. However, we believe we are well positioned against these headwinds as we talked about last quarter in July we closed on a $375 million 11 year mortgage for a portion of our one Paseo campus in San Diego the law.
Loan has a fixed interest rate of five 9%.
And the additional liquidity enhances our financial strength and flexibility in this volatile market.
One Paseo campus continues to perform incredibly well occupancy is approximately 95% across the entire project and we have market leading rents on the office residential and retail.
Real estate always goes through cycles I've been through six myself, we don't know when the headwinds will come or how long they will last.
Which is why we prioritized keeping kilroy, well capitalized with robust platform liquidity and conservative leverage.
As a result, we can stay patient and make prudent capital allocation decisions when we have conviction.
With this in mind, and given where financing markets are today, we are not anticipating any asset sales for the balance of the year.
While markets and sentiment change based on where we are in cycle. The three pillars of our strategy have stayed constant high quality properties strategic capital allocation and a fortress balance sheet.
This simple approach allows us to play offense in the good times in defense in the challenging times, we believe there will be opportunities in the future and we are taking the steps to ensure that we are ready when the time comes as of now our goal remains the same own and operate the highest quality portfolio of mixed use office and life science.
Properties clustered in innovative and supply constrained markets.
Turning to the third quarter highlights and what has been a period of continued volatility I'm happy to report that Kilroy continues to execute.
We signed a total of 188000 square feet of leases during the quarter as well as 117000 square feet of leases post quarter end, we remain busy and are encouraged by the leasing momentum that we're building across our markets and expect to secure more wins on the leasing front during the balance of this year.
And in many of our markets, we're seeing significant increase in demand at the platform level just as we have done in prior down cycles. We will continue to be opportunistic in sourcing efficient capital as needed and we are laser focused on making the right capital allocation decisions.
Lastly on a personal note this earnings call marks my 107th quarterly earnings as CEO.
We actually have had 108, which is including today as a public company, but I did miss one.
In 2007 due to the lack of when competing in the trans fat sailing race from Los Angeles to Oi.
Reflecting on my time spanning more than 50 years in the real estate industry and almost three decades at Kilroy as a public company.
We've accomplished quite a bit including a total transformation of our company coming out of the great financial crisis.
As I look at the company today I am proud of our tremendous team.
We've never been better positioned from an asset quality tenant base and balance sheet perspective.
I want to thank every one of you for your support over the years and I am confident that Kilroy will continue to thrive are definitely handle whatever challenges come next and outperform in the years to come.
With respect to our search for the next CEO, we are entering the home stretch we've been pleased but not surprised to see that the opportunity at Kilroy has attracted many qualified candidates both internal and external and we expect to have an announcement before the end of this year.
That completes my remarks, now Justin will go through our development pipeline Justin.
Thank you John at the end of the third quarter.
<unk> development totaled approximately $1 $70 billion.
Around slightly from last quarter due to the delivery of $95 14, Towne Center drive in San Diego.
Which is 100% leased to an investment grade credit tenant is roughly $419 million left to fund in the development pipeline most of which is for the second phase of our Kilroy Oyster point life Science development in South San Francisco.
As you May recall <unk> phase II includes three buildings and we anticipate they will stabilize in 2025 and.
Indeed tower the only other project in our active pipeline remains on track to stabilization in the fourth quarter of this year and is 74% leased.
Regarding our future pipeline, we continue to advance entitlements and design on oil projects. As a reminder, the future pipeline consists of eight projects diversified across five markets and has a mixture of life science office and residential.
Similar to prior cycles, we will only start a new project when market conditions are favorable and currently have no plans to break ground on anything in the near term.
On a related note new starts remain minimal both nationally and in our market. There are several drivers for this including reduced pre leasing demand and expensive financing.
We anticipate the depressed supply will provide a tailwind for us as a disproportionate amount of the demand continues to favor young high quality space.
Our development pipeline with significant entitlements in place will provide a competitive advantage for kilroy as the market improves.
With that I'll turn the call over to Elliot.
Thanks, Jeff.
<unk> was $1 12 per share in the third quarter, a 7% decline from last quarter. The difference is predominantly due to lower NOI from the previously disclosed Pac 12, and Amazon move outs and higher G&A from executive retirement costs.
On a same store basis third quarter cash NOI was roughly flat as the burn off of free rent was offset by a decline in occupancy gap.
GAAP same store NOI was down roughly 5%.
At the end of the quarter, our stabilized portfolio with approximately 86% occupied and 88% leased the decrease from the prior quarter was due to the previously discussed move outs.
Our net debt to third quarter annualized EBITDA multiple within the low sixes.
Liquidity remains robust with roughly $1 9 billion in total capacity comprised of $1 1 billion from our line of credit and $790 million of cash and marketable securities.
In total our available cash is sufficient to cover the majority of our near term development spend and address our next bond maturity in December 2024.
During the quarter, we repurchased roughly $15 million of our December 2024 bonds at a discount, thereby reducing that maturity to roughly $410 million.
One modeling note, we drew down the last $170 million from our term loan at the end of the quarter. So the third quarter interest expense needs to be adjusted if you were trying to use it as a starting point for the fourth quarter estimate.
Now, let's discuss our 2023 guidance.
As always no acquisitions are forecasted and as John mentioned, we do not anticipate any disposition this year.
Development spend for the fourth quarter is expected to be $100 million to $150 million when factoring in the roughly $300 million of spend year to date. The full year estimate is now $400 million to $450 million down $25 million from last quarter.
With respect to G&A, we continue to track towards the midpoint of our range inclusive of the previously discussed executive retirement costs.
We are tightening the range for our full year average occupancy percentage to 87% to 87, 5% with no change to the 87 five midpoint as a reminder, the fourth quarter occupancy will include India tower.
Cash same store NOI is now projected to be between $2 75, and three 5% a 100 basis point increase at the midpoint due to better than anticipated parking income and some nonrecurring revenue.
In summary, our prior 2023 <unk> guidance was $4 43 to $4 53.
With a midpoint of $4 48 per share based on our performance to date, we are adjusting and tightening the range to between $4 55 and $4 60.
The new midpoint of approximately $4 58 represents a roughly 2% increase from the prior guidance.
The biggest drivers behind the increase or better parking income earlier revenue recognition on a few leases in the operating portfolio higher interest income and the adjustment to our disposition guidance to provide further clarity our updated midpoint implies a fourth quarter <unk> of roughly $1 <unk> per share or <unk>.
<unk> lower than the third quarter to bridge the gap, we back out three pennies due to lower occupancy, which factors in our move outs and move ins and four pennies for various other items, including higher interest expense.
That completes my remarks, now we will be happy to take your questions Victoria.
Of course, we will now begin the question and answer session in the interest of time, we ask we ask that everyone limit themselves to one question and one follow up question to make sure everybody has the opportunity to speak if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remind that question. Please press star followed by Tim again to ask a question press Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
Our first question comes from the line of Nick <unk> with Scotiabank. Your line is now open.
Thanks, I was hoping you could just start.
Maybe rob with some commentary on where you're seeing more strength.
In terms of leasing in the portfolio types of tenants size size requirements markets versus.
Where there is things are a little bit more challenging which I assume is more on the large tenant side.
Yes.
Sure Nick.
Let me hit on a couple of global comments about the leasing environment throughout our regions and actually I'd say throughout the nation.
Tenants right now are seeking have a preference for market ready space shell condition space is less desirable and going to be harder to move.
Tenants are also seeking flexibility looking for one to three year terms in some cases, but in other cases youre seeing lease terms as long as 10 years, but the average is falling somewhere around five years, we have a continued flight to quality, which our portfolio benefits from.
What we're seeing in every market is that the best sublease space every market has sublease space and at the best Sublease space that's built out.
A technology type build out or fit out is moving first and we're starting to see some of that space get absorbed.
The last thing I would say if you look at our Q3 leasing volume.
Q3 is always the slowest time of year, because you have summer and people are gone, it's just harder to get things done. So if you look at what we did in Q3 and then look at what we've done in a relatively short amount of time in Q4, I think it points to what John was saying in his comments about velocity and volume.
Let me just I'll touch on our markets with San Francisco, probably the most notable market in our region, maybe in the country Theres been a demand surge.
Now.
<unk> and <unk>.
Q1 of 'twenty, three we had about $2 5 million square feet of demand, it's more than doubled now to about $5 5 million.
That's largely being driven by artificial intelligence, although the quarter Q3 was a lower leasing volume than we expected. There was about 680000 square feet is very close to completion transactions with two large AI companies.
That we think will we know will close in Q4.
And if you take Q4, plus what's already been going on in the market San Francisco could actually hit close to $1 2 million square feet of leasing velocity for the Q4 quarter, which is on par with the average before the pandemic.
Venture capital funding.
It has reached about 27 billion in the Bay area.
The total for San Francisco in 2019 was 34 billion and we feel like we're on track to meet that.
This year.
Moving to Seattle, I think we have.
Talk about Seattle, and Bellevue, we'd have a tale of two cities.
On the positive note Seattle stands to benefit.
Considerably from the AI move because it's got the second largest concentration of AI talent behind the Bay area in the country. So that's a very positive thing. Unfortunately, it hasnt resulted in an uptick in significant demand in Seattle.
By contrast, Bellevue Big tickets back we're seeing a lot of gaming companies with two large requirements, particularly there were both over 400000 feet. So we think Bellevue is really improving and a lot of that is not going to sublease space thats going to new development.
Los Angeles is such a fragmented market I thought this might just give better color year to date, we've done 35 deals in Los Angeles totaling 359000 square feet 22 of those were renewals, which equates to about 175000 square feet and 13 of those are.
About 120000 square feet. So it's quite a bit of leasing activity that I don't think really gets pointed out when you. When you look at the data lastly.
On a positive note with San Diego.
We signed yesterday, a 15000 square foot lease at 2100, Kettner with MLS San Diego Soccer franchise, and we're very excited to have them come to the building and we know thats going to create more leasing momentum with the discussions we have going on as well as with future prospects Austin.
We have activity I don't want to get into the structure of it or how much of it but we are continuing to work on transactions exchanging paper with tenants.
Last thing I would say with life science and South San Francisco is that.
Demand is not where we'd like it but it is improving.
Several rounds of VC funding has been focused in the south San Francisco market.
And we're starting to see some tenants that had requirements on hold come back to the market and lastly, I'd say about the south San Francisco, one large tenant in the market took sublease space off the market to the tune of about 100000 feet. So we think thats a positive indicator of where things will go.
Very helpful. Thanks, Thanks, Rob I would just second question is on riot games I wanted the CVA or any update on the November exploration and then it sounded like from how you talked about earlier. This year. There was the tenant was sort of thinking also about the 2020 for exploration and.
I think they've taken some other space.
In that market already in West L. A so.
Any update you can give there.
Sure.
Right, we'll be downsizing in terms of their 23 exploration.
On the flip side, we're in discussions with them on a variety of scenarios for 24 and I just can't go into more color on that but we know there.
Looking at this as a downside.
Okay is it possible to get to the downsized amount for this year.
So.
In total the exploration is about 160 K.
We expected over 100 cable given back.
Okay. Thanks, Thanks Elliot.
Thank you for your question.
The next question comes from the line.
Vikram.
<unk> <unk> with Mizuho. Your line is now open.
Thanks for taking the question.
Wondering if you can dig into the life science comments, a bit more just give us a bit more color on prospects.
Some of your peers in that region have said demand has doubled since April in there. They are signing visa. So I'm just sort of wondering if you can give us more details on the types of activity or interest you are seeing and just how should we think about timing and rents.
Okay Vikram.
So rents for new development have maintained.
At the rate they've been at so there hasnt been an erosion there is sublease space in the market and like any office or life science. The sublease space that is high quality will move and we've seen some of that happen.
Other sublease space Thats not high quality will remain on the market as.
As you May recall, we made a decision about a year ago to multi tenant one of the three buildings at <unk>.
And we expect to have that complete by May of next year and in that multi tenant scenario by by doing that we actually increased the amount of activity that we've been seeing.
Because now we're able to talk to.
Tenants about 40000 feet for example, which would be one of our floors and the key component of that multi tenant scenario that I. Just described is that we're delivering as lab spec. So it's basically ready to move in and Thats also.
First to market kind of phenomenon that tenants really want so that that has helped our tour activity there still are.
Bigger requirements out there.
As I said earlier things are just taking longer to get done.
In this environment.
I'd say generally the geopolitical environment doesn't help it seems to ebb and flow, but right now its not great. So that does slow things down, but we haven't seen requirements taken off the market that have been in the market for the last six weeks or so.
That's helpful and just I guess, a bigger quick bigger picture question your.
You referenced sort of the market, earning policy wise in San Fran things, a little better while socio-economic why more towards et cetera, but then at the same time it feels like you're probably still waiting to deploy capital in opportunities I'm. Just wondering if you can square the two if youre seeing a turn a sustainable turn from.
Here, whether it's AI or are there other reasons.
When do you think sort of the <unk>.
For you to use the balance sheet that you've sort of preserve for a while now.
As John Vikram, how are you.
We are.
We're looking at everything we always do we always have even some things that we know are not particularly of interest just to make sure that we are reading the market correctly and that helps inform us for when it is time to make decisions I don't believe right now is we're seeing anything that.
We're seeing some things that we like.
Various and in all of our markets in terms of quality and location, we're not seeing the pricing.
We would like.
Yet and whether they will get there or not don't know as loans get closer to becoming due.
And refinancing becomes a reality that people must go through if they have low <unk>.
Interest rate debt that can't be replaced with regard to the.
The rate or with regard to the size of that alone I think we'll see some opportunities loosen up so we're going to remain very agile there's no pressure on us.
With regard to having to do anything and we are going to behave like we did back probably in 2010, it will be a little different but when we when we see things we like we will act with conviction, but it's not yet it's not appropriate right now in our view given so much volatility globally and in <unk>.
Our industry.
Yeah.
Okay.
Welcome.
Thank you for your question.
The next question comes from the line of Blaine Heck with Wells Fargo Your line.
It is now open.
Great. Thank you John just to follow up on that last question and answer you mentioned, how pricing hasn't gotten to the level that kind of attractive.
To you guys, yet can you give us any sense of how far off that pricing is to where it might be interesting is it 10%, 25% and then.
Generally however, your targeted returns changed with the increase in rates.
Well there are buildings that are being sold.
That appears to be good prices when you look at the base number per square foot, but when you look at the repositioning cost and the re tenant improvement cost and so forth.
It gets up to a pretty high number so.
In terms of where things have to move I'm not going to go there blayne because it is asset dependent for sure.
All assets have benefits and flaws.
Many of the things that are being traded or to have more flaws and benefits in our opinion.
And obviously, we've got to be feel comfortable that we're buying into a market that we think is going to be improving.
Not going sideways what was the second question forgive me.
Just how your returns targets have changed with the inquiry.
Very few in that category.
There has been a little resistance some as we've said over the course of this year as.
Economy has deteriorated.
It's likely that.
People are going to get out of their homes and back into the office or find that they're permanently in their homes and no longer employed that's happened.
So more to come on that but in terms of what we're seeing in our buildings and in our cities is there has been significant increases in activity. We've talked about in previous calls how the public transportation systems have had significant increases in volume our parking garage is significant.
Increase in volume, we're seeing the utilization rates in our building significantly increase that Rob I'm going to pitch that to you to add a little bit more color on that aspect.
Sure and Michael we're going to Triple team this because hilton.
Well it will take part of this too but to add onto what Jon said, he's absolutely right in with the companies that we're talking to most if not all of them have factored into their performance reduce physical presence in the office and that results in.
Your pay being affected if youre not coming into the office and Thats sort of across the board with the tech companies that we deal with.
And thats, the kind of meet their putting into it and I think some of the others that I won't name names, but some of the others basically said if youre not youre not working here. So it's.
It definitely as forceful and it's definitely.
You use San Francisco again, as a proxy as.
As John said parking revenues up the streets are busy now literally Monday through Thursday, Friday is lighter, but it's busy.
Most of the day throughout the day and the financial District, and then I'll, let Elliot.
In terms of our portfolio, we have a range across our market.
Bay area sort of in the <unk>, which is the lower end of our spectrum and as we've talked about San Diego is at the high end of our spectrum over 80%.
Alright, okay.
Thanks for the time.
Thank you for your question.
The next question comes from the line of Neil <unk> with Bank of America. Your line is now open.
Hi, just following up on that last question, because there's still a lot of skepticism around the return to office mandates and like you pointed out there is evidence of that.
Parking revenue can you elaborate on what assumptions are built into your Q4.
<unk> guidance has been updated to reflect the run rate of how parking has a quick one budget or is it still based on your initial projections set at the beginning of the year.
Yes. So Camille this is elliott were sort of somewhere in between we obviously have three quarters of evidence. So we have a little bit more conviction on where things are going.
But theres always some uncertainty and some seasonality to it also right now we're kind of in between where we were in the beginning of the year and in our third quarter run rate.
Okay.
And separately can you talk to the increase in marketable securities this quarter. Thank you.
Yes.
Sure. So that's a function of the capital that we raised during the quarter.
Both the one paseo secured loan and a $170 million term loan and some of that cash we had invested in short term Cds the way the accounting rules work if theres anything over three months it gets classified at the marketable security.
And Thats what is in that number.
Yeah.
Yeah.
Okay.
Okay. Thank you for your question.
Our next question comes from the line of Jay <unk> with Evercore. Your line is now open.
Hi, I was wondering if you could provide a little bit of color just on any known move outs in 'twenty four I appreciate the color on our attention will be choppy, but do you have any known move outs in 24 that you've highlighted.
So.
Jay This is Elliott Robin and I will tag team this but as we've talked about only two expirations next year over 100 K one in the Bay area one in Seattle.
So as far as the <unk>.
Adam.
Just a little color.
Yes. The terminal uses we're chipping away at that we have some transactions were working on and more to come.
Okay. Thank you and then just one other quick question.
Indeed towers, 74% leased but the occupancy is lower at 60% so with it.
Being added to the operating portfolio in the fourth quarter do you expect that gap to narrow in the fourth quarter would you expect that same occupancy to lease percentage gaps persist.
It's going to persist until the move ins fully occur which is going to take time. So.
Anticipate will be closer to the occupancy and then the occupancy and the percentage leased will emerge but that will be more mainly over 2024.
Okay. Thanks, that's all for me.
Yeah.
Thank you for your question.
The next question comes from the line of Paul <unk> with Keybanc. Your line is now open.
Great. Thanks.
We've highlighted a few of the moving pieces.
Youre right games in the tower and some of the known move outs for 'twenty four.
Do you feel that <unk> will likely be sort of a floor on occupancy and maybe you can start to begin to grow in 'twenty four.
Sue.
This is Elliot, we're certainly not going to give 2020 for guidance at this point, what we can say.
Is that as we look at the backdrop for 2024 as compared to 2023.
'twenty three we had about $1 five expiring going into the year.
Five companies 100, K or larger which actually comprised almost two thirds of that $1 5 million going into next year, we have about 1 million square feet expiring and as we said two tenants over 100 K.
They are closer to about 30% of the total so we anticipated being much less binary in 2024 versus 2023.
And then if we want to look at 2025, it's about 700, K expiring with no tenants above 100 K. So.
Again can't say, how everything plays out, but it should be less binary.
Yes.
Okay, great. Thanks, and your decision to reduce the disposition guidance of zero is that timing related or was that sort of related to some kind of lack of interest and if you can maybe give some color on some of the buyers in the <unk>.
That'd be helpful.
Yeah.
John you want me to handle that.
Yes. Please.
Yes, so it's a function of a few different things one as we came into the year. We gave a range that had zero at the low end and in part it was because we sort of knew that the market was a little tough to project and we had no interest in playing into a weak market as a seller.
Two.
We did not project, having raised 375 million via the one paseo mortgage in the beginning of the year. So from a liquidity perspective, we had done much better than what we anticipated and because of that and because of the financing dynamics that John discussed.
We didn't anticipate seeing much interest at pricing that we deemed acceptable.
And that's why we decided not to pursue anything.
Okay great.
Could you give us any color on the on the buyer pool.
What kind of.
Buyers are sort of there and any kind of financing with their kind of look at it.
So.
Generically.
Go ahead John.
No.
Got it I'll follow up.
Is the generically speaking.
The capital that seems to be out there in greatest for US is the opportunistic capital.
And you can see that by some of the properties that are traded at a pretty low per square foot numbers now as we evaluate that we don't think the quality is commensurate with our portfolio, which is why we don't pursue it.
But that's where we've seen that.
<unk> pool of capital those arent the types of groups that we want to be selling to and it kind of plays into the decision. We just talked about.
Yes.
I have nothing further to add I think that's good good summary.
Summary.
Great. Thanks.
Yeah.
Thank you for your question. The next question comes from the line of Dan One prevent scheme with Green Street.
Your line is now open.
Good morning, and thanks for taking the question guys I guess, just going back to your comment and I. Appreciate you are not going to comment on how far pricing has to fall for you guys to get interested in deploying capital, but are there certain markets, where youre sort of getting closer or more eager to deploying capital than others, given where pricing is.
Well it is.
Yes.
<unk>.
We're not getting closer to deploying capital, but there are some signs of a few buildings that we like at pricing that would make sense and that quantitatively meet our.
Desires.
And I'm not going to tell you, which markets because I just don't feel that we from a competitive standpoint.
Let other.
As I say competitors know, what we're thinking but.
You should.
Im going to say, what I've said in Arizona NAREIT.
In 2009.
And that was youll see us in many different markets.
And.
And in this case the markets that we're already in.
Looking and when we think the time is right we will strike.
We don't think the time is right yet, but there are some assets that are in need of being recapitalized. So we'll we'll play our cards very carefully and we're in no hurry.
Sure.
I appreciate that commentary that's all I had thanks guys.
Thank you for your question.
<unk> comes from the line of Peter Abram.
Permits with Jefferies. Your line is now open.
Yes. Thank you could you just talk a little bit about.
Discussions for the rest of the space and indeed tower and.
And specifically new supply in Austin, and how that is potentially impacting those discussions.
Yeah.
Sure. This is Rob go ahead Ron.
Yes.
This collecting my thought so I guess with the new supply of some of the new supply on the market in terms of sublease space, but one thing I would say is that we've seen.
Large relatively large chunk of the sublease space taken off the market by the tenant in the last quarter. So again things are in.
In flux right now in Austin.
Another Tech company actually took 100000 feet fairly recently.
Because they understood that their head count and how much space. They need so things are really dynamic right now we do have activity.
We are the best building in the CBD bar, none and we attract any any tenant looking in the market is looking at us and so it runs the gamut.
As you've seen in financial services law firms, we've had tech interest.
But I can't go into.
Im not going to get into like specific transaction and where we are whether we're an LOI or in leases or what have you, but we have more news that will be forthcoming.
Yeah.
This is John speaking with regard to Austin and indeed in the marketplace in general.
Was it Austin two weeks ago with our <unk>.
Local sharpshooters, and so forth and going through kind of the segmentation evaluation of where indeed sits.
Buildings that are either available today or that will be completed over the next couple of years I'm very happy with where we're where we're positioned with regard to quality and location and availability and so forth. There are some buildings that are being built in locations that subtle us, but I don't think they will do well at all.
There are some buildings that had been up there trying to compete with us.
Nevertheless to deal too.
And we're not pollyanna ish about any market or any.
There is no God given rights, if there was going to do better than everybody else, we work hard at it.
But we I think are extremely well positioned and I like where we are with regard vis vis product that's coming on stream and so forth. So we've not been we've achieved really good run rates in good terms with very high credit tenants.
And we've got quite a few tenants that we're working with.
Four.
The project and.
I think we will I think we're going to do very well this next year.
Thanks, John and one more could you just I appreciate the comments earlier about return to office I think you said here in the <unk> in the Bay area I'm wondering if you could dig in and just talk about house returned to office Ben.
In the south of market.
Our submarket in San Francisco kind of what Youre seeing on the ground there.
How successful companies arent getting people back to the office and that part of the city.
Well I'll start off with.
Okay.
Yeah, Rob let me just start off on that you can tell we're in different locations. So we have to play a little bit of delayed phone tag here.
The office tenant at the Big office tenants in phase one of <unk>.
Of <unk>.
Which was the initial 700000 feet, it's fully leased.
They have been.
Their occupancy has been very high they have been hosting.
And Theyre atrium with several hundred people multiple times per week.
It's my understanding mostly AI people.
And they're really.
Active in that building as are the folks in the life science portion of that phase as far as the rest of the market goes perhaps you could respond to that wrong.
Sure, Yes, I mean, I agree with John the only thing I would add is that.
In our south of market portfolio.
It depends on companies, but if you look at Adobe or crews.
They are back to work and so those are both south of market.
Our our non tech companies are more back I guess, then are tech companies, but we're not monitoring company by company, but I would say that south of market.
Is visibly busier than.
Then.
It was equivalent to what I was saying about the financial district.
As a whole and when these two deals that I mentioned earlier happen in the fourth quarter to 680000 feet between two deals both of those are locating south of market.
And then just.
John again.
This is John again, I apologize there.
You had said South San Francisco I happen to have a new speaker phone in the office here in San Diego. This is our first time using it and cutting in and out so I apologize.
Yes.
Okay I appreciate the color. Thank you.
Yeah.
Thank you for your question.
Your next question comes from the line of John Kim with BMO.
John Your line is now.
Okay.
On your cash and marketable securities can I, just ask what interest rate you're earning on that.
Okay.
So it depends on the duration, but.
Right now call it in the fives.
And is there anything in the marketable securities other than the Cds that you mentioned.
No.
Do you foresee I know you've talked about having a high balanced development spend and to retire debt.
Couple of next year, but do you foresee maintaining a high cash balance in the short term just to.
Provide some liquidity for any opportunistic acquisitions.
Well in the short term that cash is going to go to effectively fund the development pipeline. So it's reasonable to assume that it gets smaller over subsequent quarters, because we're going to continue to fund it.
Okay.
Last question is on the termination income that you had this quarter, which is.
Pretty modest but I was wondering if you could provide some color on that and what youre expecting for the remainder of the year.
So there is really just one small lease.
That paid the termination fee in San Francisco for a retail space is what really drove it and.
And we are not projecting any other termination income for the balance of the year.
Thank you.
Thank you for your question.
There are no additional questions waiting at this time I would now like to pass the conference over to the management team for further remarks.
Thank you Victoria and thank you everyone for joining us today. We appreciate your continued interest in <unk> have.
Have a good day.
That concludes today's call. Thank you for your participation and enjoy the rest of your day.
Your continued interest in <unk>.