Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2013 Kilroy Realty Corporation Earnings Conference Call. My name is Jackie, and I will be your coordinator for today. At this time, all participants are in a listen-only mode and following the prepared remarks, there will be a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I will now like to turn the presentation over to Mr. 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; Jeff Hawken; Eli Khouri; David Simon; Heidi Roth; and Michelle Ngo. At the outset I need to say that some of the information we will be discussing is forward looking in nature. Please refer to our supplemental package for statement regarding the forward-looking information in this call and in the supplemental. This call is being 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 packages have been filed on a Form 8-K with the SEC and both are also available on our website. John will start the call with a review of the quarter and 2013 and then provide an overview of 2014. Jeff will review the conditions in our key market, and I’ll finish up with financial highlights and initial earnings guidance for 2014. Then we’ll be happy to take your questions. John?

Thank you, Tyler. And hello, everyone and thank you for joining us today. 2013 was another very productive and successful year for KRC. We continue to create value in all aspects of our business. We delivered strong results in leasing, acquisitions, development and capital recycling and achieved solid year-over-year FFO growth. We leveraged our leading West Coast operating platform to expand our opportunity pipeline and are in a terrific position to take advantage of improving real estate markets. In all of our markets we continue to reshape our portfolio both existing assets and new development to address the very dramatic and in my view permanent changes occurring in the modern work environment. I believe our intense focus on the geographic location, physical characteristics and operating sustainability of our real-estate assets is an investment in our future that will set us apart from our competitors and build ongoing creditability among our existing and potential tenants. Let me recap 2013 highlights for you. For the sixth consecutive year we executed 2 million square feet of office leases, signing 2.3 million square feet during the year and 732,000 square feet in the fourth quarter. The fourth quarter leases had rents 8% higher on a cash basis and 21% higher on a GAAP basis compared to prior rents. Rents across our portfolio are now close to 5% below market for the first time in five years. In addition, we have in place letters of intent covering another 340,000 square feet of space. Over the course of 2013 we decreased the exposure of our 2015 lease expirations by 440 basis points ending the year with 2015 expirations at 13.3% of our portfolio compared to 17.7% at the beginning of the year. Our consistent leasing performance has driven up our occupancy by more than a 1,000…

Thanks John. Hello, everyone. 2013 has been a year of broad based improvement, both economically and in terms of commercial real estate fundamentals. Across our West Coast markets, job growth has been solid and unemployment has continued to trend down. California added more than 236,000 net new jobs last year. Since February 2010, when the state economic recovery began, it has added 920,000 net new jobs on average of about 225,000 a year and now has an employment rate of 8.3%. In Washington, the Seattle become a Bellevue metro area strong demographics continue to create jobs, but the second largest year-over-year drop in unemployment among the country’s top market. The state now has an employment rate of 6.6%. The economists are reporting that this job growth trend in California and Washington will continue throughout 2014. Across our core West Coast markets, San Francisco remains in a class by itself delivering continued to increases in rental rates and leasing volumes. Seattle continues to be very strong. San Diego improved sharply this year and Los Angeles continues to show slower but steady improvement with strength in select creative and media submarkets including the West Side and Hollywood with momentum gaining in the much smaller submarkets of Playa Vista and Culver City. Let’s take a market-by-market look. The San Francisco Bay Area continues to surprise on the upside, both absorption and demand surpassed the peak level set in 2012 with more than 1.4 million square feet of positive net absorption, marking three consecutive years of more than 1 million square feet of net new leasing [unprecedented] for the city. Rents for high quality space have grown more than 130% since the downturn on a triple net basis. According to JLL, more than 50% of the leases executed in the city last year were…

Thanks Jeff. FFO was $0.67 per share in the fourth quarter and $2.66 for the year, that's a bit higher than the top-end of last quarter's guidance range. We ended 2013 with stabilized occupancy at 93.4%, up from 92.2% at the end of the third quarter and 92.8% at year-end 2012. Our stabilized portfolio is currently 95.1% leased. 2013 same-store NOI was up 3.6% on a cash basis and 1.7% on a GAAP basis. Same-store cash NOI was down 2.9% in the fourth quarter, but essentially flat when adjusted for one-time items. Same-store results were impacted by lower average same-store occupancy of 150 basis points and an increase in a variety of operating expenses including utilities and insurance. As I will mention later in guidance, we expect cash same-store NOI growth for 2014 to be in the 3.5% range. CapEx turned in higher in the fourth quarter primarily due to 200,000 square foot [SCAN Health] that Jeff mentioned and DirecTV tenant improvement related to the lease executed in 2011. As John noted, we completed the San Diego portfolio sale transaction earlier this month. Total gross proceeds were approximately $327 million. The proceeds will be reinvested into our development properties and potential other acquisition opportunities over the next several months. We currently have $395 million of availability on our bank line, approximately $350 million of cash and debt maturities in the second half of 2014 totaling approximately $250 million. Now let's discuss our initial guidance for 2014. To begin, let me 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 guidance reflects information and market intelligence as we know today. Any significant shift in the economy our markets and demand, construction cost and new office…

(Operator Instructions). And your first question comes from the line of Josh Attie with Citi. Please proceed.

Thank you. Yes, Tyler on guidance. Can you just talk about what the assumptions are in guidance? You have $400 million of development stand and a $150 million of assets sales. How does guidance assumed your remainder of that development spend is funded?

Well as I mentioned, we have about $350 million cash from the sales of San Diego portfolio. So with the cash and the bond offering that we have in there and the [daily] distributions effectively that fund that $400 million, assuming nothing else changes.

Okay, got it. On Columbia Square, can you talk about what the level of 10 activities for the office side? And what our expectations should be in terms of when you might sign a lease for that?

Yeah. Hi, Josh. David Simon here. Activity continuous to increase given that we started the renovation with historic and within a hall for [garage], we’ve seen a lot more activity we have. LOI that cover the majority of the historic phase, we have five big tenants that are leased to 100,000 feet or larger, which we’re in discussions with LOI and/or space planning for the new office buildings 250 and 100. So the activity has definitely increased and we’re confident that over the course of this year we’re going to see the right kind of user come in and take a large portion of the new space.

Okay. And can you just remind us what your preleasing requirement is to actually start construction of the office component?

Well…

We’re under construction for the office component.

Okay. Okay. Thank you.

And your next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed.

Hey thank you. I guess focusing on San Diego; can you talk a little bit more about your prospects for rent growth there? And then also if you look at the future development pipeline, you seem to have several projects tied up there. How should we be thinking about getting us started in timing?

Okay. This is John, Jamie. In terms of rent growth, we've seen decent rent growth this year in Del Mar around 20% this past year and similarly we've seen rent growth in Sorrento Mesa, Jeff do you have that number?

No, I don’t have the exact number, but Sorrento Mesa is equally been strong in our market there with product. So, we’ve seen good ramp growth over this past year than anticipated. We’ll see continue to increase this coming year 2014.

And in the quality product, the Class A product that people want is anywhere from 8% to 10% vacant in a quality stuff, rents in Del Mar certainly, as well as Sorrento Mesa of the top Class A stuff certainly will justify an appropriate return on development. In terms of demand I mean the job growth is everything, we saw 1.1 million square feet of net absorption in San Diego this past year that’s the highest number since 2005. We’ve seen over the past four, five years most of the quality space be consumed, there is very little quality space of any size available. And we are seeing job growth which is projected to be pretty good at San Diego. Last year there were 22,500 jobs created in San Diego the forecast calls the 26,250 in 2014. And it’s anticipated that at least forecasted there that we will see job growth in the neighborhood 3 plus percent for the next five years. So looking at that I think we are teed up pretty well and of course we control some of key sites we have. We are a permit ready or ready to drop permits on most of the parcels we have. On One Pasea which is the big mixed used project we are moving through the city right now on a very well and anticipate obtaining approval later this year. We had an interruption last year, as you know we had a mayor down there that had to be removed from office, who, it’s kind of a bad guy and slowed down everything, but we are encouraged by that. We think we’ll probably get underway at sometime mid-year with the building on the path that we call the heights of Del Mar which is roughly 75,000 square feet. We…

Okay, thank you. And then just a follow up on guidance for Tyler. Can you talk about maybe the sensitivity to your guidance range? What would get you the low end or the high end? And then also the occupancy loss you mentioned in the first half of the year. How we should think about timing for back filling in the progress releasing?

Yeah. Well, I think from an occupancy perspective. First, I think we'll be back, we're going to lose two spaces adjustment and one in the first quarter and one in the second quarter. And then we've already released one of those spaces, which comes in earlier in the third quarter. And then we'll obviously working on the other space. So by the third quarter we should be mostly back up (inaudible) nothing else changes. The impact to guidance I mean we lots of things same-store results obviously be impactful, the level of disposition if we saw our traditional development and the capitalized interest component of that could change. From a new delivery perspective, as I mentioned earlier we’re delivering LinkedIn in the fourth quarter, that’s really the only delivery, so there really isn’t a lot of movement on that. And then 360 Third is coming online. And we’ve leased it now that basically fully leased but the occupancy will come in over the first three quarters and be fully leased, so that would slip a little bit I guess through some downside there or subject to tenant delays in our FFO. And then in terms of interest rates we’re going to refinance our two maturity. We have built in some cushion on interest rate movements. We probably get issued 10 year debt right now for 50, we have built in sort of a 100 basis point cushion on that. But at the timing of when we do the bond offering obviously can play a role in the results for these.

Great. Thank you.

And your next question comes from the line of David Toti with Cantor Fitzgerald. Please proceed.

Good afternoon guys. I just have sort of a big picture question relative to I think when we, one of the things we struggled at when we step back and look at the quarterly results, there seem to be diversions in terms of overall performance from the same store portfolio and the non-same store. And I do not think if that’s a function of the fact that it’s newer product or that your overall tenant base in the market is clearly interested in your product. Can you maybe walk us through some of the dynamics in terms of leasing that will highlight the differences between the same store and the non-same store performance?

This is Tyler, and I can take the first part of that (inaudible). The same store properties for example one of the buildings that we lost some occupancy on here at the same store to our headquarters here in West Latin America. It is a relatively building, but I don’t think the newness of the buildings really makes a difference in this issue. You look at your one-third or [three of your second] or a lot of these buildings are orders, again we come and renovate it, but it’s a type of product that the market likes. So I am not really sure that tenants are focused on the aged building as more on the functionality. And as you probably know about 70% of our properties are in the same store portfolio, so there is a big component that’s not. And those are the 2013 acquisitions and the 2012 acquisitions, and so those will be coming into the portfolio this year. So a lot of those properties that are doing well will improve the same stores results for 2014, but I am not really sure if it’s related to the newness of a building. John if you have any comments on that?

I think you covered it. So one of the things we have been very focused on and frankly tryful about is that we have upgraded all of our properties that we continue to hold with very few exceptions to kind of state of the market if you will, even that we sold them all. So we think we will see a significant rate increases throughout most of our portfolio as lease is low. Tyler mentioned at west side media center that in one building, building one which is roughly kind of 85,000 feet or so, about eight some thousand feet. We have a letter of intent on that. And to give you an idea the rents are up, Jeff what is that 20% or 30% on a cash basis and 40% or 50% on a GAAP basis.

Yeah. Actually I think hoping it harder than that, but yeah. Strong increases.

Okay. That's helpful. I guess it’s a sort of sub-tax of that. Given that the performance (inaudible) whether it’s major or product type or what not, does that encourage you to take more of an active view towards turning, selling more assets, continuing to grow with development pipeline. Is there sort of a philosophy around that based on the performance diversions?

Well, I think when you seen us do and selling $850 million around numbers over the past few years, of course some of that was $300 million or so that was industrial, right?

Yeah.

As we look at it, we’ll sell some stuff to top, we’ll sell stuff to bottom and we’ll sell into this kind of a market, how much we’ll sell this year, we forecasted roughly 150, it might be considerably more, but we've had a long track record of capital recycling since ‘97, when we went public. And I think when you look that graph that I sometime show which is how much we recycled, how it funded developments so forth over the first ten years and then the next five years. If we look at five years hit, I think you will see, maybe the amplitude of the numbers would be higher, but it will be a very similar type graph that what we've done in the past, we believe that you should sell off property. And where we always try to assess which property is the most likely, they are the best to sell and we are very focused on that recurring CapEx that we'd like to make sure that we’re selling. One of the things we don’t like about few storey product, I mean when we've been very successful in that, but when you do two story product, frequently what happens is you have a single tenant. And tenant moves out, the next tenant wants a new lobby. And then it’s up being a bit of a fool’s game at times, it refocused our attention elsewhere and sold off most of that kind of products. So that’s kind of a big picture that where we look at it.

Okay, that’s helpful. And if I could just ask one small follow up, can you just remind me how many triple nets you have in the portfolio at the end of the year in terms of percentage?

Tyler?

I’d have to double check that number, my guess is it’s roughly half of the portfolio, but I really need -- given the increase in San Francisco where we have more industrial growth is probably less than that now. We can get that.

Let me point out that we are far different than most triple net people because in our triple nets we generally actively manage the property, have control of the systems, have control of the common areas, have control of the maintenance and so forth because we don’t like assets that degrade by use. We like to make sure that they are up and fresh and ready to go for the next tenant.

Okay thank you for the details there.

And your next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed.

Good afternoon guys. Could we maybe just get a breakout of the mark-to-market 5% maybe by market?

Sure. So in San Francisco it’s the strongest market it’s about 25% below market, Washington 5% roughly, Los Angeles flat and San Diego around 9%, 10% above market.

Okay, that’s helpful. Then just going to 333 Brannan. So obviously you guys are doing better on that project and pro forma, is that just a function of market rents moving not much in the last couple months or did you guys have a bidding more for that space?

It was a bit of latter, we had several tenants that are interested in that space and we work collaboratively with the owner that’s next door who is going to be building roughly a 112,000 square foot building to make sure the two buildings work well together. So, they could accommodate a larger user than just our 185,000 feet. Our buildings are roughly a 185,000 feet, 182,000 went to Dropbox or 34,000 square feet where we put a restaurant in it. In terms of the math, you remember when we first came out a year ago or so, when we bought the property, maybe a little bit before that, we came out and said the property would get around $50 in rent that we would have roughly an 8% return. And -- maybe it was a little under $50, but then we get the deal with [spunk] at 250 Brannan, which is a 100 year old building with a (inaudible) factory originally. And we did all that and we did that at least at a much higher rate than we forecasted for 333 Brannan. Similarly, we forecasted 333 Brannan originally at a 175,000 feet to 182,000 feet. So, the cost went up a little bit, but by and large, what we did as we significantly enhanced the quality of that building with the systems in the floor loading and all of the things roof-top deck et cetera all of the things that the high density collaborative user wants. And that is the area if you think of demand is being a pie chart. The lion share of demand of high rent paying people are in the technology and mediaries up here or industries up here. And most of them don't want to be in the traditional high rise, they want…

That’s helpful. And then maybe just head south and little bit of update on Crossing/900 and the demand you’re seeing there?

Crossing/900, we have multiple folks, both from the product category mostly offer as well as the tech industry, we have number of letters of intent going back and forth for one building or the other. We have a couple of tenants that are interested in the entirety. We think we are going to see very significant improvement in the forecasted yields there much like we saw three figured brand and not necessarily the same yields that we’ve talked about in our report this morning, but similar direction. There is just -- it’s a very high quality building right at next to the transportation with all the amenities and so forth, with the bigger floor plates, geared to the high density user, it’s exactly what people want and we are very encouraged. One of the things we like is that in all of our development projects now 333 Brannan, which is now leased, Crossing/900, Columbia Square; the dynamics we are seeing in those markets; while they maybe a little bit different, but the dynamics are very similar in the sense that we are seeing increased demand, very low vacancy rates and significantly improving rental rates. So we like our position and we think we are going to do very well on that, and we will probably have some announcements, I am not going to say whether it’s this quarter or not. I kind of get the feeling a little bit that we sort and I say this tongue in cheek that we sold of spoiled everybody because we delivered so many buildings over the last year, so many lease deals that were preleased. And as I think it’s just unrealistic for us to say or for others to assume that everything we do is going to be leased the day we started or within a month of starting it. Remember, all three of these projects were started in the fourth quarter. In the case of 333 Brannan, we literally just demoed the building, the day before yesterday we had a ceremonial groundbreaking six weeks ago. So I feel very, very enthused about where we’re at on this development projects.

All right thank you.

And your next question comes from the line of Vance Edelson with Morgan Stanley. Please proceed.

Great, thank you. So back on the four acres in Hollywood, and you mentioned the functionality of buildings, how would you say that proposed office campus is going to compare to your west Sunset building which has one of the lower occupancy rates and a similar location? Are there any inherent advantages that the new structures will have and maybe just a more favorable mix that you are contemplating?

I am not clear with the building you referenced as a low vacancy, I mean low occupancy, I didn’t understand the question.

If you could just compare, what you are looking to build to the new sign in Hollywood on the four acres compared to what you have at the west Sunset building, any inherent advantages in the new building or the new campus that you are looking to construct? And is the mix going to flexible if -- depending on how the markets develop over the next couple of years?

When I was troubled was when you said the west Sunset, are you talking about Sunset Media Center in Hollywood?

Yes.

Okay sorry. That's a building we bought a year and half or two ago, we’re totally repositioning, we moved the rents up about 50% on the bottom-line with the deals that we’re doing now, so well above what we forecasted on. And that is a traditional older building that’s totally going for renovation. We’ve saved the best force to be leased last. And I think we finish up that stuff here in another month or so. And the floor plates, David, in that building are roughly 20 some thousand square feet per floor right?

Right.

And then if you look at the Columbia Square, we are building larger floor plate buildings that are geared very much to the media and technology folks. They work very well for our fire category folks but they have all of the amenities and heights and ceiling height and floor loading and density and so forth that the traditional buildings don’t have, so much more flexible than Sunset Media Center. With regard to the academy site which I think is the 4 acres you are talking about. David, do you want to talk about what we are building there?

Yes, sure.

We are not building it yet but we have to get it entitled.

Yeah. So we have about 18 months to 24 months entitlement process and we are going to create another creative campus. It’s going to be as unique as Columbia Square but different. It’s going to have a retail component, residential component and office component, low rise campus feel, creating another sense of place in a kind of environment that the modern workforce wants, especially the entertainment, media and tech guys. Hollywood still with new site tenants, 10s, 15s, 5s, this project is really going to focus on those users that are growing out of that market although we are going to have the flexibility to handle larger users as well, the four, maybe five storeys all creative design. And we think it’s going to be very complementary to what we are doing in Hollywood especially when it comes online probably in ‘17 mid-‘17 after we get entitlements after Columbia Square is all buttoned up. So we feel good about the direction we are heading.

Okay. And 18 to 24 months on the entitlement process, is that pretty straight forward, is that a standard time frame and any chance it gets accelerated or takes even longer?

No, we already have this [321 SARs] in place under the Hollywood community plan. And it's really about a site plant approval and again interest in traffic studies and things like that. So, given our relationships with the city, the mayor, the councilmen what we're doing in that city and we the good stewards of the land in that community, I think it's going to be smooth selling for us. So, we take our expertise and go through the process. So, I think the 18 month to 24 month is pretty good job.

Okay. That sounds good. And then just back on the Bay Area kind of big picture with average occupancy now pushing 95%, how do you think about the balance between pushing rents and pushing occupancy even further, are the rents even more and focus now as you effectively start to run out of having a lot of space to show or do you think occupancy can still go higher?

Jeff, do you have before you or in your mind the percentage of the San Francisco portfolio or you just maybe script what number that rolls over the next two three years? I don't know we have that before us right now but just big picture -- excuse me?

I was going to say I don't have the exact number over the last couple of years, but…

Yeah. So the lion’s share of space that we have we're rolling up very substantially and of course any projections we might have had a year or so ago we probably blown through because the rents have gone up considerably more than we would have projected. I mentioned at NAREIT when we had the conference or not the conference but the reception up on the roof deck at 360 Third Street to those that were there, that I thought we would see another significant spike sometime probably mid-year, this year. And I believe that will happen. The number of spaces that are available of any size in the SOMA area, submarket area so de minimis and the demand is so great, there is a lot of discussion you recall over the last year or so about did the big users kind of go away and so forth. I can tell you the big users are back, there are lot of them that are looking for space for sometime next 3 to 5 years and many of them are looking for space now. I think that bodes very well and it bodes particularly well for anybody else to kind of space they really want and ultimately probably lift all boats. I think Vance, we’re going to continue to escalate.

Okay, that’s great. And then last question for me, the average lease term on renewals was I think about 7 years during the quarter, which was a little bit higher than it had been. So do you see tenants looking to lock in for longer now, is that driving it? And given your optimism that you just mentioned on the asking rents going forward, are you pushing back at all on the longest proposed leases?

Well, this is a -- I've been doing this a long time, so we are on a hotel or an apartment just all the time you want to balance your overall -- ideally you balance your overall portfolio, we just thought we were always had as if in a perfect world you’d have 10% rolling every year. And then it would be fairly this much the same regionally. Now obviously, when it’s extremely robust, you’d like to say okay well we like it to be mark-to-market every year, it just doesn’t work that way in office. And from a credit standpoint, we’ve got to look at the long-term, we’re not going to just write short leases. We don’t do a whole lot of five year leases, we do a few. Most of our leases end up being anywhere from 8 and/or significantly longer in the case of built-to-suite. To your other point, yes there are a lot of people right now that are trying to engage to lock in rates earlier because I think they read the same kind of charts that we do that the brokers publish and that the brokers send out, which is that rental increases are likely to be in your future.

Okay, it’s very helpful. Thank you.

And your next question comes from the line of Brendan Maiorana with Wells Fargo Securities. Please proceed.

Thanks, good morning. Just on the academy land and acquisition. As it goes through the entitlement process, it’s probably for Tyler, is there any impact to earnings, are the carried costs offset by some of the income that you get or would you expect a little bit of negative carry on the OpEx carry?

Yeah, I mean we’ll be capitalizing the interest on that investment and then that will be affected by the revenue that we’ll receive on the site that John mentioned in his remarks. So effectively carry cost to capitalize interest rate.

Okay. There is not income that’s being generated from whatever existing structures are on the center?

There will be income but that will offset the capitalized interest.

Okay, got it. And then I don’t know if this is David Simon or John. But how do you think (inaudible) kind of laying on how that project compares to Columbia Square, but how would you think about the academy project relative to maybe so many other developments that are proposed in the Hollywood and I think nothing [Hudson] as their office project, I think Lincoln maybe is doing redevelopment on office project and there are several other multifamily developers, and I think projects that may or may not go?

David, do you want to take that?

Yeah, I will take it. So, in Hollywood as you know there is enormous amount of institutional capital being put into the city in investment. Predominantly there is a multi-family, I think there is about 1700 units under construction now, if you go all the way down to Avenue with another 15 to 16 potentially planned that are going to go through entitlement. The bigger projects from the Crescent Heights and CIMs some of the bigger developers are predominantly residential; there is not a lot of office. Hudson does have a project on their Bronson studio closer to the 101, which is the high rise; I think it’s 13 or 14 stories, different location and what we are doing, I believe the Vine and Sunset core is kind of the nucleus of the business section in Hollywood. And our projects are right there with all the amenity base and all the housing that could be used for the workforce. So I think from a competitive standpoint what's coming on line, quality office space, creating a kind of environment that we’re creating the Columbia Square, I like to call the Sunset Media, vertical campus that we’re putting in place and the type of campus that I described with the academy, there is nothing like that that’s planned. So I think we’re positioned pretty well as we look forward and we look down feel through the entitlements given what's planned and what's coming. And most of it being entitle as I said is on the residential side.

Okay. No, it’s helpful. I had two quick ones for Tyler. First on same store, the guidance that you gave, does that include in 2013, I think you got $5 million property damage settlement. So is it, with same-store be hire, if you are excluding that from ‘13 results or maybe you strip that out of your guidance? And then I didn’t recall if you gave the rent spread outlook but if you can give us guidance on rent spread that would be helpful?

Yeah. We excluded payment out of the 2013 numbers when we calculated our 3.5% forecast. And on rent spreads, our whole portfolio, here we are talking about going forward; our portfolio is approaching 5% on the market. I mentioned earlier sort of how that breaks up by region. Is there something else you are looking for?

Yeah, I thought that was the overall; I thought on a couple of prior calls that ‘14 was probably likely to be kind of in the plus 10 range which I think where you thought ‘13 would be.

Yeah ‘14 is roughly 5% for market.

Okay, great. Thank you.

And your next question comes from the line of Mitch Germain with JMP Securities.

Good afternoon. Just maybe John, just curious on the San Diego sale process and how it played out versus your original expectations?

Eli, do you want to take that?

Yeah, it played out according to our expectations. I mean we were basically trying to construct a portfolio that could take advantage of mix of properties that could take advantage of the particular state of a debt markets at that time. And even though there was little hiccup in the summer, we put together a composition of fully leased properties and value add properties that supported real high level of debt. And then as we got passed the summer in that and the debt markets came back together, the ability of people to get really good debt to drive pricing on that was a combination of assets that went in there. So we had a huge combination of possibilities, we could break it down to three or four different parties and transact at one level, we could have a several different options for single party transactions and we had great debt float on all the way across the board for both medium leverage and high leverage buyers and we took the best of that lot. And we had the ability to adjust at the debt markets that kind of stayed wobbly but it just turned out very simply to get one party paying the highest price and get it done in one transaction. There were other people; I mean there were other combinations at the same price as well. So, we had a lot of back up.

Great. Thanks guys.

And your next question comes from the line of Michael Knott with Green Street Advisors. Please proceed.

Hey guys, it's Jed Reagan here with Michael. You're obviously seeing very strong demand inside the market and thereby areas. So, with 360 Third and the Brannan property leased up, just curious what you can do for encore in the City of San Francisco and are there any additional opportunities that you're currently exploring?

This is John. I got the, remember I kind of a smile, so I have to have a kind of little tongue in cheek comment about this. On the first one, we're not going to tell you. Just assume that we have a lot of things up our sleeve, but we're not -- problem with these conference calls, I have so many tenants and brokers and friends and so forth, it's the real estate business and I said they read our script. So, I have got in a trouble before by sort of -- and we have competitors that read script as well. So, you should assume that we have multiple discussions going on with regard to San Francisco as well as the other markets we like, both with tenants as well as securing other opportunities. And you know the kind of product we like and the characteristics we like. So, we're not going out on some far limb. With regard to the second point, I'm sorry I got last to my own comments.

It was related just kind of what opportunities you're seeing out there, looking at something similar with regard to Seattle, but I think it sounds like a bit sort of……

Yeah Seattle, we like Seattle, you know my circles and squares. We’re still focused on that and when we find stuff that we’d like that makes sense, we’re going to be enthusiastic and go after it; sometimes we can’t achieve the pricing. But I think what’s happening to us right now is we’re very encouraged by the number of folks, some of whom we’ve done business with, some of whom that know of us, some of whom might be clients of the same VCs or whatever with whom we’ve had relationships on other deals we’ve done where we’re getting referred to a lot of folks in regards to their facility requirements and what I would recall their longer-term requirements. So, that is something that is you always hope for and sometimes you get it up, only I had it a couple of times in my life. One of the reasons we hired Rob Paratte who I mentioned in my remarks who we made announcement about, I don’t know a month or so ago when he joined. Rob has tremendous relationships here in San Francisco and up and down the coast and throughout the country. Generally have highest levels with many of the big users particularly in the industries that we kind of cater to. And we’re already seeing that he is getting our organization before a lot of new prospects who whatnot. So, until we announced something haven’t happened, but let’s just say we believe in planting seeds for the future. And so think of Kilroy, we’re going to buy when it make sense, we’re going to [dealt] when it make sense, we’re not going to do either one of those that doesn’t make sense. The cycles will change. We think we’re very well positioned to continue to deliver great opportunities. And that’s about as much as I can say.

Okay, thanks for that. And you guys talked a little bit about 2015 being a bigger year of lease for all, can you discuss any particularly large expirations or move outs in that year that you are focused on or is it too early to tell at this point?

Well, I just think that the more robust the particular market is probably the more we want to let a little time go by because of the forces of the market. But I don’t really want to get into which tenants simply because it empowers tenants.

Yes, fair enough. Thank you.

But directionally, we’ve gone from 17.7% to what was it harder, 14.3% of their balance over the course of the last year and looking to chipping away. We don’t like uncertainty as we can prevent them.

Sure, helpful. Okay, thanks guys.

And your next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed.

Hey [John], just a couple of clean-up questions on your guidance. I think on the $400 million of development spending, I think you said that was on the existing pipeline, just want to confirm that so that no additional starts vacancy guidance is there, correct?

That’s correct. We have a little bit of spending on predevelopment for some of the ongoing projects, but there is no other additional start to that number at this point.

Okay. And is that a function of you just haven’t announced anything or just comfortable with the total size of the pipeline today and would wait for some stuff to deliver before announcing some new starts?

If I can just comment on that, obviously if we do a preleased deal, we have to announce it. We’re prepared on most of our development properties to look forward subject to how we feel about the market and demand and all of the things that are going on and/or preleasing. In regard to -- we don’t have a reluctance to start anything if it makes sense, but we do. We've historically delivered 60%, 70% of our development. When we’ve started it, we preleased in somewhere in the neighborhood 80%, 90% upon completion, while we are not going to guarantee that that way in every market always think of Kilroy as being fairly, we’re fairly conservative with regard to development, we’re not going to start just a kind of expect up and down everywhere that's not, I don’t have the stomach for.

Okay. Fair, that's helpful. And on the unsecured financing later in the year, I’ll just, if I missed it, did you guys mentioned the size of deal, I’m talking about $250 million rolling towards the middle end of the year?

Yeah, $250 million to $300 million.

$250 million to $300 million. And any appetite at all to take out the 2015 unsecured early just given what potentially could be a rising environment, doesn’t feel like right now, but no interest at all?

Yeah. Well, fairly right now, but you are right, it’s something we actually look at all the time with our upcoming maturities is there a point where it makes sense to prepay them, typically the prepayment families [kill you], but it is something we look at.

Okay. And then last question just on the same-store NOI guidance this year, similar to this year’s growth when OpEx was up quite a bit, just curious what you are thinking about same-store operating expenses in ‘14?

In terms of how the 3.5% plus between revenue and expense?

Right.

I don’t have that number in front of me, but I can get back to you after the call.

Okay. Thanks guys.

And your next question comes from the line of George Auerbach with ISI Group. Please proceed.

Great thanks. Tyler you mentioned CapEx is about $75 million in 2014, I know it was a little elevated in 2013 and you guys are doing a lot of leasing. How should we think about that going forward? Is sort of $75 million a good number plus or minus just for the size of the portfolio?

Yeah, it depends I mean we are still spending money on the DirecTV lease that was signed in 2011. So we have another in that numbers I think there is another $7 million roughly of DirecTV cost. So, it’s hard to say that’s going to be a consistent number. Hopefully overtime we can drive that number down a little bit. About half of that is pre-committed and the rest of it is more speculative. But for modeling purposes, it’s probably not a bad number going forward.

Great, thanks. And just on the asset sales, I know in the past you’ve targeted non-core markets and assets, I guess given the strong pricing for core assets that you guys talked about in the call and we’ve heard about. The $150 million of asset sales, should we expect that those will continue to be non-core sales or could they be sort of more core CBD type sales?

We look at both the top and the bottom as I mentioned in my comments to somebody else, George. And I don’t want to get into identifying any particular asset. But we are constantly looking at the portfolio. Eli is sitting across me and he has always got a whole bunch of ideas up his sleeve. So we’ll let you know more as we proceed, but obviously there is -- it’s a pretty robust market out there right now and we could sell things at pretty attractive prices, but more to come. One of the things I mentioned in the past is, we have a lot of EBITDA that’s coming in over the next couple of years through all those development as it comes in and we’ve sold off the EBITDA with regards to the assets that we’ve transacted on the $850 million over the last couple of years. And we don't want to put ourselves where we have to be slaves to anyone sort of criteria, we do look at all these ratios on debt, as well as FFO and so forth.

Great, thanks. But I guess Tyler you mentioned that you gave yourselves some breathing room on the assume debt rate, I think in the 2014. Should we assume that as you’re modeling at the dispositions, you were sort of leaning more towards selling non-core assets as opposed to a lower cap rate type asset?

Yeah, we model like a 6.5% cap rate on dispositions.

Slightly outperformed.

Right. Yeah.

And I guess last one from me, the same-store taxes jumped this quarter versus a year ago. Is there anything happening with kind of reassessments in California or Seattle?

Yeah, actually it's more in Washington than there is in California where we don't have property in Washington. But the increase in taxes was almost fully pass through to our tenants. So, from a same-store perspective actually didn't really impact our numbers for 2013.

Got it. Thank you.

And your next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed.

Yeah. Hey guys I just wanted to follow-up on expected development returns. I think it's relative to the initial pipeline, I think you said, John 7.5% you got it from projects maybe with some more multifamily layered in. Talk about maybe any downward pressure you could see on a world development returns notwithstanding the Dropbox lease over the course of the next year or two and do you more projects in?

Downward pressure, I'm not seeing downward pressure right now. I mean obviously if cost escalates substantially, we've actually seen commodities back of a bit. I think it's probably related to China I guess when we sort of read about. So, while costs have gone up quite a bit over the last few years that moderated a good deal that could always be factor on yields. From the standpoint of what we’re seeing as rents are going up and demand is going up and the supply is tight, so we like those dynamics. Obviously when we’ve talked about yields before we’ve sort of talked about -- in the old days we’d sort of say 12% back in early 90s and or not early 90s late 90s early 2000s and of course it’s been different environment with where interest rates are and so forth, but we’ve sort of hit anywhere from 7.5% to plus 10% with the average being I guess tighter in sort of 80ish plus or minus range. And I think that’s kind of a good way to look at it. Now if we have the ability on the maturities property that we already own and we end up for the yield that would be lower than that, but still a very attractive yield on incremental dollars and the decent yields and above what cap rates would be in terms of overall yield on a project then we’d seriously look at that, that’d be probably a good investment. So I don’t want to get with absolutes here, but we did the Synopsis deal which was the first deal we did up here in the Bay Area and it was at the low-end of the yield on ROC, but very strong credit in a very, in a rent that now is probably $0.75 or so per month below market for a great tenant and it allowed us to move in to when we recognized by folks in this market as a major development player and of course you’re seeing the success we’ve got since then, everything since then has been considerable higher ROCs and in most cases we’re getting 3% bumps. So, you can figure the straight lines pretty easily. You know if it’s a low deal, we will do it. But I think right now we are feeling pretty good about the way we’re tied up.

Can you remind me whether can you get to the -- initially you’ll be recording or using trended or in place rents?

There is a rate time coding or first year return on cost on average.

I want to just make sure I understand. Trended went and when that property stabilizes or open?

It can be either long house calculation.

Beg your pardon, Tyler.

We’re typically using [five grounds] and we could do the calculation. That depends how far out the project is, but delivering in a next year or so (inaudible).

Okay, that’s helpful. Maybe one last question for Eli, Eli maybe give us some color if you can on kind of going in yields today in San Francisco on something stabilized versus going in today maybe buying land going through entitlements and starting to deliver a project, what the yield differences would be absolute relative?

Yeah, okay. We have a couple of good comps here that you can just go on. Number one is one-to-one second they’ve just traded. Out of three cap for $770 a foot to an institutional investor, nice quality building, but it’s not a building that is really attractive, attract tenants, it’s really entirely financial services occupancy now and I don’t know if both transitioned that or not. But it’s not been the building that has attracted where the sickness for the demand is right now and there is another building one two three mission that also traded in the low threes, that is building in Southern California to trade. So, in place cap rate for really core stuff is in the last few months have seen believe it or not another leg up or down whatever you want to call it. In terms of the pricing of these things, I mean I’ve seen on these -- the IRRs drop down to six flat, maybe even high five. And so it’s gotten more breadth of size per foot has gone up. And on development, putting development together is so multi-tasking that if you can do in assemblage and have a little bit entitlement you get into the good land basis, I mean the spread on that could be if you are asking about the spread between the completed development and these well, I’ll just address the yields, so that we can get for right now maybe yields that we can get or what John just talked about, certainly north of seven based on the way that we have a team, he can put together the different components that get us into the project for that cost structure in a great location with a great product. I think there is huge spread…

A lot of good detail in there. So, thank you.

And your next question comes from the line of Josh Attie with Citi. Please proceed.

Yeah it’s actually Michael Billerman. There was a comment about 350,000 that’s out for LOI right now. And I was just curious how much of that represents development leasing versus how much of that is existing vacancy versus roll, so I wonder if you can maybe break that out a little bit?

Yeah this is Jeff. The 340,000 square feet is on a stabilized portfolio and 48% is new and 52% is renewal.

And then you are saying the rest is development LOIs?

No development, all in the stabilized.

Yeah 340 is all stabilized, there is no development in there.

340, I though you said 140 okay. And then in terms of just as we think about sources and uses, and I recognize you have well north of 300 million in cash and 150 in sales. When you look at the development of that’s under construction, I think you said 400 million would spent in ‘14 of the 825 that’s left to spend on the pipeline; is there any chance that any of the total, the 825 or the 425 that’s left falls into ‘15 if that’s brought forward in any way or you feel real confident that most of that spent will happen in ‘15 and in ’16?

Yeah, it’s unlikely it would come forward too much. I mean it’s always -- things always actually take longer to get spent than sooner along these projects. So if anything, it gets a delayed a little bit, so those numbers are pretty solid I think.

So, the only change potentially could be if one of the shadow pipeline project comes about either through a preleased or something where you get a new project in, in terms of the use of capital?

Exactly. And that's why whether we would, how we would fund that or do we -- prefund a little bit of ‘15. As I mentioned, we'll probably raise a little bit more in the bond offering that we need for 2014 or prefunding ‘15.

Well that’s what I was going next which was how do you sort of feel about sort of balance-sheet metrics and sort of potential need for eventual equity either through additional asset sales or through common equity. And when does that certain factor…

Yeah. I mean we don't really have any need for common equity at this point and we may work around the margin ATM program. But given the dispositions which sort of form some is really equity related, we're in a good shape right now on metrics. But as we’ve done over the long run, the next couple of years, we'll access all the markets. In 2014, we get $300 million of debt, we get $300 million of equity, we get $300 million of disposition. So, you can see our profile.

Great. And then just one for John, just as we hone in a little bit, there has been a lot of discussion about asset sales on core versus your non-core product. But I'm just curious how would you look in for me like 333 Brannan, either it’s been absolute homerun, trying to get two of your lease drop box in the returns and what you've been able to do and you spend a lot of time talking about how you been able to drive that return higher than what you had thought it was going, clearly there is a lot of NAV value fitting there now but for at least for 12 years, how do you think about holding that in terms of an asset versus potentially monetizing for an unbelievable quick return?

Yeah. This is Eli. First of all, we don’t deliver that until 2015 and there would be some scarifies in trying to sell that lease right now without a completion even with the completion guarantee. And so it’s a premature question and there is just a lot of things in the pipeline of that delta that we have to work through. And as John said we’re balancing things on every dimension in terms of coverage ratios, EBITDA, funding needs, turning to profit, giving spread everyone whether it’s core whether it’s non-core all of those things. And I can’t take you in kind of the machine we’re right now, but yeah, things that where we’ve created a lot of value our general principle is where we’ve created a lot of value and may not be able to create more value for some substantial time. You’ve seen us already in our disposition program take advantage of that and that style will continue to be a part of the disposition program. But premature just because we have to buttoned up get tune-in in there, get it all delivered and get it into final shape.

Okay. Thanks.

And with that ladies and gentlemen, I would like to turn the presentation back to Mr. Tyler Rose for closing remarks.

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