Good day ladies and gentlemen and welcome to the First Quarter 2013, Kilroy Realty Earnings Conference call. My name is Philip and I’ll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Tyler Rose, Executive Vice President and Chief Financial Officer. Please proceed.

Good morning everyone. Thank you for joining us. On the call with me today are John Kilroy, our CEO; Jeff Hawken, our COO; Eli Khouri, our CIO; David Simon, our EVP in Los Angeles; 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 our 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 seven 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. Jeff will review the conditions in our key markets, and I’ll finish up with financial highlights and updated earnings guidance for 2013. Then we’ll be happy to take your questions. John?

Thanks Tyler. Hello everyone and thank you for joining us today. As you all know we entered 2013 with a large and growing set of operational priorities. Our first quarter performance demonstrates that we are laser focused on quality execution across our entire operating platform. The development, construction activity at our four fully pre-leased projects in the San Francisco Bay area remains on schedule and on budget. We expect to deliver the first of these projects in the fourth quarter. And we are confident that more development is on the way. In acquisitions, as we announced on last quarters call. We closed in January of this year on the acquisition of Westlake Terry, a two building 320,000 square foot office property in the South Lake Union submarket of Seattle. The project has an in place first year cap rate of 6.8%. Subsequent to the purchase Microsoft, one of the two large tenants in the building exercise its option to renew its 94,000 square foot lease through 2019, showed in the formal documentation. In leasing, we delivered a strong opening quarter, signing new or renewing leases on 434,000 square feet of office space at rents that were 11% higher on a cash basis and 16% higher on a GAAP basis tenant rents in the expiring leases. We also have about 300,000 square feet of in place floors and the tenant. And on the disposition front, we’re focused on the sale of nonstrategic assets and nonstrategic land that has been previously held for development. As expected, our first quarter occupancy dipped to 90.3% as a few large tenants completed schedule move outs. We have released a large portion of this space and our stabilized portfolio is now 93.4% leased. All of this activity is taking place with an overall west coast market…

The strength of our key west coast real estate markets has continued to improve over the last three months. San Francisco remains in a class-by-itself, one of the top performers in the country. Seattle is also performing very well and Southern California is experiencing steady improvement particularly in San Diego. Let’s start our market review there. San Diego continues to experience net new job growth, declining unemployment and positive absorption of available commercial office space. The county had a net increase of 33,000 jobs over the past year and its unemployment rate dipped to 7.7%. San Diego benefits from limited new supply and a strong concentration of biotechnology, healthcare, telecom, and software companies. We expect to see the region continuing to improve steadily as the supply of large blocks of space remains limited and larger requirements are like, more likely to result in new space. As we discussed last quarter, we’d experienced two scheduled San Diego lease explorations totaling 186,000 square feet and that is 50% of the space. We are 91.4% leased in this market. Moving north, our Orange county portfolio totals just under 500,000 square feet of office space. Like San Diego, the region’s unemployment rate continues to drop reaching 6.3% in March, while net job numbers have increased by approximately 35,000 over the past 12 months. Net absorption in the market has now been positive for four consecutive quarters. We are 90.9% leased in this market. Further north, the much larger Los Angeles metro area also continues to add jobs, although more slowly. The region’s March unemployment rate declined to 9.9% with the region adding nearly 85,000 jobs over the past year. 40% of the new jobs were in the motion picture and sound recording industries. At our Westside media center campus, we have previously announced lease…

FFO was $0.62 per share in the first quarter, up 11% over the first quarter of 2012 on an adjusted basis; included in the first quarter of 2013 was approximately a penny of acquisition related expenses. We ended the first quarter with A plus occupancy at 90.3%, 92.8% at year end. As John and Jeff mentioned occupancy declined in the first quarter as a result of a few previously announced scheduled tenant move outs with more than half of that space now released. At the end of the quarter our stabilized portfolio was 93.4%. While same store NOI in the first quarter was down on both the cash and GAAP basis, when adjusted for one time insurance related payments and property tax refunds in the first quarter of 2012. Same store NOI was up 2.9% on a cash basis and declined 0.6% on a GAAP basis. As John noted we completed the acquisition of the Westlake Terry Project in South Lake Union in the quarter. The total purchase price was a $170 million including the assumption of $84 million in secured debt with an interest rate of 6.05% that matures in 2019. The stabilized cash yield is 6.8%. In January we issued $300 million of ten year, senior unsecured notes at the rate of 3.8%. We also raised approximately $24 million under our ATM program during the quarter. In February we moved from the S&P small cap index to the S&P midcap index. Now let's discuss update guidance for 2013. As always I must remind you that we approach our near term performance forecasting with a high degree of caution given all 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 or our…

(Operator Instructions). Your first question comes from the line of David Toti from Cantor Fitzgerald. Please proceed.

Just quickly, what are your thoughts on Seattle given that you currently have operating properties there, are you looking at any land or development opportunities and if not what’s the rationale for staying out of that particular market?

Development side of the market?

Yes the development side.

Yes, well we kind of look at everything. Right now development versus where rents are, and rents have gone up around 8% or plus or minus from the last year on average we’ve done a little bit better, the forecast to go up about 8% this year. They got a little while to go before they are going to just by new development, but now the alternative for that is when you have tenants in tow that needs large spaces, they have got to pay the current tariff or the current rent in order that buildings build, and we are talking to some of those, we are looking at a couple sites, we have been able to make sense with them yet but over time I think you’ll see development, new Kilroy doing development in Seattle, just not yet.

My other question has to do with the 300 plus basis point spread between your current portfolio occupancy of lease rate. What’s the flow of commencements through the rest of the year made against sort of no move outs and is it sort of back half loaded in your opinion.

Yes. As I said in my comments I think we’ll have one more quarter at the current level and then we’ll be up to high 92% level by the end of the year. So, its backend waited.

Your next question comes from the line of Josh Attie from Citibank. Please proceed.

If for some of the projects that around the Columbia Square or One Paseo specific core percent rate, can you remind us what level of pre-leasing you’d required to get started?

Well, we get paying down too much by that, as you know we’ve developed over historically we’ve been about 70% preleased in our development since 1997. Whether we’ll stay exact in that range or not, I don’t know. I can tell you that we currently have about 1.7 million square feet worth of early stage to little bit further negotiations or interest in pre-leased development throughout our portfolio and that includes lot eight and other properties in San Diego and excluding One Paseo that includes the entirety of the office space at Columbia Square that the new office space not the historical. That includes 333 Brennan and then includes Redwood Towers up in Redwood City. Maybe I’ve missed something there but I think we’ll continue to see some fairly strong pre-leasing throughout our development starts.

Can you remind us how large One Paseo could be in dollars?

It’s around 700 million with roughly $600 million of new spend.

And is that one that you would do on your own or with the partner?

All options are open; we do the office in the retail. The question is whether we do the three phases totaling about 600 units of resi with the partner or sell that off, we haven’t decided yet.

Okay thanks and one separate question, I know you’ve mentioned flat mark-to-market for the portfolio but can you update us on what you know San Diego is on a mark-to-market to basis versus maybe LA, San Francisco, and Seattle?

Well Jeff said that is from timing perspective 2013 that we're between 5% and 10% under market for those explorations but on a regional basis San Francisco moved about 25% under market, Washington is about 11% under market, LA basically flat and San Diego is about 15% over market.

Okay thanks very much.

Your next question comes from the line of Jamie Feldman of Bank of America. Please proceed.

I was hoping to get your perspective on the pipeline of supply in San Francisco. I know people are pretty positive on the level of demand and the growth of (inaudible) companies. But it sounds like there is several development pipelines that are ramping up. How are you guys thinking about the competition out there and how do you think the market plays out over the next year or so

You know that’s to be determined for sure. There is about 2 million square feet of projects that have sort of announced themselves but some of those haven’t started yet and some may not start or may delay their starts. There is 73, there is 285,000 square feet it’s under construction which we think we’ll get leased as we know they’re dealing with a number of institutions that’s a great building there is 535 Mission next to our 100 First which Boston Properties are doing, I understand they had their call earlier so you can probably have their thought on that. There is also 50 Hawthorne which is small outbuilding to the 680 Folsom building that BXP owns. I understand there are negotiations with somebody there at least that’s the market scuttlebutt. So I think all those projects they obviously all going to go they are underway and I think they’ll do just fine. And then for 2015 or 2014 like 2014, 2015 start we have our 333 Brennan and that’s a different building than the high-rises. We’re already dealing with a number of tenants they want the entirety of that that’s kind of six level latest, greatest, state-of-the-art brick and timber building. You have 222 Second Street which is Tishman Speyer that’s about 450,000 feet you know they say they’re going to start, they haven’t started yet but also they said they’re looking for tenants but you have to talk to them. I don’t want to give you my commentary on which building I think are going to do well and which I don’t think is going to do well. 2016 you got 181 Fremont that the Jay Paul recently acquired, sort of combination of mostly condo towers and 400,000 square feet office you can imagine we have looked…

Okay and then just one follow up on the disposition plans can you talk a little bit about pricing and demand for the kind of assets you are looking to sell and maybe where cap rates are?

Sure this is Eli. We are selling a variety of assets, fewer portfolios this year and more one-off. And as far as the cap rates go, it depends pretty significantly on the asset and some of these things will be in the low fives. I think some of them will be as much as the mid-sixes and that’s kind of the range and then obviously we are selling some land and the cap rate on that is zero where there is no income that’s just capital back-end.

And then just in terms of market cap rates over the last three months or so, any change?

The market is getting harder, tougher and it kind of feels like it’s continuing to build up pressure as the year goes on. And I guess I continue to see that going through the end of the year, the way things look right now with capital, book at and equity.

Your next question comes from the line of Van Edelson from Morgan Stanley, please proceed.

Given that the occupancy is expected to remain around this level for another quarter and be a bit back-end weighted could you provide some color on your current success backfilling the recent expirations? Is that going well?

I think I mentioned in my remarks that we had a 186,000 square feet; two tenants in San Diego and over 50% of that space is already released at high rent. So we are very happy and comfortable with the direction we are going and we got space in West LA that we got back that we got a lot of activity on that 80,000 square feet also. So, we are feeling really good about where we are in the strength of the market.

Okay, great. And I might have missed it, but could you comment on San Jose and that market's strength or lack thereof relative to some of the surrounding neighborhoods?

Are you are talking about San Jose's specifically or are you asking about Silicon Valley relative to San Francisco?

San Jose specifically if you could.

It feels; it continues to feel weaker; if you think about the attributes that we have noted as being desirable, close to transportation, having the right physicality, where people want to be, San Jose really isn't in that circle anymore. I think with respect to what we are looking for, you won't see us looking there. As we look at the world. We think we will find some; plenty of; not plenty but we will find some deals out there in the scene but we are very focused on the circles and squares; the locations and the physical product; I think that there is product that you can buy in Santa Clara and San Jose that may look accretive with a low cost of capital but it's not the kind of the stuff that we are going to do. We are focused on the area from Sunny Vale up through I would say, San Manteo on a peninsula where we think the strongest demand will continue to remain because of the factors that John noted in the attributes in assets that John noted earlier on the call that really are meeting the needs of today's work force. Does that make sense; is that answering your question?

Your next question comes from the line of Brendan Maiorana from Wells Fargo. Please proceed.

Maybe I'm reading a little too much into the positive cash rent spreads in the quarter, but I thought my recollection was last quarter, maybe it was the quarter before that sort of the mark-to-market for the 13 roll over was plus 5. And I think you guys mentioned its plus 5 to plus 10 and you put up a plus 11 in the quarter. So I guess the question is, has the rent spread outlook gotten better because you are pushing rents or am I just maybe reading a little too much into one quarter's worth of data?

Yes, it may be the latter. But remember the 11% of what we executed during the quarter where what we are talking about the 5 to 10 was what is expiring; those leases are expiring so it’s a little bit of a different subset, but so I wouldn’t get too caught up in those numbers.

I thought I remembered you guys saying it was a little bit lower, but you are pretty comfortable at plus 5 to plus 10 for this year as opposed to I thought original guidance was more just at the low end of that range.

I mean again, there is only 500,000 square feet expiring, so the remaining to expire this year. But we are really comfortable in that 5% to 10% range.

And let me point out, this is John. You know we are known to push rents, so we are going to push rents to the extent that we can and hopefully we will beat those. I mean right now we think that’s good, good guidance and if we can beat it, we will beat a lot of it.

Sure. No, that is helpful. And then this is probably for Tyler also, but I know you guys separated out the tax rebate and the insurance in the same store. But even if I sort of strip that number out it looked like operating expenses on the same store were up fairly significantly year-over-year. Is that something to be expected going forward or was there something else in the quarter that caused OpEx to be a little bit high versus last year?

Yes, your thinking, you’re right, expenses were up. We actually increased our insurance coverage across the portfolio so that increased expenses and there is some additional cost associated with renting the properties, but I think you’re right; the expenses were a little bit higher.

Okay. And then last one, it looked like from a TI perspective, TIs and leasing commissions that they went down in terms of rent per square foot or TIs per square foot this quarter. Yet still sort of the AFFO or FAD number was a little bit lower and the TI spend in the quarter was high. Going forward should we expect that number to the TI spend to go down as we get throughout the year such that FAD numbers probably start to look a little better?

Yes, the first quarter was higher than last quarter obviously and a lot of that was we did so much leasing at the end of the year; we did 3 million square feet of leasing last year. So a lot of that spend is going on for those moving in for, like the (Concur) lease up in Seattle has a fairly big spend; but going forward for the remainder of the year, it’s going to be roughly at that $14 million level and then it moderates down towards the end of the year. Now it depends again on what leases we sign. We have this issue over the last several years where we continue to do just a ton of leasing and so that keeps the TI leasing commission number up. We have less leasing to do now. So we anticipate that the number will go down as we get towards the end of the year.

Your next question comes from the line of David Rogers from Baird, please proceed.

Hey, John, early in your comments you talked about LOIs I think subsequent to quarter end. I heard like a 300,000 square foot number. I guess can you verify what the number was and then give us some color on whether that was all operating portfolio or some potential development as well as new and renewal?

All of it is in the operating portfolio; it was around 300,000 that I mentioned so a little bit shade over that. We've got quite a bit more we're negotiating right now. What were the other components, sorry David your question?

New versus renewal

51% was new and 49 was renewal.

And I guess John, following up on your comments as well about this collaborative tax space you talked about and thanks for the color on the LEED certification and ENERGY STAR, but how much of the portfolio today whether you quantify it in NOI terms or square footage comes through with this collaborative tax space and how far are you comfortable pushing that level given the comments that you had earlier.

First of all in terms of the percentage of the portfolio, I would say probably I don't know 70% or so, that's a guess but I would say 70% or possibly more, let me get back to you with a more accurate number, but in terms of pushing the envelope if you're talking about, it is the trend. Let me tell you something and I've spoken about this in a lot of different industry conversations and panels and what not. I think that in office space today that if you are not looking at your portfolio as to how it's going to accommodate the changing needs, and really we've seen the most remarkable transformation in the way office space is being used in my career and that's 4 years’ worth. We're not going back to cubby holes and private offices, it's just not going to happen, maybe that'll happen with some of the lawyers and some of the financial teams but basically even with lawyers and financial entities we're seeing it go far more towards the more open environment. And I think if you have a building that doesn't permit that from a physical standpoint you have a wasting asset, and when we look at acquisitions the first thing we look at is, is it in the circle of where we want to be, access, transgression et cetera, et cetera, and the second is, is it what we call the square, does it have the physicality or can you give it the physicality. If it doesn't have the right bones, if it isn't the kind of building that people want to be in, it'll become a secondary building, and I think you're going to see a transformation in this country particularly in the technology laden Pacific Coast where there is going to be absolute preference for buildings that have these characteristics and those locations, people want to be whether it's in a vertical campus in one building or whether it’s in a multi-building campus, they want to be in an environment where they have collaboration, 70% of the tech company employees are either Gen Y or millennial’s. If you go against those odds, I think you are playing a bad hand.

And then one final question maybe for Eli and Tyler. You talked about dispositions funding future growth really as a function of the investment activity. So what percentage of funding should we think about dispositions being as a percentage of overall outlays? And then how does this change the NOI mix over the next 12 or 24 months?

Well on a percentage basis for example this year we have as I said $275,000 of spend on the development side, assuming we don’t start with anything else and we are hoping to do $150 million of dispositions, we have our bank client, we have the ATM, so it’s always going to be a combination of those sources and I don’t know if we want to be tight in to a certain percentage but if you look at our history and the charts that we always show which where we were in the bubbly years, what are we do in terms of acquisitions, developments, dispositions, we have always sold properties of fund or activities and we are going to continue to do that and again as John said earlier if we decide to do more on the acquisition and development front, we are going to increase our dispositions but you are right on an NOI and on income basis, if you sale too much you are going to have this period of time where you don’t have the EBITDA but you do have the cost and so we do need to manage that and that’s why we always look at if our ATM program and other sources of capital not just as dispositions to fund the entire growth.

Your next question comes from the line of John Guinee from Stifel, please proceed.

Just a quick few miscellaneous questions. One, is DIRECTV in your dispo plan for this year? And then number two, just back of the envelope, John, Lake Union looks like about $530 a foot, 6.8 implied cap implies about a $36 net rent. What are people paying $36 for, what kind of physical product, what kind of amenity base do you have for that in Lake Union?

That number isn’t exactly right because it includes parking income as well as some retail space which is above market so the rents there are closer to the load of mid-30s and I think that’s generally accepted market rent with respect to what they are paying for in that market. If you look at the Westlake Terry deal, it’s right in the middle of things, it’s right on the trolley, it has physicality that is perfect, it has parking, it has retail, it has great ground level amenities and that’s what people are paying for in that market. If you have all of those attributes you can get to that low to mid 30 net rents where you are right now. And that’s what we’re seeing in terms of the demand that we saw in the other conversations that we were having outside of Microsoft.

The Westlake Terry building John was about five, six years old. It’s one of the best buildings, the entire area has public, the two major public transportation means are either and it’s an entire block, I mean it’s pretty killer space. So we think that was a very good buy and we sort of anticipated that we’d be able to either release or renew Microsoft which we did. As Jeff mentioned in his comments, we had somebody else not quite as good as credit but extra ordinarily good credit that one of the entire building would have paid a higher rate than what I think Microsoft’s option was for.

Yes. And we certainly think if we had it vacant we’d be $35 plus.

And then, DirecTV.

Yes. Your comment was within our numbers of sell this year, no because if you think about guidance we gave, it would blow through that guidance pretty quickly in terms of aggregate dollar amount. We’re going to look at DirecTV, I don’t want to get too specific, all these tenants listen to our calls but it’s not in our numbers for this year.

The next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please proceed.

I just want to follow up on the dispositions. Can you maybe give us a mix or geographic mix of the 150 and maybe some of the characteristics you are looking for and asset candidates for sale?

I’ll give you a little bit on that, I don’t want to pinned down too much on this but I mean certainly it’s going to be Southern California focused and it’s going to be some non-strategic assets and NOI is probably 2 to 3 or sell pieces of land in their value range that Tyler has mentioned is going to be some smaller assets and around Orange County and San Diego, we’re working on a pretty significant evaluation of exactly what, when and exactly how we go about that small portfolios bigger, etcetera. So it’s hard to pen it down exactly but Southern California weighted and combination of land of smaller buildings and maybe some small some portfolio.

How much do you guys have out in the market now? I know you talked about a couple of small buildings, but have you started marketing pretty aggressively or is it still too early in the year?

We’ve got about four things what I would call in process either we’ve already marketed them or close to the end of selling them, they’re in the market or working with the specific buyer on them and we’ve got another handful of things that are pretty close behind that and then we’ve got another set of things that you know by the next time we have this conference call be ready to kind of tell you what we’re you know going to take to the market in that so.

All right, thanks. And then just separately on Columbia Square, the project looked like it got bumped up by about 75,000 square feet and $60 million of value. Could you give a little color there?

Keep them on when we brought it you know we had 875,000 square feet of entitlements and we’ve been working that design and we’ve been able to add to the square feet is to take advantage of that that access entitlement that we have, so we think we’ve got kind of sad and we’ve got the right product than the added square foot it is going to add square foot as well add additional value.

Your next question comes from Michael Knott from Green Street Advisors. Please proceed.

John, in the past few years you have created significant value, you and your team, through external growth particularly into San Francisco. You have assembled a solid team. Just curious, from here, what can you realistically do as an encore to that, particularly in the Bay Area now that the cycle has progressed there to maybe the fifth or sixth inning. Just curious how you think about what you can do as an encore to the great things you have done the past couple years?

Well, I don’t but you know I’m pretty good dancer but I don’t have to dance around that one too much David, I would rather Michael, you know if you look at sort of that chart that we showed where you were big acquires 97 to 98 and then not big acquires until 2010 but through that period we developed quite a bit at much better returns and people were buying buildings for and sometimes there was nothing going on because it doesn’t make sense, so I think for us we’re pretty pleased with we think the market has come to us with regard to the skill set that we have and the platform that we have with regard to the development side of things and when you consider the fact that development we have underway and the stuff that we’re talking about is going to be largely prelease it’s going to be stayed to the market, the best kind of product you can have with the location that you want be at because we’re very discipline we’re not going to move away from those physical and locational characteristics and we’re bringing those things in the low to mid sometimes high sevens compare that with a lot of the stuff that’s out there that’s for sale today. I would say a lot of the stuff is moving away from our circle of where we want to be and doesn’t have a physical characteristic in it went on at length in an earlier question in response on that. But I do think we are going to continue to see sprigged acquisition activities there is a lot more coming to the market from what all the brokers are telling us. We do get a lot of first looks there are a number…

Thanks for that. And just to clarify the 1.7 million feet that you mentioned, that would be an entirely listed on page 22 of the supplemental within those projects or are there additional projects that we might see come on to this page that you are referencing that we might see come onto this page in the future?

So I think the answer to that question is yes.

Okay. And then thank you for the added submarket disclosure on page 9 of the supplement. One thing that stands out to me is the I- 15 and just the low leased percentage below 80% and it is 6% of your portfolio. And maybe Eli hinted at this a second ago talking about dispositions, but I am just curious. Is this a long-term part of your San Diego presence? And then also is this submarket where most of the above market rents are in your San Diego portfolio?

A little combination of each. Let me break that down. I am not in love; we are not in love with two-storey products on the I-15 so you can guess with that name. Regard to that market for disproportionally head although we do have a lot of tenant interest but I don’t see that as long term hold at all. The other point was that we have some above market rent, Tyler.

Yes some of the above market rent is on the I-15 that's right.

Okay but the other parts of San Diego do also still have some of that above market rent you are talking about?

Yes, there is a couple of other leases in our portfolio in the San Diego portfolio that are also above markets.

And then if I can just ask one more for you, Tyler. This might be splitting hairs just a little bit, but wasn't the guidance before for at 93% occupancy at year end? Now it sounds like you are saying high 92%. Maybe I am just recalling it incorrectly? And then if I could just for the high 92% occupancy at year end what is the corresponding percent leased?

Well in terms of the first question; you are putting as a bet because I did say 93 to your right but our number actually was 92, I can't remember what it was; high 92 so the number actually in our current forecast is actually higher than our previous forecast. But it's probably to give range as just for exactly the reason you are asking the question because once we say a number, you guys jump on it so the range within the high 92 there was in the high 92's before. In the second part again was.

Second part was just the corresponding percentage in lease at the end of the year that goes along with the high 92 occupancy?

Well it’s really that unknown; we don’t really forecast what our lease percentage is because it depends on how we do during the remainder of the year on and what’s going on next year but so; as we get higher and higher; if we get back to 93ish-high 92's the lease percentage will probably be closer to that number just because we have less space to lease.

(Operator Instructions) And your next question comes from the line of Vincent Chao from Deutsche Bank. Please proceed.

Most of my questions have been answered here, but just going back to Michael's question, original one on the encore. With a lot of the land that you had in San Diego and the Bay area discussion regarding new supply coming on, just wondering what other markets if any other markets that you are looking either on the acquisition side or maybe on the land side to grow inventory?

Most of my questions have been answered here, but just going back to Michael's question, original one on the encore. With a lot of the land that you had in San Diego and the Bay area discussion regarding new supply coming on, just wondering what other markets if any other markets that you are looking either on the acquisition side or maybe on the land side to grow inventory?

Most of my questions have been answered here, but just going back to Michael's question, original one on the encore. With a lot of the land that you had in San Diego and the Bay area discussion regarding new supply coming on, just wondering what other markets if any other markets that you are looking either on the acquisition side or maybe on the land side to grow inventory?

We are not looking at anything outside of the geographic areas where we are in right now, we think there is a lot of money to be made in those markets, say it happen to be four of the five best markets in the country. So we are pretty focused. We are not offline people at Colorado and North Dakota.

Okay. And just on the development yields, you are talking about low to mid high 7%. If supply does come on to the point where it pressures the returns a little bit, I guess at what point does it not make sense to develop anymore given where interest rates are today and all that kind of stuff?

Okay. And just on the development yields, you are talking about low to mid high 7%. If supply does come on to the point where it pressures the returns a little bit, I guess at what point does it not make sense to develop anymore given where interest rates are today and all that kind of stuff?

Okay. And just on the development yields, you are talking about low to mid high 7%. If supply does come on to the point where it pressures the returns a little bit, I guess at what point does it not make sense to develop anymore given where interest rates are today and all that kind of stuff?

Well obviously I mean, not to be smart aleck but when it doesn’t make sense, we won’t be developing hopefully, but I think the thing which we have a particularly good position and as we have land parcels where people want to be, that fit the characteristic transportationally and the product physically and the environment and so forth where people want to be. And we have, so you know controlling that land is good. Having the expertise, nobody ever questions us with regard to our developing capability. Having the balance sheet is obviously is a wonderful thing and from the standpoint of competitiveness, when you don’t have to come in with a make-a-deal subject to financial commitment or make-a-deal subject to the approval of your financial partner or your joint venture partner, we eliminate some of the things that most people have to do and that gives us, we think a leg up. I would say that, you know you use the word “on core” and this I don’t know if Michael not still listening, but I think had been on core to consume a significant portion of our development that currently doesn’t produce any revenue, but it’s on the books, it produces a little bit of outflow because of property taxes and so forth, and convert that into income producing property. And I think that be pretty spectacular and we are obviously very focused on that.

Okay, thanks. Yes, I was just trying to understand if you would be willing to accept a slightly lower return than the low to mid 7%'s given where interest rates are today and acquisition cap rates are, that's all.

Okay, thanks. Yes, I was just trying to understand if you would be willing to accept a slightly lower return than the low to mid 7%'s given where interest rates are today and acquisition cap rates are, that's all.

Okay, thanks. Yes, I was just trying to understand if you would be willing to accept a slightly lower return than the low to mid 7%'s given where interest rates are today and acquisition cap rates are, that's all.

Yes, I don’t really want to signal that. We look at a range. I mean the first year we did up in the Bay area where synopsis was about a 6.7% going in pre-leased deal, long term lease, great tenant, great site. And strategically we looked at that and said, hey if we do that project we are going to get on the map pretty quickly in the Silicon Valley area, as being serious about development, obviously with Eli and Mike Sanford and all the other team we have up there. They are so well known in those areas. We already had a pretty good reputation from the people standpoint but that project its 6.7% led to on the number of the other deals that we did, which were considerably than those yield, so I'm not going to say we won't do a 6.7% or a 6.5% but we're sort of pretty happy in that sort of mid 7% range and hopefully that will keep going.

Ladies and gentlemen, this will conclude the Question and Answer session of today's conference. I would now like to turn the conference over to Tyler Rose for closing remarks.

Thank you for joining us today, we appreciate your interest in KRC, so long.