Good day, ladies and gentlemen, and welcome to the First Quarter Kilroy Realty Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to hand 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; Eli Khouri, our CIO; Heidi Roth, our CAO, and Michelle Ngo, our Treasurer. 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 a statement regarding the forward-looking information in this call and in the supplemental. This call is being telecast live on our website and will be available for replay for the next 7 days both by phone and over the internet. Our press release and supplemental package 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 an overview of the quarter and a look at our key markets. I will follow financial highlights and updated earnings guidance for 2012. Then we'll be happy to take your questions. John?

Thanks, Tyler, and hello everyone, and thank you for joining us today. The first quarter was another active period for us at KRC. With our expanded west coast platform and strengthened management team we're making strong progress on all fronts. Our significant local experience, market knowledge and key relationships in all of our core markets have positioned us to continue to create long term value for the company. We're seeing this in additional value add acquisition opportunities, continued success on the leasing and progress with capital recycling. In addition, with the expansion with the development of our core development competency along the west coast we're now pursuing select development opportunities. The west coast real estate markets led by the Bay Area and Seattle are all improving. We are seeing a decrease in both large blocks of available space and of quality space in all size groups. I will provide additional color on our markets later in the call. In terms of new transactions, we are excited to announce that we are in escrow on two opportunities, one is an acquisition and one is a development. A few comments about our new acquisition. As you know, about a year ago we purchased Key Center one of the top office buildings in Bellevue, Washington. At the time, the market had a vacancy rate of approximately 16%, market has improved substantially since then with significant increased tenant activity, and a current overall vacancy rate of 13.8% is just under 10% in the key competitor set of high tier buildings. To take advantage of increased demand and strong momentum, we've just entered escrow to purchase a premier 408,000 square foot multi-tenant Bellevue office building for approximately $186 million. This is both an opportunistic and a strategic play. It has a terrific location immediately adjacent…

Thanks, John. FFO was $0.49 per share in the first quarter that includes one-time non-cash charge of $4.9 million, or $0.07 a share for the early redemption of our Series E and F preferred stock and approximately $0.01 for the acceleration of the dividend accrual. We also incurred approximately $0.02 of acquisition related expenses and $0.01 of dilution related to the 4 1/4% exchangeable notes that are now in the money. We ended the first quarter with stabilized occupancy at 91.6%. As John mentioned, occupancy rose from 90.8% a year ago and was down slightly from 92.4% at yearend 2011. First quarter occupancy was reduced by an industrial move out, the acquisition of Menlo Corporate Center and the expiration of the CareFusion lease, which is now been re-leased to Qualcomm. By product type, our industrial portfolio occupancy was 97% at the end of the first quarter, up from 95.9% year ago. Office occupancy was 90%, up from 89% a year ago. As of today, our operating portfolio is 93% leased and given the recent pending acquisition, we are projecting 92% occupancy for yearend, subject to the additional impact of any acquisition and disposition. Same-store NOI continued to improve with GAAP NOI up 7.7% and cash NOI up 8.8% in the quarter. We estimate the rent levels in our overall portfolio are approximately 6% over market down from 10% a year ago. We have approximately 850,000 square feet of remaining lease expirations this year, which we estimate at rent levels about 8% over market. As we previewed last quarter HP moved out of the space in Del Mar at the end of April and we are in discussions with several tenants to re-lease that space. Now, let me review our financial transaction in the quarter. In this February, we completed the…

[Operator Instructions] Our first question is from the line of Gario Hilm [ph] from UBS.

Guys, just on the industrial portfolio, John I know you said you expected something to probably get done on later this year, but any color that you could provide on how the process is going and if this is expected to you can still be in outright sale or potential JV would be appreciated?

Yes, that good question. As we indicated over the last couple of quarters, we pursued a double dual track. One was do it in a venture in which we patriot perhaps 90% of the dollars and then expand that platform with an investor or do we sell. In the former, we received very strong interest, where we can do that, but at the end of the day with all of the increased activity that we have at the company, I think our inclination is to do an outright sale. We have not put the property on the market yet we Eli?

We have not, but ready to go when moment is noticed.

So, we will be doing that over the next quarter or so and we expect to have very good results there.

Okay. And then I may have missed this, but could you give the yields on the Seattle and LA acquisitions?

No, I didn’t, but we certainly can. In Skyline that -- the building in Bellevue, it currently has a vacancy of about 10%. Its rents are about 10-plus percent below current average market and we think with the extensive modernization and remodeling we will be doing there, we are going to move up rents very substantially. But based upon on a more modest underwriting, we have a going-in cap rate on existing income of about 5%. We moved that up substantially over the next couple of years with significant lease rollover and moving the rents up and we expect an IRR in the range of about 8%. That’s for a $186 million investment about $454 a square foot. We think replacement is about 15%. It’s about 15% below replacement that we pay and get about $535 a foot. Although this site is killer with regard to transportation, you couldn't replace the building there is no site. In the context of the Silicon Valley development, that’s slightly about $200 million or $580 a foot. It’s a 15-year lease with 3% annual bumps. The going-in first year cap rate is 6.4%. The straight line is roughly 8% and the IRR is in the mid 8%. Your next question is from the line of James Feldman from Bank of America. You may proceed. Mr. Feldman, please check your mute feature. Your line is open.

Hi Tyler I was hoping we could just walk through the guidance change again. I guess what I’m trying to figure out is what kind of core versus what non-cash or acquisition expenses. If we are just kind of do an apples to apples from your prior $2.48, can you walk us through that?

Well, yes if you take out the $0.07 related to preferred and the $0.05 of acquisition related expenses that is effectively $0.12. So, you take the $2.48 minus $0.12 and you get $2.36, right. And then you have got $0.02 of related to our convertibles so that's $2.34. And then as I mentioned, you got a lot going on with a timing delay of given the equity offering of the new acquisitions in the closing up LA and the Seattle deal. So there is no easy answer to that question except that if you look at those timing delays on their own it's probably $0.06 or so bad. And what I said is we are making up roughly $0.03 or $0.04 of that through core and through our new acquisitions through lower financing cost. There is a lot moving around. So and that brings you to a midpoint of $2.32, which we ranged around $0.07 in each side. So, I don’t know if that helps, but there is no simple answer to that question.

Okay. It’s helpful. So I guess John and I guess the entire team you guys have done a good job buying the cycle. Can you give us a little sense of what's going on in your head in terms of what kind of cap rates you're seeing that are keeping you away from so buying core? What kind of returns you want to see on this value add and just kind of projections for development versus value add and where you think your limits are for even not getting too pricey?

Okay and I will predict the election too. That's a lot Jamie, but let just start. Remind me if I miss one of these and I might throw some of this to Eli. With regard to the first question I think what yields are we walking away from? If you look at the SoMa area, in San Francisco where we have got $2 million square feet or so we have about a $350, under $350 acquisition and fully loaded with all the improvements and all the rest. We are well under $400 a square foot and what we are seeing now is a number of trades that some of which are in escrow, some of which are just finishing up selecting the -- who the ultimate buyer is going to be, but they are very close and literally next door to a couple of our buildings. And those prices are anywhere from sort of mid-$600 range to as high as close to $800 range. When you kind of look at what that means in terms of yields, Eli, that's been producing yields that are --

Going-in yields of call it 4%, mid-4%, low-4% projected IRRs in the low 6% overall.

And if you look at that this is not interesting to us at all. Love the building, we would have loved to been the buyer, just couldn’t get there for obvious reasons. So, if we now look to the other side what yields are and we're seeing that pattern in a number of different markets. So, if we buy a core building it really has to have some value add component whether that’s repositioning, whether its renovation, whether its moving rents up because its well below -- the rents are well below current and you can get to them reasonably soon, obviously we're not seeing a lot of that. What we're seeing more is really I think this market as now playing to Kilroy's skill sets with the platform we have and with the core competence that we have in development throughout our platform what we're seeing now is a number of folks come to us that have a value added opportunity and where we can put our skills into that. And if you think about it and if you are buying and you require project level financing, it's very difficult to get financing on a value added deal that’s meaningful. So, what we’re seeing is opportunities in that particular area, and we're also seeing it in the development because a lot of development even if its pre-leased its very difficult to get the kind of financing anywhere near a 100% financing. And if you take a look at the private equity guys they extract a pretty big nickel to be your equity partner. So, we're seeing some opportunities in that space that we really like. One of them is what we just announced. In terms of yields, from a development standpoint we sort of like any where from mid-6%s or above start sort of a straight line of 8% or better IRRs in the high 8%s, 9%, 10%, and I think we're going to be able to improve the yields I just mentioned significantly in our own land bank with some of the deals that we’re looking at right where they're back to our more historical development yields to sort of 8% plus or minus initial yields and then a stronger straight line. What did I miss there, Jamie?

I think you said you were going to predict the election.

Yes, well, it's going to be the one guy or the other, but it's going to be a mess.

All right, and then just finally, who's the tenant for the builder suite?

We can't announce that yet because we have a confidentiality agreement with the folks but we will announcing that when? Tyler or Eli?

I would call it mid-May.

Mid-May?

Yes.

It's a credit tenant on a 15-year transaction.

Your next question is from the line of Craig Mailman from KeyBanc Capital Markets.

I'm just curious given kind of the equity needs you guys have for the -- actually you teed up about $165 million, you already have about half of that in cash and you guys are going out with the industrial portfolio and looks like you could do $500 million to $700 million. And how do you think about the timing of potential dispositions and the mix of what you put on the market and anything around that?

Yes, that’s a good question because I think if the industrial sale was imminent well obviously we'd use the capital from that fund to play this round of acquisition. As I said, we will use our line initially and depending on how quickly the industrial sale gets done and will impact how we've proceed on other capital transactions whether its another bond transaction or another equity transaction or using our bank line for a longer period of time. So, that decision hasn’t been made yet. It will depend on the next round of acquisitions to the extent if there are any and the timing of the industrial sale. So, I can't be specific in terms of timing but something like that.

And have you guys already gone to the portfolio and kind of picked out the other non-core assets that you're looking to sell at this point or is that just sort of a place holder of what you could do over the next 12 months?

Well, its both, I mean we go through a very rigorous analysis of all our assets and I wish we had been as rigorous in that effort in the last cycle as we are today because its very -- with Eli and his team its -- they're on every building all the time, where is the upside, where do we cull the assets. So, we have a pool of properties that fits very nicely within the range that we gave. If depending upon how robust the markets are that could be larger and obviously it's influenced by where we would put the proceeds.

Then just lastly, it sounds like the development pipeline is heating up a bit. Kind of what does the pipeline look like in terms of total potential starts is kind of all starts aligned for you guys?

You mean this year?

This year or just the total pipeline that could happen through the mid to late 2013?

Well, it's very difficult to predict that because it depends upon leasing, it depends upon what's going on in the macro environment and as Tyler pointed this is -- we all know this has been a crazy volatile period over the last few years. So there is so many factors that go into that. Based upon our discussions right now, again I don’t want to forecast that but we think its going to increase and we are not going to do tons and tons of development everywhere unless its substantially pre-leased. We do see a few -- we really look at our segmentation analysis as to what's available in all of our markets, where rents are, what demand is, etc to determine whether we should do any development that isn’t pre-lease or not there yet, we see a couple of small opportunities that we think might make sense. In terms of starts I think we just got to another quarter or so here to get a better feel as to the many discussions we're having right now with tenants.

Your next question is from the line of Josh Attie from Citi.

Can you talk more about the Silicon Valley development and what yields you expect on that project? And is that on land that you own?

It's on land we're buying, Josh. And in terms of the yields, its about $200 million investment, initial yield, first year yield is 6.4%, straight line of 8% and it’s a 15-year deal, straight line of 8% and IRRs we think that are north of there, sort of mid-8%s.

When do you expect that projects to open?

When does it come on stream?

Late 2014, early 2015 I believe.

And what's the best way for us to think that to use the proceeds from the potential sale of the industrial portfolio? It’s a lot of money that could come in at once and I know your tax bases in those assets is relatively low. Is the only way to maximize kind of the cash proceeds to reinvest it through acquisition?

I think that’s very likely with the gains that we already had built in those and doing 1031s and protecting those gains and distributions results from those. We have a very rigorous process here of arranging 1031 acquisitions, the 1031 transaction rather. We've done it on the last few that we have done. With the industrial portfolio we have two or three scenarios, contingency plans to depending on how the marketing goes to have it occur at various closing tranches so it can line up. We're very, very mindful of dilution with respect to timing, the ideal for us when we're doing a sale like this is to get the timing right meaning we're bringing something in at the same time that is going out that with respect to yield we're doing as well or better than we're doing on the incoming versus the outgoing and hopefully something that the incoming has more upside and is more strategically suited to us. So, it's just a very rigorous, manual, everyday we have 1031 exchange meetings once or twice a week and go through it in great detail, a very manual process there's no -- and it’s a long chess game. You just have a keep playing the game until its conclusion. So far we have been to able to navigate that very well. I'm very confident that we'll be able to continue to navigate that well on all those particular considerations that we have to get right.

Is the most likely scenario that, that gets sold as one portfolio or is it possible that for some reason you would break it up?

I think it's more likely to be one but it could be broken up.

Your next question is from the line of Sri Nagarajan from Cantor.

A quick on the development. I know, John, you commented intriguingly on the existing land bank as opposed to land that you might be acquiring, kind of if we were to obviously look at your land bank its mostly in San Diego. Could you just elaborate a little bit on the build to suit opportunities that have kind of picked up since the last quarter?

Well, what we're seeing right now is give you an example. We have a 60,000 foot building in Sorrento Mesa. It's one of the few 60,000 foot buildings in the Greater Sorrento Mesa area. Most of those are pretty old. Ours is in terrific shape. We've got three tenants that want that building. So, we're having discussions with two of them about building on lot 2 of Sorrento Gateway for them. And the yields are very attractive. With regard to other discussions we have on lots I think its called Lot 8 -- is it called Lot 8?

PCC Lot 8.

PCC Lot 8 in Serronto Mesa. We're having discussions on that one, and then we're having some discussions on some of the other sites. So, I think the way I look at this is we may end up building a couple of those buildings probably with pre-leasing at least on one. But what I like is where rents have gone to and where competitive product where there really isn’t any, and so I think that we've got an opportunity right that’s very similar to what we had back in early -- sort of the late '99, '98-'99 -- and then really '99 to 2003 we have very similar market statistic, very little product that was high quality, very good demand, that was diversified, nobody building anything, and we see the same picture teeing up. Now, I can't get more specific than that, but I like that picture and to put this in perspective these are buildings that are sort of in the anywhere from the sort of $40 million overall investment to maybe twice that. We also have a piece of property in Rancho Bernardo, we thought we were going to deal with somebody that was very interested; they've elected to do something else, the company was bought by somebody else. And we now have interest for that particular site and we could be doing something there. So, it's too early to give any king of real strong start date or dollar amounts or commitment to go forward, but I like the way things are shaping up. Now with regard to the Bay Area where we don’t -- we are having very, we are having at number, a select number of discussions with developers who have worked hard to get the property entitled, that have terrific sites, that can't get financing and have tenants. And therein lies a great opportunity for Kilroy.

John, just elaborate a little bit of that especially in the context of San Diego. I mean are these new net expansion is for tenants like requiring new more space like a Facebook in the San Diego area or are these just musical chairs kind of tenant upgrading their quality of the space? And also if you could elaborate little bit on the environment in the Bay Area that will be appreciated?

A little elaborate on the environment where?

I mean as in the Bay Area one could contrast that by saying that there is lot of net new demands on the Bay Area as opposed to San Diego, I just want to kind of see your take on that?

Yes. Well, the deals that we are taking about in San Diego are expansion which we like a lot. And similarly up in the Bay Area there is definitely expansion components or all expansion in the discussions we are having. However, there are also those and I don’t want to -- there has been a lot of talk, lot of reports, all you analysts have produced a lot in the years about the fact that is been unprecedented how low construction starts have been. And what's also happened is there are a lot of buildings every year that go in the sort of the obsolete category. Well that has really piled up in some of these markets and when you drive around Silicon Valley, you drive around some of the markets of San Diego, you see a lot of '70s and '80s product that is just not suitable for today's workforce. And then you throw into that, that increasingly decision makers are wanting very high energy rated buildings. And Kilroy I think has the largest, according to our Directed of Sustainability I think Kilroy has the largest percentage of LEED certified buildings in the public space in terms of office, and right behind that ENERGY STAR rated space. And so, we are finding that tenants really have a sustainability policy and lot of these old dogs you just can't remodel them to make them comply. So, I really like that sort of trend and we really get down, really bore into this markets and what's going on and I think its going to play well for our skill set.

That’s very helpful. Thanks for covering. One last question if I may, in terms of the competition that you are getting in market that’s well established like a SoMa market right now, what is the number of buyers who are bidding on asset today versus what it was like two years ago?

Well, Eli, do you to comment on that?

Yes. Well, it’s just a lot higher. I mean there, first of all, you have the category of assets that’s have been trading at San Francisco what people are calling instead of core they need to go a level above that and they are calling it a trophy or uber core, whatever you want to call it. And pension funds are clustering around that activity. The pension funds are basically in a battle with each other, one of them has to have it, there are knocking each other out. Those prices that John mentioned in the $700 per foot and $800 per foot ranges, the number of people that might show up for an auction like that are truly -- I mean you'll get 20-plus, 30-plus bids on something like and number of people who are truly competitive or probably double digits. And they can just drive those auctions to just into the stratosphere. If you take a level below that we have seen a big bump in pricing in second tier SoMa assets obviously as well and the number of competitors for that has gone up a lot, not quite as much as it has for the category I just mentioned. But if you get down to a certain level though where there is a major value add component a lot of that happens up by virtue of relationships, by being on the ground, by knowing the right people, by being given first looks or given the last look, things that people maybe can't get debt on. And we think we will still be able to find here or there that kind of opportunity even in a highly competitive market like SoMa, maybe we will or maybe we won't but we certainly would or be able to contemplate that possibility whereas on the uber core stuff we wouldn’t be able to. That answer your question?

Yes.

Your next is from Chris Caton from Morgan Stanley.

John you have covered a lot of ground. So if I ask question you have covered please let me know here. But can you touch on the leasing market in San Francisco? You have go a couple of leasing objectives there either for 373rd. And also it seems like you got a little availability back in the first quarter. Can you talk about prospects in the San Francisco market for some of your availabilities?

Yes, well 303 Second Street we had just a terrific demand. I think we've got a couple of spaces around 10,000 square feet. We are trading paper on both of those. We have some retail leasing. We just repositioned the ground floor plaza area and so forth and we got very strong interest in limited retail that we have there at 201 3rd Street where, Jeff, what's our percentage leased on that now? While you are getting that on a cover 101st. We have leases -- we are in leases or trading paper on every space at 101st and its very limited amount of square footage there that's available. The big one is 370 Third which is a total redevelopment and repositioning play. We are 37% leased with Pac-12 Enterprises and Comcast. We thought we had a deal. We had a letter of intent for two -- there is four floors remaining. We thought we had to deal for two floors, we had a letter of intent. We got to right down to signing the lease. Well, let's just say that there was some changes requested that we founded unsuitable the change, the change to the credit profile and so forth did not like that. So, we have those four floors available. We think that with the improvements that we are making which involve a roof deck patio, redoing of portions to the exterior, interior, the generators, all the rest, but the -- just the improvements that we are doing coupled with the lack of availability of large space coupled with the increasing rents that we are going to be able to move up hopefully projected yields on that building with the remodeling we are doing. 201, we are 97% leased. What we have been able to do there Wells Fargo, when we bought the building you might recall that the rents were about 50% of market or thereabouts on a bunch of the space. And what we have been able to do is take space back that was leased at what was the rent, Jeff, on like Wells Fargo space

20s.

In the 20s, we have been able to take that back as we have had other tenants and move those rents up into the high 40s and 50. So, I am very comfortable with where our leasing is in San Francisco where the market is and I wish we bought 4 million square feet but we have got $2 million.

And how is the redevelopment of 201 going? I saw you have the kind of the alleyway there kind of torn up, what's the -- how is the budget shaping up and the timeline shaping up to bring that up to where you have 303 2nd?

I don't -- Jeff, do have the timing on that? I know we are underway and the budgets, we are right on budget and it's pretty terrific. What we are going to be doing there, I think its going to really make that building a spectacular keeper. And as you know, on the other side of the public garage there, 680 Folsom is fully leased now to TMG Rockwood project to between Riverbed and Macy's.com. And that building is going to be substantial -- that's going to be a terrific Class A building. So that whole block is just going to be spectacular. And we are -- with the improvements we are making in that building I think we are going to just get -- we are going to be able to move rents even further.

Got it. I think the 201 3rd is not a "redevelopment property" but we are going to spend about $27 a foot roughly on our renovation plans, but if they never comes out of the stabilized portfolio since its also almost totally leased.

Sure, and were you doing anything to the exterior there, or did you elect not to do that?

We are not -- we are over painting well, we are yes, on the ground level Starbucks is being totally repositioned. The lobbies are all being repositioned. We are putting in it a large area, you know the building so well, Chris. If you go back in to lobby and you think as it goes back to that little alley that, that space on the other side of the lobby there is going to become a big grand room kind of like we smaller version of what we have at Key Center. And as the tech and media and other tenants really like that kind of space its going to have that alleyway is going to be redone, the alleyway that comes off of 3rd, and then the exterior above that level with the bottom level its all in glass, the paving and the landscaping and so forth, its going to be quite nice. And then the space off second through 12, is the building 12 stories? I think its 12 stories. I used to know well how many stories every building has I can't remember now. It's going to be repainted and cleaned up and then we are going to do some signage. So it's going to be a pretty nice renovation.

Your next question is from the line of David Rodgers from RBC Capital Market.

John or Eli, is there any existing tax protection on the industrial portfolio, any or all of it?

Tax protection on, I'm not sure --

You mean to unit holders or sellers?

Yes, yes, exactly.

No.

Okay. And then Tyler, maybe can you give us an update on some of the deductions to get down to AFFO? I think you give a little bit of a run down on kind of your expectations for the year. How those might compare as the year progress to what we saw on the first quarter? And again, as it relates to the dividend coverage?

Yes, well, as you saw we covered in the first quarter I think our projections are that TIs and leasing commissions will increase here in the second and third quarters. And as I pointed I think in the last quarter's call, we still anticipate nothing else changes that will cover right on top of the full year but probably not again till the fourth quarter. So, second and third quarters will have higher deductions and really is driven by TIs and leasing commissions, nothing else is going on. So did that help?

It does. Last question, maybe John, some of the acquisitions that you picked up or even the developments that you are start getting ready to start in Northern California, should we think about you as kind of maybe over adding to the land position, are there underscores land parcel that might give you some future opportunities for development or re-development and the one that comes to buy the Menlo Corporate Center with the excessive parking with high land prices. Could you add structured parking, add buildings, are these opportunities that you are uncovering as you kind of getting deeper into these buildings or we not that deep yet into the cycle?

Well, we were very reluctant. I always thought when a different company than ours, but when they buying stuff I never could figure out their math. And what I finally figured out is that they were ascribing excessive development and at big prices to that excessive developments, so that they can make their yields look pretty good on going-in acquisition. That is a fool's game. And what you've seen with us like we bought that Yarrow Bay project that had been other 100,000 square feet or so that we can build, we ascribed no land value that. We've ascribe no land value at Menlo Corporate Center to any future development, even though that’s a 23 acre site, a quarter mile or thereabouts on the freeway, which obviously could handle, its basically two story product and that could handle six story product easily. But we were very reluctant to start ascribing land value for future development here we just think that, that’s nutty at this point unless its really its truly a development play. Now with regard to the other part of your question, should you think about us adding land for future development, if talking about outright acquisitions, that has to be a very limited select just a killer site with visible demand where you really feel you have tremendous conviction and you don’t have a lot crazy entitlement process and so forth unless you are stealing a land, nobody is going to give it to you. So, we are pretty conservative on that front.

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

John, can you talk a little bit or Eli a little bit about the Lake Union deal and the economic profile there? I think you touched on it but I don’t think you -- John?

I think we did that in our -- when we did our equity offering, but Tyler do you want to -- you've got the schedule right there.

Yes, I think they're going in, in place return is a mid 5% cap rate, straight line is around 8% IRR, its as high as 10% on this transaction. Rents are well below market around 20% -- I'm sorry, its almost 30% below market. That’s helped -- we estimated replacement cost about -- we're about 20% below replacement cost.

Okay, thanks. And then, John, what about your plans for the LA region and portfolio with David Simon now in the fold?

Well, David, as you know, is a very seasoned highly respected very proven executive in LA for repositioning assets. I mean, I don’t think there's anybody that I know that’s done a better job. We're delighted that we're able to bring him aboard, we first brought him aboard thinking about the venture on the industrials as well as LA. And let's just say that David has a lot of things, a lot of balls in the air and I think we're going to make real progress in Los Angeles, nothing to report at this point.

Any types of things in particular that you think he's thinking about or that you're thinking about?

Well, it's value add stuff. It's value add stuff. He has tremendous relationships. Its kind of funny because we're headquartered as a team, until David it's probably the area where we're least connected to the areas you want to be. With David, I think we plugged, not only plugged that, we've gone right -- if not to the top, real near the top. And you can imagine there is a lot of value add opportunities in good markets. And those are the kind of things that we're really looking at.

Okay, thanks for that color. And then last question, should we expect to see you guys bidding for what I believe is on the market just now the former McGuire development down here in Orange County?

I don’t think you're going to see us doing any development in Orange County. Now, I will never say never because there could be something that’s pre-leased that’s terrific yields and so forth. Orange County has been a difficult market. We have a couple of great assets down there and we think that if you're going to be in that market you want to have outstanding assets that people want. And to be in notwithstanding the economic conditions and everything else seems to be a lot more commodity like. That’s our view. Others don’t share that view and they've done well or not done well. As you know, the most of what we own in Orange County -- I mean, I asked Tyler, how could we be 94% lease in office and 97% leased in, industrial and have our overall Orange County be 97%? He says because statistically the industrial overwhelms the amount of square footage we have in office. So, if we can buy a building that’s in Fashion Island, that’s terrific and reposition it and so forth we might look at that but I'm not holding my breadth. I just don’t see us being active unless there is a site that really is a killer where you just think its going to be a home run and then I'd sort of plan out being a double.

And also add that it’s been a market where outsiders bringing in new capital have always been willing to pay prices that seemed extremely rich relative to any fundamentals that have actually ever been experienced there. And we've been a long term knowledge participant in the market and watch some of the prices that get paid, it can be quizzical as to why somebody believes the fundamentals are going to reach a point that justify the values. And that continues to be case in some of the bidding that we see going on in Orange County right now. The price per square foot could be very high and the fundamentals necessary to support that just aren't there.

And I presume, Michael, you're talking about the building that Rob developed, that is now owned by a New York crowd that just went on the market on the freeway?

Yes, exactly, yes.

Yes, great building, love the building. When we bought 2211 Michelson, we said there was two buildings that we thought stood above all others and it was 2211 Michelson and whatever the address is on the subject building that you're talking about. Love that building. I don’t think we're going to be able to get in the ball park.

Yes, I agree.

If you're going to buy a building down there that’s probably the one you want to buy. Now, I'm putting aside Don [indiscernible] owns a lot of terrific assets but he's not a seller.

[Operator Instructions]. The next question comes from the line of David Aubuchon from Robert W. Baird.

Just a few questions left here for me. Did you give the submarket location of the development in Silicon Valley?

We did not. Where just I think you'd figure out in a heartbeat and we have a confidentiality agreement until we conclude the transaction, so we did not. But let's just say it is one of the three best markets there.

Okay. The $200 million include your land cost, correct?

Correct.

Did you have a land allocation for that?

We're really bound by a confidentiality agreement right now. So, I can't get into that. We're happy to do that once we close.

Okay. Relative to potential development opportunity in SoMa and that surrounding area, I mean, do you feel like the market is strong enough for you to take some risks there and look at some development?

Which area was that, sorry?

SoMa?

Well, we look at everything, I mean, you can imagine between Eli officing up there and Mike Stanford who runs that region for us, I mean, they literally look at every single thing and if we find something we really like and we think really makes sense, we'll do it all other things being equal. More to come on that but I don’t -- we haven’t pulled the trigger on any of that right now.

If I ask you to rank the potential returns, risk/return profile of development in your various markets, how would you list them in terms of best opportunity?

Well, in San Diego with the things that we're looking at it, if we achieve what we think those are going to be very good yields. And on incremental, are you talking about incremental dollars? I mean, they're obviously very good because of the fact that we already own the land and in some cases have plans or whatever. But I don’t think we're seeing anything yet in Seattle that makes sense. We're looking at a bunch of stuff. There's been some planned sites that have sold that were pretty frothy that we couldn’t quite figure out how the math worked. Right now, I kind of look at there are some opportunities in the Valley, Silicon Valley, Greater Silicon Valley. There maybe opportunities in SoMa, we don’t have one yet. And in San Diego on a select basis, and then in LA at some point you buy an asset there's an deep enough value add play David, its really a development play and we see some opportunities there but its not going to be -- its not ground up at this point.

All right. In the LA deal, last year I think you mentioned that you disclosed in the last quarter and you said its still sort of going through the loan assumption process. Remind me, is that a value add deal or is that stabilized?

Yes, it is. It's a building that we're buying. How many square feet, Eli?

About 200...

No, its bigger than that.

300 and...

325,000 square feet rounds numbers. We're buying it for around $250 a foot. We're putting another $100 a foot into it just roughly.

Yes, we'll be into right around $300 a --

Will be -- sorry, less than $100. Will be around $300 a foot with similar buildings at similar locations have traded in the $500 a foot range recently. So, we think there's real value. It's been just horribly mismanaged building --

Is it vacant or?

Pardon me?

Is it completely vacant or what's the --

No, no, no, its...

It's mid 80s.

It's mid 80s but the landlord didn’t have any money to do tenant improvement work so they made stupid deals; there's big expirations coming up. So, we're totally repositioning that building. The market has gotten stronger since we went into escrow. We're a little annoyed that’s taken so long but let's just say that it's been one of the things that you have to have steady hand on the tiller to have navigated through all of the ownership and lender related issues. And we should get the thing closed here, Eli, when?

I think we're six weeks or so.

Okay. So, that somebody would have told me at the beginning that it would have taken as long I wouldn’t have contemplated it, but nobody did. But its going to be a great asset and we think that the market's just gotten better and better as we've moved through the process.

Okay. And then you mentioned the San Diego deal just was sort of done, you just felt like it this wasn’t going to happen?

Yes, it’s a small -- it was of those 4 things things that made up about $370 million, $380 million. It was $34 billion, that could be -- totally it was kind of near one of our other buildings and it was kind of a slam dunk. But the seller didn’t have the deal that he thought he had and they -- he and the lender I guess are in some kind of protracted thing. And its just not big enough to fiddle with, you know what I mean? If it comes back we will take a look at it again but we've got bigger fish to fry.

Okay, and then just last question. Tyler, the DIRECTV and TD Ameritrade leases, are those fully coming in, in the fourth quarter of this year?

Well, DIRECTV cash is being paid on that third building I think December 1. So they're currently in free rent. So, there the lease has started on that transaction but from a revenue perspective...

It was not really -- yes, they're doing TI.

Yes, so that we can't -- even though the free rent period has started we can't book the revenue until they're ready for occupancy which we expect some time in the fourth quarter. The cash rent starts to come in December. For TD Ameritrade, I believe its an August start so they're -- they will in fully roughly in the third quarter.

Your next question is from the line of Mitch Germain from JMP Securities. You may proceed.

Any specific submarkets in LA that you guys are focusing on?

No comment. It's too competitive and I don’t want -- it's competitive and I think it's just -- it's not going to serve us well to get into that until we have something tied up.

And at time, I like to turn the call back over to Mr. Tyler Rose for your closing remarks, sir.

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

And ladies and gentlemen, this concludes your presentation. You may now disconnect and have a great day.