Hello, everyone, and welcome to the KRC 4Q 2023 Earnings Conference Call. My name is Emily, and I'll be facilitating your call today. After the presentation, there will be the opportunity for any questions, which you can ask by pressing Star, followed by the number one on your telephone keypads. I will now turn the call over to our host, Bill Hutcheson, Senior Vice President, Investor Relations and Capital Markets. Please go ahead. Thank you, Emily. Good morning, everyone, and thank you for joining us. On the call with me today are Angela Aman, our CEO, Justin Smart, our President, Rob Paratte, our Chief Leasing Officer, and Eliott Trencher, our CIO and CFO. At the outset, I need to say that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast 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 8-K with the SEC, and both are also available on our website. Angela will start the call with a strategic overview and quarterly highlights. Justin will review our in-process development pipeline, and Elliot will discuss our financial results and provide our 2024 guidance. Then we'll be happy to take your questions. Angela? Thanks, Bill. I'm happy to join you today on my first call as CEO of Kilroy. I want to start by thanking John Kilroy, on behalf of everyone on this platform, for his visionary leadership of this company over many years in various real estate cycles. John has built a premier portfolio in the most dynamic, innovation-driven markets in the country, while also creating an organization capable of meeting and exceeding the high expectations of our diverse tenant base. I'm honored to be stepping into this role and excited about what the future holds for Kilroy. I've spent my first two weeks getting to know the team here in our Los Angeles headquarters, while also getting out to see our assets and meet our regional teams, starting with Seattle and San Francisco, and I'd like to share a few takeaways from my first eleven days on the job. First, our West Coast geographic markets are feeling better, with more energy and vibrancy than has been seen in the post-pandemic period. The underlying data backs this up. Activity levels in our markets, as measured by foot traffic, public transit usage, and domestic travel and tourism, have all trended up significantly over the course of 2023. Second, while the office market is and will remain challenging in the near term, our portfolio is focused and well-positioned to respond to tenant needs that continue to change and evolve. Employees are back in the office, but their expectations have changed. Offices need to be more than efficient. They need to be effective at enhancing productivity and driving collaboration and results. Kilroy's well-located, high-quality, amenitized portfolio can meet these demands and, in the process, capture outsized market share throughout what is likely to be an extended recovery in this space. Third, Kilroy has made the strength of tenant relationships a key priority, and it's abundantly clear that the trust that has been built by this team over time has tangible economic value, particularly at this point in the cycle. I have been extraordinarily impressed by the talent embedded in every function across this organization, which has only been confirmed by the tenants I have had an opportunity to interact with over the last two weeks, who have each described our external-facing teams in leasing, development and construction, and asset and property management as proactive, responsive, flexible, and creative. The team's reputation in the industry is unmatched, and they are and will continue to be a key contributor to our ability to outperform going forward. All of these key takeaways are underscored by the company's fourth quarter leasing activity, where we signed approximately 590,000 sq ft of leases, which represents the company's highest quarterly leasing volume since 2019. Notable fourth quarter highlights include two Bay Area leases, signed for a combined 210,000 sq ft to a Fortune 500 technology company and a highly regarded international law firm. For the full year, 2023, we leased approximately 1.3 million sq ft, with an average lease term of approximately six years. This, too, represented the highest annual leasing volume since 2019. We are pleased to say this momentum has continued in early 2024, as we executed a 77,000 sq ft lease extension with Riot Games in January for a portion of their space in West LA. Before I turn the call over to Justin and Elliot, I'd like to make a few comments on our strategy going forward. Kilroy has always defined its three core pillars as high-quality properties, strategic capital allocation, and a fortress balance sheet. I can assure you that I am equally committed to each of these pillars, which represent the best path towards navigating challenging market environments and capturing outsized growth opportunities during more favorable market environments. Over the coming years, we'll be focused on maintaining the quality of this portfolio by understanding and staying ahead of creeping functional obsolescence in this space, while growing our exposure to premier office, life science, and mixed-use assets through our robust development platform or through strategic acquisitions when and only if they make sense. We will be prudent and thoughtful with every dollar of capital we are entrusted with, and we'll remain focused on driving appropriate and compelling risk-adjusted returns. The same core pillars that have guided Kilroy's strategy in the past will guide us going forward as we take a fresh look at external and internal opportunities to drive growth and create value for all stakeholders. Justin? Thank you, Angela. As of the end of the fourth quarter, our in-process development totaled approximately $1.1 billion, down from the third quarter due to the delivery of Indeed Tower in Austin. ... There's roughly $440 million left to fund in the development pipeline, most of which is related to the second phase of our Kilroy Oyster Point life science development in South San Francisco. As you may have noticed, the stabilization date for the second phase of Kilroy Oyster Point is now estimated to be the fourth quarter of 2025. The updated timeline is a result of scheduling revisions to the construction of the garage and amenities. In conjunction with the revised timeline, the anticipated cost for this project now reflects the additional carry costs that will be incurred during the revised construction period. We continue to be excited about the quality and the competitiveness of our Kilroy Oyster Point project, which we believe is one of the most compelling life science projects in the country. The physically attractive waterside campus setting, with unparalleled views and world-class amenities, differentiates the campus from others, and we are confident that many prospective tenants will find it every bit as appealing as Cytokinetics and Stripe did in phase one. On a related note, we are thrilled to see the recent progress Cytokinetics made with positive data from a phase three trial of its heart disease drug, aficamten, which has resulted in a near doubling of their market cap. Cytokinetics has a 20-year history in public markets and a strong drug pipeline, and we look forward to a long relationship with them at Kilroy Oyster Point. With respect to our future development pipeline, we do not anticipate starting any new developments in 2024, but we intend to continue advancing entitlements and design on all pipeline projects in order to maximize future optionality. With that, I'll turn the call over to Elliot. Thank you, Justin. I'm pleased to report that the fourth quarter was a very strong conclusion to the year. Fourth quarter FFO was $1.08 per share and included roughly $0.05 of rental income reversals, the majority of which was tied to one tenant in the Bay Area. Adjusting for this, FFO was roughly flat from last quarter. For the full year, FFO was $4.62 per share, which was the second-best year in the history of the company and more than 5% better than our original guidance after adjusting for the previously disclosed CEO transition costs. On the same store basis, fourth quarter cash NOI was down about 1% due to lower occupancy year-over-year. GAAP same store NOI was down roughly 10.5% due to the previously mentioned rental income reversals. For the full year, cash same store NOI was up roughly 4.5%, or approximately 350 basis points better than our original guidance. At the end of the quarter, our stabilized portfolio was 85% occupied and 86.4% leased. The decrease from the prior quarter was due to a lease expiration in Los Angeles, as well as the inclusion of Indeed Tower in the stabilized portfolio. As a reminder, Indeed Tower entered the stabilized portfolio in December, which included approximately 265,000 sq ft of unoccupied space. As a result, we are no longer capitalizing any interest, operating expense, or real estate tax costs for the property. Turning to the balance sheet, net debt to fourth quarter annualized EBITDA was approximately 6.4 times. During the quarter, we repurchased roughly $7 million of our December 2024 bonds at a discount, which, when added to our debt repurchases in the third quarter, brings the total amount repurchased to roughly $20 million. As a result, our remaining 2024 December maturity is now approximately $405 million. Subsequent to quarter end, we raised $400 million of twenty-year unsecured bonds at a coupon of 6.25%, representing our first bond deal since late 2021. We have been patiently monitoring conditions in the fixed income market, and as benchmark rates and spreads tightened in late 2023, we decided to opportunistically accelerate our capital raising plans. We were thrilled by the outcome and the support we received from our fixed income investors. We intend to use the proceeds to proactively pay down a portion of our term loan, fund our 2024 development needs, and bolster our liquidity to be ready for compelling opportunities should they arise. We currently have $2.2 billion of available liquidity, comprised of $1.1 billion of cash and marketable securities and $1.1 billion available on our line of credit. Our projected uses of capital for the year are between $800 million and $900 million, broken down as follows: $600 million of debt pay downs and $200 million-$300 million of development spend. Now, let's discuss 2024 guidance. No acquisitions or dispositions are forecast, though we will remain opportunistic on both fronts. As Justin mentioned, no new development starts are projected for 2024, and as previously highlighted, total development spend during the year is anticipated to be $200 million-$300 million, a reduction of over $100 million at the midpoint compared to 2023 levels. G&A is expected to be between $72 million and $80 million. Straight line rent is anticipated to be approximately $0 for the full year, a decline from roughly $8.5 million in 2023. Average occupancy is expected to be 82.5%-84%, a 175 basis point decrease at the midpoint from the fourth quarter. As previously discussed, in 2024, we have two expirations over 100,000 sq ft that total approximately 290,000 sq ft. We anticipate both tenants moving out and getting the majority of that space back. Cash same store NOI is projected to be between -4% and 6%. The decrease from 2023 is due to lower occupancy year-over-year, and the impact of approximately $12 million of restoration income we received in the first half of 2023. In summary, our 2024 FFO guidance is projected to range between $4.10 and $4.25, with a midpoint of approximately $4.18, or a quarterly average of $1.04, which is 4 cents below the $1.08 we achieved this quarter. The FFO bridge from the fourth quarter of 2023 to the 2024 quarterly average can be broken down as follows: Add 5 cents to adjust for the reserves in the fourth quarter of 2023. Subtract $0.025 for lower occupancy, which includes the impact of move-ins and move-outs in both the fourth quarter of 2023 and those anticipated in 2024. Subtract $0.03 for higher interest and operating expenses associated with Indeed Tower, which, as discussed, came into the stabilized portfolio in December. Subtract $0.04 from a combination of higher interest expense, predominantly due to the January bond deal, and lower interest income related to lower projected reinvestment rates on our significant cash balance. Subtract $0.01 due to an increase in the expected share count related to the previously disclosed CEO transition, and add back $0.02 from lower G&A. To conclude, we are pleased we were able to outperform our expectations in 2023, while also finding ways to further enhance our balance sheet and liquidity profile. None of this could be done without the excellent team we have at Kilroy. As we start 2024, we believe we are well positioned to build on this momentum and continue to execute at the high standard our stakeholders have come to expect. That completes my remarks. Now, we will be happy to take your questions. Emily? Thank you. As a reminder, if you would like to ask a question today, you may do so now by pressing star, then the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, that is star and then two. We request that you please limit yourself to one question and one follow-up. The first question today comes from Camille Bonnel with Bank of America, Merrill Lynch. Please go ahead, Camille. Your line is open. Hello. Could we start with any new themes that you're seeing in the leasing pipeline since the start of the year, whether it be size requirements, types of tenants, or markets? Sure. Hi, Camille. This is Rob Paratte. Let me, let me give you a backdrop of what's happening in our regions. What I'm going to talk about is also happening nationally in select markets. Although we all know the macroeconomic trends for office continue to be challenging, there are some really positive things that happened in Q4 and that are leading into Q1 of 2024. For example, Walmart signed a 720,000 sq ft lease in Silicon Valley. As Angela mentioned, our two leases totaling 210,000 sq ft in Silicon Valley, and one of those leases was the fifth largest in 2023. In San Francisco, Anthropic, OpenAI, and Hive all led to record leasing in San Francisco at 1.6 million sq ft for the quarter, which is above the pre-pandemic 2019 average of about 1.2 million. In Bellevue, Washington, this past week, a 450,000 sq ft lease was signed with Pokémon, a gaming company, and another 120,000 sq ft with TikTok. So I think that gives you a good perspective on what's happening in our markets. What we're seeing in our spillover into Q1, excuse me for stumbling, is that we have good activity at West 8th, for example, where we're exchanging paper with two different prospects. We're seeing continued activity at Kilroy Oyster Point. I would say my comments about Oyster Point aren't much different than last quarter. However, tour activity has maintained steady, and there appears to be a more positive view on the VC funding world, and that will spill into demand eventually. There's usually about a six to seven-month gap between VC funding and tenants needing space. Lastly, I'd say that in Austin, we continue to attract some of the best law firms and financial services firms in the country. We recently signed a lease with Orrick, Herrington & Sutcliffe, a San Francisco-based law firm, and we're seeing some more activity from firms like that, which I can't go into. I think the last data point I'd give you is that in San Diego, we're talking to three different tenants that have expansionary plans in our project. Overall, it feels better. I'm still cautiously optimistic because this won't be a straight line. It, you know, it'll ebb and flow, but things feel much better than they did, you know, Q1 of last year. If I could just kind of summarize, you know, pull some of that together. I would just say, as you heard in my prepared remarks, we had a very strong fourth quarter from a leasing activity perspective, which certainly carried over into Q1, which we're very encouraged by. As Elliot highlighted, we're obviously facing some significant move-outs in 2024. That's going to weigh on occupancy, but I think the trajectory we've got on leasing feels really good, and we're hopeful we can meet, if not exceed, the expectations we laid out last night. So, just expanding on the leasing pace for the year, are you expecting it to be at a similar run rate as what you've seen in fourth quarter in terms of what's baked into guidance? Because your implied occupancy outlook does seem to indicate a weaker retention than the 50% average you've been achieving. ... Yeah, so Camille, this is Elliot. We're not going to speak to what is in guidance in terms of leasing signed, and that's generally because if you think about the timing of when leases are signed and how they impact the average occupancy, it tends to be pretty back-end weighted. And so, it will have more of a 2025 impact on occupancy versus 2024. And in terms of the color, Rob, if there's anything you want to add? It's just hard to predict, Camille. I mean, the large amount of leasing in San Francisco, you know, it's hard to predict whether there's more of that. There are some larger transactions in the pipeline. I would just characterize it as, big tenants had been on the sideline for quite a few, I would say, quarters, and now we're starting to see activity across our markets in the larger size ranges. Appreciate. It's, it is a very challenging market. Just final question from my end, and shifting gears a bit. You have substantial amount of liquidity, even accounting for the upcoming maturities and development spend. So when you look towards the opportunities to allocate this capital today, where does the dividend fit in this context? Well, you can see that from what we've done this year, we've kept our dividend at the current levels. It's something that the board evaluates annually. Right now, we're comfortable with where those levels are. And as we get into 2024, we'll make a judgment at that time as to whether the dividend, whether the current dividend level is appropriate or whether it needs to be adjusted up or down. Thank you for taking my questions. Our next question comes from Daniel Tricarico with Scotiabank. Danielle, please go ahead. Hi, it's Nick Yulico here. Maybe first question on the guidance. Elliot, if you could just touch a little bit more on the occupancy and how to think about, you know, the phasing of the occupancy through the year, and then whether there's anything else that's, you know, a meaningful known expiration, where you're not retaining a tenant or it's a downsizing, like what happened with the Riot Games. Yeah. So Nick, there, there are obviously a lot of moving pieces in terms of our occupancy, but the easiest way to think about it is starting at the fourth quarter and going to the midpoint of our range, that's about 175 basis point decline. On the 17 million sq ft in our portfolio, that comes out to about 300,000 sq ft. We outlined the two large move-outs, which total about 300,000 sq ft. There will be other moving pieces beyond that, nothing over 100,000 sq ft. And as we think about the range, you know, our ability to backfill some of those other smaller move-outs is what gives us confidence in the range. And the better we do, the higher in the range we end up. Okay, great. Thanks. And then, Angela, congrats on the new role. Maybe just a question in terms of, you know, how you're viewing, you know, the company and, and you know, what, what your approach is going to be. You know, you talked about some of the strategy staying the same, but I guess I'm wondering, you know, early thoughts on how you're thinking about, balancing future investments, whether it's starting a new development or if there's an acquisition that pops up that's attractive and, you know, versus a leasing focus for the portfolio, given there's so much leasing still to do to get back to a more, stabilized occupancy. Just any early thoughts on how you're thinking about, you know, balancing those two items? Yeah. Thanks, Nick. I would just say, you know, I, I'm incredibly excited about the opportunity in front of us. There are obviously challenges in the sector and the space, but I'm very convicted that this platform, given we have a premier portfolio, an impeccable reputation in the industry, an incredibly talented team of people, and a really excellent track record of capital allocation, that we'll be able to not only sort of weather through some of these challenges, but really outperform and take advantage of the opportunities that some of this disruption creates. Which really gets to kind of the heart of your question about capital allocation and how we should think about that going forward. You know, I don't think—Obviously, we have a big development pipeline in front of us now as we complete Kilroy Oyster Point Two. We have a lot of opportunities embedded in the future development pipeline, and I'm going to be spending a lot of time with Justin and Elliot and the rest of the team to really understand what those opportunities look like and where we have, you know, sort of the most outsized opportunities to create value for shareholders already embedded within what the company owns and controls. As it relates to transaction activity in the market and, you know, how we might evaluate that, we're at a point right now where there just hasn't been much activity and many data points to sort of, you know, key into. We're going to continue to watch how that evolves over time. I do believe, and I would underscore this again, I said it earlier, said it in my prepared remarks, that there will be real opportunities that come out of this disruption, but not everything that trades is going to be an opportunity for Kilroy. I already talked a lot about sort of the idea of creeping functional obsolescence in this space and how we really need to be keyed in on maintaining the quality of this portfolio. And so there are going to be things that trade, you know, that, that have distress sort of, you know, slapped on them. And not all of—not everything that trades that has sort of distressed pricing is going to be compelling for this company, given the focus on quality. And so, you know, we'll wait and see how things play out. As Camille sort of noted earlier, we have a tremendous amount of liquidity, and we're in a really good place from a balance sheet perspective. I think we need to be patient. We need to continue to evaluate the market and how things are trending. But I think there are going to be some really interesting and exciting opportunities on the other side of this. Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Steve, please go ahead. Thanks. Good morning out there, and welcome, Angela. Thank you. I know you're not going to go through... Yeah. Elliot, I know you sort of gave a few pieces on the occupancy. It just seems to us, as we kind of try to look at the ranges, it's very difficult for us at least, to get to the very low end of the range, unless you've really got almost no new leasing commencing, or you have an exceptionally low retention rate on the space that's not a known move-out. So you could assume it's kind of close to zero, which seems abnormally low, or you could put no new leasing, which, again, would seem abnormally low. Just, I guess, can you just help us sort of understand what are the really big swing factors to get to kind of the low end of the occupancy and, you know, I guess some of the better drivers or kind of retention rate or new leasing that might get you to the high end? Yeah, Steve, I think you hit it on the head, right? The two swing factors are, what is the retention on some of the balance of the portfolio? And then, how well do we do in backfilling that, and how timely are we? I think that's the other factor to consider. So to the extent that we have a lot of leasing success in the back half of the year, as I mentioned earlier, that helps in 2025. But as we think about the 2024 average, it's not all that meaningful. So if we're at the lower end of the range, you can assume that the new leasing is pretty light, and the retention is pretty low. I think that's fair. Yeah. Look, we're going to be hyper-focused this year on making sure that we are doing everything we possibly can from a leasing perspective, to not just get our share of the market, but really, you know, to get an outsized share of activity that's happening across all of our markets. And that's true across the stabilized portfolio. It's also very true in the development pipeline as well. So, retention is lower this year, as Eliott sort of highlighted in his remarks about the two large move-outs. That's just naturally going to bring retention down a little bit, and we need to make that up with leasing. Okay, and maybe on the G&A front, you know, realize with John's retirement and Angela coming in, it's, you know, it's not a one-for-one on the dollar side, so there is cost savings. I think it was a bit more than, you know, maybe we had envisioned. So can you maybe just walk through some of the moving pieces on G&A, and are there other things to possibly still look at on a go-forward basis with kind of the run rate? Yeah, so I think the easiest way to think about it is when you think about our 2023 number and take out all of the non-recurring items tied to some of the transition costs, you get to kind of the high $70 million range. So the midpoint of our guidance in 2024 is a few dollars million below that. So we continue to look for efficiencies in all parts of the organization. There really isn't one area in particular that is getting outsized impact from this. And it's just us, you know, trying to be efficient in a time where we think that's the appropriate thing to do. Yeah. I mean, I'll just add to that. Obviously, I'm only two weeks in, and I'm really still getting my arms around the organization and how it's structured and how work flows across, across different departments and different disciplines. So I still have a lot of work to do to get up to speed. But I will say we are going to be, as Elliot just highlighted, as efficient as we possibly can be from a G&A perspective. It's not just about the absolute number in G&A, though. It's also about how every dollar of G&A we have is being allocated within the company. We really need to make sure to all of the earlier questions about sort of what our primary objectives are for this year, that we're making sure that we have all the resources we need in leasing and development and those functions of the company to meet or exceed the goals we've laid out for the year. Great. That's it for me. Thanks. Our next question comes from Michael Griffin with Citigroup. Michael, please go ahead. Great. Thanks. Maybe just touching back on the leasing environment for a minute, and realize you're not going to give, you know, formal guidance kind of around the number. But do you think that the, you know, sustained recovery in leasing activity has legs? Was this more of a one-off quarter? I know you noted in the release it was the largest leasing velocity since, I think, 2019, but how should we view it in terms of more sustainable from a leasing perspective? Hi, Michael. This is Rob. I think, again, you have to look at it, as I said earlier, it's not, it's not going to be a linear progression or straight line. What I would say that's changed from the pandemic, because during the pandemic, companies were thinking they may not need office space, and we saw some of that. Today, companies are resolved to the fact that they need office space, and so now the question is: How much? And so what you're seeing is the same thing we saw in 2020. Shorter-term lease extensions, while companies really rationalize the return to office with their employees and the mandates that they've put in place. So I think that it does have legs. I just am cautiously optimistic that it's, you know, I don't feel that it's going to be quarter to quarter, the same magnitude that I highlighted earlier. Gotcha. But the year- That's helpful. The year- Oh, sorry, go ahead. I just said the year could end up, you know, a good year, just like 2023 did. It's just, it's early in the quarter. Gotcha. That's helpful. And then maybe just sticking on demand that you're seeing. You know, Rob, you talked about some of the legal demand that's really driving leasing, I think, particularly in Austin. For the more tech-focused markets, I mean, how much do those traditional sectors- ... have to sort of step in to fill the void of tech leasing? Or do you see some of those bigger tech firms coming back to the market and taking up space? So, we'll use San Francisco and L.A., and I think Seattle as examples. Thirty-five percent of the leasing that I mentioned, and thirty-five percent, roughly, of the demand that we see coming up is related to AI. And there's a higher proportion of that, of executed leases, it's around 40%, that are a combination of AI and different tech. So we see that as a trend that's really escalated because the average... For example, the average size of a tech tenant in San Francisco is, or AI tenant, was 5,000 sq ft in the beginning of Q1 2023. It's now up to 15,000 sq ft, and that is taking out those large AI leases that I mentioned. I think that you have about 35% of the transaction volume happening in San Francisco and roughly in Seattle being from tech. Another 35% is from financial services, law firms, et cetera, professional services. Great. That's it for me. Thanks for the time. Thanks. Our next question comes from Blaine Heck with Wells Fargo. Please go ahead. Great. Thanks. Good morning. I was hoping you guys could give us an update on the mark-to-market in each of your markets and whether you've seen any change in that metric recently, especially in Los Angeles, where you guys have a pretty large proportion of your expirations this year. Blaine, so ± across the portfolio, we're about 5% below market. And the only region that is sort of outsized relative to the others is Austin, where we're in the double digits, call it 20-ish% below market. The others are kind of around that ±5%. L.A., specifically, is about flat. Great. Thanks, Elliot. Second question: Can you talk about the tenant or tenants that were moved to cash accounting? Just a little bit more color on those specific situations and what drove that shift, and maybe the outlook for that tenant or those tenants. Yeah, so it was, as we said, predominantly one tenant in the Bay Area. We do an analysis and evaluation every single quarter on the collectibility of future rents, and in this instance, we deemed it was appropriate to convert them to a cash basis. I will say they are current on their rent, and so that, that's how we kind of came to the conclusion that we came to. Okay. And prospects for retaining them, any color you can give there? Our expectation is that they're going to continue to pay rent in 2024. All right. That's helpful. Last question for me. Can you guys just give an update, and maybe Angela can chime in on your thoughts on share repurchases, just given where the stock's trading and, and whether this might be an attractive alternative use of funds as you guys remain on the sidelines with respect to, you know, acquisitions and, and additional development? Yeah, thanks. I'll take a crack at it, and Elliot can certainly jump in here. But, you know, we're going to look at everything and the full sort of menu of opportunities available to us from a capital allocation perspective. Buybacks are certainly one of those alternatives. But buybacks will have to compete for capital with all of the other investment opportunities we have today, either embedded in the portfolio or the opportunities we think are going to emerge over the next couple of years. You know, I'd also just underscore, obviously, we've got tremendous liquidity, like we've hit on a few times, so we've got lots of capacity to be able to allocate capital over the next few years, I think, in a smart way. But we're also always going to do that, whether it's buybacks or whether it's development or whether it's acquisitions we see in the market, in a way that protects the balance sheet. Great. Thank you, guys. Our next question comes from John Kim with BMO Capital Markets. Please go ahead. Great. Thank you. Congratulations, Angela. My first question is on KOP Two. Any commentary you could provide on the additional amenities and parking space that you're adding to the property? And also, just the impact of higher cost and, I guess, you know, the softer market, new supply, what that will have on your development yields. Yeah. Hi, John, this is Justin. The schedule for the project was affected by utilities that ran through the center of the project. If you can imagine pipes and conduits full of gas, electric power, and telephone, they all had to be relocated, including the reconstruction of the street, before we could get to the project. The utility companies are notoriously slow at the best of times, and despite scheduling for their work plus contingency, they took far longer. So what the net effect is that the work that went on top or was scheduled to go on top of the utilities had to be delayed. So it meant the corner of the parking structure couldn't start exactly as we had scheduled, and the amenities took longer. So the net effect is, you know, another 6 months. Right. I'll just jump in here. I'd say I toured the project last week with Justin and Rob and the rest of the team, and I just want to echo everything Justin said in his prepared remarks. I really think this is an outstanding product with unparalleled amenities, and I am really excited about the long-term prospects, not only for phase two, but for potential future phases at KOP as well. From a leasing standpoint, we obviously have work to do there, but, you know, I would just underscore, I think the biggest piece of feedback we've received from tenants that have requirements in the market today is just that our project isn't ready yet. And many of the tenants looking and taking space right now are looking to take space in the very near term. So I think our product is resonating with the demand that's in the market. We just need to finish construction, but I'm hopeful we'll have leasing progress on KOP two as we move through this year. Timing-wise, do you think the leasing will be, something will be announced this year? We're going to work really hard. Yeah. Everybody is focused on it. Okay. My second question is, how we should think about NOI margins going forward? In the fourth quarter, it ended at 68.2%. There was what we thought was an unexpected decline in property taxes. I'm not sure if that's recurring, but also with your guidance of 40 basis points decline in occupancy, how should we think about margins in 2024? Yeah, so the two parts. This is Elliot Trencher. So the property tax that you referenced was a reimbursement and a refund that we got on real estate taxes, which most of which gets passed through. So the net impact to us was not meaningful in the quarter, which is why we did not call it out. It obviously does impact the margins, as you mentioned. I think the right way to think about our margins going forward is if you look at the 2023 margins and then adjust for the fact that we're going to have lower occupancy. As our occupancy gets lower, that negatively impacts our margins. Okay, great. Thanks, Elliot. You got it. The next question comes from Dylan Burzinski with Green Street. Please go ahead, Dylan. Hi, guys. Thanks for taking the question. I guess just wanting to touch on sort of expectations for net effective rent growth or potential further decline in net effective rents as we think about 2024. Dylan, are you talking about Kilroy specific or market specific? Because I think it's hard to tell. May- Every transaction- Maybe- is going to be different. Yeah, maybe- Go ahead ... just market level broad across the footprint, right? Are you still expecting- Yeah ... given where market occupancies are, further degradation in terms- Yeah ... of, you know, either further pressure on concessions or maybe we start to see base rents finally start to trickle down? Yeah, I would say that, again, if you, if you tier the market and really look at what the premium space is in almost every market, that space is what's commanding a premium. And so in San Francisco, for example, net effective rents are up substantially from where they were in 2019. Another way to look at it is of the 30, of the vacancy that's in the market, like Seattle, over 35% of that is in buildings that are 20 years or older. And so newer construction, including the Pokémon deal that I mentioned, are commanding premium rents. So it's just, it's just going to be a function of the transaction, the credit of the tenant, and it's also going to be a function of the market that it's in and where that market is at that given time. I think Rob's really hitting on the right point here, which is, you know, I sort of referred to it as creeping functional obsolescence in my prepared remarks, but, you know, you've heard it referred to by this company and others over time as a flight to quality, winners and losers, the haves and have-nots. You're really going to see that bifurcation continue in a pretty meaningful and significant way. So I just caution against looking at, you know, the market overall data in any of these markets as a read-through to the quality portfolios like Kilroy. Did I hear you right? You, you're saying that for, for Kilroy's quality portfolio, net effective rents today are higher than they were pre-COVID? No, I said- Even given the significant rise in concessions. No, I said that in a city like San Francisco, the premium tier of space that's left has a lower availability rate, but it's also commanding higher rents than pre-pandemic. Got it. So- That's helpful. And I guess just one- General comment about- That's helpful. I guess just sort of pivoting over to comments regarding one of the earlier questions, just on tenants realizing they need space, but trying to figure out how much space they need. In your discussions with tenants as they're touring or signing leases, I mean, any sense for sort of what density they're looking at today versus pre-COVID? Yeah, it's less dense than pre-COVID. I mean, part of what employers-- probably the most critical thing that employers are trying to do is create space that's really comfortable and attractive to people coming back to work, so that, you know, you're seeing a lot more collaborative space, open space, and that sort of thing. So we use-- we still use a threshold of about 100-200, 100-250. Getting significantly below that is pretty uncomfortable. And you're also seeing it sort of-- you're spread out in more space, so it's sort of an interesting trend to watch. But as an example, you're not seeing hoteling being very well received in almost any industry. And that was always sort of seen as a way to, you know, use less space and put more people in space. ... Yeah, and that's really what I was hitting on in some of my comments about that space doesn't have to just be efficient anymore. It really has to be effective at driving productivity. People need to be able to be as productive in the office as they are at home, from a quiet perspective, being able to put their head down and work. And so I think that's driving some of the trends that Rob really highlighted. Appreciate the color on that. Thank you, guys. The next question comes from Upal Rana with KeyCorp. Please go ahead. Great, thank you. Good morning. Congrats on the new role. Congrats on your role, Angela. Thanks. You know, Elliot, thanks for providing all the color on the office trajectory for this year. You know, do you feel that occupancy could bottom out this year and begin to grow again in 25? You know, you only have about 4% expirations next year, and you don't have any of your top ten expiring next year either. So want to get a better sense on that as well. Yeah. So appreciate the question, and we are certainly not prepared to talk about 2025 guidance today. That said, I think that you hit on a good point, that the backdrop is better in 2025 than it is in 2024. As Angela mentioned, this is top priority for the company, leasing space and doing everything we can to ensure that the trajectory is a good one. Okay, got it. And then, yeah, I wanted to get a little update on Indeed Tower. There seems to be about 20% left to lease up there, and, you know, wanted to get a sense on what the leasing pipeline looks like for that project. Sure. If, you know, in Q3 and Q4, we talked about how the summer, particularly when we were hitting temperatures of 115 degrees Fahrenheit or so, on a daily basis, really curtailed touring activity, and it's really picked up a lot since the holidays. So we have a pipeline we feel good about, and as I mentioned earlier to one of the questions, we're seeing sort of the same tenant mix we've seen before, which are really high-end professional services, law firms, financial services. We're seeing some tech, so the market has really sort of turned the corner in terms of at least our activity. And people see it as sort of a dwindling asset, meaning we don't have space- ultimately, we don't have a lot of space left. So back to flight to quality. Okay, got it. All right. Thank you. That was helpful. Thanks. Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin, please go ahead. Hi, good morning, everyone, and congrats again, Angela, on the new role at the new company. Maybe just to follow up on the earlier comments that the West 8th activity was moving forward. Could you talk about leasing activity more broadly in Seattle, and then specifically, how tenant interest has trended at West 8th, and kind of whether the improvements you planned at the property are completed by now and how they're being received? Sure, Caitlin. This is Rob again. Let me just talk about... I'll, I'll split our two markets. So Bellevue activity for us is quite strong. Net rents have held very well in that market, despite sublease space from some large tech users. And as I mentioned, this Pokémon and TikTok deals are, are meaningful for that market. The central CBD of Seattle is a little bit slower. We don't have any assets in that submarket. South Lake Union, where we do have assets, and Fremont specifically, we have fairly decent activity. So, and we're seeing a mix, but I'd say predominantly it's tech, but there are also, you know, professional services looking in the market. West 8th has just commanded a lot of attention, based on the amenities and the mix of amenities that we're refreshing and, and upgrading in the facility. As you know, and you've heard us talk about, it's all about flight to quality and amenities for tenants. So we have childcare on site. We're doing a tenant lounge. We have an outdoor deck that's one of the largest in the city. And all of this, all the amenities there are really thought through from a tenant perspective. They're not leftover space somewhere in the building that we put a gym in, for example. So that is translating into tour activity and paper being exchanged with tenants right now. Yeah, I toured West 8th my first week at the company, and I would say I'm just really excited about the plans that have been developed for that asset. We're not complete with the redevelopment work yet there or the upgrades, but I think it is certainly gonna resonate very, very well, and I look forward to walking through it with many of you once it's complete. Got it. Thanks. And then maybe, Elliot, you mentioned earlier how the two large lease expirations for 2024 are now both expected to move out and Kilroy will get the majority of the space back. So I was just wondering if you could clarify if you're getting all of the space back or not, and then any details you could share maybe for kind of why they're leaving, where they're going, or what you think those decisions could suggest bigger picture for office needs? Thanks. Yeah, there's a small portion of the space where we've backfilled some of it to another tenant, so that's why it is not the entirety of the space. And then, Rob, if you- Yeah. Some of it's consolidation and some of it is, you know, a lot of companies are trying to go through pretty massive cultural change in terms of revamping themselves for going forward. And so sometimes moving to a new location and starting fresh is easier than trying to do that in-house, so. Got it. Okay, thank you. ... Our next question comes from Pete Abramowitz with Jefferies. Please go ahead, Pete. Yes, thank you. Just one of the emerging themes from the industry and some of your peers this quarter is taking advantage of potentially partners or lenders that kind of are looking to trim office exposure right now. So could you talk about generally, are you seeing any signs of that in your markets, in terms of deals that are being marketed or conversations you're having, and how that could potentially play into your plans for capital allocation? Yeah, sure. So as we've kind of surveyed the market, I think the two dynamics you touched on, the lender one is what we've seen a little bit more of. We don't have a lot of partners. We have one—We have two partners. We're very happy with our relationship with both of those partners. So on the lender side, there have been a few instances of lender-facilitated sales. I'd say they're more the exception than the rule from what we've seen so far. For us, as Angela mentioned, the focus on quality is of utmost importance. In these types of situations, the quality has not been something that has been that warrants additional consideration for us, and so we have not spent a material amount of time on those deals. Got it. Thanks, Elliot. And then, just on the tenant side, I think you have a lease with 23andMe at Oyster Point. They've been in the news for just some issues there and potentially pulling back on the drug development side of their business. Are they on your watch list? And I guess just generally, could you talk about just potentially the tenant watch list for life science in general? Yeah, I'm sure you can appreciate, we can't talk about what tenants are or are not on the watch list. So what we do is we continuously evaluate both tenants' credit history, how current they are on rents, what the trajectory of their business looks like, and make an assessment on what the appropriate accounting treatment is for every tenant. It's a very robust process, and we go through it every single quarter. We have seen a big picture. We've seen a slight tick-up in the watch list. We're kind of in the low- to mid-single digits% of ABR. By and large, the quantity of tenants are more retail related that make up the majority of the watch list, but there are certainly some office and life science tenants on there as well. Got it. That's all for me. Thank you. The next question comes from Michael Carroll with RBC. Michael, please go ahead. Yes, and I just wanted to congratulate Angela on the new job. I believe that you answered this earlier, but the Kilroy Oyster Point construction delay, is that prohibiting tenants from wanting to take down space, or can tenants still lease space, and the property is just that they'll be without the parking garage and some of the amenities in the meantime? This is Justin. You can appreciate that, Oyster Point is a big project. It's 900,000 sq ft. There's a lot of details that need to come together before a building is ready, including the amenities of the garage and other site work that is being delayed. So net-net, we think, and we are very confident that we can deliver the project within the revised timeline, and the first building will be delivered late 2024, stabilizing in 2025. Michael, the comment also is that, for demand that's in the market where a lease has expired or is expiring, that's, that is an... You know, if somebody needs space right away, we're not ready, we're not able to have them physically occupy. But that is changing rapidly. We're having our lab space that we're building in Building F will be ready this spring, and that has created quite a bit. That's one of the reasons our activity has remained steady. So yes, we could sign leases and will sign leases, and that's a natural. What Justin's talking about is a natural occurrence in development, and tenants, you know, and landlords work together in order to get the occupancy date pinned down. Okay. Then that's helpful. And then, I guess, what type of demand are you seeing at Oyster Point? I guess, what's the breakout between life science and potentially tech demand? And are you seeing any AI-type demand that possibly is veering away from the city proper to South San Francisco, or is that type of demand just kind of still staying in the city? These buildings are purpose-built life science. They do work for tech. We've seen a smattering of interest from tech since Stripe, you know, located there. One thing I'd keep in mind is that AI and life science are actually coming together quite rapidly because AI is able to help life science producers process massive amounts of data and also simulate, you know, drug trials and speed things to market. So we're fully expecting that there's gonna be, from big pharma as well as startups, a lot of AI involved in the life science industry. But we're not... You know, we haven't seen the, you know, people leaving San Francisco, for example, to come to Oyster Point. Okay, great. Thank you. Thanks. ... Our next question comes from Vikram Malhotra with Mizuho. Please go ahead. Thanks for taking the question. Just, I guess, Elliot, just to go back, I know you're not giving us kind of anticipated leasing volumes, you know, through the year. But I'm just trying to, you know, for both modeling and just to understand kind of the, you know, economics over a 12, 18-month period. Should we think about the gap between occupancy and the lease rate to be similar to sort of historical averages? Or perhaps what you see today, is it likely to be wider? Can you just give us a qualitative sense? Yeah, it's probably similar today. I think it sort of depends. Certainly similar today as it has been the last few years. If we went back to 2018, 2019, it was probably a little bit wider then. But I think relative to the last few years, it's been similar, and generally it will take, call it, you know, four to six quarters for that to totally flow through occupancy. Got it. So through the year, you expect the gap to be, you know, over a longer-term average, that gap to be similar, like 2018, 2017, 2018. Okay, that makes sense. On Oyster Point, I just wanted to clarify, you know, when you said there were higher costs, I think it was like $60 million-$70 million. If you could, if you could just give us a bit more color, what are those costs related to? And then just on that point, any changes in expectations around rents you might get at the property? So, just to clarify, and which Justin mentioned in his prepared remarks, the change in cost was tied to higher carry. So, as we have a longer period until we deliver, we have to carry the property longer, interest, operating expenses, et cetera, and that is the entirety of the delta. And then in terms of rents- Rent, this is Rob. Rents have maintained very well, you know, very well year over year, both, you know, from our competitors, as well as asking rates, as well as our asking rates. So again, you know, it's hard to pinpoint because each transaction is gonna have a different set of components. Okay, great. And then, just last one, if I may. Angela, congrats, on the role. A lot of exciting things going on in office. But I'm just curious at the outset, you know, given your experience in retail, any broad, you know, similar, similar, similarities or strategies that, you know, lend itself well to kind of the office space from your perspective? Yeah. I mean, thanks. I obviously, there are lots of similarities and lots of big differences. But just to call out a few things, I think I spent some time in my prepared remarks talking about, you know, the way this company has sort of institutionalized the tenant relationship piece of the business. And when you think about office, particularly in a portfolio like Kilroy's versus retail, the ability to work with, you know, the same tenants that are large space users over big portfolios in different markets, and really sort of create a relationship where you can make connections between that tenant and the landlord, not just in the leasing function and not just in property management after they've taken occupancy, but in construction and in legal, to make the lease execution process move faster and all these things, is very similar. And I think, I'm very pleased to see how well Kilroy's done that in the past. I think that's a big similarity between types of office leasing and types of retail leasing. You know, at the end of the day, I think whether it's retail or office or really any sector, it really is all about capital allocation. And that's true not just in acquisitions and dispositions and development and redevelopment, but just with respect to sort of basic leasing and the types of capital we invest in these tenants, you know, whether they're tech tenants or whether they're retailers or whatever it is. And so the way you make those decisions is really pretty similar across different asset categories. And then the only other last thing I would say is that, you know, retail landlords, over the course of the last 15 or 20 years, have been no stranger to, you know, flight to quality and creeping functional obsolescence. I think there are lots of lessons there in terms of how important it is to prioritize the quality of the portfolio and to be really intellectually honest about sort of what the path and the growth trajectory looks like for specific assets or specific opportunities you're seeing in the market going forward. Thank you. Sure. The next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead. Yes. Good afternoon, everyone. First of all, Angela, congratulations. So very excited to see you upwards and onwards. Question just around guidance and, you know, FAD guidance in particular, for anyone who wants to kind of help us think through what that could look like this year, specifically also around things like second-generation TI. And just kinda how do we kinda think about, you know, you've laid a pretty good groundwork for FFO, but for FAD, how do we kinda think through some of that? Yeah. So, you know, we touched on straight-line rent in our prepared remarks, which will be a big delta- Yeah ... from the prior year. In terms of our FAS 141, I think the 4Q run rate is a good run rate to use, plus or minus. And then, you know, the big question is CapEx. I think that we've been sort of in that low double digits as a percentage of NOI in the last few years. Our expectation is that we're higher than that this year, and we think that that's a function of the leasing that we have done in the fourth quarter, and, you know, our anticipation that there'll be more leasing to come in 2024. ... Okay, that's helpful. And then one more, if you would indulge me. Angela, you kind of mentioned again about this idea of, you know, maintaining a high-quality portfolio, some of the lessons learned about flight to quality on the retail side. You know, while you do not have any dispositions in your guidance for 2024, should we think—should we be thinking about a world where there could be kind of additional dispositions in the Kilroy portfolio? Yeah, I mean, I think Elliot framed it up right in his prepared remarks, which is that whether it's dispositions or acquisitions, we're going to be opportunistic on both fronts. The transaction market is very, very quiet right now, so I don't think it's prudent to bake anything into guidance. But we're gonna... You know, I need to spend more time really evaluating the portfolio. I think there are going to be assets, you know, we choose to sell over time because we do think that the forward growth prospects are not what we need them to be and at the standard we'd like them to be. There are also, conversely, going to be opportunities to sell assets that trade at amazing value, as the company's done in the past, that we really would look to trade because this platform, I think that's so robust, just can't add additional value to those assets. So I think those two things kind of balance each other out over time. But as it relates to 2024, there's just not enough activity in the transaction market for us to really, you know, sort of put a pin in specific guidance on either dispositions or acquisitions. Gotcha. Thank you. With that, we have no further questions. I'll turn the call back to Bill for any closing remarks. All right. Well, great. Thank you, Emily, and thank you, everyone, for joining us today. We appreciate your continued interest in Kilroy Realty Corporation. Thank you. Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your line.