Good day ladies and gentlemen and welcome to the First Quarter 2014 Kilroy Realty Corporation Earnings Conference Call. My name is Christina and I will be your conference operator for today. [Operator Instructions]. As a reminder, today’s event is being recorded for replay purposes..

I would now like to turn the conference over to your host for today Mr. Tyler Rose. Tyler is the Executive Vice President and Chief Financial Officer. .

Good morning everyone and thank you for joining us. On the call with me today are John Kilroy; Jeff Hawken; Eli Khouri; David Simon; Heidi Roth; and Michelle Ngo. At the outset, I need to say that some of the information we will be discussing is forward looking in nature.

Please refer to our supplemental package for statement regarding the forward-looking information in this call and in the supplemental..

This call is being broadcast live on our website and will be available for replay for next 7 days, both by phone and over the Internet. Our press release and supplemental packages have been filed on a Form 8-K with the SEC and both are also available on our website..

John will start the call with a review of the quarter, Jeff will review conditions in our key markets, and I’ll finish up with financial highlights and updated earnings guidance for 2014. Then we’ll be happy to take the questions.

John?.

Thanks, Tyler. Hello everyone and thank you for joining us today. We have had an excellent start to the year and continue to operate in some of the most dynamic markets in the country. The ongoing technology and brain power evolution continues to generate significant value creation opportunities for our business.

Today, we are leveraging our unique platform to take advantage of these opportunities and are more active than ever..

We are executing on our existing development program, we are positioning the Company for growth through potential new development opportunities, we are pursuing new acquisitions when they make sense, we are focused on leasing our stabilized portfolio and projects under development and we continue to complete profitable dispositions..

Our markets remain very strong. In San Francisco, as we forecasted last year, leasing activity has significantly increased, a significant percentage of the new supply has been committed and rents have continued to rise.

JLL recently reported the demand for blocks of space exceeding 100,000 square feet continues to outpace supply and the mismatch is projected to continue for at least several more years..

In addition, a recent survey reported that 8 in 10 Bay Area tech executives planned to grow their workforces in 2014 with a median growth rate of 50%. And as in-migration and tenant growth continue, we are seeing the core of the city expand outwards in the areas west of SoMa and South into Mission Bay..

We just reported that the Warriors basketball team required a 12-acre site previously owned by Salesforce and planned to build their new basketball stadium there in Mission Bay. In Seattle, the clustering of tenants in the South Lake union and Bellevue has driven our rents by 25% to 30% since our entry into these two markets a few years ago.

Bellevue was just named the second best city in the country for new college graduates..

In Hollywood technology is merging with the entertainment business as there is continued growth in the digital media industry. An entertainment news company just relocated its LA office to Hollywood having signed a 40,000 square foot short-term lease with us for one of the existing buildings at our Academy site.

They looked at several submarkets in the area but decided to locate in Hollywood to take advantage of its large creative workforce. This lease will produce some income for us while we get our mixed-use entitlement at the Academy Square..

We also completed a renovation of our Sunset Media Center in Hollywood in the first quarter and the project is now 94% committed. Rents continued to increase with the latest deals at $390 per square foot per month, a level versus our pro forma of $275 per month that excludes parking. In San Diego, we are seeing steady demand.

Colliers recently reported that San Diego is shifting to the landlord’s market with low supply and steady job growth setting with sage for further increase in rents..

On the leasing front, we delivered another solid percentage in the first quarter, we signed new or renewing leases on approximately 350,000 square feet at rents that were 3% higher on a cash basis and 7% higher on a GAAP basis than rents for the inspiring lease. We ended the quarter 95.6% leased.

Those figures don’t include the 12-year lease we announced in the February with the online storage company Dropbox for all 182,000 square feet of our office development at 333 Brannan Street in San Francisco. As I mentioned on our last call, Dropbox is expected to take occupancy in the second half of 2015..

One larger deals we signed during the quarter was a 77,000 square feet ten-year lease with a gaming company Riot Games for 103 buildings at our West side, Video Campus on Olympic Blvd. in West LA. Riots Games is projected to take occupancy at the end of the year.

And in April, we have signed 7-year renewal with Microsoft at our Overlay campus in Redmond, Washington. This lease was set to expire in 2015. We also have 400,000 square feet plus in-place letters of intent..

We completed 1 acquisition during the quarter. We purchased a 4-story 100% LEED gold-certified life science property located in the heart of South Lake Union submarket of Seattle, immediately adjacent to our Westlake Terry campus for approximately $106 million. The in-place cap rate was 6%.

The property is situated on half city block and includes a 3-level subterranean parking structure with an above market parking ratio. It an excellent location for both general office and life science companies with neighbors that include Amazon.com, the Bill and Melinda Gates Foundation and the Fred Hutchinson Cancer Research Center..

The acquisition environment remains extremely competitive with pricing at a point where most marketed opportunities don’t make sense for us. Given that, we remain very pleased with the strength of our development franchise and our 6 projects currently under construction remained on schedule and on budget.

They encompass more than 2.5 million square feet and represent a total estimated investment of $1.5 billion. With the Dropbox lease in place, 4 of the 6 projects are fully leased..

We are scheduled to deliver the LinkedIn campus at the end of this year and the Synopsys campus shortly after that. We are encouraged by the tremendous tenant interest we are seeing in our 2 unleased current development projects that we’ve commenced construction on late last year.

We are in advanced negotiations with the number of sizable users, activity at Columbia Square in Hollywood is accelerated in the past few months as the digital media industry is looking at Hollywood as a new hub..

As we have previously discussed, we will bring on the historical office buildings later this year, the new office component later next year and the residential tower in 2016.

In Redwood City, we are in serious discussions with several prospects for all or portion of our crossing/900 project, a superb location with the media to adjacency to Caltrain, abundant amenities and state-of-the-art quality all are generating strong interest from a variety of tenants including tech companies and law firms..

And as I said earlier, we’ve remained extremely busy uncorking future development opportunities in both Northern and Southern California.

Each transaction is difficult and complicated but with our experience and the power of our franchise we are confident we will be able to add a number of selected value created projects to our pipeline over the next few quarters..

On the capital recycling front, in addition to the San Diego portfolio sale we closed in January, we just completed the sale of an undeveloped land parcel in Rancho Bernardo our sub-market of San Diego to an owner-user for approximately $33 million.

We continue to evaluate disposition opportunities within our portfolio and remain on track to complete $150 million of sales by the end of the year..

Looking ahead, our proprieties are clear. As I said at the outset, we continue to focus on value creation through leasing, development, acquisitions and dispositions. We are off to a great start in 2014 and have made progress in each of these areas.

We continue expand our West Coast franchise, build the value of our portfolio and enhance our position as the region's premier office landlord..

With that I’ll turn the call over to Jeff for a review of our markets.

Jeff?.

Thanks, John. Hello, everyone. As John noted, the economic and real estate fundamentals of all of our West Coast markets continue to improve. Job growth is positive across the board and unemployment has continued to trend down.

The San Francisco Bay Area remains the undisputed leader of the pack, it’s March unemployment rate at 5.1%, is 3 percentage points below the average across California. With year-over-year job growth at close to 3%, the region continues to post impressive increases in rental rates and leasing volumes..

Let’s take a look at each market. The San Francisco got off to a great start this year with a material decrease in availability. In the first quarter, including our Dropbox lease, there were 8 leases greater than 90,000 square feet that were signed totaling more than 1 million square feet.

6 of these deals represents space expansions led by Twitter, Dropbox and Practice Fusion. In the Valley, leasing our Menlo Park property has really strengthened and we are now 98% committed. Currently, we are 96.2% leased in the Bay Area. Seattle is also performing well.

The Seattle with Bellevue region had a March on unemployment rate of 5.4% and has added over 40,000 jobs over the last 12 months. In our primarily sales to sub-markets in Bellevue and Lake Union Class A direct vacancy rates declined to 6.4% and 4.5% respectively and rental continue to increase..

Rents for our key center office tower in Seattle’s Bellevue sub-market have risen more than 30% in 3 years since we purchase the property. Also a key center in April, we terminated a 45,000 square foot lease in order to release its space to a rent that is 3x higher. The new tenant's projected to take occupancy in the fourth quarter.

We are currently 98% leased in our Seattle properties..

In San Diego, our coastal sub-markets are steadily improving as business activity and employment expands and new office supply remains limited. Jobs grew 2.5% year-over-year higher than any market in the West Coast and 1% higher in the State, driving the unemployment rate down to 6.9%.

Del Mar and Sorrento Mesa Class A direct vacancy rates are 6.4% and 6.7% respectively. Our San Diego portfolio is currently 93.6% leased. The large and varied Los Angeles market continuous to produce mixed results. Overall the Class A direct vacancy is 15.7% and the region’s unemployment rate is 8.7%.

The entertainment, new media and advertising industries continue to drive growth on the West side and Hollywood..

As John mentioned, we signed a 77,000 square foot 10-year lease with Right Games [ph] from the third building of West side media center. We’re recognizing approximately 40% increase in cash rents compared to the prior rent level. Across our Los Angeles portfolio, we are now 96.5% leased.

In terms of portfolio rents, we estimate that our rents are approximately 5% below market as a whole and for 2014 and 2015 they are 4% and 5% under market respectively..

That’s an update on our markets. Now I’ll pass the call to Tyler who will cover our financial results in more detail.

Tyler?.

Thank you Jeff. FFO was $0.66 per share in the first quarter. This includes approximately $.015 for a lease termination fee offset by about $.01 of non-recurring legal expenses.

The lease termination fee relates to a tenant in San Diego that notified us in the first quarter of its decision to exercise its termination option on 79,000 square feet effective at the end of the third quarter. The fee will paid in the third quarter but under GAAP will be amortized evenly over the first 3 quarters.

We ended the quarter with stabilized occupancy of 92.4%, down from 93.4% at year and up from 90.3% a year ago..

Our first quarter same-store NOI was up 9.3% on a cash basis and 4.8% on a GAAP basis after adjusting for the lease termination fee and legal expense. The solid same-store NOI results reflect higher rents across the portfolio in Bellevue, Del Mar, San Francisco and Los Angeles.

After funding of 401 Terry acquisition, we currently have approximately $50 million in cash and full availability under our $500 million bank loan. We did not utilize our ATM in the first quarter and have just launched a bank line renewal process in which we hope the lower pricing and extend term.

As John mentioned, we sold at San Diego land part on April for about $33 million. The net book gain on the sale was about $0.04 per share, with given that it is land and not an operating asset will run through FFO in the second quarter..

Now let’s discus updated guidance for 2014. To begin, let me remind you that we approach our near-term performance forecasting for the high degree of caution given on the uncertainties in today's economy.

Our internal forecasting and guidance reflect information and market intelligence as we know it today, any significant shifts in the economy, our market demand, construction cost and new office supply going forward could have a meaningful impact on our results in a way currently not reflected in our analysis..

For those caveats our updated assumptions for 2014 are as follows, we expect our occupancy to remain steady for the middle of the year and then pop back up for the 93% range by the end of the year.

As just mentioned in the second quarter, we will receive another lease termination payment related to a lease in our key center property that will increase the FFO in the second quarter by about $.01..

As always, we don’t forecast any potential acquisitions or acquisition related expenses. Our projected remaining 2014 development spending for our current construction project is approximately $350 million.

As John said, our current guidance for 2014 capital recycling is a $150 million, although this could change significantly depending on market conditions and emergence of potential new growth opportunities. And we continue to project an FAD payout ratio of 92% for the year..

So to sum up, last quarter’s FFO per share guidance range was $2.55 to $2.75. We are increasing the midpoint by $0.08 per share, $0.04 from the second quarter sales of San Diego land parcel, $0.02 from the 401 Terry acquisition and $0.02 related to all the ins and out of the core results, lease termination fee and acquisition of legal expenses.

Taking that all together and tightening a range a bit, we get to an updated 2014 FFO guidance of $2.66 per share to $2.80 per share..

That’s the latest news from KRC, now we’ll be happy to take your questions.

Operator?.

[Operator Instructions]. Your first question today is from the line of Craig Mailman with KeyBanc Capital Market. .

Good afternoon guys.

Tyler, on just on the lease term fees, it’s going to be hit in 3Q or are any amortization effect in 2Q and 3Q?.

Yes. So it will be evenly amortized over the first 3 quarters. So, it’s roughly $.015 net in the first quarter, second quarter and third quarter and then it’s paid in the third quarter. And then, we’re estimating that the space will be vacant for the fourth quarter so that will offset some of the benefits of the lease termination fees. .

Okay. That’s helpful. And then on Columbia Square, it sounds like the activity is good there.

Just curious are asking rents are going to hold relative to the pro forma or are you guys can get some upside to that? Just curious where rents are on that project?.

David you want to take that?.

Yes. The market has definitely seen an increase in an activity and our project has been showing well, and right now, we think we are going to do well on the rents. I would say pro forma rents will be achieved and we’ll see how things play out going forward. But activity is strong and we anticipate doing pretty well on the leasing that we do there. .

Okay and then just the last one. Can you guys talk about the opportunity on the most recent Seattle acquisition there, given that you are not going to be able to up rents for a couple of years. Was it just a 1031 transaction, or talk to anything that you guys see longer-term. .

Yes. We see a lot there longer-term. You have to understand that this is a very modern over-standard building built in 2007 that's right on the 50 yard line there. There are some important details about it.

Number one is, in terms of the price per square foot, actually the bonus square footage that was there correct under release scenario is significantly higher than what the current lease is, so when we roll it up, the price per foot is down closer to $700 a foot. And then you look at the over standard components of this,.

it's got over standard parking, subterranean that’s worth probably $30 to $40 a foot and the base building that’s got very high floor-to-floor, above standard floor loading, above standard ac and electric pass -- capacity systems and roof loading systems.

And all of those things translate; A, into higher replacement cost and B, into usable things that tenants will pay up for rent. The rent and the building is significantly under market or notably under market in the biotech market which is of 1% to 2%..

The improvements inside the building that aren’t in the base building, which are the biotech improvements, are very high quality, very reusable, super separated air systems and everything is very, very thoughtfully done in a biotech market its 1% to 2% and then the lease itself has significant increases over the remaining term.

So, we think there is a lot of opportunity for this kind of building with this much over standard that will garner higher rents in the long-term and with good ups in the lease the way that it is. So that’s the picture there..

And the other thing I’ll note just quickly is that, when I said it's on the 50 yard line, it was inherent in what I meant. That it's right on the main transportation lines. It’s the best pedestrian environment. It’s everything that we talked about those epitomizes our circle; transportation, amenities, nearby housing and all of those things.

So, that’s a what I was referring as being a 50 yard line, it truly is in South Lake Union. .

And did you guys 1031 the San Diego proceeds into it?.

Some of them, yes..

We’ve several different deals we trend. We did the San Diego portfolio in this. .

Your next question is from the line of David Toti with Cantor Fitzgerald. .

Just quickly I am trying to gauge the sort of frothiness of the market in the Bay Area and your continued interest in land and development.

And in particular there was a parcel that traded recently for $50 million to Alexandria it was 500 Townsend and in the implied cost there on an FAR of 6 was about a $170 a square foot, we understand that the bidding was pretty competitive.

Could you guys have interest in that parcel and does that land price pencil for you guys in this market?.

Well, David. This is John speaking. I know you talked about little bit of that. But we did look at it, we did bid on it, it got way out beyond what we thought it was worth. It is a site that’s well-located next to Caltrain. It is not proximate to BART. It’s a pretty industrial area.

I am sure the building will do well and but it was priced beyond what we would have paid for it at that location. .

So you view a $170 a square foot is too high a point for development work in that market, even that market?.

Well, not necessarily because you’ve got to, when you look at our cost, you have to look at what fees are in addition to land cost. You have to look at what your entitlement risk is, if at all, how long it’s going to take you to get entitlement there for your carry.

But then we also look just anything else, just like a residential neighborhood, there were certain streets that were very best and as you get further out from that they become not as best.

I think they become good and then they become less good, and I would say this one is a good location but without a lot of great amenities on the street, they’ll come in due course, I guess. It has great access to Caltrain, which is a definite advantage..

So when we talk about $170, $170 for something that’s you don’t know if you can get entitled and that’s not the case here. And it’s going to take a long time to get entitled and might to have a lot of extractions such as your cost might be $200 or $220 or something is different than $170 when you can pull the trigger right way.

So, that’s the best I can do to help you with that. .

And then obviously you remain interested in that market, but is your sense that given where land prices are and the sort of delivery timing at this point in the cycle it that there is not enough available product for you given what you want to deliver? Are we seeing sort of a tail end of really the supply delivery in that market?.

I don’t think we’re seeing the tail end. What you are seeing is there are a lot of folks that are working on sites to entitle them for some time 2, 3, 4, 5 years hence who knows what the cycle will be at that time.

As you can imagine, we look at everything and we’ve said before we have some long-range of things we’re working on and mid-term range we’re working on. I’m not going to get into specifics because it’s a very competitive world.

But let’s just say that, we think we’re going to be able to develop more product in the market that’s exactly the kind of product that people wanted, the exact locations they want. So it’s hard to produce stock but it’s not impossible. .

Okay. That’s helpful.

My final question and forgive me if I missed this, did you talked about the 7.4% increase in same-store and was that primarily tax based?.

No. When you say tax based, it was really driven by rent growth in several of our buildings across the portfolio. .

And on the expense side?.

On the expense side, yes, I mean, the expenses comes from utilities a little bit in insurance, a little bit of R&M. It’s was sort of a mixed bag of higher expenses. .

Your next question is from the line of Jamie Feldman with Bank of America Merrill Lynch. .

I guess just following up on that last question.

So, were those were one-time in nature or do you think margins are now going to be lower going forward?.

Well, no, I mean, I don’t think our margins are different. I mean, we had higher occupancy in certain properties that generated higher revenues and associated with that are higher expenses but then we also have higher tenant reimbursements.

So in all together, the same-store results were pretty good even with those higher expenses and our margins are still in that 70%. So, we’re not expecting the change in margins. .

Okay. And then I guess sticking with core operations.

Have you changed - can you talk a little bit more about the assumptions behind your new guidance range? Any change to your same-store outlook or year-end occupancy or leasing spread?.

Yeah. I mean, on occupancy we said, we still think we’ll be in that 93-ish percent range, a little bit better on same-store. We had guidance of 3.5% last quarter. We might do a little bit better than that but I think for now we’re very happy keeping it at that level. We have some, and that’s a cash number.

We have some free rent coming in the second half of the year on the DirecTV leases that will earn a little bit on same-store, on a cash side. So, those are the general assumptions we’re not really changing those general assumptions. .

Okay.

And then what are your thoughts on the current portfolio mark-to-market?.

Well, as Jeff said in his comments, we’re 5% below on a portfolio basis and then if you go through various markets, we’re 26% San Francisco, we’re 12% in Washington, we’re flat in Los Angeles and we’re still about 10% above market in San Diego. .

Okay. And then last question.

The Riot Games lease, can you talk a little bit about how long you’ve been working on that or is this is a lease that came on pretty quickly and is LA becoming a little bit more like San Francisco where demand is popping up quickly and taking down space pretty quickly?.

Hi. This is Jeff. The Riot Games, we’ve actually been talking at the end of last year. We just consummated the deal just recently, so we’ve been talking it for several months. .

Okay.

And then turning to those types of tenants, like how would you characterize the depth of demand right now from tech media in LA and how it’s changed since last quarter?.

Yes. I think it’s strong. You’re continue to see entertainment, media companies in terms of West markets, Santa Monica, Hollywood, so I think it’s indicative of how strong these markets are. Riot Games did the deal across the street from us originally and needed more space. They actually to put the studio in our building.

That studio is being relocated out of Manhattan Beach. So, I think again the entertainment media’s definitely picking up. It’s definitely strong in the west markets. .

Further to that Jamie, there are a number of very big media or rather technology companies that are headquartered almost amongst other places up here in the Bay Area that are looking at some big requirements down in LA.

The way I’d like to describe this is that, the intersection of technology, media, entertainment, social networking all this stuff, it’s like a basket, it's all interwoven and it’s all expanding and growing and there is need for content et cetera.

So, it’s quite logical and kind of what we predicted some time ago that we’ll see more and more of the technology companies get a bigger foothold down in LA and that’s what we’re thinking is going to happen and we’re beginning to see that. .

Give a sense of for these companies the types of jobs in San Francisco versus LA versus even New York or Seattle?.

What do you mean the types of jobs?.

It’s like what are they doing in different cities. I feel like you've got exposure in all 4. .

Yes. I could get you a much more -- I can talk to some friends that have a much more authority and understanding of this. But the way I understand it is that, what’s technology, what’s media, all the stuff is -- everybody is looking for content to put through all these devices.

There are engineers in both areas obviously down and in Hollywood area you have a lot more of the entertainment, media, artistic sort of folks.

But I’m a little reluctant to just to wander on here because I’m not an expert in this and there are so many people that are so maybe what ought to do, Tyler, is to put together a little treatise or Eli [ph] and put it on our link. .

Yes. I think there’s one general comment you can make which is that, there are some of the things that we think -- they're doing exactly the same and are just going to different markets for access to the employees because there’s a lot of competition and they feel like, for example, Facebook have a location here and a location in Seattle..

They're doing almost the same thing in both of those markets but they want to have broadest draw and you see them going even in other markets and New York just gets a very broad draw on the overall talent because not every bit of tech talent or innovative talent is going to locate in just one market.

So that’s part of it and then as John said, we’ll get back to the other level of granularity on that and get back to you. .

Your next question is from the line of Blaine Hack [ph] with Wells Fargo. .

I wanted to dig a little deeper into the leasing market in the Valley. There has obviously been great demand in San Francisco for the past few years.

So, do you think that’s taken away from some leasing velocity in the Valley and what do you expect for those markets going forward?.

This is John speaking. About 70% of new product is under construction by developers in the Valley is pre-leased. We’re seeing some companies with some very, very significant requirements for new facilities from sort of Santa Clara up towards San Francisco, all through the peninsula.

It’s hard to get good sights in areas, the circles where people really want to be which is close to transportation. Many of these cities have very strong, I guess you call them, anti-growth or growth-restricted views towards things..

We’re working on a number of sites right now it’s true that we’ve seeing a lot of the companies establish either beach head or and then increase their presence in San Francisco and one of the things we’ve been talking about for the last 5 years is people, or rather companies, are going to where their people want to live and there’s a lot of folks that bus down to Silicon Valley and the Peninsula from the City and not surprisingly these companies got on the fact that hey why don’t we locate things in San Francisco.

I think we’re going to continue to see bigger growth in San Francisco, but I don’t know it will be at the expense of the Valley or the Peninsula because the folks are going down there as well..

I think that the areas that we look for, those we call our circle are those that are urban or urban-esque in character and by urban-esque, it can be San Diego or it can be Mountain View or areas like that where people really want to be and there are kind of things and the amenities and living so forth the people want.

If you’re out in more suburban-like areas throughout the Valley, I think you’re not at main and main, you’re not the 50 yard line as Eli likes to point out.

I don’t know would you want to add anything to that Eli?.

Yes. And I think the other thing you have to remember about the Valley is the hardware guys are really committed to being down there.

If you look who’s expanding down there you've got Samsung, you've got Cisco, Orissa [ph], Qualcomm and I could reel off another 5 or 6 people who are in active expansion mode and they’re almost entirely focused on Silicon Valley because of where their employees live and because of the collaboration and the clustering of those companies that work with each other down there.

And you haven’t seen that dimension of it the move up to San Francisco with the exception of Riverbed Technology who was founded up here and the founder lives up here..

So there is that aspect that I think continued to drive demand particularly in kind of traditional Sunnyvale area. You look at our tenant audience in Mountain View, you know they're a hardware company, they’re a chip company, they also have intellectual property as well.

But being down in that part of the Valley is very important for a lot of these hardware guys. .

And if you look at our Redwood City project our Crossing/900, I mean it’s in a nice town that has all the amenities and restaurants and housing options and more housing options coming, in a great environment and in the bullet train station right next store and so forth. And I wish we had 3 of those projects there right now. .

Sure. That’s really helpful. And I guess just to follow-up on that.

The lease, the recent LinkedIn deal at 222 Second Street has any bearing on your 555 Methilda project? Will LinkedIn be sub-leasing any of that space or operating both properties?.

We’ve talked with LinkedIn and they have a grown here in San Francisco. As you know, they have a fairly significant presence, I think 100,000 feet or something and they’ve taken all of 222 Second Street which is being developed by Tishman Speyer and that’s 400,000 feet or there about. So that was locationally where they really want to be in the city.

We talk with them extensively. They are doing a space planning and so forth, doing improvements in one building a planning on the others and so they say they always intended to phase in overtime..

Our leases there are 12, 13, 14 years whatever they are and whether they occupy all of it, whether do they sublease some of it we don’t know. They say right now they’re intending to do what they've always intended which is to phase into it overtime.

But just to put in perspective and we have a long lease there and if we think about the passage of time which is maybe been around 17 months or so 16 months since we did that deal. They’re into up about 15% or greater on a triple net basis in that market..

So we’re pretty comfortable with that asset and I think we’re going continue to see companies that make decisions, "Hey we’re going grow here and then we’re going also grow here." LinkedIn is growing worldwide, that’s what we find with most of these companies.

They’re growing worldwide and they may take a group that they intended have in one building or one campus and all of the sudden put it in India or put it in New York or whatever and they back fill-in with something else. So, that’s kind will be feels happening, more to come. .

The next question is from the line of Vance Edelson with Morgan Stanley. .

Few quick questions. Does the latest news on Transbay, the signing of a large tenant and the confirmation that they’re moving forward the building.

Does that change your views either positively or negatively or not at all on the San Fran office market over the next few years?.

I said it’s an absolute positive in the rents they’re getting and that building are high. They have to be high with their cost structure and so forth. We’re great believers that you want high tides, whether you’re at the 50 yard line or whether you’re at the 10 yard line high tides help everybody.

If you think back to I don’t know 2, 3, 4 quarters ago there was a number of folks on calls like this that were asking, "Hey could we end up with a surplus of space being delivered into the market and could that deteriorate rents and so forth." In other words was the demand there..

I think that’s been resoundingly answered by the amount of activity that we had in the fourth quarter of last year and so far year-to-date. I can tell you that we’re dealing with a number of companies that are looking for well above 100,000 square feet for couple of years out. I think the market has 2 or 3 years at least of good runway.

Now I always have my caveat that I, as everybody knows, I have no faith in the people in Washington irrespective of which party. So, I always get a little concerned about them ending the party. What we’re seeing right now is very strong demand and continued demand here in the city. .

Okay. That’s fair.

And then back on South Lake, I mean, is that essentially a fixed split between office and life sciences you said you want to move in one direction with the building that we take considerable effort or is there some flexibility there?.

It’s very flexible. We expect like we continue to operate it as a life science. Frankly, we expect that the tenants that are there going to like it at the end of the lease term. But when we bought the building, we explicitly ran every scenario including converting it entirely to high tech office, just standard office used for a technology company..

It doesn’t need more improvements to remain as biotech improvements and we continue that use with expect that we have pretty low CapEx experience and if it converted to the office it would be a moderate CapEx experience because we’d really to be taking out some labs and replacing them with the open space.

So, I don’t think we see a terrible CapEx issue or question in either of those locations. But given the life science market and demand out there and given the superior quality of this building and this location, I bet more towards continued biotech use if I have to make a bet today, but we ran all those. .

All right great. And then last one from me.

Could you provide a quick cap rate update just directionally up and down and the Coast and how this factors into your thinking on acquisition overall? Would you say it’s even more difficult to find anything attractive right now than it was just 3 or 6 months ago?.

Well, I just kind of maybe quickly review our history. I mean, in 2010 and 2011, we did $700 million a year. Those markets were attractive, and '12, we thought it was gone be very difficult but we managed to do another $700 million of really attractive stuff. In '13 we weren’t sure if we could do anything, we landed at $350 million.

So far this year we’ve done the one deal we’ve just talked about a $160 million..

Can we do more this year? I really can’t say. I mean we look at everything that’s on the market, it is getting harder and harder. And I think we will probably find a thing or 2 along the way but not very much because it’s getting it continues to get harder.

I think it’s about as hard - in the last 3 months did it get harder, no it's just very, very hard. Cap rate wise you can be over the board. It depends, I mean, I would tell you on an IRR basis what people are looking at on a core basis is a low 6 and that’s too low for us..

We’re not doing those deals, and those things could start 4, they could start at 5 with no growth. They could be start at a 2 with people presuming a lot of growth. So, in terms of the cap rate basis, that’s really kind hard to compare apples-to-oranges. But on the IRR basis, we’re seeing from time-to-time right outside of the core strike zone.

Every once a while, there is little plum that we can pick that has better returns, more upside, something that was neglected, something that the market didn’t quite see and we’ll continue to look at every one of those and our hit ratio is probably 25:1 versus 2012 when it was probably 10:1 or 8:1. .

Your next question is from the line of Ross Nussbaum with UBS. .

Two different kinds of questions.

First on the Riot Games lease, I’m just curious how did you guys get comfortable with the credit of sort of a one product company, and is their majority equity owner guarantying the lease or not?.

We spent time reviewing the credit, meeting with the company doing our normal due diligence. They are a private company that does extremely well. And they have had their game, it's the most popular game in the world currently and games do run their course. But our sense of their credit is very, very strong at this point.

And addition to that, we have got letter of credit that we’re comfortable with. .

Okay.

But there is no overriding corporate guarantee from Tencent Holdings?.

No. .

The second question is on development side down in San Diego. John, may be this one is for you.

Can you give us an update on where you are in the approval process at One Paseo and then just give us an update on what you are thinking of Santa Fe Summit?.

Okay. I want to say of course for those who don’t know is the big next year’s project in Del Mar. We have the good fortune, well we had the bad fortune of having an idiot that was the mayor that was basically a hold up artist and took everything sideways. Kevin Faulconer was elected here a few months ago.

He is a very good, very pro-growth and so forth. The project is back on-stream.

It will go through the what they call the Community Development Group which is non-official thing, but got to go through that first that will happen here this spring and then we expect to go through the planning commission at summer and then late summer, early fall through city council..

We expect to get approval for the project. We have made a lot of adjustments over the course of the last year that we think have been appealing.

Our sense is we have got Caltrans to come out and say that -- they will not say they support something, they'll come out and say if they're against something and they'll come out say that they think it works fine. So, we are pretty pleased with where we are headed right now and our anticipation is we will get it approved by the end of the year.

And then in terms of the marketability, in terms of where rents are and so forth, the current market rentals for office space that have nowhere near the environment that the office space will have at One Paseo are within -- under 10% different than what we had forecasted..

So the markets come to us with regard to rental rates on office building, the apartments are totally going to be a slam dunk and the retails all leased. So let’s first get approval and then build it.

With regard to whether we could be interrupted again in California, as I mentioned in previous calls there's something called Seequa [ph] and somebody can file a Seequa [ph] challenge then it would go to court.

We have a got history that is trying to be anti-competitive and we are dealing with him and if he files a law suit, we think we'd win and it could take 3 to 6 months..

So that’s what project is at, but what I am very pleased with is we now have a city that’s back on track and we look like we have got a green light ahead of us and the markets come to us on rents and so forth and demand..

Rents in the Del Mar market, Jeff, are up what this year 20%?.

Yes like 22% year-over-year in Del Mar. .

So we think that continues because there is just no good quality product, all the vacancies in kind of older buildings of 5,000 and 10,000 square feet and in the old 1980, 1990 style buildings. In terms of Santa Fe Summit, that’s the property that where we did the first phase with Intuit.

We are entitled for 600,000 square feet plus between Phase 2 and 3 that’s on the 56 Freeway between the 5 and 15 just a stone’s throw from Del Mar. We are dealing with somebody on both of those phases right now, more to come.

But I think with the way the market is going, we would anticipate that we are going to see some action on that sometime within next year or so..

And then adjacent to the One Paseo project where we bought the Heights at Del Mar which consisted -- $100 million and some, Eli do you recall the price of Del Mar?.

$128 million for the [indiscernible] building. .

Yeah. Thank you. That’s where we have the land site and we are going to build the building there. That’s about $45 million or so. We are dealing the law firm for all of that. So, we anticipate starting that sometime this summer I think it is, may be its fall.

And basically, what we are seeing in San Diego is most everything we got with a few exceptions like Carlsbad in discussions with folks..

So we are encouraged by what the brokers are saying and I reference the Colliers report that Jeff mentioned in the activity that we are seeing.

By no means, is it robust like San Francisco, if anybody compares anything to San Francisco, maybe it's in the Dakotas or something where there is the oil folks, but it’s kind of unfair to compare anything to San Francisco at this point. .

The next question is from the line of Michael Knott with Green Street Advisors. .

John just to touch on that a little bit more on the development side.

I was just trying to put in context, a little bit earlier in the call mentioned several opportunities that you are working on and hopeful about and then you touched on some in San Diego, but I was going to ask some of these bigger projects currently under construction roll off your development pipeline in the next several quarters when they are delivered..

Do you feel like your overall development pipeline will shrink if that happens or will some of these other opportunities be large enough to offset that in that year overall development will remain as high as it is today?.

I think I have sort of what I said in the past is that, it feels like the $1.5 billion at any one time is kind of what we sort of see but it never works exactly like that. You can end up a $1.5 billion as LinkedIn and Synopsys roll out that rolls out $500 million plus or so. We don’t necessarily start something the day those finish.

But looking over a 3 year period, I see again with being very judicial here and very sober, I can see based upon what we’re working on and of course the big unknown is when start One Paseo.

But I could see us starting over the next 3 years in our another $2 billion to $3 billion worth of stuff most of which would be substantially pre-leased and a substantial portion would be in this area, meaning the Bay area. .

Okay. That’s helpful. Thanks.

And then just a quick on One Paseo, it sounds like you would be prepared to go spec on the office there just given the strength but may be you wouldn’t even have to given that you are not facing that decision yet?.

Yes. We don’t have to take the decision yet. One of the things that I like about that, our position now and I didn’t like so much few years ago is that, the markets coming to us, both with regard to the increased demand and decrease supply and rental rates where they need to be. The retail takes care of itself.

I think the apartments take care themselves and on the office, we are sort of in the 450,000 square foot range. My first love would be to have a significant pre-lease on one of those buildings. And I think we have a very good chance of that based upon some of the discussions we’re having..

One of the dilemmas we have is that, we can’t tell people when we are going to start, when we are going to finish. We just don’t know yet. It’s really hard to market and unfortunately at this point with a market improving that’s working for us we think more to come. .

Okay.

Would it be possible that demand for that would cannibalize Santa Fe Summit or vice versa?.

I don’t think the people at One Paseo would necessarily be the candidates for Santa Fe Summit. Santa Fe Summit is going to be a campus or 2 that it could be multi-tenant, but the fairly big multi-tenant increment of 100,000 plus or minus.

But it’s more than likely to be a couple of big campuses whereas One Paseo I think what likely happen is one building will get occupied by a big law firm or a big bio category company and the other one will be occupied by several..

That’s kind of in the area where law firms, accounting firms, wealth management firms want to be as well others. I don’t know that we will - we may or may not end up with a tech type company in that building I just don’t know. .

Okay. And then question for you on San Francisco both fundamentals and your investment strategy.

One, on the fundamental side, you have talked about not enough supply relative to the demand and the possibility of a rent spike, and I am just curious how the unique feature in that market has Prop M plays into your thought process and where that stands in the market today?.

Yes. I don’t have the Prop M stuff before me right now. Mike Sanford is kind of the keeper of all that and there is plenty of capacity within.

For those who don’t know Prop M was something that was passed in the city some time ago and it lets you build a couple of million square feet a year and then if you don’t use it, if it’s not used in the city then it accumulates.

And so, the question becomes at what point development outstrip that has been accumulated and that business that is allocated each year..

We think there are several years for that. The stuff we are working on we think is much earlier in the queue than some other stuff that would being thought of by others. So, obviously we have our head wrapped around that.

One of the projects that could have gone forward more quickly because it have been entitled was the Salesforce land over at Mission Bay where they had intended to build upwards of 2 million square feet. Off course, they decide to not to do that and go forward with the urban campus and that project is now going to become the stadium for the Warriors.

And I might point out that, the forces that were anti-warriors over on the parcel that was close to the Giants stadium have come out in favor of the Warriors being on the previously owned Salesforce land in Mission Bay. So, these things are moving around Michael. But at this point, I don’t see anything we are working on at risk.

Obviously, we would hate to buy something and not be able to get entitled because we are out of queue because of Prop M. .

Okay.

So, you don’t see a lack of supply stemming is coming from that, that would contribute to a rent spike?.

Well, there could be in due course. I don’t think that’s eminent. But, what I see a rent spike coming from continue spikes of the fact that and let me point out that, if you’re a 20,000 foot user or a 10,000 foot user, unless you are really dying to be in some of the hotter buildings, you may have lot of options in the city.

You can go over North of market and defined space all day long in dozens of locations. If you’re a company that wants to be in a sort of hotter SoMa area and you have a larger requirement, you have almost no choices..

And that is a recipe for rental increases and we’re seeing that in our properties as we have leases come up for renewal as a case in point.

Here at 100 First Street, we have a full floor that we are getting back and we had 2 tenants of the buildings that were vying for that space and order of magnitude don’t know exact dollar now, but in course of we’ve signed at least now in the course of 1 week or 2 that property was bid up $10, $15 per square foot. I like that. .

Okay, thanks. And last one from me and I’ll get back into queue.

I was going to ask you in San Francisco, given what pricing is for assets and given the $2 billion, $3 billion of development that you cited over mainly the next few years, would you consider taking any chips off the table to recycle into development?.

Well, we’ve always been recyclers and we look at our portfolio issuance whether -- Eli and his team are constantly looking at what stuff first do we get rid of because we think it doesn't comport with where tenants really want to be in the kind of space or location and where they really want to be such so that becomes more commodity and less highly sought after.

We sold a lot of that stuff. We’ll continue to do that, we’ll do that with the land parcels as well with regards to some of the land we had on the books particularly some smaller one..

With regard to your properties that are largely occupied, we look very deeply at where the rents are in-place rents are, and where the rents are likely to go or where current markets are and how much value we can reap by repositioning those assets.

And then there are the ones that are the big bombers that we have up and down the West Coast that are leased to big credit tenants. And those could become candidates as you know there is Safe Harbor rules and so forth. But we are looking at this and I think you’ll see Kilroy, we’ve said at the beginning of the year..

We are going to do $150 million or there abouts for this year. We said that last year we did, Eli, $400 million plus. Do we do that this year, do we sell more next year, I don’t know? But we have no mother fixation about any asset and we are going to continue to be capital recyclers when we think it’s appropriate to do so and subject to Safe Harbor. .

Your next question is from the line of Emanuel Courseman [ph] with City Group. .

If we look at the Riot lease or some news late last year, they were looking to go into HPP’s building in LA in a bigger amount of space.

Is that lease with you incremental of that or have they decided to take less space and go with your building?.

Jeff, you want to take that. .

Yes. It’s expansion. The space they took across the street was like 284,000 feet and they took our buildings expansion of about 77,000 square feet. .

Perfect.

And then have you guys given any additional thoughts taking your sort of development model into other markets outside of the West Coast?.

I’ll answer that. We have a lot of clients who would like us to. We haven’t made any - our choice has not been not to at this point. We will always keep our options open, but I can tell you at this point that, we are not looking at developing something outside of our West Coast markets, but we’ve had a lot of opportunities and some in big scale..

So we’ve been very focused, as you know, we’ve increased the size of our asset base significantly we've increased the development activity significantly, we’ve increased the geographic platform significantly, we’ve increased our people significantly and we’ve done it with I think a lot of forethought.

I give a lot of credit to Jeff and Tyler and Eli and David Simon and a number of other people who worked so hard at smart development sites. So, we’ve been focused on. There is a lot of fruit to be picked in the markets in which we currently operate where we have strong representation and where we have a great culture.

What -- can we transport that? Should we transport that? Those are huge questions that we ask ourselves but they are not on the table for decisions right now other than we're focused on our current market. .

Is there a specific trigger that you are looking for to sort of make that step or is it really just a progression of the company?.

Well, I am not going to say we are going to be other than the West Coast, but if we go into another market whether it’s on the West Coast or somewhere else, we have to do with just like we did in San Francisco and like we’ve done in Seattle.

And that is we have very strong, very knowledgeable talent and where we can deliver something that’s special and unique and we think we can build the better mouse trap and those are - we think there is a large of opportunity right now in the markets we’re in, and we are very focused on our markets. .

Your next question is from the line of Dave Rogers with Robert W Baird. .

Guys just a couple of left for me.

First for Tyler or Jeff, could you talk a little bit about any remaining rollouts in the portfolio through maybe the end of 15 you mentioned the 79,000 square feet in 3Q this year, anything else we should be focused on?.

Yeah this is Jeff. For 2014, we had another tenet that vacated just this past month and we’re obviously in process of talking with the replacement tenant for that space that’s around 26,000 feet. As in Q3 we’ve got another 90,000 square feet and we are in discussions with number of perspective tenants there.

And then if you go to 2015 where we’ve already done a fair amount of leasing of space and brought that percentage down from 17.7% down to where it is right now..

As we’ve got a couple 100,000 square foot tenants in 2015 that we’re engaging. In fact, one of those we just released that in this past month. So, I think we feel pretty comfortable in terms of the rollout 2014 and 2015 we’ve been focused on that for some time and no surprises ahead. .

And then 90,000 you mentioned Jeff in the third quarter, is that an addition of the 79,000 or is that an aggregate number?.

That’s an addition. .

Okay. Thank you. .

Steve, one other thing I would say is that, one of things we assess is we have 17% plus expiration in 2015. We said okay, we need to make sure that we get that number down. We’ve done that. What’s happened is most of the markets have corrected or continue to improve and we’re looking at more robust rent projections than we had initially contemplated.

So, in some way that’s kind a said with the guys that we surely want to release it early or are we leaving some on the table..

Now we’re always going to be, we’re not going to be all together on one side or the other that. We’re going take some chips off and we’re going see what happens when we think rents are going increase. So, I’d just add that comment. .

It’s a little segue into my next question I guess John and with regard to, you’ve got a great problem with is our really low availability approaching 400 basis points in the portfolio overall I think.

Do you start to thinking about other ways other than development you try to kind a get at that market that you’re talking about? Are you expiring tenants early to try to get new tenants in there, adaptive reuse of new properties, development's clearly one way to do that, are there other ways to kind get at this growth faster?.

Well, we have a lot of - let just say that we have an R&D department that I think is pretty unique, and I don’t know that we call it the R&D department but we’re looking at some interesting things and I’m not going talk about around this call.

But we’re very focused on how we continue to increase value and do it in a thoughtful way, but we got to make sure that if we have some in our initiatives in various areas that we have the right personnel and so forth. But we look a lot of things, we do a few things, we try to do very them well and we’ll probably add a few more things to the quiver. .

Lastly John, the 300,000 square feet I think is the LOIs that you mentioned in your comments.

Breakdown new versus renewal and then geographically weighted anywhere?.

Tyler, do you have that or is that Jeff?.

Yes. This is Jeff. I can take it. So, of the LOIs, 26% of that number is new and 74% are renewals and predominately the largest are in San Diego 59% and then LA County 31% and rest are fairly insignificant. .

Your next question is from the line of John Guinee with Stifel Nicolas. .

Whenever Michael Knott suggests there is a rent spike, just agree with him, okay?.

Yes. It’s spiked kind of funny because when we brought 303 Second Street, we assumed that there was going be flat rents for two years and then it might bump went to 3% for a couple of years and of course that would taken us to right now when we've had over a 100% increase.

So, I will freely admit that we were a little bit more cautious and I’m just not going lay down a big giant bet on everything is being perfect for increases. I don’t think that’s our business. .

Okay. And question and I may have missed this.

But Eli, did you talk about how much more acquisitions you -- in order to avoid a taxable situation given the sale of the industrial portfolio in Orange County, what's your rough estimate is of acquisitions required of vis-a-vis a 1031 Exchange? Is there anything else required?.

No. There is nothing else required and you’re referring to the San Diego for I-15 quarter stuff. We pretty much handle all that between 401 Terry and The Heights and another piece land that we did. So, yes, so I think nothing further required there. .

Okay. And then also tenant improvement and leasing costs seem to be rather light for the first time in recent memory.

Is there a thought process there or is that just a coincidence?.

This is Tyler. I mean, if you notice the some of those leases work shorter-term in nature. So, I think that’s not a trend that we want to provide as an assumption going forward. I think that might correct itself over the next couple of quarters. .

Your next question is from the line of Steve Sakwa with ISI Group. .

Just real quick Tyler, I couldn’t write down as fast as you could speak.

Could you just go back through the $0.04 to $0.02 and the $0.02 so we have it correctly?.

Yes. So, the $0.04 is related to San Diego land sale that we’ll run through FFO.

Another $0.02 is related to the accretion from 401 Terry on a leverage neutral basis, and the other $0.02 is just as I sort of said the ins and outs of really everything else, therefore we obviously have some acquisition expenses and the legal expenses which are the negative side of that, but we have better core and lease termination fees on the positive side of that.

So, that would sort of a net number.

Does that help?.

Yes.

I’m sorry, the land sale is, that’s in second quarter?.

That’s in second quarter. .

Right. Thanks. And then I guess John for you. You were early in talking a lot of about the densification, how that’s changed and do you’ve now I guess experienced this with many year tenants in the last company.

Have you gone back and talked them about just to how that’s worked and anything that you would say they would do differently today if they had that space or can you see getting more dense or what problems might be arising from this high densification. .

Just like there are automobiles that work better than others, but they all go 60 miles an hour and they all turn right and left, some things as just better done.

There are any number of densifications that people have not liked because they've not had the appropriate common areas or they not have the quality of air or the quality of light or they've not had good elevator systems and so forth..

So there have been some bad executions. I’m not aware of anybody that is other than a static in our buildings with regard to the denser areas and you’ve seen them. They are spectacular and we gone to that in our offices..

So it’s a question of whether people have done them right or not but the short answer to your question is, we’ve seen people only become more enthused.

They’re have this some articles written and I don’t know if you referring that I think it was by some Australian writer that, there are lot of folks that were displeased with densification, they felt they’ve lost their privacy et cetera, et cetera.

But when you bore into that, those folks didn’t have the breakout areas, the common areas and all the other things that we have in our buildings..

So I think we’re going to continue to see this on this trend. I’m confident we are because we are seeing it in the way people are improving their buildings right now and the way they’re planning their buildings.

We, as you can imagine, meet with the real estate, key real estate people and human resources people of all of our clients all the time and with lot of tenants that we’re talking to about our buildings as well as about future buildings, and I see nothing other than a continuation of this trend. .

You’ve 2 questions listed in line. Your next question from the line of Vincent Chao with Deutsche Bank. .

I just had another clarification to guidance. I don’t recall hearing the updated same-store NOI growth expectation. I think it was 3.5% last quarter. But just given the strong start to the year just curious if that’s changed too much. .

Yes. I didn’t mentioned that, but it roughly the same maybe a little bit better but we do have some free rent coming in the back half of the year that will lower down our cash NOI then. So, we’re maintaining the 3.5% for now. .

Your final question is from the line of Michael Knott with Greenstreet Advisors. .

Just a quick follow up on Columbia Square and Crossing/900, it sounds like strong activity. Is it -- would you say stronger than three months ago.

How would you characterize that?.

Yes.

On a 0 to 10 scale, 10 for activity at both of those?.

David you want to talk about Academy and I’ll talk about other. .

So, on the Academy side Michael, as John mentioned in his comments on the early on, so we’re leasing the entire property to an entertainment news company and kind of -- it really indicates the kind a demand that Hollywood is starting to see from the media and the tech and specialty entertainment guys.

On Columbia Square, there are potential prospects for the new product in Columbia Square. This Academy tenant who is an interim tenant while we are going to entitlement.

Historic building is outside of the retail, which is all spoken for, there is one tenant in particular that we have working and are in advanced negotiations to take the entire building in the historic.

And we have added pool of candidates for the new office behind the ones we have mentioned in the past with Letter of Intent towards space planning et cetera..

So the timing that we have laid out in the past with respect to leasing and stabilizing the property, continues to feel really good. So on scale of 1 to 10, it’s stronger than it was 3 months ago. I don’t know if it’s 7, 8 or 10 but it’s certainly stronger. .

Okay.

And then Redwood will this go with yes on my question?.

One of the things that, being a public company until we have something signed, we can’t -- we’re not going to talk about it, but let's just say we have a lot of action, a lot of folks that’s very positive more than we last month, more than we have the month before. .

Okay. .

That’s all I can say. .

Okay. Fair enough. And then last one real quick. The DirecTV being in the news with being the target of potentially of AT&T. They are your largest tenant over 650,000 feet.

Is there any reason to fear that they would need less space under that kind of scenario? I know you have long lease terms I think?.

Well, I haven’t talk to anybody about DirecTV. I read just as you did. I mean, I would imagine the credit of AT&T is greater than the credit of DirecTV. We have got 15 years and so to run on the lease. But with regard to the operation itself, like most of these entertainment companies they’re people intensive and talent intensive.

So, I would speculate if I said that I don’t think they can move and I would speculate if I said they will be moved. I don’t know anything about it other than what I have read..

But I would imagine like most entertainment companies you don’t see a whole a lot of entertainment companies moving to Texas or Dallas or I guess Dallas is in Texas, but or Columbia or some place because I don’t see it happen. .

And there are no further questions in the queue at this time. So, I’ll turn the call back over to management for any closing remarks you’d like to make. .

No more remark and thank you for joining us today. We appreciate your interest in KRC. .

Ladies and gentlemen, thank you for your participation today. You may now disconnect. Have a great day..