Kilroy Realty Corporation

Good afternoon and welcome to the third quarter of 2020 QROI Realty Corporation earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press Start and 2. Please note this event is being recorded. I would now like to turn the conference over to Tyler Rose, Executive Vice President in CFO. Please, Tyler, go ahead.

Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy and several other members of our management team who will be available for Q&A. 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 eight days, both by phone and over the Internet. Our earnings 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 third quarter highlights and an update on our market conditions. I will discuss third quarter financial results. Then we'll be happy to take your questions. John?

Hey, thanks, Tyler. And hello, everyone. Thank you for joining us today. This is our third call during the COVID period. I don't think any of us thought at the outset that we would still be in the pandemic at this point. But having said that, we continue to perform well and remain optimistic about the future. Here at KRC, we remain focused on several key areas that position us well to play both defense and offense over the coming months and years. These include maintaining a strong financial foundation, proactively managing lease expirations in our stabilized portfolio, executing our under construction development projects, positioning our future development for starts, working with governmental agencies to influence policy as much as possible, and preparing for a post COVID future, which includes continuously enhancing the quality of our portfolio from a sustainability and wellness perspective. While we believe we are doing well in all these areas, we also continue to do well both financially and operationally. Here are our third quarter highlights. We ended the quarter with $1.4 billion of liquidity. This includes the successful completion of $425 million green bond offering in August. Our under construction development is now fully funded with cash on hand. Our high quality tenant profile continues to demonstrate its value. Overall rent collection in the third quarter exceeded 96%, with office and life science rent collection north of 98%. These strong rent collection levels have remained consistent across the seven months of the pandemic, as our well-capitalized technology and life science tenant base continues to outperform. We continue to make progress in addressing our near-term lease expirations, signing renewal leases in our stabilized portfolio during the quarter, on approximately 115,000 square feet. While leasing volumes were light, rental rates on these leases were up 15% on a cash basis and 34% on a gap basis. Our average annual lease expirations through 2023 now stand at approximately 6.5%. With the exception of a fourth quarter expiration this year, we do not have any expirations greater than 60,000 square feet through the end of 2021. New leasing activity continues to be impacted by shelter-in-place regulations that make it difficult to tour. In development, our $1.9 billion of construction project remains on track with the expected delivery of the Netflix on Vine office project in the fourth quarter. When stabilized, the pipeline is expected to generate $140 million of annualized cash net operating income. That's an update on the quarter. Moving forward, while it's still early days in understanding the pandemic's lasting impact, we do see some important themes developing. These include the physical makeup of commercial workspace in the industries that drive its use. The first theme is life science. It's not a secret that the life science industry has positively impacted by COVID, and we believe it will continue to benefit for the foreseeable future. B.C. investment in life science has been averaging $20 billion annually for the past five years. Healthcare expenditures have risen to approximately 20% of the annual GDP as our nation's population ages, and the FDA has become increasingly proactive in driving new drug development. The pandemic is moving more private and public investment into the sector and encouraging the creation of a range of new start-ups. We believe they will want to locate their labs and their talent in current life science clusters. Looking at the West Coast markets we serve, current square footage dedicated to life science use totals about 20 million square feet, with direct vacancy rates that range from 2% to 3%. We estimate current demand in these markets at approximately 5.5 million square feet. We've been building the capabilities to serve this market for more than two decades, and are well positioned to continue to capitalize on opportunities. Today, our pro forma life science footprint, which includes existing properties, life science capable assets, and entitled life science development, totals approximately 5 million square feet. We have the third largest portfolio of life science and healthcare tenants among publicly traded REITs as a percentage of total base rent. Several life science tenants within the KRC portfolio continue to do quite well, including Neurocrin, our largest San Diego tenant that last quarter had two medicines approved by the FDA, and LabCorp, a South San Francisco tenant that reported strong earnings last quarter driven by increased COVID-19 testing volume. We believe our life science portfolio deserves more appreciation than as it is essentially fully leased to strong tenants such as Acadia, Stanford University, 23andMe, and so forth. Recent market activity highlights our portfolio's embedded value. In addition to the strong valuation of the Biomed recapitalization, the sale of the Genesis buildings located on the west side of the non-traditional side of the 101 freeway in South San Francisco for approximately $1,275 per square foot is a great comp for the Kilroy Oyster Point, particularly given that these buildings are not as ideally located or as modern. KOP is our 39-acre, 2.5 million square foot life science development project in South San Francisco. We are in construction on phase one, a 650,000 square foot project that is 100% leased and built with state-of-the-art life science infrastructure. It will have a total basis of approximately $865 per square foot and is clearly worth substantially more today. KOP Phase 2 through 4 are fully entitled for another 2 million square feet of lab space and office space. We currently are seeing strong interest in KOP Phase 2 from a variety of tenants and are looking carefully at the possibility of a Phase 2 start sometime next year. To quantify, Phase 2 is approximately 900,000 square feet, and we have considerably more interest with active discussions than we do square footage. The second theme is wellness. We've been in constant contact with our tenant base since the pandemic began. The leaders of these entities are focused on physical design, space adaptability, environmental health, safety and comfort, and increasing square footage per person. While some of these concerns are driven by short-term needs, we believe that workspace wellness is an issue that is here to stay. We will see a large premium place in office properties that can provide larger, more light-filled floor plates, greater flexibility in the layout, traffic flow, and use of interior spaces, stronger integration of workspace with the outdoor world and nature, and top-quality, state-of-the-art operating systems that not only protect but enhance employees' health. Tennis will want to partner with well-capitalized landlords who are willing and able to invest in both innovative design and advanced infrastructure in their development. We believe these trends will give KRC a big competitive advantage in our markets. Our existing portfolio is among the youngest and best designed to meet these needs. We have been a leader in understanding and adopting design practices and systems that enhance the wellness of our buildings occupants and we now have the highest number of fit well certified properties of any company in the world we have deep experience in pursuing new development concepts that integrate the best most innovative thinking and sustainability and wellness we believe that these attributes make here see a top partner of choice going forward let me wrap up with a few additional thoughts on today's markets and what may lie ahead Amidst all the uncertainty in 2020, it remains clear that technology, media, and life science will still be the growth engine of our economy. Many companies in these industries continue to thrive in what is an otherwise challenging time, and the biggest concentration of these sectors is on the West Coast and in our markets. We remain confident that the cluster of intellectual capital, top-notch universities, and a good quality of life found in our markets is tough to replicate, and a differentiating factor for Kilroy. I don't have a crystal ball, but from a continued discussion with our customers, I'm fairly confident that companies, both large and small, established in startups, are going to want to bring their people together in communal workspaces when the pandemic has passed. Having been through a few cycles, I cannot stress enough the importance of leadership teams during down cycles for companies, as well as municipalities. Well, in good times, a rising tide lifts all boats. Markets like these are best suited for those with high conviction, a track record of success, and the ability to adapt. Last cycle, we believe we differentiated ourselves from the competition through our entry into San Francisco and Seattle, and we look forward to the challenge of differentiating ourselves again in this cycle, and I'm confident we will. And we've never been better positioned. Our stabilized portfolio is young, modern, sustainable, and leads the world in wellness. Our explorations are limited. Our tenant base is largely healthy, well-capitalized, and poised for further growth. Our under-construction development projects are fully funded and 90% leased. Our future development pipeline is diversified across product types as well as markets and has a very attractive basis. And our balance sheet is solid with significant liquidity, low leverage, and no near-term maturities. Now I'm going to turn the call back to Tyler. Tyler?

Thanks, John. For the quarter, we reported FFO of 99 cents per share as we continue to see the positive contribution from development. Third quarter FFO benefited from a full quarter contribution of 49% of 323 Dexter in Seattle, as well as incremental gap revenue from the office space at our one per sale mixed use project in Del Mar. Third quarter FFO also included a two cent per share allowance related to our ongoing assessment of tenant credit and collectability of rent. Looking at same store operating results, cash same store NOI increased 3.8% in the quarter, largely driven by higher rental rates and the burn off of free rent. Gap same store NOI declined 1.9%, primarily due to prior year one-time payments. At the end of the third quarter, our stabilized portfolio was 92.2% occupied and 95.5% leased. As John mentioned, in August, we completed a $425 million public offering of 12-year unsecured green bonds with an annual interest rate of 2.5%. This was our second green bond offering. We used a portion of the proceeds to fully repay our $150 million term loan facility. With those transactions completed, our liquidity today stands approximately $1.4 billion, including approximately $685 million in cash and $750 million available under our revolver. Our net debt to third quarter annualized EBITDA is 5.6 times. We are again not providing specific earnings guidance this quarter, but I can offer the following assumptions based on what we know today that may be of use in assessing our potential earnings results for the remainder of the year. From a Proposition 15 perspective, we have made a $0.07 per share investment in defeating this property tax increase initiative. This includes $0.03 of expenses already incurred in Quarters 2 and 3, and $0.04 that will show up in our fourth quarter G&A. We project remaining 2020 development spending to be between $100 to $200 million. We are in advanced discussions on the sale of a building in the San Francisco Bay Area for approximately $75 million, with expecting closing later this quarter. As a side note, from a valuation standpoint, while there haven't been a lot of transactions, we've recently seen several trades at strong These include a multi-tenant building in Seattle at $1,000 per foot, a multi-tenant building in Santa Monica for $1,800 per foot, and several trades in San Francisco ranging from $1,000 to $1,300 per foot. So we will continue to evaluate disposition opportunities as appropriate. We remain in close discussions with our retail tenants to understand their financial condition. As you may recall, over the last two quarters, we established a rent relief program, which included approximately 90% of our retail tenants. This has a minor impact from a minor earnings impact, and from a cash perspective, one month of rent deferral for these tenants is approximately $1.5 million. Non-contractual parking income totals approximately $1.5 million of NOI per month. We expect to receive about a third of this amount until the shelter-in-place rules are lifted. At One Paseo in Del Mar, as of October, we commenced revenue recognition on 59% of the 285,000 square foot office project. We expect to commence revenue recognition on the remaining leased office space in phases throughout the remainder of this year. Also at One Paseo in July, we delivered 146 residential units. This was the third and final phase. As a reminder, we delivered the first phase, 237 units, late last year. In the second phase, 225 units, earlier this year. In total, the 608 unit project is now 51% leased, and we've seen leasing momentum pick up over the last month. We expect commencement of revenue recognition on the Netflix on Vine office project next month. And with respect to the residential portion living on Vine, it is on target for delivery in the first quarter of 2021. That completes my remarks, and I will be happy to take your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Manny Karchman with Citi. Please, Mr. Manny, you may.

Thank you. It's Michael Billerman here with Manny. John, good morning out there. I want to come back to your opening comments where you sort of talked about how this has gone on longer than all of us certainly had hoped earlier in the year. But then you commented that you remain very optimistic about the future. And I'm wondering if you can sort of dig into that a little bit more because it feels as though the number of tenants in your markets coming out and talking about either a permanent work-from-home or a hybrid solution – and also letting their employees work from anywhere in the future despite some of the benefits that you talk about in terms of the intellectual capital, the university systems, the quality of life. I think that one's a little bit debatable right now on the coast. But all of those elements, what gives you the confidence that they're going to come back to communal spaces, and how do you think those spaces are going to evolve in the markets that you operate in?

That's a long question, Michael. So if I forget a few pieces in my response, please ask again. Well, in this COVID thing, nobody knew how long it was going to go. And we heard a lot about, you know, it's going to be over in how many months. And, of course, it hasn't done that. Nobody knows how long it's going to go. What I'm encouraged by is we're seeing people really want to get back to work, whether it's, you know, Kilroy or whether it's our tenants. what we're hearing is that people are going ape shit about working from home. Some people like it for sure. But we're also hearing that productivity is down 50% as a result of work from home. Now that is not going to be universal to every single company because we hear a lot of things that you do in the news and so forth. And a lot of times the headlines are pretty draconian. And then you read further on and they say, well, We had to provide the work-from-home until July of 2021 or whatever the date might be because people need to make plans for their apartments. They need to make plans for their daycare. They need to make plans, and people are concerned about their workforce. So they're giving them as much flexibility as possible. With regard to the issue of quality of life, I will freely admit that the quality of life in some of the cities like L.A., in San Francisco – obviously other cities across the country, and they're basically the big liberal states or the big liberal cities, have issues and they have to resolve them. But on a positive basis, we're now seeing the number of tents in San Francisco, which increased dramatically, now be reduced and with plans by the city to further reduce them and get homeless off the streets and into shelters. That's going to take time. But it's a positive thing that companies can see the cities are making progress. And in L.A., they're doing the same thing. They come out rather robustly about saying, we're going to make shoulders available. You're going to have to get off because the cities all now recognize that their revenue base is going to be totally messed up if these companies leave. And they're starting to respond to the market forces that we all learn in Econ 101. So I'm optimistic about those things. I'm always a little pessimistic about policies of politicians because, as everybody knows on this call, I hate politicians almost universally. Nobody would hire any of these people, and yet they think they know better. But now what we're seeing in varying degrees of success or veracity is politicians saying, hey, we've got to straighten this out. So that is a positive shift. And what I'm also saying is, is in the case, as an example, on Prop 15, which would reverse for commercial properties, Prop 13 protection, we've seen that go from 20, the yes on Prop 15, so that's the bad thing, have gone from roughly a 20-point positive spread to now it's running behind, no on 15. And that's been the result of a lot of people, not just in the real estate industry, but primarily getting together and raising $75, $80 million, whatever it is, to get out the reality, the real true information of what Prop 15, a yes vote, would do. That coalition, I have a meeting tomorrow, or rather Friday, in my office in L.A. with some of the most powerful people in the state that want to join together. Hillary's been one of many forces that have been promoting this to have a coalition of business people from the real estate and other industries to influence the policymakers. I haven't seen that in 20 years in California. So there are some positive things. With regard to quality of life, the quality of life in some cases has gotten better because there have been some reductions in the residential rents and so forth in some of these markets. So it's a bit of, you know, fits and starts. But I'm seeing some of the green shoots that I didn't see before. But we have real problems, no question about it. With regard to demand, while we are not seeing a lot of multi-tenant, unless their leases are coming due, talk about significant increases in space, we are seeing some really big deals that Rob can cover that are being transacted for in all of our markets. And we have negotiations or discussions with both tech and life science with regard to a number of our markets in for development. So those are all positive. You know, I have to take a look at things as a leader of a company, hopefully as a glass half full rather than glass half empty. I'm feeling better about what I'm seeing now than I was three months ago, because first you have to have people that agree there is a problem. and then that they want to work together to address the problem and that it's vitally important to do so. That was not the reality three, six months ago. And I think once this election that's just such a mess gets behind us, I think people will hopefully come together and not just be as divisive as we've seen in this cycle and others. So those are kind of my thoughts based upon interaction with others. And with regard to... Space per person, what we're hearing is that, Rob, correct me if I'm wrong on this, that we're looking at roughly a 30 to 40 percent increase in space per person from what the trend was pre-COVID. Now, who knows how that will play out, whether we'll see 30 percent people work from home and there's 30 percent more space per person. I can't tell you how that's going to work out. It'll work out and we'll see it over time. Did I hopefully capture everything you asked?

That's impressive, John. And I didn't even give you a heads up on the question, so thank you for that.

You're welcome. You're welcome. Listen, I got to tell you that the role of the modern CEO in real estate right now has changed dramatically from what we have historically all been doing. We are now solidly in the political arena. And I'm not going to say who, but you have other calls that are some of the West Coast REITs and some of the East Coast REITs. And we're all talking. And we're all pissed. And we're taking the gloves off.

Yep. Sounds good. Thanks, John.

Yeah, you're welcome.

Our next question comes from Nick with Scotch Bank. Please, Nick, go ahead.

Thanks. John, I guess I'm curious what your thoughts are right now about, you know, looking at pieces of portfolio and seeing them as candidates for asset sales or additional joint ventures. I mean, you have done that in the past. You haven't bought back much stock historically. Would you look at that? I know you have a program in place. Would you consider increasing it or even maybe if you did some more asset sales, preserving some capital, putting it on the side to fund future development of Oyster Point so you don't have to do, let's say, another forward equity deal right now where your stock price is?

Well, I have absolutely zero interest in selling stock at these prices, zero. With regard to the development program, we had forecasted pre-COVID that the only development that we might start in 2021 would be Oyster Point Phase 2, and that remains on track. we think that phase two is going to make eminent sense based upon the demand we're seeing. And we're seeing very significant demand. And we have early stage negotiations and some proposals going back and forth on large blocks of space, you know, 300, 400, 500,000 square feet at a crack. So I'm optimistic about that. And as I want to point out again, I think we have, you know, a very favorable land basis at the flower mart and so forth that I've always said, that could be the next cycle, and it may very well be the next cycle, because I'm not going to start the flower mart without greater clarity. I think anybody that did that would be kind of foolish in a big dollar amount. With regard to asset sales, it's been really hampered by the building that we're selling in the Bay Area. It's not the city for $75 million, the Tyler Pension. It's a great building, and it's a stabilized, fixed deal. And so the value per square foot, I think, is around $900 or so. And we'll have more of those. But one of the problems we've had is you can't tour a lot of these things because of the regulations in place. That was when we actually had tours on and had it in the market pre-COVID. pre-COVID. With regard to recapping projects or with regard to selling projects, you know, we always look at that. I'm agnostic. I have no mother fixation about any particular building, no matter how beautiful it is or pretty it is or, you know, jazzy it is. That's just not the way we work. We have a lot of options to do that. In terms of funding, phase two, Tyler can talk more specifically about that if that's part of your question. And did I capture everything, Nick?

Yeah, no, that's helpful. Thanks. Yeah, okay. Great. I guess just the follow-up is on the tenant side. If you could just talk about how those discussions are going. You know, your renewals this quarter did have a shorter lease term, averaging 17 months. You know, what kind of drove that? Should we think that that continues over the next couple quarters, shorter-term renewals as tenants kind of figure out what their space needs are. And then also are, you know, are you seeing any increase in sublease space within your own portfolio? Thanks.

Yeah.

Rob, you want to cover those please? Sure. Sure. Hi, Nick. This is Rob Peratt. Good afternoon, everyone. So the, the, the first part of your question relating to the, tenant sentiment and what's going on with renewals across the board and across, I mean, across the country really. Tenants are paying rents based on flexibility. They are looking for ways to avoid making long-term decisions while they try to figure out how to get their workforces back. As John said earlier, a lot of tenants have plans to come back in June, July. Sometimes it's, you know, later summer of 21. And with that kind of lead time, it's much harder for them to predict when they're going to have their full workhorses back. So flexibility is a key, and we've always worked very closely with our tenants. And frankly, it's one of the ways we keep our renewal rates so high is working with them when the markets are very tight and finding alternatives for them. And then when markets have uncertainty, we also work with them. I think that the trend of short-term renewals will continue. I don't know how long that will continue because oftentimes that kind of flexibility comes with a cost because as you look at these expirations that will happen, whether it's 17 months or 24 months or 36 months out, they are likely to be expiring in what's an improving economy because we're not going to be in the situation we are today forever. I always look at that as something that if I were a tenant, I'd keep my eye on because eventually demand will increase. And when it does come back, these expirations are going to be impacted. As we've mentioned, with respect to sublease space, specifically in our portfolio, you know, there is some sublease space that's been put on the market. It's been well publicized, excuse me. And as Tyler has talked about on past calls, we tend to have a smaller tenant component in the Los Angeles area. And, you know, we have had some sublease space occur down there. But if you look at Kilroy's overall tenant base, which is extremely strong in terms of the large tech that we have, none of the large tech companies have put any sublease space on the market in our portfolio. Okay, thank you, Rob.

Our next question comes from Steve Sakva with Evercore. Please, Steve, you may proceed.

Thanks. Tyler, I know you took a small charge this quarter. And as I look at the supplemental, you know, you collected 98% or so of the rents in Q3 this So the 2% that sort of wasn't collected, you know, is that sort of part of the recent write-offs, and does that sort of limit the risk going forward, or is that 2% still unaccounted for and possibly, you know, future write-offs?

Well, in terms of the calculations, there's the quarter and then there's October, and we're still getting rents for October, so that number could go up, but... It's a separate calculation in terms of the reserves. We're looking at tenants who are struggling, who haven't paid. Of that $0.02 that we had a write-off on, about 60% was just setting up reserves for those tenants that we're worried about, and 40% was for going to cash collection and basically writing off the straight line rent. It was split 60-40 on that basis. 50% of that was office of that $0.02. You know, it's broken up into a bunch of different pieces.

I guess I'm just trying to assess, you know, I know you can't take write-offs just, you know, to generically take write-offs. I'm just trying to get a sense for the amount of other problems that you're sort of monitoring, and are you sort of at this point towards the tail end of that, or are there still, you know, other retailers or, you know, co-working tenants that are in the portfolio that you still have kind of some issues over?

Yeah, I mean, it's hard to say. I mean, obviously, we hope we're at the tail end. You can see how the numbers have trended from the first quarter to the second quarter to the third quarter, you know, down every quarter. So we, you know, we don't see anything else coming. I mean, there are some tenants in our portfolio, more on the retail side and the gym side that we're watching, and the co-working tenants we continue to watch. But, you know, we don't anticipate a lot of problems. But, you know, those are the types of tenants we're watching.

Okay, and then I guess John or Rob, you know, I don't know the last time you guys did 8,000 square feet of new leasing. And I know San Francisco has just, you know, sort of turned on the spigot to allow non-essential businesses to come back. But, you know, the tech companies have obviously, you know, given people, you know, months and months, if not quarters, to get back to work. So... You know, is it your belief that until the buildings are really more at 50%, 60% occupancy and you've got most of the folks back, that new leasing just remains kind of in a lull here?

Yeah, this is John. I'm sure Rob will have some comments. By the way, I'm off mute, right? Yeah. Yeah, good. I have to always check. I've been talking to myself in a lot of meetings lately with mute on, so I apologize. Look, you're right, Steve. People are just now beginning to get back to work in San Francisco. And driving around, when I was in the city yesterday and the day before, there was actually traffic. And there were not nearly as robust a number of people walking around the streets, but there were people walking around the streets. A month ago, you could fire a cannonball down the streets and likely not hit a car. There was traffic on the 101 freeway going over the Golden Gate Bridge. There was traffic over the Bay Bridge and so forth. There's traffic in Oakland when I went to the airport the other day. Haven't seen that in months. So, you know, it is improving. And with this now ability to go to 25% workforce in San Francisco, people are going to get back to work. And I think it's going to change, but it's not going to happen overnight. There's still... there's still a fear about COVID, right? And some people don't seem to have any fear. Some people seem to have a lot of fear. And, you know, it's going to take a while. So I don't think you can make – there's not enough data to make any trend. You just kind of have to look at this as gut feel. But I think it's positive. I think we'll probably see in some municipalities, you know, subject to the numbers of new cases and so forth, relaxation post the election because there's a lot of people playing games with politics here. So more to come. Rob, I don't know if you have anything to add to that.

Yeah, John. Steve, the only thing I'd add to that is that if you go back to May and June, corporate real estate executive sentiment was – I wouldn't say negative, but they were very concerned because they were looking at a tidal wave coming at them, which is how do we bring people back to work? They were thinking people would be back by June or July, and they just had this tsunami coming at them. Today, they have plans in place. Every company we're talking to has some form of plan in place. They're actually, in a lot of cases, bringing people back into the office, smaller groups of people that have been asking to come in. Um, so I think once sentiment gets to that point that we're talking about now, where they can take their eye off the, how do we get people back in? I do think you're going to start seeing, especially the larger companies look at, uh, you know, how to secure longer term requirements. I can't name names, but a company that we know pretty well has hired a thousand engineers. That's a thousand engineers since COVID started. And they're going to need to put those engineers somewhere. In Hollywood, you know, production is back on stage again. So you've got Sony and Netflix in production. And for every production job, the statistic is there's seven jobs that are ancillary or support jobs. So that's going to start impacting, we think, you know, demand for office space there. And then lastly, life science hasn't missed a beat. In fact, there's more demand for life science and discussions in life science going on throughout our markets, which is really exciting for us to be working on.

Okay, great. Last question, John. You mentioned Flower Mart probably next cycle at this point. I just want to make sure, are there any like issues or, or, um, uh, requirements on Kilroy to kind of start at some point, given that you've got your prop M or at this point, you've got your allocation and now it just becomes, you know, when it's economical for you to start.

Yeah. Well, we have a development agreement, unlike most others, and we have a longer period of time within which to start. And when starting is basically starting a foundation or something, um, uh, So I'm not worried about any restriction or prohibition with regard to any potential delays we have. The city, if you think about it, has counted on, pardon me, has counted on billions of dollars of revenue and tens of thousands of jobs from Central Soma. And of course, they've built the Central Soma subway and have other things that are planned, including massive amounts of development fees from the Flower Mart and other projects in the area. They want to make sure they get that revenue at some point. It's vitally important to them to fund affordable housing and transportation and so forth. So I have no doubt they're going to be very cooperative with others as well. So I don't have that concern, Steve.

Okay, great. Thanks.

You're welcome.

Our next question comes from Craig Mailman with KeyBank Capital Markets. Please, Craig, go ahead.

Hey, guys. Clearly, life science continues to be a strong suit for the office sector. You guys have some projects ready to go, and there's been a lot of talk about conversions. Are you guys concerned at all about an uptick in supply here in the near to medium term with everyone kind of getting in on the game.

You want me to touch on that, John? I'll maybe unmute now.

Craig, I'll handle that. you know, a lot of the conversions that are going on are not, uh, they're just that they're conversions. So, um, you know, entrepreneurs are taking what was designed as an office building and some of it is a older product. In fact, a lot of it's older product and repurposing it into, uh, what they hope will be a successful life science project. And that that's a difficult road to go down. Uh, you know, the ceiling heights, the capacities of the mechanical and HVAC systems, et cetera, um, create a lot of problems and, and modern life science companies, uh, want and can afford the best state of the art facilities. And so the other thing I'd say is where we're seeing conversions, they are typically not in the prime markets where we operate in Seattle, South San Francisco or San Diego. So it's definitely a trend. I mean, life science, everyone is talking about life science across the board, across the spectrum. But, again, I think conversions are a pretty difficult, different product class than, you know, a prime life science project like Kilroy Street Point or our portfolio in San Diego.

That's helpful. I don't know if John is still on, but, you know, clearly he touched on that you guys made the move into San Francisco after the financial crisis and have been opportunistic in the past, and you clearly have talked in conversations this cycle about maybe bringing your act to another market. And it seems like maybe your expertise in life science would be one area where that would translate into other markets. I'm just curious, given the lack of distress so far, I know it's been tough, but is this on the radar as a potential as this pandemic continues to unfold and maybe breaks free some opportunities that we could see you guys enter a new market for life science specifically?

John, did you come back?

No. Elliot, why don't you cover that? Hey, Craig. It's Elliot Trencher. Yeah, I'd say that is on our radar screen. We like the life science business, and we're prepared to grow in it if we see the right opportunity. But similar to what happened last cycle, where we didn't make our first acquisition until 2010, we're going to be patient. I think that we're going to look at everything and move when we think it's appropriate.

Thank you, Elliot. And then just one last one. Any changes to yields on your resi projects that are under development, just given the softening in the resi market?

Yeah, it's Elliot. I'll take that one again. I think it's fair to say that rents are down a little bit from earlier this year for sure. So, you know, I think that's a reasonable assumption on your part. Awesome. Thank you.

Our next question comes from Jamie Feldman with Bank of America. Please, Jamie, go ahead.

Great. Thank you. I think you said earlier in your comments there's some pretty large deals floating around some of the markets. Can you just provide some more color on the size of those, the markets they're in, and maybe even the timing and when those tenants would actually do something?

Sure. Jamie, this is Rob. How are you? You know, starting with Seattle, over the last 45 days, there's just been a tremendous amount of activity up in that market in general. Facebook, Google, Amazon have all taken space in 2020 during this pandemic. And specific examples that have been published are Facebook buying the REI buildings in Eastern Bellevue at a really healthy cap rate or implied cap rate. Amazon has signed a 2 million square foot lease in Bellevue recently. And there's been some other renewal activity that gives us, you know, a very positive view on the Bellevue market. In San Francisco, as we've said, San Francisco's had the most restrictive shutdown of any city in the U.S. And we're just starting to see the 25% return to work. The shining star has been life science. And I won't go beyond what John said, which is that we have interest in that exceeds the amount of space we have in phase two at oyster point. And, um, you know, we're in active discussions with a variety of companies that, uh, uh, you know, have me feeling very optimistic about that phase as well as just the office market or the life science market we're in, um, in oyster point. Uh, the other two markets that I would say have had a lot of activity or Hollywood, And Culver City, both Netflix and Amazon and Apple and the other companies that are there have looked at expansions. In fact, Netflix has expanded by about 3%.