Good afternoon, everyone. Welcome to the Q4 2020 Kilroy Realty Corporation earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please stay on the line for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Michelle Ngo, CFO. Ma'am, please go ahead.
Thank you. Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy, Tyler Rose, Rob Paratte, and Eliott Trencher. At the outset, I need to say that some of the information we will be discussing is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being telecast live on our website and will be available for replay for the next eight days, both by phone and over the internet. Our earnings release and supplemental package have been filed on a Form 8-K with the SEC, and both are also available on our website. John will start the call with a review of 2020, business conditions in our markets, and our objectives for 2021.
I will discuss fourth-quarter financial results and provide you with an earnings roadmap for this year. We'll be happy to take your questions. We are once again calling in from different locations, so bear with us if there are any delays in our responses. John?
Thanks, Michelle, and welcome to your first call as our new CFO. Congratulations. Hello, everybody. Thank you for joining us today. I hope everyone is safe and healthy and has a brighter outlook for 2021. Let me start with a few comments about 2020. We entered the year in a very strong position. Leasing activity was solid, rents were increasing, tenants were expanding, and we had expectations of another record year. While the pandemic upended our lives in the markets, we think our 2020 performance was very strong, all things considered. We moved swiftly to further strengthen our balance sheet. We worked with our tenants and workforce to adopt healthy and safety protocols. We executed our current development program largely on schedule and on budget. We delivered solid financial results and raised our dividend. We achieved carbon-neutral operations, a key pillar of our ESG program.
Now, in month two of 2021, we are seeing a number of signs of renewed positivity, which we will balance with discipline as we continue to differentiate KRC as best in class and a market leader within our industry. Let me review where we stand today. We have a solid balance sheet. We ended the fourth quarter with liquidity of approximately $1.5 billion and net debt to EBITDA of 5.8 x. Our under-construction development remains largely leased and fully funded with cash on hand. We have a world-class tenant base supporting our stabilized portfolio results. Our average portfolio-wide rent collection across 2020 exceeded 97%, with office and life science rent collection at 99%. Many of our tech, media, and life science tenants, including some of the largest and most successful companies in the world, continued to grow last year and remain stronger than ever. Our lease expirations are limited.
They average 6.3% per year through 2025, and our portfolio is 94.3% leased. Despite shelter-in-place restrictions, we signed more than 730,000 square feet of new or renewal leases in 2020, with strong average rental rates that were up 37% on a GAAP basis and 18% on a cash basis. Our development projects under construction are delivering substantial cash flow and value. We completed core and shell construction on $1.3 billion of office space and 371 residential units in 2020, including the fourth quarter completion of our $300 million Netflix // On Vine project. By year-end 2021, we expect to complete an additional $770 million of office and life science space and 193 residential units. At that point, our development program, excluding 2100 Kettner, will be generating an estimated $140 million of annualized cash NOI.
Our approximately $2 billion investment in these projects is expected to yield more than 7.5% on a cash ROC basis across office and life science. Based on market cap rates, we think we've created significant value. Our future development pipeline is diversified by market, by product, by start schedule, and even by industry, and it has an attractive basis. Our pipeline of projects aggregating approximately 6 million sq ft, of which approximately 40% is life science, spans the most innovation-driven and attractive submarkets along the West Coast, including Seattle, San Francisco, South San Francisco, Los Angeles, and San Diego. We continue to make great progress on entitlements, positioning these projects for future starts when conditions make sense.
Of particular note. We are fully entitled for an additional 2 million square feet of Kilroy Oyster Point in the City of South San Francisco, and continue to see strong interest from potential tenants. A phase II start this year is a strong possibility based on our ongoing discussions with multiple prospective tenants. Phase II totals approximately 900,000 sq ft across three buildings and can be developed in phases. The incremental investment for phase II would be approximately $750 million, with an estimated spend of approximately $275 million through the end of 2022. We remain committed to a prudent capital recycling program as integral part of our core business strategy. We completed $76 million of dispositions in the fourth quarter and realized a gain of approximately $36 million.
Despite the issues created by the pandemic, we increased our dividend for the fifth year in a row, bringing the cumulative five-year increase to over 40%. We were one of only two office REITs to increase its dividend last year. Lastly, we continue to build on our strong leadership role in ESG. We achieved carbon neutral operations last year, multiple decades ahead of both California and federal standards, and continue to advance our leadership in the design and development of sustainable and healthy workplaces. We've been recognized year after year by many industry groups across the world, including GRESB, which has ranked us leading office developer globally and leading office company in the Americas across all asset classes for the past seven years.
We have won the EPA's highest honor of ENERGY STAR Partner of the Year Sustained Excellence Award for the past five years, and Nareit's Leader in the Light award for the past seven years. We are included in the Dow Jones Sustainability World Index and the Bloomberg Gender-Equality Index, and we have the largest Fitwel portfolio in the world among non-government organizations. While we are proud of our accomplishments, we will continue to look for new and better ways to foster a diverse and inclusive work environment, engage our communities, and minimize the environmental impact. Switching gears, I'd like to comment on the current business environment and the implications on our company and strategy. First, we believe companies and employees want to return to work. Rob's going to talk about this further in our report.
Based on our discussions with tenants, companies are focused on bringing their employees back together in productive common workspaces where they can collaborate in person. In the short term, companies will adjust their space to address heightened health and safety concerns. They'll exert more active control over work space access and layout. They'll have heightened expectations about the quality of ventilation systems. They'll seek ways to give their employees more access to natural light, fresh air, and personal space. Longer term, we expect these tenant preferences will get incorporated into the commercial real estate landscape and will help reshape property design standards for operational systems and management practices. For the largest and most influential tenants, generic office space is a non-starter. They'll require environments tailored to their specific needs.
These trends all favor our young and modern portfolio, our development experience, our track record of partnership with innovative and creative companies, and our demonstrated ability to adapt. Second, the economic demand drivers continue to be technology, media, and life science companies, most of whom remain headquartered in or committed to the West Coast. Public market returns and VC funding for tech, healthcare, and biotech have surpassed other industries by more than two times over the past decade. Further, they have demonstrated the range and depth of their value throughout the pandemic, and they derive huge benefits from clustering in locations that support their constant need for talent, capital, and exposure to new ideas. These industry clusters are in the West Coast markets. The pandemic experience brought new thinking about how and where people can work.
Companies may be more willing to experiment with diversifying their workspace location and densities, but the speed, scale, and growth for these innovation-driven industries will drive strong demand for workspace in multiple competing markets. We believe the West Coast, with its intellectual capital, world-class universities and research institutions, and unique quality of life, will continue to win that competition. Specifically, we believe life science industry represents a huge opportunity for our company. The pandemic has highlighted how critically important medical innovation is to our economy and to our health. The attention is now driving big increases in private and public investment. The growing demand for quality lab and workspace in preferred West Coast life science submarkets has driven vacancy rates to 2% or lower.
We've been building the capabilities to serve life science tenants for more than two decades, and we are now in a strong position to capitalize on additional opportunities. We currently have the third largest portfolio of life science and healthcare tenants among publicly traded REITs, approximately 14% of our total base rent. In pro forma for the development of the entirety of KOP, our life science and healthcare tenant base will roughly double in size. Third, from a political landscape, most state and local governments on the West Coast remain focused on managing the negative impact of the coronavirus. As the virus is controlled, we expect them to move quickly to restore the economic health and the highly valued quality of life of their major urban centers. We plan to take an active role in that work.
We fought hard along with others to stop the destructive economic impact of Proposition 15 here in California. We will be just as active going forward in supporting business-friendly initiatives for civic recovery and pushing back against destructive ones. Lastly, having operated through multiple cycles, we believe we are uniquely qualified to navigate through this downturn, given our track record of unlocking value and our ability to adapt. Last cycle, we believe we set ourselves apart from the competition through our entry into the San Francisco and Seattle markets, where we recognized early on tenants' preferences for inspiring and collaborative workplaces as strong growth drivers of office demand. In 2018, we were deliberate in increasing our life science footprint in a meaningful way with the acquisition of Kilroy Oyster Point land.
We are focused on differentiating ourselves again this cycle, bolstered by a strong balance sheet, an experienced team, and a high-quality portfolio. Let me close with our five key objectives for 2021. One, maintaining a strong financial foundation with sufficient liquidity that allows us to play defense and offense. Two, maximizing the value in our operating portfolio through proactively managing lease expirations and boosting sustainability and wellness profiles. Three, completing and leasing our remaining under-construction development projects and preparing for new development starts as they make sense, including KOP Phase II . Four, staying agile and continuing to evaluate our capital allocation opportunities and strategies. Fifth and final, working with government agencies to positively influence public policy. All of us here at KRC are energized. We're ready to tackle this new year. We appreciate the many challenges and uncertainties that lie ahead of us.
It will likely be a tough transitional period, but we have never been better positioned to take on the year's challenges and opportunities. We are financially strong, operationally sound, and prepared to act decisively as events unfold. That completes my remarks. I'll turn the call over to Michelle. Michelle?
Thank you, John. FFO was $0.95 per share in the fourth quarter and $3.71 for the year. Throughout 2020, FFO benefited from the growing contribution of our current development pipeline, as well as higher rents across our stabilized portfolio. These benefits were offset by one-time charges, revenue reductions related to our assessment of tenant credit and collectibility of rent, as well as lower parking revenues as a result of the COVID-19 pandemic. Fourth quarter FFO benefited from the revenue commencement of our Netflix // On Vine project in November. Offsetting this, FFO included $0.065 of extraordinary items, comprised of a net $0.03 per share of COVID-19 charges, primarily driven by co-working, advertising, and residential tenant credit assessments, and $0.035 of Prop 15 expense.
Turning to same-store operating results, cash same-store NOI increased 3.9% in the fourth quarter and 8.3% for the year, largely due to higher rental revenues driven by the commencement of and burn-off of free rent from several large San Francisco leases. GAAP same-store NOI declined 2.3% in the quarter and 1.4% for the year. Excluding the COVID-19 related net charges, GAAP same-store NOI would have been positive 0.6% in the fourth quarter and 1.4% for the full year 2021. At the end of the fourth quarter, our stabilized portfolio was 91.2% occupied and 94.3% leased. The occupancy and percentage lease decline of 100 basis points from the third quarter was primarily attributable to the 136,000 sq ft expiration in the Long Beach sub-market, which we have previously discussed on prior calls. Overall rent collection in the fourth quarter exceeded 96%, with office and life science rent collection north of 98%.
These strong rent collection levels have remained consistent across the 10 months of the pandemic, as our well-capitalized technology, life science, and media tenant base continues to outperform. Including the disposition John mentioned, our liquidity today stands at approximately $1.5 billion, including approximately $700 million in cash and full availability of $750 million under our revolver. Given the uncertainty around the timing of lockdown restrictions, we will not be providing full year 2021 guidance at this time. Similar to the last quarter, we can provide an earnings roadmap that includes various assumptions based on what we know today that may help you assess our earnings results for the year. We estimate that our G&A will be in a range of $82 million-$86 million for the year.
NOI margin is expected to be in line with our historical average, ranging between 70% and 71%. With respect to our retail portfolio, we extended the rent relief program, which included approximately 90% of our retail tenants, through the end of February. This has a minor earnings impact, and from a cash perspective, one month of rent deferral for these tenants is approximately $1.5 million. Non-contractual parking income totals approximately $1.5 million of NOI per month. We expect to receive about a third of this amount until businesses resume more normal operations. With respect to lease expirations, we have approximately 450,000 sq ft of expirations remaining to be leased this year, with only two leases that are greater than 50,000 sq ft expiring in the third quarter.
Additionally, we are currently in discussions with a tenant in the L.A. region that had an option to terminate up to 150,000 sq ft in 2022, but did not validly exercise its option. More to come on this. We expect to commence revenue recognition for the following office and life science projects within the following time frames. At 9455 Towne Centre Drive, we expect revenue commencement on 100% of the project by the end of the first quarter. At One Paseo Office, we expect revenue commencement on the remaining 1/3 of the project by September. At 333 Dexter, we expect the remaining 51% of the 635,000 sq ft project to come online in the fourth quarter. At KOP Phase One, we expect revenue commencement on the entirety of the 656,000 sq ft project by December.
With respect to Jardine, our Living on Vine residential project of 193 units, we expect completion and delivery in the spring. Due to COVID-19 restrictions, we expect relatively modest leasing this year. At One Paseo Residential, we expect the project to be between 75%-80% leased by year end. Lastly, we anticipate development spending of $275 million-$350 million on our projects under construction, and the high end could increase to $450 million if we start KOP Phase II. That completes my remarks. Now we'll be happy to take your questions. Operator?
Ladies and gentlemen, at this time, we'll begin the question -and -answer session. To ask a question you may press star then one. To withdraw your question you may press star then two. If you are using a speaker phone we do ask you to please pickup the handset before pressing the keys to ensure best sound quality. Once again, it is star and then one to ask a question. Our first question today comes from Emmanuel Korchman from Citi. Please go ahead with your question.
Hey, everyone. Michelle and Eliott, congratulations on your promotions. Eliott, one for you. You're taking a more active role in the investment pipeline. What types of deals are you most focused on, and what timing are you guys thinking about as you make those investments?
Sure, Manny, happy to take that. I think strategically, not much is going to change. We're going to continue to focus on deals that fit our profile. John talks about a lot the circle, square, and triangle. We're going to continue to follow that. It's got to be well located. It's got to have the right bones and the right physicality, and the math has to make sense. We think that if it's not broke, don't fix it. What we've been doing from a capital allocation perspective has been pretty good, and we're going to keep doing it that way.
All right. Michelle, you mentioned DIRECTV's desire to terminate part of their lease. I think you mentioned that you're in discussions with them. I guess the question was what changed for them that they all of a sudden decided to stay when previously they had made the impression on you that they were going to stay?
Yeah. Rob, do you want to handle that?
Sure. How you doing, Manny? This is Rob Paratte. We've had discussions with them over the past two or three years. Their business, this is really a DIRECTV entity, after AT&T acquired DIRECTV, they've had multiple scenarios for, in fact, growing and contracting and then staying stable. I don't want to get into a lot of the discussion about what we're doing with them, but we are engaged with them, and we'll report when we have more clarity on what the outcome is going to be. It's basically been driven by their business needs changing over time.
Right. Thanks, all.
Our next question comes from Nick Yulico from Scotiabank. Please go ahead with your question.
Okay. Thank you. I guess first question was just on the decision to not provide guidance. Maybe you can just walk us through a little bit on the thought process. Michelle, I know you did give a lot of components. I'm sorry. I think you were cutting out a little bit, or maybe it was my phone, but I don't know if you did give any range to think about in terms of occupancy, year-end, how to think about that in the same-store portfolio. I guess also on the lease expirations, how we should think about your confidence in getting re-leasing done this year. The fourth quarter volume did look a little bit light on that front.
[audio distortion]
Hey, Michelle? Michelle, this is John. We can't hear you. It's like you're cutting out every other word. I don't know if I'm the only one. I think Nick mentioned that. I don't know whether you can hear me clearly, you've got a problem on your end on broadcast.
Okay. Yeah. It looks like our line is choppy.
It's better now.
Okay. Nick, I heard the first two parts of your question. I'll take the guidance piece with respect to occupancy and same store, Tyler can provide a little bit more color on why we chose not to provide guidance. I think with respect to the occupancy range, I did not include that in my prepared remarks. I think more to come as we get more visibility in terms of where the restrictions on COVID-19 goes. I think directionally, we think occupancy should be higher in 2020 given all the development leasing that will come online towards the end of this year. We've got roughly 2 million square feet that's coming online that's 100% leased. I think hopefully that gives you a sense of where occupancy is going. We did not provide same store NOI guidance either.
More to come as we get more visibility as we move through the year.
Yeah, this is Tyler. I think that Michelle just said it. The reason we're not providing guidance is really nothing all that much has changed from last quarter where we didn't see a lot of visibility to where things are going with some of our income in terms of parking income, retail income, even residential income. We're very solid on the office front. Given that we're still in lockdown, it's just a little too early, we think, to provide guidance. Hopefully, we can do it next quarter. More to come on that.
Okay, thanks. Congrats on the promotions, everyone as well. Just one other question is on the leasing markets, maybe for Rob, a bit of an update on what you're seeing in terms of tenant demand, if activity is picking up at all. Perhaps you can go through some of your markets and just, I guess, big picture, how we should think about, again, retaining tenants among the lease expirations this year versus any sort of gut feel also about a rebound in new leasing activity for the portfolio. Thanks.
Okay. Hi, Nick. I'll try to keep this to a brief answer, you asked a lot there. I would say definitely that the overall market sentiment throughout our portfolio in the first months of 2021, which is really kind of just three weeks, is significantly more positive. If you start in Seattle and look at how the companies that have moved up there continue to hire. Net tech job growth in 2020 was 6,500 new jobs, that's a direct correlation to the fact that Seattle and Bellevue are becoming the cloud headquarters for the world. You have Amazon Web Services, Microsoft, Google Cloud. All of them have expanded. All of them have continued to hire employees. Microsoft, which had for many years, particularly in Bellevue, retracted, has actually renewed leases in the Bellevue area and has taken small amounts of space outside of the Redmond campus.
I think it's just a good indication that Bellevue and Seattle continue to have the employee pool that employers are looking for. In fact, hiring in Seattle has outpaced hiring in Austin for tech talent. That's based on LinkedIn surveys that were recently done. We continue to feel really good about the Pacific Northwest. As you know, our portfolio in Bellevue is virtually leased, and our Dexter project is completely leased. We're in really good shape, and it's a market that we see having a long-term improvement over time just because of the sheer presence and size of the tech companies that are in the market. In San Francisco, San Francisco has been more shut down than any city in the country, and more shut down longer than any city in the country.
We have had more tour activity in January than we had in March and April combined. We're at about 70% right now in January so far of tour activity pre-COVID. There's definitely a pickup. Two phenomenon that are happening is that of the sublease space that's on the market that is long-term. Brokers, and this is through multiple brokerage houses, are projecting that that sublease space, one example would be macys.com, there's others out there that are large, will be absorbed in this year, in 2021. The second trend is that, again, 19,000 new jobs by the five largest public companies that are headquartered in the Bay Area have been added between Q2 2020 and Q4 2020. If you just use sort of a rough depending on what your density number is per employee, that equates to about 4.75 million squa re feet.
I just have to say, I don't think all those people are going to be working at home 24/7. It is going to have a positive impact on the office market. Skipping to L.A. and the Bay Area. Actually, don't let me leave the Bay Area. Life science is a force to be reckoned with. It continues to be the most dynamic in terms of activity and what we see going on. There's very limited supply. Really, BioMed and their Gateway of Pacific project is going to be the only shell and core complete project by the end of this year. I'll give you just a quick analogy. There was a company in Hayward, which is in the East Bay, a life science company, came out of nowhere, signed 109,000 sq ft lease in Sierra Point in December. That literally came out of nowhere.
They had the choice to wait for the BioMed project, they ended up taking Sierra Point, which we think is a secondary market to Oyster Point, just so they could lock in space. I think it gives you a flavor of the robust nature of the life science market and what's going on there. One other piece of color I'd give you, if you look at life science in the Bay Area, there are about 12 life science biotech companies in Mission Bay in San Francisco. There are over 180 of those companies in South San Francisco. It's just a very vibrant, growing market, and we're really happy about that. Los Angeles has been right up there with San Francisco in terms of shutdown and very restrictive shutdown.
I think a really good bellwether or indicator is that restaurant activity and interest in, we have a couple of restaurants that are vacant, has picked up. We had no activity whatsoever in 2020. A couple of inquiries, but now we have conversations and paper being exchanged in Los Angeles as well as San Diego on vacant retail that we have. As we've said on previous calls, really, the sweet spot in Los Angeles are three markets. It's Culver City, Hollywood, and Burbank, and that's where the production's happening. That's where the employees are. I think you're going to see a continued trend of employees and employers seeking out space east of the 405 Freeway for the reasons I just cited. Transportation, access, housing, talent, and where the employers are based.
I think in general, with these markets I've talked about so far, you're just going to see this, we're in a transitional period right now, and the sentiment in the markets is that people are feeling better about it and sub-lease space will be absorbed, and things will start to slowly improve. San Diego, I'll finish quickly. Very robust life science market. You've also got it compounded by Amazon and Apple both competing for what would have been a life science space with life science companies. Areas like UTC, Del Mar, where we operate, are really benefiting from that demand. Again, it's a transitional year. I don't want to be overly optimistic. We have a ways to go. We have to get that vaccine out and into people's arms. It's feeling 100% better than it did in March or April or May of last year.
Okay, great. Thank you, Rob.
Our next question comes from Craig Mailman from KeyBanc Capital Markets. Please go with your question.
Hey, everyone. I just want to circle back on the DIRECTV. Michelle, I think you said 2022 would be the termination. Can you just kind of give a little bit of details about their termination option? Also, outside of DIRECTV, maybe any other top 15 tenants with near-term early expiration options that we should have on the radar?
Yeah. Hi, Craig. We're limited in terms of what we can say on DIRECTV at this time. I said that they have a contraction option at the end of 2020 with the effective date being early in January of 2022, for up to 150,000 sq ft . With respect to our top 15 tenants, there are no other material contraction options associated with any of those tenants.
That's helpful. Just on kind of maybe DIRECTV, but in general, Rob, that was a really good overview on the leasing, but just a little bit on kind of what your mark to market is in the portfolio. I know there's a lot of concern about net effective rents getting weak, but your mark to markets have always been pretty strong. Just your ability to absorb any potential weakness here in the near to medium term in your markets?
Yeah. I'll start this, and Michelle may want to jump in on it. Craig, I think, again, if you look at what's happening, this is transformational on the West Coast, but I think it's going to happen across the country. There are companies that grew, and they grew into B-quality type buildings. They are still growing, and they're going to use this opportunity, whether it's in San Francisco, L.A., the West Coast, or New York, to upgrade their facilities, and that's what we're seeing happening. In fact, the example I gave in San Francisco of tour activity and that sort of thing, that very example where a company, they're growth companies, they're in B -product buildings. They can now take advantage of A -product. We have the good fortune of being pretty leased up in San Francisco.
What I think you're going to see is that institutional quality, great landlords with great product are going to hold their rates, and you're seeing that already across the board with renewals, not only with Kilroy, but renewals at the other trophy properties that are in the San Francisco Financial District, where renewal rates have been either at pre-COVID rates or higher. You may see landlords in that description I just gave, the class institutional, class of landlord increasing TIs here and there. I think that if we had a lot of space, I think we'd feel comfortable keeping our rates where they were pre-COVID, given the quality of our portfolio.
Yeah. On the lease expirations or mark-to-market rent, it's hard to peg where rents are at this point. We said there's limited expirations in 2021, and we think rents are roughly 20% below market.
That's helpful. Thanks.
Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead with your question.
Thanks. A bunch of my questions were asked already, but maybe Michelle, I just want to make sure I understand. You talked a little bit about the retail and some of the rent that you're not collecting. I just want to know kind of in aggregate, when you sort of look at the Q4 results, I'm trying to really just get a kind of an aggregate number of how much rent you're maybe not collecting from office, but primarily retail tenants that are still kind of in your occupancy stats, but maybe moved to cash accounting. What is not being recognized kind of in the P&L today that you may start to collect going forward?
Yeah. We said roughly 90% of our retail tenants are on the rent deferral program, and roughly 70% of that program are already on a cash basis. Does that answer your question, Steve?
Well, I can follow up. I'm just looking for maybe a dollar figure just to kind of say $2 million, $5 million, $10 million. I'm trying to kind of get a sense for if those tenants were to all come back, what is the dollar amount that we should be thinking about? Maybe you won't get all of it back, but sort of what's the gross potential pick-up that you might get if all those tenants came back online and were sort of paying rent again?
Yeah. I think we said in Michelle's comments that one month of rent deferral for these tenants is approximately a $1.5 million. For a quarter, it'd be $4.5 million.
Okay. Anything on co-working or is it really the issue really, I guess, centered on just retail?
On co-working, we didn't have a lot of co-working going into the crisis. We've taken most of our co-working tenants to a cash basis already. We're really just left with one co-working tenant and an immaterial amount if we did go to cash basis of around $0.01 for 2021. We're in very good shape on the co-working front.
Yeah, Steve, this is John, and Tyler, you might comment on this. The other component of rent that we're not collecting that we normally collect would be monthly and transient parking revenue. The magnitude of that, Tyler?
It's about $1.5 million a month.
Okay. Great. That's helpful. I know you said this kind of early lease termination is not really prevalent in the current portfolio today. I'm just curious, Rob, are things like that becoming any more prevalent in lease discussions? I know I heard about one at least in N.Y., and I'm just wondering if tenants are looking for more flexibility. Are they trying to put some kind of early termination clause into the leases to give them a little more flexibility?
It's an interesting question, Steve. If you go back pre-COVID, particularly with tech companies, the reason that if they tried to negotiate terminations and that sort of thing was because they were growing so quickly, they were afraid of growing out of the premises they had. We haven't seen-- It comes up, frankly, in every negotiation and kind of in every cycle. We at Kilroy have had the good fortune of resisting giving those sorts of concessions primarily because we're also-- A lot of what we've done is ground-up development, and it just doesn't pencil to give a termination right in a ground-up development.
Got it. Thanks. Appreciate it.
Conversely also, you do have discussions about options to grow and that sort of thing that happen as well. It's not just always ratcheting down. There's more often than not discussion about, okay, if we're taking a building, what happens when we need more space? Where can we grow? That kind of thing.
Okay, that's it for me. Thanks.
Our next question comes from Derek Johnston from Deutsche Bank. Please go ahead with your question.
Hi, everyone. Thank you. While many point towards San Fran as one of the weaker U.S. markets at this point, you guys are still pretty well leased there. As you had mentioned, demand and sublet headwinds kind of remain. More concerning to us is your L.A. lease rate. Now at only 88.3%, I think further declining in 4Q by 330 basis points. This is the weakest we've seen since we've been keeping track back to 2012. I guess the question is, what drove this quarter's big decline, and what can you guys do to plug the hole in L.A.?
You want to start? I'll address the vacancy in L.A. We have, in Hollywood, space that's about 75,000 sq ft . It's in Columbia Square, which is the preeminent Class A project in Hollywood. As I said, with tech and every other company, production companies have basically been on hold over 2020. To just give some color, we had little to no interest, and we were also negotiating with a tenant that was in the space to terminate them. In 2020, we had little to no activity on that space, and now we have five different entities looking at either all of it or portions of it. Again, that's come up in the last two to three months.
Wherever there's space and vacancy, I guarantee it's been hampered by lack of availability of people to tour, people not being comfortable touring even if they can, due to the pandemic. It has really impacted L.A. I feel given the growth and the demand that we see from the content producers and the strength of these companies, I think we're going to be just fine.
Just to follow up on your question about the occupancy decline. Largely, it was driven by the Long Beach expiration that we've talked about, and that impacted both L.A. and the overall portfolio, obviously.
Okay. Thank you. Next, this is more big picture, how has the work from home trend changed business leader decision-making? I'd say especially for TAMI and FIRE tenants. We acknowledge life science has been a bright spot, I'd say we have a pretty good sense of the cyclical impacts of a recession on office REITs. There does seem to be some evidence of a work from home secular shift at play as well. How do you view, could you address the possible impacts of a work from home secular risk on office space demand and net effective rents in your markets from what you can see at this time? Thank you.
Sure. This is Rob. I'll address that again. As I said earlier when I was going through some of the hiring numbers, it's just not possible that that many people are going to be working from home 24/7. If you look at the FAANG companies and the other large tech companies behind them, and including FIRE category tenants, every one of those entities is pretty much a work in the office entity, and some of them have been very public about it. If you look in Google, Netflix, and what their CEO said about working from home versus working in the office. Microsoft CEO, same thing. As John said in his remarks, working from home, the pandemic has changed the dynamic. Working from home will be a more accepted practice, if you will, or more formalized practice, if you will, in every workforce and labor force.
You're not going to be doing the team building. You're not doing the collaboration. It's extremely difficult. We're going through it at Kilroy ourselves. Extremely difficult to onboard new employees when they can't meet their colleagues or really ramp up as quickly as they would ordinarily. Frankly, aside from the employer demands, it's also becoming pretty clear from employees, especially young, talented, aspiring employees who really can't get face time with their bosses, and get a career path established because they are working from home. I think the world looks to tech to be the leaders in what's going on. Right now, tech has said people should stay home until we have clarity on the pandemic.
The conversations we're having with our tech clients and other large tech companies are some have advanced plans to begin opening in mid 2021, when they were actually looking at the end of 2021. I think there's a lot that's going to unfold here in the next three to four months. I personally just think you can't make a film at home. You can't collaborate on software or complex problem-solving from home. As we said, there are going to be various times people are working from home, but you're going to have large teams needing to be in office space using the technology that office provides.
Our next question comes from Frank Lee from BMO. Please go ahead with your question.
Hi. Morning, everyone. Just want to touch on some of the prominent headquarters relocations announced since your last call in California. What are your thoughts on the longer-term implications there? Maybe in the shorter term, have you seen any early impact on rents or tenants further delaying leasing decisions?
I'll address part of it, and John, please jump in if you feel like you want to. Let's specifically talk about Oracle, for example. They've been a long-time headquartered Bay Area company. They announced moving to Austin, their headquarters. If you look at Oracle over the last 15 years in the Bay Area, they have not been an absorber of space. They've not signed one third-party lease since they've been headquartered in the Bay Area. They've grown by acquiring companies. They've generally kept the space of the company they acquired, or as the lease expired, didn't renew it, and absorbed it within their portfolio. What we understand about that relocation is they are continuing to grow and hire tech talent in the Bay Area.
They're not planning to pull the plug on the people that actually create their growth and their business, they're continuing to look at other markets to expand as well. I think it depends on how you look at a headquarters relocation and what that really means. Does it mean the support services like HR, accounting, finance, that sort of thing, that are going to markets like Texas versus where the talent and where you can hire the talent in bulk is?
Okay, thanks. A question on the redevelopment opportunities at Blackwelder. What are your current thoughts there, and could we see redevelopment plans accelerate given the strong leasing activity in the Culver City market and just general overall strong media content demand?
Yeah. This is John. We're evaluating that. We had some elections that had to occur in L.A. before we wanted to develop our expansion plans there. We'll be able to talk more about this over the course of the next 12 months, but I don't see anything happening soon. We have tenants that are in place. We have people that want all the space that comes up and will take everything that we have. If we go down that route, then we block ourselves from future development. We're sort of in the assessment period. With COVID-19 and the things that we've been talking about so much on this call, it just hasn't been a high priority for us to figure out the development scheme there, but we will be.
Okay, thank you.
Our next question comes from Dave Rodgers from Baird. Please go ahead with your question.
Yeah. Maybe, John or Eliott, you guys have become more positive over the last couple of quarters just on the ability to develop here in 2021, and that came through again today. I guess I'm curious on the flip side of that from a funding perspective, how you think about funding maybe KOP Phase II. Are you comfortable where you're at today? Then John, maybe talk a little bit more about some of the asset sales you had previously discussed that were put on hold with COVID-19 and how the demand might be for those kind of credit tenant net lease assets that you had considered selling before.
Yeah. Well, let me deal with the development spend. Some of this is a repeat of what we had in our prepared remarks and what Michelle mentioned. We have $1.6 billion of development underway today, and the spend on that in 2021 is $275 million. In 2022, it's $200 million, then we're done. If we add KOP Phase II, there's roughly $750 million of incremental spending, if we started that in the second quarter, we'd spend about $75 million this year, $200 million next year, then $475 million in 2023, 2024, with I think probably most of that is weighted to 2023. If you add all that up, you've got roughly $350 million, $275 million under development plus $75 million of KOP II this year. Next year, $200 million to finish off the current development, $200 million more for KOP Phase II.
That's $750 over the next two years, Dave?
Right.
$475 million in 2023, 2024. $1 billion to 2025 in round numbers. Michelle, just remind everybody what our current cash on hand and bank lines are, I'll deal with the second part of your question, which is dispositions.
Sure. Yeah. As I mentioned, we've got roughly a $1.5 billion of liquidity today, roughly $700 million in cash. [audio distortion]
Michelle, you're breaking up again. You're breaking up.
Okay. Hopefully you can hear me now.
Maybe call in by your cellphone, maybe. Maybe I'll just try to deal with that if you can hear me. Can people hear me?
Yep.
Okay, great. Sorry about for this confusion. It just comes with the telephone company, I guess. As Michelle mentioned, we have roughly $1.5 billion in current liquidity. Half of that's on our line, half of it's in cash. We're completely funded on anything that's under development and anything that's underway, or would become underway over the next couple of years. Obviously, if we start something else, we've got to talk about it. We've always said with the Flower Mart that we'll have our funding plan in order and communicate that to the market before we start. I don't see starting the Flower Mart anytime soon. We need greater clarity on that. Nothing else is ready to go for at least another year. In terms of dispositions, as we always do, we evaluate what things we might do.
I think we'll have some thoughts on that to express within the next couple of conference calls. Nothing to express today other than the market is strong for good assets. Very strong. I know that Eliott could give you examples on that, some of the record price per square foot and cap rates and so forth. We think we're in great shape on the liquidity front, great firepower to do whatever we want to do from an opportunistic standpoint. We're going to stay that way. We're not seeing anything that's really in distress that we would have an interest in buying at this point.
All right. Thanks, John.
You're welcome.
Our next question comes from Jamie Feldman from Bank of America. Please go with your question.
Thank you. I want to get your thoughts on life science supply with so much capital going into the space. Can you maybe talk about, if you look over the next couple of years, the demand pipeline versus the supply pipeline in Seattle, San Diego, and Bay Area?
Yeah. Well, this is John, Jamie, and Happy New Year. Let me give you a couple thoughts on life science supply, and then Rob can drill into the specific markets. It's interesting on life science now, it's the du jour flavor. I say that a little bit kiddingly, but it's true. We're seeing crummy old shopping centers that don't have any relationship to any life science market, nor any kind of proximity to what drives life science, bill themselves as a life science entitled, future life science campus, and so forth. That's just nonsense. Brokers have great imaginations, and I think they've taken them to new heights. There has been some real success in the traditional life science markets on converting office space or other space that has the physical characteristics that lends itself to conversion. There's a whole bunch of people talking about it.
What we see in the private world are a lot of people that are out trying to raise funds or have raised funds to say they're going to expand life science, and they're buying some strange things, and wish them every success, but I don't think all of them are going to be successful. That doesn't mean there won't be supply increases. There will. If you look at where we're primarily focused, which is the City of South San Francisco, we have the largest development of life science capability of any major cluster on the West Coast, if not the entire country. We have the ability to deliver many millions more square feet there in the best market on the West Coast, where it's proven. It's kind of Main and Main, if you will.
In terms of the supply that's coming on stream, Rob, I don't know if you want to talk about that with regard to Seattle, or if you're prepared to talk about that with regard to Seattle and San Diego and the Bay Area.
Sure. Jamie, just again, starting with Seattle, the life science hub in Seattle, the place to be is South Lake Union. Similar to Oyster Point as well as our UTC locations, you have these competing forces of tech companies and life science companies. This is somewhat of a generalization, but life science companies are going to cluster around universities in the same way that tech companies do. Right now in Seattle, BioMed has a project. There's very little current supply. It's hard to find sites for life science. I think another phenomenon that may change, or life science may be forced to change the way they operate, is that tech is much more nimble and much more agile, and they end up signing leases quicker than life science companies do.
I gave that example earlier about the life science company in South San Francisco that signed in December. It's a different way of operating, and they need to be more nimble, and it's very difficult. There are secondary markets outside of the cluster area that I would call South Lake Union. Where Kilroy wants to be is where there is supply constraints, where it's harder to get sites, and where you can drive rents. South San Francisco, as I mentioned, we're tracking 2.2 million square feet of supply. 2/3 of that is already leased. BioMed will have the only ground-up construction, shell and core complete end of this year. I gave you an example again earlier about the 180 different companies, biotech companies in that market. It's unrelenting. We're tracking about 3.5 million square feet of demand right now for tenants.
Our project, specifically Oyster Point, we've been very active in presentations and Zoom meetings and some physical on-site presentations to companies. Again, talking about clusters, you really only have South San Francisco, then you have parts of San Mateo County. The life science market in the Bay Area really kind of stops at Palo Alto. It's hard to imagine, going back to John's point about conversions and that sort of thing, that you'll see life science leapfrog into San Jose, for example, even though there's R&D type product that may be able to be converted, that's not where they want to be. Then San Diego, particularly UTC, where vacancy is about 1.4%. I mentioned earlier the theme, and I just mention it now, too.
You've got these competing forces of tech versus life science, and it's literally a race for space. Hopefully that gives you some color.
Jamie, there's a building that I toured the other day that we'll go and mention that's here in San Diego. This office building, it's institutionally owned. It's got some vacancy. It'll have some increased vacancy over time, but not for a number of years. It would not be a product that I would have been interested in buying for office, and it's now being marketed as life science conversion. I went and walked it and toured it the other day. No way. There's just so much noise in the market right now. Everything is about life science. There are some excellent examples of where it does work and will work. ARE has communicated that to the market, I'm sure, in some of the stuff they're doing in San Diego and elsewhere.
There's a lot that's just being marketed as potential life science that, in my view, doesn't stand a chance.
Okay. I appreciate the color. I guess, as I think about it, though, or as you guys think about it, do you feel like there's a window here? As we talk to people across the different markets, Boston especially, it's like you've got a couple of years here of really good demand and under supply, the question is, what does it look like after that? Do you feel the same way in your markets? Like there's kind of a race to get the good product up? Do you think you can be patient and as long as you have the best product, you're not in any hurry?
Well, we always look at the competitive set of what might be coming back on the market, becoming vacant, or might be developed. You try to, as best you can, put yourself in a window where you kind of have a sweet spot. I think that's exactly what is happening with Phase II of KOP. We have a beautiful window there of a couple of years where there's no product that can come on stream to compete with us, and certainly nothing of any high quality. Beyond that, we are kind of at the ultimate sweet spot there. I think that we will have great demand. Unless demand were to drop completely, we're in a great spot. As Rob mentioned, we could lease the whole thing to tech, which is not our intent, but we could. We've got kind of competing demands there.
Other than that, we have some life science-capable stuff that we can develop down in San Diego. It's too early to talk about that. Hopefully, later this year, we'll have something we can talk about. I'm not promising, but we're having some good discussions. Yeah, remember the old thing that always happened in office buildings when I was a private guy? There was a report that said a market needs 400,000 sq ft of office space to meet demand. Then eight different developers go out and develop 400,000 sq ft. So all of a sudden, you've flooded the market with oversupply. Could that happen? It's kind of hard to see it happening in the preferred locations because the barriers to entry are so great.
A lot of people could develop what they call life science product in areas which haven't been traditional life science markets. I'm not sure people will go there. We'll just see what happens. There is a lot of froth in the brokerage community and in some of the folks trying to get into life science that haven't had experience in it. We'll see what happens.
Okay. That's really helpful. Just thinking about leasing volume. It dropped to 61,000 sq ft this quarter, 123,000 sq ft last quarter, but you talked about more activity. How long do you think before that number starts to grow again? Is it a six-month lag?
Yeah. Hey, Rob.
Yeah.
Yeah, I'm sorry. Rob, you want to talk about kind of what's gone on in the first month of the year for us and then further to Jamie's question?
I may have said this earlier. We've signed 75,000 ft of leases in January, with a cash increase of 10%-15% and GAAP increase of 20%. We have other leasing activity we're working on that we haven't announced yet in our core portfolio. I think to more directly answer your question, Jamie, about how long.
Two things are happening. I think companies have been on hold basically for a year, and there are fundamental changes that are happening within those companies. For example, like I said, if they have a lease that's coming up and they're in a B -product building and they want A, they're going to make that move as a strategic move. I think the more robust recovery, if you will happen when there are larger numbers of vaccines out and people are actually coming back to the office, and their companies are providing that flexibility. I've cited on other calls, several of the companies we're close to have changed their plans, where they're actually opening offices that people were forbidden to go to. They're opening them now with plans for them to be back at work in March.
Not the entire workforce, but people that have put their hands up saying, "I can't work at home anymore." I really think it's watch that vaccine roll out, and I think you'll see a correlation to leasing activity, tour activity, et cetera.
Okay. Thanks, Rob. Appreciate everyone's thoughts.
Our next question comes from John Kim from BMO Capital Markets. Please go ahead with your question.
Thank you. Good morning. John, you mentioned in your prepared remarks, having enough liquidity to go on the offense, potentially. Can you just elaborate on what that means? Is that development opportunities or something else, potentially?
Well, if you take a look at, not that this is the absolute roadmap, but if you take a look at 2009, 2010, you saw us move to San Francisco, then Seattle. You saw us buy, then you saw us develop, and we bought at very good pricing. We're not seeing the pricing that's attractive to us as a buyer today. If we do, and it meets our square circle, and circle we'll be active. I don't know how much of that will happen. I think that there's a lot of folks that could become sellers if the vaccine doesn't roll out. Do we want to be a big buyer if the vaccine doesn't roll out? That's a whole different question. We have a lot of discussions with people that are interested in buying our product, people that may be interested in selling their product.
There isn't clarity at this point, John, that there is a path to highly accretive acquisitions. There may be a limited amount in the value -add area. We always see some of that. That's what my comments were directed at.
Got it. Okay. It sounds like, I believe, from Rob's comments that you want to hold rents given the quality of your portfolio. Given where your occupancy level is today, at what point do you think about becoming more aggressive in building up occupancy?
Never going to share that with you. We're not going to comment on that on this call. I don't know how many tenants listen or get our report, but I don't think that is in our best interest to communicate. The market is pretty efficient. If we feel that we can get high rents, we'll get them. If we feel we can't and we have to adjust, we'll adjust.
If I could squeeze one more in. The DIRECTV termination, is there a termination fee associated with that, or is there no penalty?
There is a fee associated with it.
There is. Okay. Thank you.
Once again, if you would like to ask a question, please press star and one. Our next question comes from Daniel Ismail from Green Street Advisors. Please go ahead with your question.
Great. Thank you. I was hoping to get a bit more color on your life science and healthcare exposure. Can you parse out how much of that 14% of rent is currently being used as lab space?
Well-
This is Eliott. It's not an exact science, but I think you can also refer to, we've given you square footages of how much of our space is life science, and I think we've talked about that as a million plus right now. That's active life science. That's one data point. Tying it to the 14% is a little trickier, but call it 25%-30%, give or take.
Okay, great. Going back to the 2021 objectives. John, you mentioned taking a more active role on the regulatory front. Is there anything currently on your radar or being pursued at the moment with regards to any of those things you mentioned in the past?
Well, yeah. If you think about it, I'll address that in greater depth as the year goes on. I don't really want to give the opposition too much of a heads up. Let's just say there's a bunch of us that worked on Prop 15, and that group, as a coalition, has grown significantly to include a lot more of the real estate companies. We're pissed off.
Okay, fair enough.
We're going to fight. I think the climate's right. You see right now recall effort. I'm not saying this is part of the initiative. You can see in California, I think you're in California, aren't you?
Yes, we are.
Yeah. Our governor's not very popular. Not popular with box boys, restaurateurs, executives. Everybody's pissed off, thinks he's an idiot, and I do too. There's a lot of idiots out there. They need to be confronted. Policy needs to be good, not bad. We have our problems just like all states and/or big cities that have been stupid. We have a lot of stupid people and a lot of stupid policies. There's a lot of us that are pissed off. It's not just people in the real estate business or people that are wealthy. It's people at every level. I think you're going to see a groundswell of opposition to tax increases and to other things, and that's what the polls are showing.
We have, as I often say, if we were a rug merchant, we could roll up the rugs, put them in the car, and go over to Arizona or Nevada or wherever. We can't. We got real estate. It's stuck to the ground. We got to fight.
Do you foresee this being more of a state-level issue or working within the local jurisdictions that you guys invest in, San Francisco, San Diego, and where else?
Unfortunately, the idiots are everywhere, and we're going to have to confront them in quite a few different venues. Some will be at the state level. The idiots, whether it's policy or people, also at the local level. There hasn't been sufficient pushback. I think as a state in some of these cities, and I would apply this to some of the cities and states outside of California. It's been too good for too long, and people just look the other way. "I don't like this policy, but everything seems to be going well." Now people are starting to say, "This is getting expensive. This is being intrusive. I'm tired of people telling me what to do. I want to fight back.
I'm sick and tired, and I'm not going to take it anymore." I think that was a line from a movie, "Network," that probably nobody on this call remembers because it was so long ago. It's sort of that attitude, and there's some policies that need to change. There's a lot of good policies. There's a lot of bad ones.
Got it. Appreciate the color and the candor, John.
You're welcome. You know how much I love politicians.
Ladies and gentlemen, with that, we'll conclude today's question -and -answer session. I'll turn the floor back over to management for any closing remarks.
Thank you for joining us today. We appreciate your continuing interest in KRC. Goodbye.
Ladies and gentlemen, with that, we'll conclude today's conference. We do thank you for joining. You may now disconnect your lines.