Good day, ladies and gentlemen, and welcome to the Kilroy Realty Corporation's second quarter 2010 earnings conference call. (Operator Instructions) At this time, I would now like to turn the call over to Mr. Tyler Rose, Chief Financial Officer.

Good morning everyone. Thank you for joining us. With me today are John Kilroy, our CEO; Jeff Hawken, our COO; Heidi Roth, our Controller, and Michelle Ngo, our Treasurer. At the outset, I need to say that some of the information we will be discussing this morning is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information in this call and in the supplementals. This call is being telecast live on our website and will be available for replay for the next 10 days both by phone and over the Internet. Our press release and supplemental package have been filed on a Form 8K with the SEC and both are also available on our website. John will start the call with an overview of the quarter and our key markets. I'll add financial highlights and update an earning guidance for 2010, and then we'll be happy to take your questions. John.

Thanks, Tyler. Hello everyone, and thanks for joining us today. A lot has happened at KRC since our last call. We added two more acquisitions to the two we announced in April, and closed four transactions in the second quarter for a total purchase price of approximately $411 million. Four new projects increased the size of our stabilized portfolio by $1.3 million sq. feet. In the capital markets, we successfully placed a $250 million debt offering of ten-year notes, and tendered for $150 million of our outstanding 2012 exchangeable notes. We are also nearing completion on a new $500 million revolving bank facility. Our leasing momentum continued, with results that mirrored the first quarter. We signed new or renewing leases on about 332,000 sq. feet of space during the second quarter, and year-to-date we've now signed leases on more than 800,000 sq. feet. In addition, we have a large pipeline of letters of intent that currently totals 616,000 sq. feet. Approximately half of these LOIs are related to office leases, and a third are related to potential new leases on currently vacant space. The average deal size is approximately 17,000 sq. feet. As a result of our leasing success over the past three quarters, occupancy in our stabilized portfolio increased 85.1%, up from 82.8% at the end of the first quarter. We are now 89% leased. I should also note that market conditions remain mixed. Leasing is still competitive. Tenants continue to negotiate aggressively on leases, and decision-making timeframes remain extended. However, as we said last quarter, we are seeing stabilization in most submarkets. San Diego experienced positive absorption for the second consecutive quarter, while many of the vacancy rates in our other submarkets were basically flat compared to last quarter. Given the ongoing uncertainties in today's commercial real estate…

Thanks, John. FFO was $0.41 per share in the second quarter and $0.96 for the first half of the year. While our core results are right on target, FFO was lower by $0.11 a share related to a tender offer for $150 million of our 3.25%, exchangeable notes due 2012. Of the $0.11 a share, $0.09 was due to the GAAP charge for early extinguishment of debt and $0.02 was due to higher interest expense from the timing difference between the closing of our bond offering and the completion of our tender offer. In addition, our second quarter FFO was $0.02 more than our forecast due to acquisition timing and cost, specifically the closing of 303 Second Street was delayed about a month due to slow estoppel collection. We also had higher legal costs that were primarily offset by lower bad debt and higher other income. Occupancy in our state led portfolio was 85.1% at the end of the second quarter up from 82.8% at the end of the first quarter. And just below our 85.5% occupancy a year ago. While product type office occupancy was 85.7%, industrial occupancy was 83.2%. Overall, our properties are now 89% leased. Same-store NOI in the second quarter was down 7.9% on a GAAP basis and 9.6% on a cash basis. For the first six months of the year, Same-store NOI declined 7.1% on a GAAP basis and 7.5% on a cash basis. The leases that commenced during the second quarter, office rents were off 1.4% on a GAAP basis and 10.4% on a cash basis. While industrial rents decreased 29% on a GAAP basis and 30.3% on a cash basis. The leases that commenced during the first half of the year, office rents declined 5.7% on a GAAP basis and 16.8% on a…

(Operator Instructions) Your first question comes from the line of James Feldman with Bank of America-Merrill Lynch.

John, when we saw you in there, you were pretty optimistic about the number of conversations you're having for the vacant space in the portfolio. Can you give us an update on kind of where things stand today, in terms of you had good occupancy growth in the quarter and good leasing in the quarter. How much is kind of still in the pipeline and when you expect much of that to close?

Well, in my formal remarks we have over 600,000 sq. feet of signed letters that came outside of the leases that we completed year-to-date. So I think that's pretty strong and certainly stronger than we've seen in the last couple of years on a quarter-to-quarter basis. But beyond that, we literally have in San Diego, just about every sq. foot we have with at least wanted some case two or three tenants deep looking at them. And we haven't seen activity like that over the last couple of years. So I'm thinking that things are looking pretty decent. We still don't have a lot of pricing power, but having said that in recent transaction, and I don't want to name the tenant because it's in LOI stage. But we were able to push up the rent and decrease the tenant approval allowance, because we found that they didn't really have many other options in the size range they were talking about. On the development side, as I mentioned and that may read we've got a handful of folks who we're working with who trade paper with a couple back and forth, a couple of them. The RFPs are being refined, we haven't received those yet, or they've been adjusting them. So like I've always said until letters and tender sign, we don't have a deal until we have a signed lease for a development. We don't have a deal, but I'm feeling that this is much better environment than I've seen over the last couple of years.

And then can you just provide a little bit more color in terms of the types of tenants? Are these tenants that have been on hold for a while and are finally acting or is it the expansion?

It's a combination of both. We're seeing folks in the medical products field which are expanding, and people and the medical services which are expanding. We're seeing people in the financial management which are expanding as well as wanting to move in to a more efficient campus. We're seeing on the educational side some expansion and then with regards to the law firms and the software companies and that sort of thing. It's a combination of expansion as well as wanting to be in a particular market, in other words move out of where they're currently in. Either because of obsolete facilities or markets they don't wish to be in any longer.

Your next question comes from the line of Michael Bilerman with Citigroup.

It's Josh Attie with Michael. A couple of questions on the guidance, on financing does it include a LIBOR floor on the line of credit and/or does it include an unsecured bond offering to eventually pay down the line?

There's no LIBOR floor in the new bank line. And at this point we don't have any model financing to take out the line of credit. As I just said, we'll be at $205 million on the line presently. And we have a $500 million line for the short-term. We don't need to do anything to refinance that.

And were there any covenant changes to the new line versus the old line?

Some modest changes, that material we added and they added a new debt yield covenant, but effectively it's very similar.

And what was the impact on the occupancy guidance for the year of the acquisitions that you made, because it seems like the year end occupancy stays the same at a 87. But the FFO guidance actually increased, was there an impact on that occupancy from the properties you acquired?

The occupancy impact from the four acquisitions actually was relatively minor on the overall occupancy. I think it's about 50 basis points of higher occupancy due to the acquisitions. So it didn't really impact the numbers yet. And just to comment on your guidance comment, you were saying the guidance was raised, and affectively when you adjust for the things I talked about the midpoint of our guidance basically stays the same. So I'm not sure we raised our guidance.

Your occupancy target for the end of the year of 87 is inclusive of any acquisitions you make during the year?

It includes the four acquisitions we made and we don't have any other's model.

And those are the overall because they were more highly occupied as they've been about a 50 basis impact of portfolio occupancy?

Right.

You haven't moved up your occupancy target on a same-store basis?

Well, when we gave 87% occupancy target last quarter we had already programmed into those acquisitions. So it's just the other two that we hadn't talked about.

And then maybe sticking with the same, the executive compensation bonus program that was set up at the beginning of the year which is based on EBITDA targets, revenue targets, operating margin targets, the leasing targets, are those reflective of the portfolio as it stood at that point so it doesn't include any acquisition activity when the board sort of reviews whether the thresholds are met or not?

Well, we have a budget that we show to the board that then has different plans for the year which, I'm not sure I understand your question.

Based on the fact that you get over $400 million of acquisition, then obviously it will mean higher EBITDA, higher revenue, potentially higher operating margins, you'd be in the threshold performance, a lot easier. So I'm just trying to figure out how does the program which is a minimum of $4 million up to $8.25 million, how do the acquisitions play into those targets?

The acquisitions would be added as that. In other words, the acquisitions would increase the EBITDA which would make the target easier to achieve.

So it's not based on the same year?

Not only on store calculations no. Whatever happens are in their.

Isn't that a little bit counter intuitive, right? The fact that you buy assets has something to do with, you're nowhere in the executive compensation program as that based on bottom line, financing the transactions with equity or debt, that seems to be a management for just going out and buying something without performance tied to it.

Is that a comment or a question?

It's a question.

I think we're overwhelming this conference call with this, if I might say that, Josh. I mean, we're happy to answer your questions, but I think we've answered it.

I think it's a serious issue, that if management's had a bonus program at the beginning of the year (inaudible).

EBITDA is but one of three other components in the program.

60% of the program is EBITDA and revenue driven, which is totally influenced by buying $400 million of assets. I don't see why that's not an issue.

It may be an issue to you, but that's not our motivation to buy assets.

I understand that, but I would think that a bonus program should be bottomline focused on a same-store basis, not based on deal activity.

Your next comes from the line of Sri Nagarajan with FBR Capital Markets.

Maybe you can talk about the motivation to acquire assets, particularly in the Mission Valley submarket where you declared that it's about 21% to 22% vacant. What were you seeing in the Gulls that increases acquisition and what's the underwriting in terms of leasing up the Mission Valley Corporate Center?

Well the buildings were basically stagnant over the last couple of years. The former owner was capital constrained, didn't have the wherewithal to do leasing, had no motivation. I had some guarantees that we're involved in the construction of the final building, that they want to be relieved off related as they told us, to a much bigger issue, elsewhere in there relation to that particular banker. What we looked at is on a price per pound basis, is roughly $250 a foot, Jeff? $252 a foot. That was below replacement cost. Right next door is a 500,000 sq. feet shopping center. So great amenities, and we have talked with the brokers, the various people who represent tenants in that market. What there view was to the asset and I thought that asset was a terrific asset. One of the top two assets in that marketplace but had poor sponsorship. So we turned to look at it and said, with its transportation amenities as well as the retail amenities and with the sponsorship we could move the leasing up substantially. And right now we have a handful of tenants with proposals going back and forth, from a broad diversity of tenants where we think we'll move that sq. footage leased-up substantially over the course of the next couple of quarters.

So you are assuming, you're substantially leasing in the next couple of quarters. 27% of your Los Angeles office rent's expiring. I mean, I know you talked about DeVry signing up for half the space and obviously Boeing vacating, are you taking the property out of service? Give us a sense of how the renewals are going for the LA office. And I am assuming that since the rents are lower, it's most likely Long Beach or El Segundo. So the 616,000 sq. feet of LOI, what's attributable to LA office here?

Jeff, you want to comment?

Of the 616,000 sq. feet of LOI, about 157,000 of that is in LA. So I think we are seeing reasonable good activity. Long Beach has been pretty steady. We're continuing to see decent demand, although there is certainly still this pressure on pricing in West LA. The markets continue to do, I think well, although there still continues to be a lot of competition. So I think that now we're feeling pretty good, but there are obviously sort of ins and outs of the various submarkets.

Okay. One last question. You've large holes to fill in, say, Governor Park, I-15, Sorrento Mesa. Again, where does your leasing activity look in those particular submarkets, and how does the acquisition overall fit in?

Well, in the UTC Governor Park submarket, we have one vacancy only, Jeff, which is roughly 45,000 sq. feet. We just have a low base there. We're dealing with two different tenants for that particular building. So we're hopeful we're going to move our leasing up in that category as well over the next couple of quarters.

Your next question comes from the line of Chris Caton with Morgan Stanley.

One question is on occupancy ramp. If you are 85% occupied, 89% leased and targeting 87% at the end of the year, what do you think that looks like through the end of the year in terms of third quarter, fourth quarter?

That's pretty straight line. I don't have the number exactly in front of me, but we have about 435,000 sq. feet of expirations remaining, including DeVry and Boeing. And we think we're going to do about a third of that and the remainder will come out. So there'll be ins and outs, as I think John says. But its pretty straight line over the remainder of the year.

And then, with regard to the line in kind of letting $205 million float, is that what's in the guidance, and then would you contemplate revisiting the unsecured markets now or is it something you want to kind of, let's float it for a period of time?

We don't really have any other floating rate debt. So I think more than 80% of our debt is fixed rate. So we don't mind having a little bit float. But we are serving lots of the markets and see what may change. There's also, even though we've created unsecured debt, the secured market is clearly very strong right now. And even though our strategy is over the long run to do a lot more secured debt, we may tap it here and there, just to take advantage of good pricing. But I guess bottom line is, we don't mind watching or having a little bit of floating rate debt.

And then the last one is with regard to dividend coverage. In the back of this sub, you have FAD at $10.7 million. When you look at the free rent you're giving in terms of new deals as well as CapEx, when do you think you get back to a positive dividend coverage?

It depends on our leasing obviously. We have all these LOIs in place. So that looks as good news, but obviously there's going to be TIs and leasing commissions associated with that. So it's certainly not until next year. But I can't give you a specific quarter on that.

And you're comfortable kind of overpaying the dividend as you just put capital under this space?

Yes.

Your next question comes from the line of John Guinee with Stifel Nicolaus.

A couple of sort of administrative questions. Tyler, I'm looking back over your future development pipeline, your land, and it looks like the total cost is going up about $3 million a quarter. How much of this 116 acres are you capitalizing, the interest and other costs, and how much are you expensing?

We're capitalizing on the San Diego Corporate Center project in San Diego, you know the Del Mar project, and we have been capitalizing on Sante Fe Summit as well, but that will end this quarter, I think this month actually. So those are the two projects we've been capitalizing interest on.

Next question. You guys John, have a kind of interesting portfolio, 140 buildings, 13.7 million sq. feet, so roughly 100,000 sq. feet per building. As of last quarter, you had 15 full buildings vacant. Can you kind of walk through the plusses and minuses of trying to lease full buildings versus just a single floor in these various markets?

Well, it's going to be building by building specific, but we have industrial and we have office, Jeff. How many of the, would you say 15 buildings were vacant, how many of them are vacant now? Like, I've never been asked that question, so I don't have that number off the top of my head. But in terms of different markets, of course San Diego and Sorrento Mesa and UTC, where we have the two-storey product type and the two-storey product type out on the I-15, tend to be more headquarters and/or large user markets. So multi-tenant buildings typically there are not something that we want to be in unless it's in some cases would be six-storied buildings so you'd be multi-tenant. I'm at a loss for your question.

Do these markets tend to evolve from large-user markets to small-user markets? And really I'm trying to get a sense for, are these buildings in fact sub-dividable?

They are sub-dividable. And in fact, the buildings that are on I-15 that we got back from our credit home-lenders that went bankrupt, there's three buildings that total, Jeff, 178,000 feet, and how many tenants do we have in there now?

We leased two of the buildings, we have a letter of intent on another, and we've got a couple of residual pieces of space because we'd designed them so that we could break them apart when we're leasing. We have strong interest from others on those. So all the buildings that we design, we design to be multi-tenant, whether it's per floor, or whether it's breaking up per floor. It just depends on where the demand is at any particular time. You look at building, Lot 3 at Sorrento Gateway, two-story building, we made the deal for a floor with Samsung. Then they came along and they took three-quarters of the balance of the second floor, and now I believe they are more likely to take the entirety of that remaining space. So they'd be one tenant for both floors, but they started out incrementally.

And then the last question. I guess Jeff, it might be a good, kind of a quick study. When you take 2260, Imperial Highway, the Boeing building out of service, what net rent did you have in it when Boeing was there the last year? How much are you going to put in the building in terms of base building, TIs, lease and commissions, and what would you expect the net rent to be once you're able to re-lease it?

I'll start with the redevelopment cost. We're looking to put about $20 million in, in terms of the graceful lobby, (inaudible) models, basically hardscape, softscape, landscape, all the redevelopment piece of that. And then on the tenant improvement side, with tenant improvements and lease commissions, probably about and 65 bucks a foot. And we feel very confident where that building is and positioned in the marketplace in terms of where the old rent was expiring with Boeing, and the rent that we will achieve going forward will be actually a nice increase. It obviously depends on the exact timing, but we're very confident that the rents are going to be going up pretty significantly.

What's Boeing paying now?

They're paying basically $1.20 triple net.

So that'll go, I think $15?

Remember, we always said we want to get Boeing out, and we did a short term renewal as is? That's why we did such a low rate deal with them.

The next question comes from the line of George Auerbach with ISI Group.

How should we think about G&A expense for the full year? You have been running at the low $7 million range over the last several quarters, but given the comp plan impact and also the potential to maybe add headcounts around the expanded portfolio, I guess what does your guidance assume for the back half of the year?

We've included the full value of the comp plan in the numbers which I think we said before. And then the G&A run rate's around $7 million a quarter, and we've anticipated that it will stay that way, $7.71 a quarter. And just to make a point on the comp plan in general, I think, back to Michael Bilerman's point, if we excluded the acquisitions, at least our targets at the moment, given that we improved our occupancy, on a same store basis, we have still achieved a 100% target. So our acquisitions are not impacting the results of the comp plan.

Your next question comes from the line of Suzanne Kim with Credit Suisse.

I am just hoping to get more color on the 616,000 sq. feet of LOIs that you've done. Is there any geographic sort of theme there? Is there a product theme? And do you have a timeline on when these potentially could kick in? And the last point is, how much of this is actually a pre-leasing of expiries that are a couple of years out?

The 616,000 sq. feet of LOIs, about 53% of them are for new space versus renewal, and about 52% of that 616,000 sq. feet is office, versus industrial.

And when do you expect these to kick in? I mean, would this be something we would sort of see first half, second half?

We haven't signed the leases yet, so it's hard to project specifically. But I guess, it's certainly, probably, mostly 2011, throughout the year next year.

Okay, throughout the year of 2011?

Yes. It just depends on how long it takes us to execute the lease.

Sure. In terms of the remaining, I guess 53% was on new space. How much of the renewals were, as a result of expiries that were just a couple of years out?

In terms of the renewal, are those 2010 versus 2011?

Are those 2013, that they are pre-leasing at this point. They decided that they're going to go in now, because they can get a better rate?

That is mostly 2010 and 2011, correct.

Your next question comes from the line of Michael Knott with Green Street Advisors.

A question on just the re-leasing cost, it looked like you had some longer-term deals this quarter than you've had before, and so the CapEx is a little higher. It looks like about five and a quarter per foot per year on the TIs and leasing, just wondering if you can maybe give us sort of gross or net rent that would kind of roughly correspond to that, so we can get a little better look at sort of the net effectives on these deals?

The rents were all, given some of it's industrial some of it's office, I mean it's hard to give you one number for that.

Sorry, I think my number was just office only, sorry I didn't clarify that.

Right, and even in within the office portfolio you got full service growth and triple net deals in LA versus San Diego, and the rents are just different there. So even if we gave you a number, I'm not sure it would be helpful.

Yes, it just makes hard to evaluate what the net effect is. And then can I ask, also looked like the same-store property operating expenses were up a fair bit in the second quarter year-over-year. I just was wondering if you can give some color on why that was?

Yes, as I mentioned that we had higher legal cost this quarter, related for separate issues that we were dealing with. And that was the bulk, it was over $1 million of related to that. And as I said we hope to recoup some of that down the road, so it was primarily a reflection of legal cost.

And not close to the property operating.

They were property related issues.

On the leases that you're doing that seem a little bit longer on the whole, can you just comment on what kind of ramp-ups you're getting on these deals now and maybe also on sort of your recently signed deals? And then just remind us of what it was maybe at the peak of the terms of rent bumps changed in your markets much over the past couple of years?

It generally have been anywhere from 2.5% to 4% and that's what we're getting right now, is in the 3% to 4% category. So I don't think it's moved of the peak Michael. In some cases it's not annual, it's every two years but it's the equivalent of that map.

John, while I've got you can you just give me a little color behind the strategy on Orange, I totally get the Michelson deal and the appeal of that particular submarket here within Orange County. So I'm still a little curious on your thought process on Orange, is that kind of a development play and is that why you're attracted to that, or can you just give us some color there?

Well, the lease goes out just to 2018; 2018 it's a credit tenant, it's a decent deal that goes eight-and-a-half next year. It's got bumps thereafter. They just spent millions of dollars in the building they've been there for some period of time. It's zoned to a three FR and it's developed to 0.3 FR. So on round numbers you can take the 99,000 sq. feet up to 1 million, and I don't think that's where we go unless somebody came on. But what's happening out there at Chalk, which is right across the freeway, is the Chalk has been buying up the neighboring building. And it's displaced a lot of the doctors that once so as they've grown more doctors want to be there. Also as they've grown, they've displaced places where doctors office. And we can build on the site somewhere in the neighborhood of 75,000 sq. feet to 100,000 sq. feet with the existing parking and so forth, and essentially a free land. So we'd only do that if it was pre-lease. So we just looked at this and said to ourselves, there is a great opportunity here to reap more value, whether that happens now or whether it happens three or four years down the road. In the meantime, we've got an asset that's well located, very well leased, good yield and it was $23 million. So it was a pretty easy decision. You won't see us buying $23 million building, unless it's relatively close to an existing market, where there's some kind of big value added play. But our focus is on buying something that is larger.

Your next question comes from the line of Vincent Chao with Deutsche Bank.

Just a question. I'm looking for some color on the cash interest NOI number which have been bouncing around a fair amount over the last couple of quarters. I'm just wondering if you could give us some color, when that might stabilize in light of the fact that cash re-spreads seemed like they are moving in the right direction and occupancy is picking up here.

Yes, we do expect by the fourth quarter and for our numbers hold, then we'll have the positive same-store growth in the fourth quarter. It will get better in the third and should turn positive for fourth, very slightly there. And it is heading in the right direction.

And by that I mean that the TIs concession packages that put pressure on those are diminishing or you expect them to diminish?

Well, you're talking about same store NOI.

Yes, on just cash and certainly.

Yes, that would be impacted by the TIs, but basically, when occupancy moving up and that will help our numbers, as well as we don't think we'll have the higher expenses that we have in the second quarter.

Your next question comes from the line of (William Cobb) with Cowen and Company.

This is actually Jim Sullivan at Cowen. Just on that last point, Tyler, follow-up, you said you wouldn't expect the operating expenses to be so high, so they're going to be coming down. You also in your comments about the legal cost that tended to inflate that OpEx number in this quarter, you talked about you hope to recover or recoup some of those, could you go into that a little bit in more detail? So not only it's my understanding, not only will the OpEx line should come down to kind of a trend line level to where it has been over the last couple of years. But here it is actually a number in here that you might actually recover, is that right, did I understand that right?

It's possible, yes I mean we're hoping; obviously its litigation, so we can't go into the details, but we're hoping that we can recover some of our legal cost that we've incurred. And just to be clear on property expense, we have higher property expenses in the second quarter; they should moderate somewhat in the third and fourth quarter. But I wouldn't say completely. But to answer your question we do hope to get some of those legal costs back.

On the OpEx line and just to make sure we understand the degree of moderation. Historically you've tended to about 17.5% of the topline in the OpEx line and the prior peaks that we've seen was about 18.5%, whereas this quarter it was over 20%. So are we looking at a number that's going to be kind of settling back in at 18% or back to 17.5%, can you gives us any more?

Considering the legal cost of last quarter, I think you got the 18.5%. And obviously the third quarter is a little different, because you've got the impact of higher utilities from the summer and you've got realty taxes takes a 2% increase in the third quarter as well. So it's a little bit seasonal, but I think assuming we don't have the same level of legal cost, we will be back in that 18% range.

Your next question comes from the line of Mitch Germain with JMP.

Tyler, can you provide the different targets with more components of the compliance is.

The metrics, we haven't disclosed the targets on the 2010 metrics. The metrics are EBITDA revenues, leasing and margin.

Will you be providing those different metrics?

I believe we'll be disclosing those at the time that the program is finalized at the end of the year.

And just to confirm, I think it was asked already and I apologize. If the maximum threshold is achieved, is that currently being contemplated in the guidance that you provided?

Yes.

The next question comes from the line of Dave Rodgers with RBC Capital Markets.

John, I think you mentioned again today that the opportunity maybe for some developments in San Diego in particular, how do you think about where you should be doing some build to suits today, what types of yields you would expect to get versus not only your cost to capital, but where are you looking to deploy capital on an acquisition basis?

Well, first on the development side, we've historically been in a bandwidth of about 8% to 10% going in yields with sometimes better, that's on leverage of course. And that tends to be, again the bandwidth and the upper ends of that tends to be in a more robust period when there's quite a bit more demand. So I think we'd still be in that range, but probably at the lower end today. In fact, some of the redevelopment stuff we're looking at that might be a little bit better. Was your second part of the part, with regard to acquisitions, where we ought to be?

Yes or just the spread between putting money at the build to suit you're buying in the mid-seven of developing at eight and up, etc.?

Well, let me differentiate here too. If we're going to go out and buy a piece of property for a development, we're going to look at it a little differently than if we're going to consume an existing piece of land that we already own. So there's going to be some differential pricing there on a development activity between those two scenarios. And then looking at your other question, in terms of acquisitions, you've seen a bandwidth of sort of six, seven to eight plus on our acquisitions with the average being in the high sixes, I guess, in terms of going in. And our underwriting is based upon what we think we're going to do over some period of time, not just at one point in time. And as you've seen, what we've bought with the exception of San Diego, the Mission city stuff which was 78%, the other buildings were in the high 80s or early 90s, or in the case of that little building Orange County a 100%. And what we like about all of those, it was we thought an opportunity to substantially the increase the value of those over the next five years or so. We like the fact that there was decent going in yield, wouldn't call it them extraordinary, but where we think we can move our both price per pound basis as well as yields over time up substantially. So what does that do for you?

Your next question is follow up from the line of Suzanne Kim with Credit Suisse.

I am not sure if you've discussed this already. But at the Orange site, I am just wondering if there's a development opportunity there presently or it's something that you are talking about if you would have to do a complete demolition in order to maximize on the FR that perhaps you'll implement right now?

Let me tell again where we are on that, that property is currently developed to 0.3 FR and it's roughly 100,000 feet. It zoned for 3.0 FR which would permit roughly a million sq. feet. If we built more than about 100,000 sq. feet, 75,000 to 100,000 sq. feet on the site, we either have to go with a very tall building which we don't intend to do or we'd have to tear down the existing building which we can't do until the tenant moves out. Our thinking is that the more likely scenario is we'd end up building 75,000 to 100,000 sq. feet with substantial pre-leasing. But over time, if we haven't done that and the lease runs then we still own the asset, then we could do something that's bigger.

So there's land available adjacent to the property that's existing right now?

Yes.

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

I want to ask you if you've heard any thing in you markets about tenants behavior decisions potentially being influenced by the pending changes in lease accounting from a tenants standpoint and whether that makes any tenants more likely to want to own their own space as opposed to a lease?

I haven't at this point heard or seen anything regarding lease accounting that would suggest that that's underway or underfoot at this point.

At this time there are no further questions I would now like to turn the call back over Mr. Tyler Rose for closing remarks.

Thank you joining us today we appreciate your interest in KRC.

Thank you joining us today we appreciate your interest in KRC.