Q3 2024 Kilroy Realty Corp Earnings Call
Hello everyone and thank you for joining the KRC 3224 earnings conference for.
The outset I need to say that some of the information we will be discussing during this call is forward looking in nature.
Please refer to our supplemental package for a statement regarding the forward looking information on this call and in the supplemental.
This call is being webcast live on our website and will be available for replay for the next eight days are.
Our earnings release and supplemental package have been filed on a form 8-K with the SEC and both are also available on our website.
Tangela will start the call with a strategic overview and quarterly highlights.
Elliot will discuss our recent capital allocation activities with the transaction market outlook, and Jeffrey who will discuss our financial results and provide you with updated 2020 for guidance.
Then we will be happy to take your questions Angela.
Tangela: Thanks, Taylor I am pleased to report on a strong quarter of execution as we continued to navigate a challenging but steadily recovering operational environment.
Tangela: <unk> high quality, well and monetize portfolio differentiated tenant relationships experienced and talented team strong balance sheet and robust liquidity profile uniquely position. This platform to capitalize on the recovery that continues to take hold across our market.
Tangela: Our third quarter financial and operational results speak to this dynamic <unk> for the third quarter was $1 17 per share a sequential increase of <unk> <unk>.
Tangela: Due to a combination of recurring and nonrecurring items, which Geoffrey will cover in a few minutes.
Tangela: Based on our strong third quarter performance and outlook for the balance of the year, we increased our full year <unk> guidance by <unk> 15 per share at the midpoint of the range.
Tangela: During the period, we signed approximately 436000 square feet of leases, including 209000 square feet of short term leases. In addition, we also signed 110000 square foot short term lease related to the <unk> bankruptcy.
Tangela: The short term leasing activity. This quarter was predominantly comprised of renewals for tenants that will be vacating are significantly downsizing in the portfolio in the near term excluding short term transactions. The weighted average lease term on executed deals with approximately $5 five years with cash leasing spreads of approximately 7%.
Tangela: Notable transactions. This quarter included the previously announced 118000 square foot SAP renewal in Bellevue, Washington, and our new 28000 square foot lease with Nvidia and South Lake Union.
Tangela: Our recent leasing activity in conjunction with an early rent commencement on a previously executed new lease drove a 75 basis point increase in the midpoint of our average occupancy guidance to 84%.
Tangela: SAP Nvidia and late stage deals in our future pipeline highlight we continue to see robust demand in Bellevue and are beginning to see signs of a pickup in demand in South Lake Union in Seattle.
Tangela: <unk> five day return to office announcement is further accelerating the dynamics that we've seen in the Pacific Northwest over the course of 2024 and is the latest in a series of announcements from major West coast employers that had worked hard to embrace remote work only to arrive at the conclusion that in person collaboration is the most effective way to enhance <unk>.
Tangela: <unk> and productivity and build a differentiated culture that drives long term sustainable performance.
Tangela: In San Diego, where physical occupancy has been at pre pandemic levels for some time, we continue to experience strong demand and recently, we have seen a notable uptick in interest from existing tenants looking to expand within our portfolio and several instances. This demand is coming from tenants previously downsized, but are now realizing that they underestimated their utilization.
Tangela: And optimal real estate requirements and are looking for opportunities to course correct.
Tangela: In Los Angeles, while aggregate demand remained soft we continue to execute well driving improvements in sequential occupancy in each of our submarkets.
Tangela: Of note, we continue to see solid activity in long Beach and have recently seen a nice uptick in interest in Culver City, driven by professional service and technology tenants.
Tangela: And in San Francisco, we remain encouraged by ongoing improvements in physical occupancy foot traffic and the overall vibrancy of the study.
Tangela: The momentum being created by the continued growth and evolution of the AI industry has been and will continue to be a significant catalyst for this market.
Tangela: The Bay area commands by far the highest proportion of AI related VC investment in the country, which is actively driving significant levels of new business formation are very positive longer term trend for this market.
Tangela: While to date, many early stage AI tenants have focused our real estate searches on sublease space that is immediately available for occupancy its worth noting that approximately half of the remaining available sublease space in the market at the lease expiration prior to the end of 2026 limiting the attractiveness of the space to many users.
Tangela: As a result perspective tenants are shifting their focus to direct deals and we're working hard to capitalize on this dynamic by leveraging our well developed and thoughtfully executed spec suites program.
Tangela: As it relates to Kilroy Oyster point in South San Francisco, we are excited to begin delivery of the second phase of this extraordinary campus next month in early 2024, we described a meaningful acceleration and tour activity off of a very low 2023 base.
Tangela: That higher level of interest and tour activity has remained relatively consistent throughout 2024, but over the last two to three months, we have seen a crystallization of this demand as tour activity has expanded to include a much wider range of potential tenants and these tenants appear more prepared to execute.
Tangela: Recently, we have spent time on site with early and late stage life Science companies research institutions technology companies and other more traditional office users.
Tangela: While there is no question that the deal process has become significantly elongated we remain highly convicted in the quality of what we are delivering and its unique ability to cater to a wide range of highly discerning tenant.
Tangela: Elliot will discuss the transaction market in more detail in a moment I will note that the environment is clearly evolving.
Tangela: Financing markets, while still challenging are improving leading more sellers to test the market.
As a result, Elliott and team are spending more time evaluating actionable deals through a disciplined risk adjusted return framework, while also making good progress on the land sales discussed last quarter.
Tangela: In addition, I am delighted to announce our recent acquisition of junction at del Mar of 104000 square foot two building campus located strategically adjacent to <unk> <unk> per se on mixed use project in the del Mar height Submarket of San Diego.
Tangela: While a small transaction. This deal represents an excellent value proposition for the company, increasing our presence in one of our strongest existing submarkets and achieving a very compelling risk adjusted return on an asset basis with additional potential upside from longer term redevelopment and integration with one per sale.
Tangela: Before turning the call over to Elliot I wanted to take a moment to thank the entire kilroy team for the hard work dedication and flexibility I've seen everyday since joining this platform. It has been gratifying to see the way. This organization confronts challenges leans into opportunities and embraces change and I'm excited to see what we can deliver together in 2025 Elliot.
Elliot: Thanks Angela.
Elliot: As Angela mentioned at the end of the quarter, we acquired junction at del Mar in San Diego, Our first acquisition since 2021.
Elliot: This opportunity with attractive because of the premier location additional scale and a strong sub market ability for kilroy to uniquely add value in place income and lease term.
Elliot: The buildings are adjacent to or wanted to say a campus and by consolidating ownership, we can drive value creation through better integration to the nearly 700000 square feet of office and retail we have next door.
Elliot: The purchase price was $35 million, which equates to approximately $335 per square foot or a low double digit stabilized yield.
Elliot: The project is 96% leased to a variety of tenants with a weighted average term of over four and a half years.
Elliot: In the few weeks since we have closed on the deal we have seen good interest in the remaining vacancy at terms consistent with our underwriting.
Elliot: Longer term and depending on market conditions, we may consider additional redevelopment opportunities onsite.
Elliot: Turning to land sales, we are working on monetizing several parcels in our future development pipeline strategically the rationale is threefold first after thorough evaluation, we believe that the highest and best use of these particular sites is something other than office and life science and as a result, our resources are better focused elsewhere.
Elliot: Second do you feel to help right size, our land bank for the current environment and finally, it allows us to raise attractively priced capital to be acquisitive when appropriate.
Elliot: We have advanced negotiations with multiple sophisticated groups that support our thesis behind the re entitlement, but as previously discussed it will take longer to realize proceeds.
Elliot: To put some numbers around this to two deals furthest along are projected to generate in excess of $150 million and we hope to have more to discuss in future quarters as these transactions advance.
Elliot: Bigger picture the capital markets continue to strengthen as lending is up year over year, driven by a strong recovery in the <unk> MBS market and that improving leasing market that allows buyers and sellers to underwrite more thoughtfully.
Elliot: As a result transaction volume has increased compared to last year and high quality office and life science opportunities are starting to surface.
Elliot: To this end there had been a few core office deals trade in our markets at cap rates ranging from the mid <unk> to low 7% range.
Elliot: In summary, as we demonstrated this quarter, we are prepared to transact when the right deal comes along and we are hopeful that we can find additional opportunities as both a buyer and a seller in the coming quarters.
Speaker Change: With that I will turn the call over to Geoffrey Thanks.
Geoffrey Thanks: Thanks Elliot since joining kilroy in late August I spend my time getting to know our team and portfolio and I'm excited to work closely with Angela and the rest of the executive team to deliver value and drive outperformance going forward.
Speaker Change: <unk> was $1 17 per diluted share in the third quarter and was impacted by several onetime items totaling approximately <unk> <unk> per share, including $2 6 million of bankruptcy settlement income $2 2 million of restoration fee income and $1 4 million related to real estate tax appeals cash same property.
Speaker Change: NOI growth was two 7% in the third quarter, including a 230 basis point impact related to the aforementioned onetime items.
Speaker Change: In terms of our forward outlook, we've increased 2024 guidance for same property NOI growth to a range of minus two to minus one 5% 175 basis points increase at the midpoint of the range.
Speaker Change: Our improved outlook is driven by the increase in our full year average occupancy projection, which Angela discussed earlier, the cash impact of our nonrecurring items in the third quarter and cash restoration fee income expected in the fourth quarter.
Speaker Change: In addition, we have updated our 2024 <unk> guidance range to $4 38 to $4 44 per share representing an increase of 15 at the midpoint.
Speaker Change: The revised guidance reflects our updated same property NOI growth and G&A guidance as well as the expected contribution of our junction at del Mar acquisition in the fourth quarter.
Speaker Change: Our G&A guidance range was narrowed and lowered by $1 million at the midpoint, reflecting a variety of ongoing G&A initiatives that have reported refocused resources across the platform with the goal of improving the efficiency and effectiveness of our G&A spend the.
Speaker Change: The midpoint of our updated full year <unk> guidance implies fourth quarter <unk> of $1 three per share a 14% decrease from the third quarter.
Speaker Change: Bridge, there subtract <unk> <unk> related to the previously discussed onetime items in the third quarter <unk> related to lower sequential GAAP GAAP net operating income due primarily to fourth quarter anticipated move outs.
Speaker Change: <unk> related to lower interest income net of lower interest expense and <unk> related to the timing of G&A spend.
Speaker Change: Turning to development activity as Angela highlighted we're excited to be approaching the delivery of Kilroy Oyster point in the fourth quarter of this year.
Speaker Change: As the products was the primary driver of our development spending during 2024, we expect development spending to moderate in 2025 pending future Ti capital outlays.
Speaker Change: As a reminder, for KFC phase III interest capitalization will cease at the earlier of tenant occupancy or one year from base building completion, which is expected to predominantly occur in the fourth quarter of 2025.
Speaker Change: With respect to the future development pipeline as Elliot highlighted we continue to work towards monetization of several parcels that we now believe our highest and best use outside of the company's core competencies as we continue to evaluate and began executing on a disposition program to maximize shareholder value. The continued capitalization of interest may not be appropriate in all cases.
Speaker Change: As our disposition plans gain traction we will be able to provide more detail on what this will mean for 2025, but we do currently expect that capitalized interest will be lower next year.
Finally from a balance sheet perspective, we're exceptionally well positioned with $1 7 billion of available liquidity, while we'll use cash on hand in the fourth quarter to repay our scheduled bond maturity, we still expect to end the year with significant cash on hand, and a fully undrawn credit facility, providing us with ample flexibility and capacity to navigate a dynamic operation.
Speaker Change: <unk> transactional and capital markets environment for 2025 with that we're happy to take your questions operator.
Speaker Change: Thank you if you would like to ask a question. Please dial star followed by one on your telephone keypad now.
Speaker Change: If you change your mind, please dial star followed by two to exit Q and when preparing to ask you. A question. Please ensure that your phone is on mute locally.
Speaker Change: We respectfully ask that you limit yourself to just one question and one follow up.
Speaker Change: Our first question today will be from the line of <unk> with Scotiabank. Please go ahead. Your line is now.
Speaker Change: Thanks, I guess first question if you could just talk a little bit more about.
Speaker Change: Oyster point phase two and you mentioned some traditional office users potentially being candidates. If you could just talk about what dynamic is making that.
Potential for the project and then also.
Speaker Change: In terms of the.
Speaker Change: The tenants in the first phase whether any of them might be expansion candidates for phase II.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks, Nick I'll start and then I'll turn it over to Rob to provide a few more specifics I would just say.
Speaker Change: As I mentioned my prepared remarks, we're really convicted about the quality of what we're delivering and oyster point and the closer we get to delivery of that project. The more you can see sort of the unique attributes of the campus. The amenities that we're putting in there and thats certainly improving sort of the relevancy on the tourist just let this project is and what it will be to the tenant.
Speaker Change: To that end up locating here in terms of the demand as I mentioned, our tour and interest activity. We've seen from traditional office users I think it's really just a reflection of the quality of the project that's being delivered.
Speaker Change: And the fact that we have as you know in phase one and office tenant already that is very successful and very happy at the project as well. So I don't think there's anything more to it than that it's really just.
Speaker Change: Very high quality project, delivering with a really fantastic amenity amenity package.
Speaker Change: Hi, Nick.
Speaker Change: I guess I'd say also kind of going off angelo's comments the landscaping is now.
Speaker Change: Say about two thirds of the way installed and that makes a huge difference in the project and were now for the first time presenting inside our fully fitted out conference Center.
Speaker Change: Our prospects really get a sense of what it's going to be like.
Oyster point, and I think kind of going further on the demand and what we're seeing as I've said before we're delivering into a really positive environment.
Speaker Change: VC funding for the quarter is at $2 6 billion.
Speaker Change: In the year to date number is about $9 9 billion, which is about $1 billion more than the.
Speaker Change: Quarter before so we're seeing an improved funding.
Speaker Change: Environment, which is leading to more demand demand has remained steady at about two 8 million square feet and I think for us, particularly at Oyster 0.1 of the things. We're seeing is larger format tenants coming into the market.
Speaker Change: A good proportion of them are larger than.
Speaker Change: 44000 feet, which was a single floor for us. So all things are coming together, it's a really busy place right now and are sort of going off what Angela said also our tour activity and presentations or have accelerated in the last month to six weeks, yes, and just on the second part of your question in terms of the two tenants we have in phase one.
Speaker Change: <unk>.
Speaker Change: The likelihood that either of them expands into phase III I would just say we've got to.
Speaker Change: Very successful tenants and phase one of the project both of whom I believe are extraordinarily happy at Oyster point and I would say I do think there is long term expansion potential for one or both of those tenants.
Speaker Change: At this point my expectations would be that Thats, most likely four phases beyond phase II.
Speaker Change: Okay. Thanks. That's helpful. Second question is just on the short term leases. So you talked about that.
Speaker Change: Saying many cases, it could be tenants, leaving and the future of downsizing in the future. So is there a way to just put some numbers around this.
When we look at the short term leases that were announced year to date it looks like it's about 340000 square feet.
Speaker Change: 2% of the <unk>.
Speaker Change: The portfolio I imagine I think there was also some.
Speaker Change: Short term leases last year, so just trying to understand like how much of that occupancy benefit I guess is is in this year or maybe even helped with some of the the occupancy.
Speaker Change: <unk> revision higher but we should think about as you know at some point next year its occupancy.
Speaker Change: Go away.
Speaker Change: Yes.
Speaker Change: Nick I appreciate it I'll say a couple of things number one anything that we've disclosed as a short term renewal is already reflected in the lease expiration schedule you see in the supplemental so you have full visibility to all of those.
Speaker Change: Short term renewal activity so during the quarter.
Speaker Change: The short term activity, we announced with <unk>.
Speaker Change: Primarily related to one large renewal for capital one on a short term basis in San Francisco, that's going to extend that maturity just a couple of months. So it's still a 2020 for exploration, but again reflected in our lease exploration schedule AUC.
Speaker Change: The only thing that was significantly different than that kind of activity are really two things that that varied from that.
Speaker Change: First the larger format short term lease we announced I believe in the first quarter of this year.
Speaker Change: Which is $75 to 100000 square feet took occupancy this quarter, we'll be exiting the portfolio in the fourth quarter of this year and then the second more unusual transaction with the new lease we signed with the successor entity to Derm Tech this quarter, that's going to keep them in occupancy through this year end too.
Mid first quarter next year and Thats, one where we do expect a vacate our significant downsides, but are in discussions with them now.
Speaker Change: Yeah.
Speaker Change: Our next question today is from the line of Paul run up with key Corp. Please go ahead. Your line is now open.
Speaker Change: Okay.
Speaker Change: Great. Thanks for taking my question could you provide me.
Speaker Change: Could you provide some color on your decision to acquire.
Speaker Change: Del Mar it seems like the market is pretty tight is there any kind of long term plans to maybe integrate with one sei over there.
Speaker Change: That'd be great.
Speaker Change: Yeah, I'll make a few comments and then and then turn it over to Elliot for additional additional commentary, but this is located.
Speaker Change: Really adjacent to our one Paseo project, which is an incredibly successful mixed use project that the company has developed and I would say there are strategic benefits longer term as we think about how this site could potentially be redeveloped and further integrated with one per sale, but as I think you also heard Elliott really highlight in his prepared remarks. This was also a.
Speaker Change: Very attractive deal on an as is basis, if there's no redevelopment play given the cap rate that it was acquired at <unk> and <unk>.
Speaker Change: Our lease term, we have with existing tenants and just really how tight that submarket is as we mentioned its one of our most successful submarkets in the portfolio. We ourselves are 90, 797, 5% leased into Omar and.
Speaker Change: As Elliot highlighted that this acquisition was 96% leased as well so it's both good income on an as is basis with yes.
Speaker Change: Sort of a strategic potential longer term benefit through redevelopment and further integration with one paseo.
Speaker Change: Yes, Paul.
Speaker Change: Paul as we sort of touched on this really hits checks. So many boxes for us as an acquisition, we know the market incredibly well, we know the micro location very well, having so much scale next door allows us to.
Speaker Change: Take advantage of that and whether thats.
Speaker Change: As we think about how tenants grow in our portfolio or if there are expenses that we can manage.
Speaker Change: And then there is also something to say for the brand that we have as a company have created at one Paseo and the more we can do to extend that brand and integrate adjacent properties. We think is very additive.
Speaker Change: Okay.
Yes.
Speaker Change: Great. That's helpful and then on the development pipeline could you elaborate on the 4400.
Speaker Change: And then 46 90 executive drive being moving to the tenant improvement grouping and maybe what it will take for the assets to be placed in service and then building off that and any color on the decision to push the stabilization out of quarter.
Yes, so I'll take that.
Speaker Change: The reason they went into the Ti ready phases, because the cold shell is essentially complete and it is a it's more of a technical.
Speaker Change: Timeline that we've hit and so now that we've hit that point in time, our 12 month clock begins four.
Speaker Change: For lease up and then at this at that point the properties will go into the operating portfolio capitalization will fees and they will be integrated into our occupancy statistics, etc.
Speaker Change: As far as the leasing market around that Rob if you want to touch.
Kind of going off with Elliott said is the <unk>.
Speaker Change: Building is delivered we are starting to deliver and the tenant improvements are starting for the spec labs, it's increased our activity there and as you recall. We did this we made this decision to move to life science, because it gives us a wider net to cast although there are a lot of.
Companies in the neighborhood. There's also a lot of life science in the areas. So we're seeing a good amount of interest in the project. We just had a relatively large broker event last week that was very well attended.
Speaker Change: And then just the last piece of your question on the timing on $46 90.
Speaker Change: As you May recall last year, we had attendance Sorrento therapeutics that was supposed to take that space and declared bankruptcy. We then pivoted and we adjust that are designed to go from a single tenant used to a multi tenant use.
Speaker Change: As we sort of work through that it just took a little bit longer.
Speaker Change: And developing those plans and that was the one quarter delay.
Speaker Change: Our next question today is from the line of Blaine Heck with Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Yes.
Blaine Heck: Okay, great. Good morning out there. So you talked a lot about the land parcels so related to that I wanted to ask about flower Mart clearly the pandemic interrupted the plans you have to develop mixed use space with a lot of office there, but in the past I think you guys excluded it from any land parcels Europe.
Blaine Heck: <unk> for disposition. So can you talk about what the plan is there.
Blaine Heck: Can you adjust the property mix to lean more towards residential or retail and then lastly, I believe your capitalizing interest there is there any clear answer to when that could cease.
Speaker Change: Yes, thanks Blaine.
Speaker Change: I'll say a few things not flower Mart. This is a really exceptional assemblage of property in the city of San Francisco.
Speaker Change: Very well located accessible.
Speaker Change: Zoned for pretty high density.
So at the right time, I think there is theres a lot of reasons to be enthusiastic about how flower Mart ultimately gets developed.
Speaker Change: Given where the market is right now and that's unlikely to be in the near term and certainly we're going through an extended process of really understanding what all of our options there and making sure that we're on a path that will ultimately maximize value through whatever eventual outcome that Ed.
Speaker Change: Note that right now we're still working on completing our work at the wholesale and moving the flower vendors over so we're still at that stage of the project.
Speaker Change: But actively working on longer term design and.
Speaker Change: Density considerations at flower Mart, the things that make the site challenging I think in the near term or just making sure well it sounds like a good idea to put that into alternative uses I think we have to be really mindful of the fact that we do have such significant density approved at the site and there are a number of other plans that might be more actionable in the short term that would really in paradise.
Speaker Change: So our ultimate value and realization that flower Mart and so those are things that we have to be mindful of as we continue to work through our plans for that site, we will have better clarity.
Speaker Change: And sort of what timelines look like for those different plans and what that means for interest capitalization.
Speaker Change: Okay, Great. That's that's great color.
Speaker Change: Just for my second question, another kind of high level one.
Speaker Change: The year is kilroy in particular, John has been very vocal about the need for political reform on the West Coast and now we're also facing presidential election that is highly controversial.
Speaker Change: Yes from both angles here Angela how are you feeling about the political and business environment on the West Coast I guess have you seen any improvement in the short time that you've been there and I'd also be interested in any potential implications you think there could be from the San Francisco.
Speaker Change: Election, and maybe even federal election, if you have any view there.
Speaker Change: Yeah I'll.
Speaker Change: I'll make a few comments obviously as you pointed out the company has been very politically aware over time Im politically active in the markets. We operate in really championing championing Inc.
Speaker Change: Great policy, both from a business perspective, but also just from a quality of life and safety perspective, as well and that's been a huge focus of the company's efforts over the last few years I would say we have seen not just during my time.
Speaker Change: But over the last probably 18 to 24 months a real improvement in many of the markets. We operate in and that's absolutely true in San Francisco, but it's true in our other markets as well like Seattle and Los Angeles.
Speaker Change: Integrated.
Speaker Change: We are continuing to monitor all of the election activity really closely we do feel like what's happening in San Francisco will continue given the way that the mayoral race and to the board of Supervisors races are shaping up and do feel like we'll continue on the path we've been on which is to some degree more moderate policies that again continue to focus.
Speaker Change: On quality of life and safety issues in the cities and really bringing back.
Speaker Change: Employees and residents and really just continuing to improve the overall vibrancy of those markets.
Our next question today will be from the line of Jeffrey Spector with Bank of America Merrill Lynch. Please go ahead. Your line is open.
Speaker Change: Great. Thank you.
Jeffrey Spector: Angela you mentioned in your opening remarks recovery, but you also said subtle recovery.
Speaker Change: In New York City I Am sure you are aware I mean, I think one of the key catalysts was companies finally deciding to stop producing space.
I guess by market, where does that stand where do you think that stands in San Francisco or L. A or a Seattle versus New York City, given everyone's trying to compare.
Speaker Change: Yeah, Thanks, Jeff I'll say, a few things number one I think important commentary made in the prepared remarks was just around some of the recent return to return to office announcements, we've seen and what I really tried to highlight there is what we're seeing in this phase of the return to office dynamic it's companies that had works really hard to embraer.
Speaker Change: This remote work.
Speaker Change: Consistent and significant part of their workplace environment that are moving back to two environments and in particular in Amazon five day announcement that represent sort of pre pandemic norms and so I think thats certainly very helpful. Dynamic overall I also pointed out, particularly in the San Diego market, but I'll turn it over to Rob to talk more broad.
Rob: About what we're seeing in other markets that we have recently seen a pretty significant uptick in terms of tenants looking to expand within the portfolio and that in several instances and I do think this is.
Rob: No sign of things to come we're seeing tenants, who had reduced space or we're actively planning on producing space in 2025 come back and sort of begin conversations with us because they believe they've overshot dose reduction and now that theyre getting people back into the office more consistently and they have a better sense of what our ultimate utilization.
Speaker Change: Our real estate requirements are and are realizing that there are a little bit different and that is I will turn it over to Rob, but we've certainly seen that dynamic not necessarily within our portfolio, but within the broader markets. We operate in as people, who put sublease space on the market are pulled some back as their plans kind of shift and change yes, Jeff just adding onto that there is a palpable change in difference.
Rob: And the streetscape in all the markets, we're operating in for the better and I'll just tick through a couple.
Speaker Change: Belvieu Bellevue for example, with Amazon being a major employer there.
Speaker Change: Is on track to have about 25000 employees Amazon employees in the office phased in over the next 24 months. So thats a very positive thing for assist a virtuous cycle when you get companies.
Companies, bringing people back to work that helps retail retail helps the companies have their employees that work and we're seeing that happened in Seattle. In addition to Amazon's returned to work policy the city of Seattle and Kings County are mandating a three day a week returned to office starting in November for those employees. So in the core of that.
Speaker Change: It's about 13000 more people.
Speaker Change: Working in downtown Seattle, which it will be nothing but helpful.
Speaker Change: San Francisco Salesforce as the most recent largest to announce a return to office policy that will take effect.
Speaker Change: <unk> taken effect, but will really be phased in over the next couple of months and Thats in particular because of our San Francisco headquarters office is directly in the middle of the Salesforce campus. The rest there's new restaurants opening there is theres a lot going on in San Francisco, where even a year ago. There wasn't much retail at all now.
Speaker Change: We're seeing new openings.
Speaker Change: Los Angeles.
Speaker Change: In our markets, where we operate Culver Hollywood and the west side of L. A piece.
People have been back to work and there is it's continuing to improve we're starting.
Speaker Change: Says anything about it we're starting to see larger transactions starting to tour of the market in places like Playa Vista that had been very slow over the last year.
Speaker Change: San Diego Angela hit on in Austin was probably one of the biggest leaders have returned to office over time.
Speaker Change: Thank you very helpful. My second question is on external growth I guess acquisitions versus development.
Speaker Change: Junction at del Mar.
Speaker Change: Is this I guess can you talk a little bit more agile about.
Speaker Change: Your strategy over the next few years have you changed that external growth strategy from the past a little bit.
Speaker Change: <unk> junction at del Mar a good example of what we should expect more added kilroy and including of course, you would discuss the land sales.
Speaker Change: Yes, I don't I don't know that there have been huge changes in how we approach capital allocation going forward I mean I think this is.
As we pointed out in the prepared remarks, a real focus on risk adjusted returns and just making sure we're continuing to deploy capital at levels that represent a return to the company and to our shareholders that are above our cost of capital.
Really no more complicated than that injunction on Tamara I think thats, a really fantastic transaction, where we're underwriting as Elliot mentioned in his remarks, a low double digit stabilized yield translating into kind of a mid teens IRR and even at discount and cost of capital today I think that transaction makes sense all day long and then you.
Speaker Change: Layer on top of that potential future redevelopment down the road I think its a very compelling deal now, albeit a very small 5% to $35 million, but I think it made both financial and strategic sense for the company.
Speaker Change: I don't think thats necessarily anything dramatically different from what the company would have done historically, we're going to evaluate a wide range of transactions in our markets and I think be very focused on risk adjusted returns.
Our underwriting cashless streams going forward.
Speaker Change: How we're thinking about the conviction we have in different submarkets that we operate in today regarding lease up and the timing of that lease up and and things like that and just trying to make sure that we're continuing to put capital to work in ways that all the benefit the shareholders.
Speaker Change: Our next question today is from the line of Anthony Petrone with J P. Morgan. Please go ahead. Your line is open.
Speaker Change: Great. Thank you.
Anthony Petrone: You talked about the short term leases and I know theres, some sublease space in the portfolio.
Anthony Petrone: And as we look out the next couple of years, the lease exploration schedule spikes and so maybe Angela.
Anthony Petrone: As we step back and look at this how do you whats your comfort level there.
Anthony Petrone: We don't see another step down in occupancy the next couple of years.
Anthony Petrone: How do we think about just the path of <unk>.
Anthony Petrone: Absorbing whats coming down the Pike.
Anthony Petrone: Yes.
Speaker Change: Talk about it a few ways, we can talk longer term about 2026 and sort of how we're positioning avid lease expirations that are coming in that year, but.
Speaker Change: We were pleased to report an increase in sequential occupancy in the third quarter. The team is working really hard across the entirety of the portfolio.
Speaker Change: To prioritize occupancy and getting tenants in and rent paying as quickly as we can and that came through in some of the deals announced this this quarter and also some of the early revenue recognition. Our early occupancy that we've reported that helped drive the occupancy number as well so I am pleased to see that sequential increase in occupancy obviously the full.
Speaker Change: Year occupancy guidance does point to.
Speaker Change: Deceleration of that occupancy level in the fourth quarter and that will have.
Speaker Change: Something to do with both the short term capital one extension, we talked about earlier, if they will vacate in the fourth quarter as I previously mentioned.
Speaker Change: And that shorter term newly steel that we had announced in the first quarter took occupancy this quarter and Malte will vacate the portfolio next quarter. In addition to move out from.
Microsoft Linkedin in the Bay area. So some pressure on fourth quarter, what we had pointed to in 2025 in particular and have continued to point people to is that that is overall, a lighter exploration year for the company and it is the more granular pool. So.
Until this quarter and I'll put one caveat on that we have had no lease exploration.
Speaker Change: In 2025, greater than 100000 feet with the shorter term term tech deal that was signed this quarter. They will vacate the portfolio in the first quarter of significantly downsized and as I mentioned, we're in conversations with them now to understand what that looks like but there will be some space from 110000 square foot short term renewal coming back to us in the middle of the first quarter. So that's the.
Speaker Change: Rail update update there.
Speaker Change: So 2025 again on the move outside field, certainly an easier hill to climb in 2024 was but youre appropriately sort of keying in on 2026 being a larger exploration year and I will just say, Rob and team have been very.
Speaker Change: Very focused on the 2026 explorations really since I joined the company back at the beginning of 2024 and are making good progress on.
Speaker Change: In conversations with many of those tenants already.
Speaker Change: I would just add a little more color to that.
Speaker Change: On the last earnings call. We discussed the tenants now sort of in general are looking starting to look out further than just their upcoming exploration and that's being borne out in what we're doing in 2026 and I would say right now.
Speaker Change: We have good confidence in the discussions we're having and we're having discussions on over half the space that is expiring in 2026 and these are relatively longer term transactions as well so not the short term that you have.
Speaker Change: <unk> seen in the past.
Speaker Change: Okay. Thanks for all that color.
Speaker Change: My My second one is on <unk>, you just talked about the elongated process to try to get things done there I'm just wondering.
Speaker Change: Is this mainly like competition from other sites that tenants might be looking for and also thinking about what the risk is that you have to offer more than either concessions are up the development budget or whether you have enough room in what's been planned to kind of get it all done.
Yes, I mean, I'll I'll just from a tone perspective, as I kind of think through all the things in the pipeline, we're referring to when we talk about that elongated.
Speaker Change: Process.
Speaker Change: Certainly there is plenty of supply in the market, which has been highlighted.
Speaker Change: So there is competition for space, but I don't think thats whats been elongated the process as much as it is tenants really just understanding what their requirements are and ultimately being prepared to commit to longer term deals and move forward and we do think that that's changing I mentioned that in my prepared remarks, we feel like we really have seen kind of a continued level throughout 2010.
Speaker Change: 24 of higher tour activity and interest in the space.
We are nearing the delivery of the spec suites in the fourth quarter. So that certainly is creating a little bit more momentum and it does just feel like what we're seeing is a combination of tenants who are ready to move forward as well as tenants who might have toured the project earlier in the year and.
Speaker Change: As it turns out werent ready to commit at that time coming back and saying assuming much more prepared to execute as well. So it feels to me like its been and Thats not true obviously in all circumstances, but it feels like it's been more driven by tenants really understanding their own needs and their business plan and being ready to commit versus.
Speaker Change: Spending a lot of time in the process really evaluating different options in the market, Yes, just add two things to that one.
Speaker Change: As we've talked about before our timing has been an issue with <unk> in terms of our delivery.
Speaker Change: And we're now getting past that.
Speaker Change: Sweet spec labs are delivering in November and as I said earlier the length of the project is shows amazingly right now the other thing I would remind you is that life science.
<unk> companies in general are not apt to pre lease.
Speaker Change: <unk> has also been an issue for us and now we're in that mode, where we're beyond the point of pre leasing and we have shell and core up and amenities and that's making a big difference in terms of the conversation so.
Speaker Change: Overall.
Speaker Change: This business is sort of a protracted negotiation business anyway.
Speaker Change: But we're confident in what we're seeing and the activity that we're working on.
Speaker Change: Okay.
Speaker Change: Our next question today is from the line of Michael <unk> with Citigroup. Please go ahead. Your line is open.
Speaker Change: Great. Thanks, just wanted to get some more color on the leasing numbers. This quarter, obviously rent spreads and retention rates were higher relative to <unk>, but you saw noted jumping ti as well can you give us any sense on maybe how this has impacted net effective rents are you seeing a greater ability.
Speaker Change: So maybe push face rents, but you have to sacrifice more in Ti to get deals done just just curious on any color there that would be helpful.
Speaker Change: Yes.
Speaker Change: I'll, let rob comment in a minute, but I guess, what I would say is.
Speaker Change: One one quarter data point it doesn't lead to a trend line necessarily I would say there were a couple of deals in the pipeline are the deals reported this quarter.
Speaker Change: Just based more on condition of the space then on market dynamics drove that number to be a little bit higher.
Speaker Change: And so I.
Speaker Change: Certainly we're in a competitive market environment, but I don't really think thats what drove the number this quarter as opposed to just the condition of the space and more of a mix issue then market are transitioning.
Speaker Change: Angela hit the nail on the head Michael what's the condition of the space in two cases, which were relatively large.
Speaker Change: The space hasn't been redone for over 10 years, but two different tenants and so to put that in perspective post pandemic. There was no remodeling done to reflect a new modern work environment. So it necessarily means tenant improvements are going to be higher and then one more piece I'd add is that they're involved some corridor work.
Speaker Change: Which we always kind of reassess that as part of the Ti work, even though it's.
Speaker Change: Separating two spaces.
Speaker Change: Okay.
Speaker Change: I appreciate the color there.
Speaker Change: And then just going back to your commentary, maybe specifically on an la it seems like your outlook might be a little bit better, but obviously, we've heard about the issues that the film and television industry has had there and our studios don't directly impact your business, but can you give us a sense do you need to see an accelerated recovery within that industry.
Speaker Change: <unk> to drive additional demand for office space.
Speaker Change: Yes, I think Theres no question that would help.
Speaker Change: And as we mentioned in our prepared remarks.
Speaker Change: <unk> has been soft, but I think the team is doing a fantastic job of executing in a challenging market and we are encouraged by what we're seeing in long beach, which has been consistent for some time, but we have seen some.
Speaker Change: Average deal size continues to ratchet up there, which is great to see and new interest I would say in Culver City in particular, driven by both professional service and some technology tenants coming back to the market. So that's an encouraging dynamic as well.
Speaker Change: Had a couple of more things Michael.
Speaker Change: Governor Newsome over the weekend past.
Speaker Change: Bill that basically doubles the incentives for film the film industry to film in California, and specifically in Hollywood and he signed that in Hollywood. So Thats a move in the right direction because thats also been.
Speaker Change: An issue, where we've seen tenant activity. In addition to Angeles comment about century city, we've seen it.
Speaker Change: Pickup in Culver City, and Beverly Hills as well.
Speaker Change: There is also a start of larger deal activity at least looking in Playa Vista. So.
Speaker Change: Things are looking there.
Speaker Change: Starting to turn the corner and if you just look at our portfolio in La just to put it in perspective, because we have a smaller tenant market. We are we've executed 59 deals year to date and Thats almost 425000 square feet. So our team in L. A has been really busy.
Speaker Change: Smaller deal was granted but artur activities up and we're feeling pretty good about what we see going on in the competitive markets around us.
Speaker Change: Okay.
Speaker Change: Our next question today will be from the line of Steve <unk> with Evercore ISI. Please go ahead. Your line is now.
Speaker Change: Yeah.
Speaker Change: Yes. Thanks, good morning out there just to just to clarify.
Speaker Change: The lease exploration schedule I think you have three large known move outs in the fourth quarter I just wanted to make sure that kind of implies something like a 90% plus I guess exit rate.
Speaker Change: So just wanted to make sure that was right and then as we look at 25 I guess in Tony's question outside of Derm Tech is there any other I guess large known move outs that youre aware of today within the 750000 feet expiring.
Speaker Change: Yeah as it relates to Q4, I think the biggest move outs will be cap, one and San Francisco like we talked about we got a couple of extra months, which was on the short term renewals reported this quarter, but that is a fourth quarter move out.
Speaker Change: We had a shorter term new lease that was signed in the first quarter of this year took occupancy in Q3 and will be a Q4 move out that's all.
Speaker Change: Around that some short term deals 100 around 100000 feet vacates in the fourth quarter and then the Microsoft Linkedin leased in the Bay area, which is about 76000 feet. So those are the biggest moving pieces in the fourth quarter.
Speaker Change: As it relates to 2025 appropriately pointed out both the derm Tech lease, which was 110000 square feet that will be moving out.
Speaker Change: Sort of mid Q1 of next year and then the other larger lease within the other largest lease within that exploration for next year is also a Q1 exploration of about 80000 feet and we're in discussions now I would expect it's a vacate or it's a significant downside.
Speaker Change: Okay, great. Thank you and then as it relates to <unk> and just the delivery of that project I guess moving from the under construction, perhaps into the tenant improvement phase will all three buildings in phase II kind of moved together or because there are different sort of phases.
Speaker Change: So their life.
Speaker Change: They move in phases, if you will and so I guess I'm trying to ask is will the capitalization would be more of a phase for that or will it be kind of an all or nothing.
Speaker Change: It'll be it'll be pretty close to together I'm in Jefferies comments intentionally said it will predominantly occur in the fourth quarter of 2025, one of the one of the buildings might slip to base building completion in the first quarter of 2005, which would push that.
Speaker Change: Interest capitalization clock to stop in the first quarter of two.
2026.
Speaker Change: But you are talking about a one potentially a one quarter difference.
Speaker Change: Our next question today will be from the line of John Kim with BMO. Please go ahead. Your line is now.
John Kim: Thank you on the land sales of $150 million in proceeds can you discuss what the earnings impact may be I think youre going to have some capitalized interest coming off.
Speaker Change: I don't know what the book value of the land is but if theres going to be a gain or are you going to include that in earnings.
Speaker Change: And timing do you expect this to be realized in 2025.
Speaker Change: Yeah, I'll say, a few things and then Elliot can jump in if there's any other color. He wants to add I would just say as it relates to the earnings impact in 2025. It just.
Just point back to Jefferies remarks.
Speaker Change: Not all of the parcels in the future land pipeline are being capitalized some are some arent.
Speaker Change: And yes, timing and sort of what plans we're ultimately.
Speaker Change: Working towards in each of these parcels will matter and so we need a little bit more we're pointing it out as something that is worth consideration, but we need a little bit more time to progress some of these potential dispositions and refine our plans before we can get much more specific on what that what that means for 2025 and Jefferies comments highlighted just directionally.
Speaker Change: Would expect capitalized interest to be a little bit lower in.
Speaker Change: In 2025, so that's the first piece I would say I think based on the deals that are furthest along we would expect some gains in that portfolio, but we would not expect us to be gains that would be recognized through <unk>.
Speaker Change: And then as far as timing since we are talking about a re entitlement process.
Speaker Change: It's going to take quite a bit of time and it is tough to predict exactly how long it will take but you shouldn't expect anything before kind of the end of 2025, but we would expect to happen in phases.
Speaker Change: The end of 2025, 2026 and potentially some in 2027.
Speaker Change: Thank you for tackling the multi part question. My second question is on <unk>, just going back to.
Speaker Change: Potentially signing traditional office users or protect users how does that impact the cost or the expected yield of the project. If you have to convert that lab space back to office.
Speaker Change: And does that impact leasing at all do you.
Speaker Change: Specs biotech or pharma users to be kind of turned off if there is a corporate tenant in there.
Speaker Change: No I think it all comes down to scale and sort of how the campus kind of comes together overall I don't view leasing to.
Speaker Change: Some office tenants as being an impairment to the rest of the campus. We certainly didnt experience that on phase one I would say as it relates to any I think your question is alluding to whether or not we have cost we've expended on the project that would really have to be.
Speaker Change: Demolished or pulled out in order to accommodate that use we don't on two of the three buildings remember we've only really built out the lab space for the spec suites and one of the three buildings, so theres plenty of vacant space and sort of shell condition that can accommodate those other users to speak more specifically about overall deal economics at this point would be premature.
Speaker Change: The last thing I would add to that is that both <unk> and stripe cohabitate and it works really well so as Angela said, we've got a lot of space that can be used as office. That's in shell condition, and we have spec lab space Thats intended to be spec lab space and not converted back to office.
Speaker Change: The next question today is from the line of <unk> with Green Street Advisors. Please go ahead. Your line is open.
Good morning, and thanks for taking the question.
Speaker Change: Obviously office capital markets are solid challenge today, given over a lack of debt availability, but it seems like things are improving on the leasing front and hopefully that ultimately translate to a better capital markets environment. As you guys sort of look at the existing operating portfolio today in the Submarket positioning are there.
Speaker Change: Is there appetite so eventually pair down the portfolio and so out of the market that you guys no longer chemo score.
Speaker Change: Okay.
Speaker Change: Yeah look I think all of our plans as it relates to market positioning and sub market positioning our thanks.
Speaker Change: <unk> talking about.
Speaker Change: As we pointed out the transaction market has been really really slow this year. So.
Speaker Change: Executing on anything Thats been more academic than something we can really do in practice, but we're thinking about the portfolio Holistically all the time and trying to make sure that we're putting ourselves in a position to continue to.
Speaker Change: To move the portfolio in directions that we think will do the best job of helping us build a durable and resilient cash flow stream that that with significant growth in the future and so thats, how all of the potential dispositions and acquisitions, what kind of be viewed through that lens.
Speaker Change: Appreciate the comments Angela and then maybe just a small one on the acquisition you guys talked about.
Speaker Change: A low double digit stabilized yield.
Speaker Change: Given the near five year Walt.
Safe to say that that's sort of going in yield is close to that or are there sort of below market rents that are sort of.
Bringing you guys debt load those stabilized double digit yield.
So <unk> two comments one we think the rents are below market today and two as Angela mentioned earlier. We think this is sort of a mid teens IRR. So we don't think this is sort of you buy it and it deteriorates over time that that is not our expectation.
Speaker Change: Yeah.
Speaker Change: Our next questioner today will be from the line of Caitlin Burrows with Goldman Sachs. Please go ahead. Your line is now open.
Caitlin Burrows: Hi, everyone I think Andrew back in the prepared remarks, you gave some commentary on the sublease market in San Francisco, how it's becoming less competitive or at least a large portion of it wondering if you can talk a little bit more on sublease space more broadly, but then in San Francisco kind of how.
Caitlin Burrows: Competitive is it and are you seeing that kind of detract from conversations that you are other landlords might be having on direct leasing.
Speaker Change: Yes, I'll start and then I'll turn it over to Rob as you pointed out and I'll, just reiterate kind of what we said earlier, which is it has been very competitive and over the last couple of years, especially.
Speaker Change: Especially given where the demand has been coming from in terms of.
Speaker Change: Tenants, particularly in the AI category that are more startup that are looking for space that they can they can occupy very near term and just don't have the time resources capacity.
Speaker Change: So really think about a long drawn out build out process for space that they hope to grow out of a few years. So the sublease space Thats really fit that need, but as we get closer and closer to those explorations I would say when you look at the overall sublease market in San Francisco, you've got a combination of some of that space, just kind of being obsolete some of it being very large format are.
Speaker Change: Full floor users and that doesn't really meet the need for some of the tenants, we're talking about particularly NII and then you layer on this dynamic which is that over half of the total sublease space in the market as a pretty near term lease expiration that isn't the everyday that passes that space gets less and less competitive.
Speaker Change: Those tenants just don't have long enough to really be able to get enough out of it. So I think the team is doing a great job at making sure. We're in front of some of those tenants that do have those more near term requirements that maybe had been focused on sublease space, but really.
Speaker Change: Encouraging them to look at the sublease space, we have in the market and thinking about how we can position that most attractively to capture some of that demand given all of those dynamics and where things are headed going forward.
Speaker Change: A little more color Caitlin I think that is.
Caitlin Burrows: If you look at in San Francisco, specifically on sublease space, a lot of forming young AI companies want short term, but theyre looking for three years, often not less than that.
Caitlin Burrows: And to <unk> point as sublease space continues to get absorbed which it is.
Caitlin Burrows: Projections are conservative that by 2007.
Caitlin Burrows: The vacancy rates should be at a more normal level somewhere between 10 and 15% for San Francisco.
Caitlin Burrows: With some of the former sublease space converting to direct space.
I would say in our other markets, it's sort of the same thing in Seattle for example.
Caitlin Burrows: Probably 15% to 20% of the market is sublease space, but you also have to look at what the term is in that sublease space with the shorter term being a little less attractive than the longer term.
Caitlin Burrows: And so it's feeling like we are knock on wood that we just keep seeing tenants now have stopped putting space on the market and they are in a stable mode and that space is getting absorbed.
Speaker Change: Got it and then maybe on the other.
Speaker Change: Absolutely.
Speaker Change: Okay.
Speaker Change: Sorry, one other comment I'd make on sublease space in general when you look at 35% availability in San Francisco is a lot of that space is not competitive with us, meaning it's inferior older product depending on the location with a physical attributes it may never leases office.
Speaker Change: Yes got it.
Speaker Change: And then on the other side to Angela you mentioned, how some of those users are not necessarily looking for a full floor space I think last quarter on the call, though it did come up a number of times about how there were some large lease requirements in the market. Obviously since then we saw a big open AI lease, but do you think about the types of.
Speaker Change: Those that are out there was that kind of what you were talking about with the large requirement last quarter or might there still be other requirements that you are hearing about for San Francisco for large.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change #100: I wasn't actually referring to the open AI lease that was in the market that we certainly have visibility and we're aware of that transaction. We were talking about a number of other larger deals that were coming to the market I would categorize larger in that cases more than around 100000 square foot range and that activity does continue.
Speaker Change #100: 200000 more feet of pending technology leases that are larger format.
Speaker Change #100: That should be completed this quarter or early next year.
Speaker Change #101: Our next question will be from the line of Tom Catherwood with BTG. Please go ahead. Your line is open.
Tom Catherwood: Thank you and May starting with Angela a following up on the sublease versus direct question. You had mentioned in your prepared remarks, kilroy, expanding its spec suites offering to meet demand for more direct space from tenants beyond the spec suites that youre building in phase two.
Tom Catherwood: How much youre looking to add in other markets and what type of upfront investment does this require compared to traditional office ti's.
Speaker Change #103: Yeah look we're leaning in a little bit, but I want to be clear as I wasn't my prepared remarks that this is sort of leveraging.
Speaker Change #103: Thoughtfully executed in a well designed program. The company has had in place for some time I don't think this is a significant departure, but there are markets based on where we're seeing demand in particular in San Francisco, given new business formation, particularly on the AI side and what their requirements are and it makes sense for us to do a little bit more on the spec suite side, we're probably talking.
Speaker Change #103: About an inventory increase of a few spec suites at any given time. This is not like a major strategic shift, but I hopefully what you take away from that is just we're being very thoughtful and very aware of where the demand is coming from in each of our markets and trying to figure out how we can position ourselves to capture as much of that as possible.
Speaker Change #104: Got it I appreciate those thoughts Angela and then second question for Elliot on the land sales given the conclusion that certain parcels has the potential for higher and better use are you working on re entitling those assets in order to maximize value and is that contributing in any way to the sales timeline.
Speaker Change #105: Short answer is yes.
Speaker Change #105: But what we've tried to do is.
Speaker Change #105: Work with groups work with identified groups. So that we are not re entitling it in a vacuum.
Speaker Change #105: And that contributes to the timeline that we discussed.
Speaker Change #105: Yes.
Speaker Change #106: Our next question will be from the line of Beckman with Deutsche Bank. Please go ahead. Your line is open.
Speaker Change #106: Okay.
<unk>.
Speaker Change #107: Hi, Good afternoon. This is actually from DB.
Speaker Change #108: Just wanted to see.
Speaker Change #108: Talk a little bit about the upcoming debt maturity you kind of have some chunky debt.
Speaker Change #108: Maturing each year between 2020 for the twins when it takes a pretty attractive interest rate.
Speaker Change #108: Just kind of given where capital markets, where pricing is today, how do you kind of think about that.
Speaker Change #108: Refinancing that debt and what potential kind of earnings drag if any could come from that.
Speaker Change #108: Hi, This is jeffrey so at the end of the quarter, we had $1 7 billion of liquidity and as I commented in my prepared remarks, we will have cash on hand after we retire the.
Maturity.
Speaker Change #108: In December we will pay up to 25 exploration schedule. It isn't until October does that bond actually matures. So given the amount of liquidity and flexibility. We have an interim we're going to be pretty opportunistic about when we access the capital markets in 2005.
Speaker Change #109: But as Jeffrey is pointing out the company had effectively pre funded the maturity this year and had cash on hand to meet that need.
Speaker Change #108: Yes.
Speaker Change #110: Thank you.
Speaker Change #111: Thanks, Our next question will be from the line of Peter Abramowitz with Jefferies. Please go ahead. Your line is now open.
Speaker Change #111: Yes.
Peter Abramowitz: Yes. Thank you most of my questions have been answered, but just wanted to ask one on availability at Indy tower in Austin could you just speak to demand overall in the market.
Peter Abramowitz: Quickly on the space do you have left there to lease.
Peter Abramowitz: Just in terms of the depth of interest in that space.
Speaker Change #113: This is rob.
Peter Abramowitz: No.
Speaker Change #114: Activity, Indeed tower remains very consistent.
Speaker Change #114: We have some tenants that were <unk>.
Speaker Change #114: Most to signing I don't want to get into more detail, but we have the last block of really good space in the CBD that that's manageable I mean theres other space in the market that sublease.
Speaker Change #114: Much bigger block and landlords are going to hold out for that so as we said kind of throughout the year demand in Austin has picked up particularly in the CBD and Youre also starting to see some tech moves in the market out in the domain.
Speaker Change #114: IBM has signed a lease and others are following so its just taking time to finish that last piece, but we have some things in the pipeline that we.
Speaker Change #114: We hope to announce pretty soon.
Speaker Change #115: Alright, Thats all for me thanks.
Geoffrey Thanks: Thanks Yale.
Speaker Change #116: Thank you and with no further questions in the queue. This will conclude the KFC <unk> 24 earnings conference call.
Speaker Change #117: To everyone who's able to join US today, you may now disconnect your lines.
Speaker Change #117: [music].