Good day, and welcome to the Q4 2019 Kilroy Realty Corporation Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tyler Rose, Executive Vice President and Chief Financial Officer.
Please go ahead.
Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy and several other members of our senior management team, who are all available for Q and A. At the outset, I need to say that some of the information we will be discussing is forward looking in nature. Please refer to our supplemental package for a statement regarding the forward looking information in this call and in the supplemental.
This call is being telecast live on our website and will be available for replay for the next 8 days both by phone and over the Internet. Our earnings release and supplemental package have been filed on a Form 8 ks with the SEC and both are also available on our website. John will start the call with market color, our 2019 highlights, a review of the Q4 and our objectives for 2020. I'll provide financial highlights and review our initial 2020 earnings guidance. Then we'll be happy to take your questions.
John?
Thanks, Tyler. Hello, everybody. Thank you for joining us today. Conditions in our West Coast markets remain very strong. From San Diego to Seattle, our submarkets have not only developed into central hubs for innovators in technology, media and life science, that are also benefiting from broad based economic growth.
Unemployment rates are at record lows. San Francisco, Seattle and San Diego 4th quarter unemployment rates dropped below 3% and LA came in at just under 4%. Public market returns for tech, healthcare and biotech have surpassed other industries by roughly 2 times over the past decade. And just last week Apple, Amazon and Microsoft, 3 of our major tenants and 3 of the 4 largest companies in the world have all reported record earnings. These companies all unveiled extraordinary plans to develop or to continue to shape our lifestyle with their products.
This growth will drive increased demand for modern work environments in our markets. Real Estate Capital Markets remain wide open as equity investors continue to search for growth and debt investors continue to search for yield. 2019 VC funding was the 2nd highest year over the past decade and our West Coast markets accounted for 55% of that funding. In terms of the investment market, high quality well located assets in our markets continue to command strong valuations as we have seen pricing in the $1500 per square foot range in San Francisco, $1100 per square foot in Seattle and Los Angeles and over $700 per square foot for older product in San Diego. This backdrop has resulted in real estate conditions that are amongst the strongest we have seen with very limited supply and solid demand driving declining vacancy rates and record high rents.
While we don't have a crystal ball, we see this operating environment continuing for some time absent a macro event. Now let's get into 20 nineteen's highlights. 2019 was a terrific year for us across the company. We delivered strong and in many cases record results for our shareholders. We signed 3,500,000 square feet of leases across our stabilized and development portfolio, a new all time high for the company.
We continue to expand relationships with our key customers. We executed leases in our stabilized portfolio that generated record high leasing spreads. Rents increased 30% on a cash basis and 52% on a GAAP basis compared to prior leases. We signed long term leases with top quality tenants for 90% of the office and life science space and our $2,200,000,000 under construction development program. This level of development leasing was not only a record for us, but was also about 24 months ahead of our stabilized leasing projections on average.
We made 3 strategic acquisitions totaling $359,000,000 all of which provide attractive development or redevelopment opportunities. We increased our FFO per share nearly 7% year over year. We increased our dividend by 6.6%, a cumulative increase of 29% over the last 4 years. We generated $886,000,000 in capital from our capital recycling program and new debt and equity issuance, maintaining the strength of our balance sheet while addressing future funding needs. And we continue to build on our own leadership in ESG.
We were the 1st North American REIT to make a commitment to be carbon neutral operations by year end 2020. This timing exceeds both California and federal standards by multiple decades. We've been recognized year after year by many industry groups across the world, including Gres B, which is ranked as number 1 in the Americas across all asset classes for the past 6 years. We've won the EPA's highest honor of Energy Star Partner of the Year Sustained Excellence Award for the past 4 years and Averitt's Leader in the Light Award for the past 6 years. We're included in the Dow Jones Sustainability World Index and recently Bloomberg added us to its 2020 Gender Equality Index.
While we are proud of our accomplishments in these areas, we will continue to look for new and better ways to foster a diverse and inclusive work environment, engage our communities and minimize our environmental impact. Now let's get into the details on activities since the end of Q3. In our stabilized portfolio, we signed newer renewing leases on 400,000 square feet of office space at rents that were up 30% on a cash basis and 45% on a GAAP basis. One of the bigger deals included a 10 year lease with Microsoft owned GitHub for just 162,000 square feet of office space at our Skyline project in Bellevue submarket of Seattle. This new lease fully backfills the January expiration.
Along with 2 other leases we signed in January, our entire Seattle portfolio is now 100% leased. We expect conditions in Seattle to remain robust given the record low vacancy and extremely limited supply of large blocks of modern high quality space. In our construction development program, we signed more than 600,000 square feet of leases during the quarter, fully leasing the remaining space at Kilroy Oyster Point Phase 1 to strike for its new headquarters and signing a transaction in December for our entire 160,000 Square Foot Town Center Drive project in San Diego to a Fortune 50 technology company. We We commenced construction on both projects in the Q1 of 2019 and both leased up roughly 7 months after construction commencement. That's a strong indicator of the strength of our markets and the quality of our development.
We also made good progress at our One Paseo mixed use project in Del Mar. The office space is now 80% leased and commands the highest rental rates in the region. Also 2 thirds of the 2.37 residential units that we delivered in September are leased. With these 4th quarter transactions, the lease. With these 4th quarter transactions, we have effectively de risked 90% of the office and life science components of the $2,200,000,000 development projects under construction with strong credit and long leases.
Drew Captis program includes One Paseo, a one of a kind mixed use office residential and retail development in San Diego's most sought after coastal community Netflix on Vine, a mixed use office and residential project in the heart of Hollywood 333 Dexter, a 2 tower state of the art office project in Seattle's Tech Centric South Lake Union neighborhood, Kilroy Oyster Point Phase 1, the first of a multi phase, 11 building office and life science development in the West Coast leading life science market 9,455 Town Center Drive, an office and life science capable project in San Diego's University Town Center area and finally, our recently commenced 2,100 Kettner, an office and retail complex in Little Italy, one of San Diego's most popular downtown neighborhoods. All these six projects excuse me, as these six projects are completed and stabilized over the next couple of years, we estimate they will generate total cash NOI of approximately $150,000,000 roughly 85% from office and life science and 15% from residential. Further at today's cap rates, this translates into value creation of approximately $1,700,000,000 Now let's turn to recent updates on our future development pipeline. First in January, San Francisco's Board of Supervisors unanimously approved our Flower Mart project and we now have a fully executed development agreement that protects our entitlements into perpetuity.
We also acquired a land site that will become the Flower Mart vendor's new permanent location. With these pieces in place, we anticipate late 2021 start date on the first phase of the project. 2nd, we acquired a site in the Seattle Central Business District, commonly referred to as the Vance site. The site encompasses 5 parcels situated on 1.37 Acres and includes the 47,000 Square Foot Historic Lloyd Building, a second 31,000 Square Foot Office Building and several parking lots. The location is main and main of downtown Seattle and one of the reasons we are so excited about this project, it is immediately adjacent to Seattle's most used light rail station and offers multiple transportation options including the South Lake Union Trolley, the bus and convenient freeway access.
It is just blocks from Amazon's headquarters, Seattle's iconic pipe police market, the city's newly renovated retail core and finally it lies at the center of a triangle connecting Seattle's core downtown amenities with 2 of its most important innovation clusters, Kinney Triangle and South Lake Union. These neighborhoods sport tenant names like Facebook, HBO, Zillow, Google, amongst others. We paid $133,000,000 for the site and plan to seek entitlements for an urban mixed use development anchored by a fully restored Lloyd Building. The project will include 2 office buildings totaling approximately 900,000 Square Feet, 25,000 square feet of street level retail and a residential development currently zoned for 575,000 square feet, which equates to somewhere between 400 and 500 units. This is the 3rd acquisition with excellent development potential that we've completed in the past 6 months.
It follows the purchases of our 2 block East Village site in Downtown San Diego and the Black Welder Creative Campus in Culver City. With these three development opportunities, we have backfilled our pipeline with tremendous infill opportunities in some of the West Coast's most vibrant submarkets. Projects lay the groundwork for continued growth in both earnings and NAV. In our capital recycling program, we completed the disposition of 2,211 Michaelson Drive, our last operating property in Orange County. The proceeds of approximately 100 and $16,000,000 puts our total 2019 dispositions at just under $134,000,000 For 2020, we are evaluating a handful of assets for potential disposition ranging between $150,000,000 to $300,000,000 of proceeds.
Wrapping up, we'll be focused on 5 key objectives in 2020. 1st, delivering our $2,200,000,000 of under construction projects. 2nd, maximizing value in our stabilized portfolio. This includes leasing up our vacancies, driving rents and proactively addressing expirations. 3rd, driving earnings and dividend growth.
4th, maintaining balance sheet strength and flexibility. And 5th, continuing to advance our strong relationships with some of the world's best and fastest growing companies. That completes my remarks. Now I'll turn the call over to Tyler.
Thanks, John. FFO was $1 per share in the 4th quarter and $3.91 for the year. 4th quarter FFO largely benefited from additional occupancy and rents commitment at the exchange and included $0.015 of one time items. Turning to same store results, cash NOI grew 4.5% and GAAP NOI was up 4.8% in the 4th quarter. Same store cash NOI growth was driven by higher rental rates and cash commencement of several large leases.
For the year, cash NOI came in at negative 0.6%, largely due to first half expirations. On a GAAP basis, full year NOI grew 5.3%, rising in step with strong rent increases. We entered 2020 with about 700,000 square feet of lease expirations, approximately 5.5 percent of the portfolio. The embedded rents in our 2020 expirations are roughly 20% below market. Across our portfolio, we estimate that weighted average in place rents are 21% below market.
By region, we believe in place rents are approximately 30% below market in San Francisco, 13% below market in Los Angeles, 13% below market in Seattle and 9% below market in San Diego. At year end 2019, our stabilized portfolio was 94.6% occupied, in line with guidance and 97% leased. Moving to the balance sheet, we completed several transactions since the end of the Q3. First, as John noted, we closed on the previously announced sale of 22.11 Michaelson for proceeds of approximately $116,000,000 2nd, we sold 160,000,000 dollars of shares of equity under our ATM issued on a forward basis, increasing our total undrawn forward equity sales to approximately $250,000,000 3rd, we drew down approximately $315,000,000 on our bank line to fund our recent acquisitions. Our overall financial position remains sound.
In addition to the $1,000,000,000 of unused debt capacity under our credit facility, we have a large unencumbered portfolio with only 2 mortgages. We have very little floating rate debt and no significant maturities until 2023. Current debt to market cap is in the mid-20s. Our 4th quarter annualized net debt to EBITDA is approximately 6.5 times pro form a for the undrawn equity forward positions, and we expect our debt to EBITDA ratio to decline further as our lease development projects come on stream. Before moving to guidance, I'd like to provide some color on Prop 13.
As you know, the split roll is on the ballot for this coming November. Our advisors are telling us that while it looks like a close race, given the negative impact it will have on the state, the polling indicates it is likely to lose. However, should it pass, attempting to quantify our potential impact at this time is nearly impossible. There are too many variables and unknowns, including how assessors will derive market value, the status of our portfolio at the time, including the component of triple net leases, base year resets and what we own. Now let's discuss our initial 2020 guidance provided in yesterday's earnings release.
To begin, let me remind you that we approach our near term performance forecasting with a high degree of caution given all the uncertainties in today's economy. Our current guidance reflects information and market intelligence as we know it today. Significant shifts in the economy, our markets, tenant demand, construction costs and new supply going forward could have a meaningful impact on our results in ways not currently reflected in our analysis. Projected revenue recognition dates are subject to several factors that we can't control, including the timing of tenant occupancy. For those caveats, our initial assumptions for 2020 are as follows.
As always, we don't forecast acquisitions. We are targeting dispositions of $150,000,000 to $300,000,000 of proceeds. We anticipate development spending to be between $500,000,000 to $600,000,000 We expect to commence revenue recognition for the following projects within the following time frames: at the Exchange on 16th, the remaining 130,000 square feet in the Q3 of 2020 Netflix on Vine at the end of the year at 333 Dexter, the initial phase totaling 330,000 square feet in the Q4. And at 1 Paseo office, we expect revenue commencement in phases starting in the Q3. With respect to delivery dates for the residential projects, One Paseo residential Phases 2 and 3, consisting of 3.71 units, are projected to be delivered by midyear.
And living on Vine, 193 units, is scheduled for delivery by the end of the year. We are projecting total NOI contribution of approximately $20,000,000 to $25,000,000 this year from those 2020 development deliveries. Our forecast for year end office occupancy is between 93% 94%. We project GAAP same store NOI growth of 1.5% to 2.5% and cash same store NOI growth of 6.5% to 7.5%. We expect to draw down approximately $90,000,000 of the equity forward sales in the first quarter and the remaining $160,000,000 in the 4th quarter.
From a 2020 FFO perspective, our 4th quarter FFO per share run rate was $0.985 adjusted for the onetime items or $3.94 on an annualized basis. The dilution from our projected dispositions is estimated to be about $0.08 per share, subject to actual timing. The impact from new development NOI, including the exchange on Vine, 3.3 Dexter, One Paseo office and residential is estimated to be about $0.23 per share positive. And finally, the impact from all other items, including same store NOI and financings is estimated to be about $0.02 per share positive. Taking all those assumptions into account, our initial earnings guidance for 2020 is $4.01 to $4.21 per share with a midpoint of $4.11 per share.
That's the latest news from KRC. Now we'll be happy to take your questions. Operator?
Our first question comes from Nick Yulico of Scotiabank. Please go ahead.
Thanks. Just in terms of the guidance, Tyler, I was hoping you can just expand on some of the assumptions driving the cash same store NOI growth this year picking up to about 7% at the midpoint versus last year?
Yes. A lot of it's the free rent burn off that we had in the numbers in the free rent in 2019. So you can see the difference between cash same store and GAAP same store is mainly the free rent burn off.
Okay. And then in terms of, I guess, San Francisco leasing market, any latest thoughts you can share on demand in the market from bigger users as we're thinking about Flower Mart eventually starting? And can you just remind us there, I mean, is that still a earliest start possible there is 2021?
Late 2021.
Good morning, Nick. This is Rob Peratt. I'll address the San Francisco market in terms of your question. The market is still extremely dynamic and vibrant. I mean, we're tracking over 9,000,000 square feet of demand right now in San Francisco, and that's ranging in a lot of size ranges.
But there's a healthy appetite in the, I'd say, 300,000 to greater market right now. There are some large transactions that are close to being announced that have not yet been announced. And we think we're poised really well. There's really no new product to compete with Flower Mart and the floor plates, the design, etcetera are going to be very attractive. And last thing I'd say is we've said on multiple calls being on Brannan Street, particularly with the new central subway system there is really going to be an important factor in the whole development of the south of market and specifically Central Summa area.
So, we're really pleased given everything that's going on this year with elections and that kind of thing. Demand has remained strong and continues to be pretty much unabated.
Okay. It's helpful. Just one last question is, there was some news that came out about the GM Cruise space you have at Brannen where I know when they signed that deal, it's a great deal you guys got high rents. I think the highest rents in the market when it was signed. And I guess now there's a news that they're subleasing a portion of that space to Notel.
Can you just tell us what's going on there? What drove that decision?
Yes. I won't go into specific transactions and that sort of thing, but it's one they basically, I guess I would say somewhat overshot the and they have a lot of activity on it. So without getting into specific comments on it, that's what's going on, but it's very active in terms of demand for the space.
And just in terms of the what type of rent you think they may get on the sump lease versus where the GM Cruise deal was done?
I can't predict that. I think if you look at sub landlords throughout the city right now, I think they're trying to figure out where the market is for sublease space and what kind of rents they can achieve and they're trying to maximize and do what we've done actually on direct basis, which sometimes is hard to do.
Okay. Appreciate it. Thank you.
Our next question comes from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Hi, good morning. This is Elvis Rodriguez with Jamie. Can you talk a little bit about the Prop B risks and the potential there for future phases at the Flower Mart?
Yes. Hang on. Tyler, have you got that? We're in 2 different locations and I don't have my notes on that. You got that, Rob?
Sure. This is Rob Peratt again.
So the way we look at Prop E, I won't comment on good or bad policy just in terms of government. But the way we look at Prop E is that it does accelerate development in the Central SoMa area. It long term may have an impact on the ability of landlords to build new space in the city and get to the size that we're talking about at Flower Mart. For existing property owners and development sites that have their Prop M allocation, it's going to bode well for rental rates and asking rates because it's just going to make San Francisco tougher to develop in.
Okay. Thank you. And with your portfolio your development portfolio currently 89% pre leased, how do you feel going spec on that project at the end of 2021 or do you still expect to not start without any pre
leasing? If we could start right today, we'd consider starting it. But I've always said, I think we're going to do some substantial pre leasing before we start it. It's 2 years off before we can in essence, before we can start. A lot's going to happen between now and then.
We'll be taking a look obviously at the macro environment, all the local demand supply situations and so forth. So, we don't need to make a decision right now, but the market is very strong right now for big modern space. You're going to see some deals that are going to be done in this city at near $100 triple net.
Great. Just one more for me. And you made some comments on split row. Has that changed any conversations with tenants on leasing and any new leases going forward?
Hasn't come up at all.
Okay. Thank you very much.
Our next question comes from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Thanks. Tyler, could you just talk a little bit about what's going into the occupancy decline assumption? I think last call you guys said you have one expiration over 100,000 square feet in 2020. Can you just give a little bit of color on what you guys are assuming or if it's a known move out or just kind of lower retention expectation?
Yes. No, it's what we had mentioned last time, which is we have a lease in Long Beach that rolls in the 4th quarter. So, we are assuming at this point that it won't be re leased and so occupancy dips in the Q4. It will also, by the way, dip a little bit in the Q1 because we have a move out in Seattle, which has already been leased. So the occupancy will come back up, I think, in the second quarter.
So it will be a little bumpy, but the reason that the guidance is down a point is from that lease in Long Beach.
That's helpful. And then, John, your commentary sounds like the Flower Mart is definitely moving to a new site. I know it's not a near term start here, but could you just talk about kind of where your yield expectation is going on that project now that rents and room into $100 a square foot, you're getting
Craig, we're not performing $100 a square foot. So I want to make that clear. But on the other hand, I wouldn't mind getting that. In terms of yields, if think about it, we've had to buy another site. We're improving that.
We always had to move the Flower Mart to a temporary location and bring them back. So the net cost is an increase. On the other hand, at the Flower Mart, the development project between 5th and 6th on Brannen, we now have square footage that would have been the return of the Flower Mart that's now office and we'll lease at a yield that is probably 15 times, 20 times higher than what we would have gotten. We have a significant reduction in cost because we now don't have all the 300 or 400 parking places for the which would have been required for the flower market or subterranean and all the truck access ramps and so forth that had to go down below. So when you look at everything in terms of where our pro form a is, I think it's going to be right there where you've seen everything else that's come on stream over this cycle and that we have underway right now, sort of that high 7, low 8 initial ROC unlevered and pretty strong GAAP rents.
That's helpful. And then just, I apologize if I missed it, did you give any expected timing on the start in Seattle and the new mixed use site?
No. Well, I think what I said is it's going to be 2 years. We have to go through Seattle is a much simpler place than San Francisco. You know what you can build, but you still go through a process that takes a little over a year, but you have a predictable outcome. We're working with the city to address how these sites that are all next door to one another will look and what the street fill will be and I think it's going to be pretty exciting.
So, I'm anticipating that we could be underway in a couple of years. And when we think about that site, putting aside the little historic building, which is kind of a neat little building, we have I love this project. It has 2 office buildings that total about 900,000 square feet that can be phased. And then it has a residential site that I don't think we will develop, I think we'll probably we might venture it or we might sell it, we'll see. But we want to make sure it's planned sensibly with regards to the adjacent properties that we own.
So it's just a fantastic site. We're really excited that this is one that I think between the Flower Mart and the Vance property, we probably have the 2 best development sites in the West Coast, if not the country.
That's helpful. And just one more quick one for Tyler. Just you guys have been pretty successful at doing forwards on the ATM, but given kind of the upward momentum in the stock price, what's the appetite to kind of try to do just spot ATM issuance versus continue to do forwards?
Well, when we do our ATMs, we look at it what the cash needs are at the time. So, the forwards are slightly more expensive than just doing a regular way ATM. So, it's really a decision of the time every time we do a transaction for the cash needs. As I mentioned, we'll be drawing down $90,000,000 in the Q1 and the remaining $160,000,000 in the Q4 of the existing ATM. But we haven't decided to do any more ATM at this point anyway.
So that's a decision for the future. Great. Thank you.
Our next question comes from Manny Korchman with Citi. Please go ahead.
Hey, thanks. John, just if we think about Seattle and the demand there for both your new development and some others, can you just talk about what the demand pipeline looks like from tenants in Seattle?
Yes. Hi, Manny. This is Rob Parat again. Seattle has very similar, I guess, story to San Francisco and in fact, some ways, I think almost better because it's got more room to go. Clearly, Big Tech has found Seattle and is expanding there in specific markets, those being South Lake Union and Bellevue and parts of downtown.
And I say parts of downtown because you can subdivide downtown into what used to be traditional financial district and then more creative office space. And so with as John was talking about the Vance project, it is a really exciting project that will be a modern office next generation building, which currently does not exist downtown. There are a lot of high rises, but this will be much more in line with what you've seen Kilroy do here in San Francisco and elsewhere. So demand is very strong. It's 7,200,000 feet in Seattle right now.
There are a lot of tenants, probably more than I've seen over 100,000 feet in search of space right now. So we're very excited about it and really can't wait to get our design baked so we can start really getting out into the market.
Thanks, Rob. And Tyler, if we just think about your Q4 results, I think you said there was a $0.05 of 1 and some items in there. What else drove the beat to sort of your previous guidance?
It's mainly the exchange came online earlier than anticipated from a GAAP perspective, about $0.03 of that.
Okay. And then, Tyler, to you again, on Prop 13, I think previously you had given a range of $0.02 to $0.04 What's changed that you are less comfortable or uncomfortable with giving a range today?
Yes, I mean, it's still in that same general ballpark, but it just seems more and more uncertainty. There's drafting issues in the current proposal that are uncertain about how small businesses are dealt with. There's uncertainties about how the assessors are going to value the properties and when they're going to value the properties. So, it just seems more and more uncertain almost every day. So, it's harder for us to value.
Thanks, everyone.
Our next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Great, thanks. Can you just talk about the dispositions you guys are targeting for this year? Are there any specific properties you can talk about that are up for disposition? And I how should we think about timing and pricing on those sales?
Well, in terms of I'll answer the first part. This is John. We always have a handful of projects that we look at. We evaluate everything. We have not yet made a decision on what would constitute all $300,000,000 if we go that high.
We have a number of projects that we have identified, but we don't like to get into identified internally. But for a lot of reasons, we don't like to get too specific until we have something that's transacted. It can impact people here at Kilroy, it can impact tenants, it can impact other things going on with cities. So I'm not going to get specific. In terms of the timing, Tyler, you want to address that?
Yes. We've modeled effectively mid year for the proceeds from the dispositions.
All right. That's helpful.
And maybe if I can ask just a little bit differently, would you characterize the sales as more non core or maybe more harvesting value in properties that might be kind of stabilized at a high level of NOI or a pretty even mix?
Yes. We look at both and there might be some of both. One of the dilemmas right now is with the cost of land and with the cost of replacing assets, unless something is in a market that you really don't care to be in any longer or a building that perhaps isn't going to see continuously better days, it's really hard to pull a trigger because rents have gone up so much and you want to harvest that. And if you have a new building, for an example, some of the buildings we've recently completed in the cycle, while you can sell them and make a profit, the trouble is you can't replace some of these things. So, it gets harder to find which ones to identify which buildings you want to sell.
But we go through a rigorous process and we're going through that right now. More to come.
All right. That's very helpful. And maybe for John or Rob, you guys have clearly done a great job of backfilling some move outs you've had in the last couple of years. And I know it's a small part of the portfolio, but it seems as though there's still some vacancy in the I-fifteen corridor. Have you guys seen any of the incremental demand in the San Diego market filter out to that submarket?
Or is it kind of still focused more in Del Mar, UTC and downtown at this point?
No, Blaine, it definitely has this is Rob. It has filtered into the I-fifteen corridor and we have some activity that I can't get specific on, but stay tuned with what's going on. And with the renovations we've done and that sort of thing, it's become a very attractive submarket. And I guess the other thing I'd say is that so much tech has started to come into San Diego, big tech is going into San Diego in scale and they are looking at various opportunities in different parts of the county. So we see demand as being very strong and getting stronger.
Wait till next quarter.
That's good
to hear. Thanks.
Our next question comes from John Guinee with Stifel. Please go ahead.
Great. Thank you. Just more of a curiosity question. In Seattle, with the 900,000 square foot office building, 600,000 square feet of multifamily, looks like about a 25 FAR project and you're clearly not building low rise there. What's it going to be what's the cost all in per unit and what's the cost all in per square foot when you start out with that sort of land basis?
John, I don't have those numbers. We went through our whole DSP, which is our process to approve a project and so forth. I just don't have those numbers on my head. I can get back to you with them. But do you have those for Michelle?
Yes. John, I think on a full project on the office basis, we're modeling roughly $700 to $800 per square foot in terms of total estimated investment.
Great. And where do you get sort of uncomfortable on a per square foot when you're building in these markets? Have you gotten close or do you think that the rents are so strong and the tenants are so price insensitive that they'll just pay up for quality product?
Yes. I kind of I'm one of those believers that you want to get a good strong yield up front and you want to have a valuation when you capitalize it that people can be supported. There has been some things that have traded that we've looked at and just said, you got to have too many things go right to get to a place where the cost is a little high, the yields are a little thin and why do that? I guess what I'm trying to say is, John, we're not at that point in any of the projects that we have on the books. We're at a point where I think our delivery costs is less well less than what things are trading for and our yields are projected to be pretty strong like the ones that I've historically discussed.
So I'm all I can talk about is what we have and I feel very comfortable Seattle now trade buildings in the $1100 range for quality projects. And we took a look at all those, some we didn't like for various reasons. And as Michelle said, we've got one of the best sites in town with 2 buildings that total 900,000 square feet, 2 different office buildings, not 1 900,000. And as she pointed out with our land costs, with highest quality Kilroy type standards, the best in sustainability, all the great stuff that we do in our buildings and a big amount of projected increase in construction costs and being in a $700 or $800 I mean, that's pretty spectacular.
And then second question along the same lines, Culver City, you're paid $1200 a foot for a bunch of 8,000 square foot buildings. That's clearly not the end game. It's just a covered land play. Are you at liberty to talk about what the ultimate entitlement you expect in Culver City?
Not in a political year. But you can imagine it can accommodate. What do we have there, 7, 8 acres? And if you think about it at the Flower Mart, we have 7 acres, okay? And I'm not saying it's going to be exactly the same size of Flower Mart, but it's going to be a lot more than what's there.
But I just don't want to become a lightning rod for any political agendas.
Thank you.
Have a good day.
Thank you.
Our next question comes from John Kim with BMO Capital Markets. Please go ahead.
Thank you. With GM Cruise, your 2nd largest tenant now, can you remind us if this lease is now fully contributing to FFO and cash same store this year?
Jim Cruz isn't our 2nd largest tenant. What are they, Michelle or Tyler? They're way down the
road. Yeah, only contributing as of the 4th quarter, last 4th quarter.
Okay. So the no tell sublease does not impact that at all?
That's right.
On split roll, I realize it's hard to assess the earnings impact given the moving pieces. But can you provide an estimate as to how much of the existing $78,000,000 in real estate taxes you get reimbursed today from tenants?
Well, one way to answer that is about 50% of our leases are triple net, but that's not an exact number. I don't have any further details on that question.
Okay. And any thoughts on Prop 10? I realize it's multifamily is not a big part of your portfolio, but any views on the likelihood of this passing and how this would impact your mixed use developments going forward?
Prop what?
Prop 10.
This is Elliott, Trencher. While we're not going to comment on whether it passes or not given the age of our product, which is pretty new, we don't think it will have a material impact on us.
Our next question comes from Steve Sakwa with Evercore ISI. Please go ahead.
Thanks. Just in terms of sublet in general, are there any other properties currently in the portfolio where you're maybe seeing sublet activity or just what does sublet activity in your markets look like and maybe within your portfolio specifically?
Sure. Steve, this is Rob. How are you doing? In our portfolio, we've already talked about the cruise potential sublease. Dropbox has some space on the market at the exchange.
It's short term space and I understand they've got activity on that. If I can just take a step back on sublease space in general in San Francisco, there are 3 things that I'm looking at. The numbers ticked up, but really you've got 3 factors that affect how quickly that will be absorbed. One is the rate expectations of the sub landlords. Secondly, 7 out of the 12 sublease spaces in San Francisco right now have a term of less than 24 months.
And then thirdly, given the demand of over 9,000,000 square feet sublease space, as we've said on multiple calls that is built in what I would call next generation or tech friendly sort of configuration, the sublease space is manageable given all the demand we've got. So we have now and then there are conversations where there are small pockets, but nothing meaningful in the portfolio in San Francisco. And I would say, in general, on the West Coast, we haven't seen a lot of subleasing.
Okay. And then secondly, just up in Seattle, I know the big focus has generally been more in South Lake Union. But you do own 2 buildings in Bellevue and there seems to be some shift of Amazon's activity over to the east side. Just curious, John or anybody else, how you're sort of looking at Bellevue and potential land opportunities in that market?
Yes. We've looked at all of them and there are obviously quite a few people playing in Bellevue. We think it's a great market. We're hitting all time high rental rates there now with our recent leasing. One thing about Bellevue is you can build a lot of space there and you're going to see a lot of space built and most of it is spoken for, but some of it is not and they're going to you're going to see some projects come on stream that I think are inferior locations.
And I think they'll be pushing hard to get tenants. And I just think the dynamics for us were much more compelling, as an example, advance. So I'm not in any way, shape or form suggesting that we've lost enthusiasm for Bellevue. It kind of goes back to John, I think it was John Guinee's question, at what point do you get uncomfortable? I look at what can be delivered, what's starting spec, what costs are you going to have for completed project, what rental rates do you have to get?
And I'm not as enthused currently about Bellevue spec development as I am about Seattle.
Got it. Thanks.
The next question will come from Dave Rodgers with Baird. Please go ahead.
Yes, Tyler, maybe a question
for you with some help from John. But as you looked at 2019, I think you guys came in relatively low on the dispositions relative to guidance and acquisitions kind of came in above. You have issued some on the forward ATM and thanks for the details on the quarters. But I guess I'm wondering between the 2 years 2019 2020, it seems like you probably have issued or monetized fewer assets than maybe you thought a year ago. So, one, without putting words into your mouth, is that kind true?
And then 2, are you seeing it longer to put money to work in the development pipeline? Are there acquisitions that just haven't come to fruition that maybe make up that difference in your thinking?
Well, let me first start with your comment on regarding acquisitions came in above. We don't give guidance on acquisitions because it's totally unpredictable. On dispositions, we did give guidance between $150,000,000 $300,000 We came in a little bit on the shy on the lower side. I've made comments throughout the year, throughout 2019 that a couple of projects we looked at as candidates for sale, which would have pushed us to if we'd done both, it would have pushed us well above the $300,000,000 We decided that there was some real opportunity to gain value and appreciable value by repositioning those assets and leasing them up at much higher rates. So that's the course we took.
And we're going to be flexible like that, Dave. We do not operate by we got to allocate so much capital to this or that in a year or that we have to go buy this or that or sell this or that. It really is far more of, I think, a much more thoughtful process than that. In terms of 2020, we gave the guidance of $150,000,000 to $300,000,000 That seems like a reasonable range on dispose. I made the comment that we haven't we're not going to identify for all of you until they close which ones those are.
Acquisitions, we're not really we look at everything. The 3 that we did this year were very compelling for the reasons I mentioned. And I think they set the company up in development projects and one with a covered land play where we're going to have a terrific cost per square foot comparatively and great locations where there is just tremendous demand. So I think it really positions us well. And we don't we're not looking at acquiring existing core type assets and whatnot.
It's not the right place for us to put our money unless they're being sold based upon a very low in place rent. But then it's going to be so competitive, I doubt we'd be successful. So I hope that helps, but it's each year is different. You've seen us years where we didn't acquire anything, years when we acquired something. In this case, with the success of our development program, we felt comfortable re upping, refilling the pipeline in these very strong markets where we have a really good business, good platform.
And any change in your thinking on timing for KOP Phase II through IV or any of the additional pipeline assets you already addressed, Slaughter Martin Seattle, so
Yes, that's a good question. On Oyster Point, the timing for Phase 2, 3, 4, we actually have a 5th phase that we'll talk about it in the future. We submitted the precise plan for Phases 2 through 4 earlier this or rather this last year. We anticipate approval very soon and design work is underway for Phase 2. The earliest potential start would be the end of this year.
Phase 2 consists of approximately 900,000 square feet, but it can be phased within the phase. So we haven't determined just what we're going to pull the trigger on, and obviously we'll make that assessment as the timing in square footage when we get further into the year based upon what we're seeing in the market. The demand there is very strong and it's if I had it up today, I think we'd be leased very quickly. And I think we've got just the greatest position in that market of anybody. And we're really excited.
So more to come.
Thanks, John.
Our next question comes from Daniel Ismail with Green Street Advisors. Please go ahead.
Great. Thank you. Just a few quick ones for me. It looks like construction costs fell slightly quarter over quarter for a few projects. Can you describe what was the cause of the decline and was this mostly a result of going from life science to traditional office tenants?
Yes. That's the both, $9,455,000 and Dexter, the overall construction costs came are coming in lower and KOP as well, coming in lower because it's not it wasn't Dexter's KOP. It came in lower because of non life science TIs.
Well, it also came in lower because a lot less carry because we leased them up so quickly.
Okay. And it looks like retention rates were a bit lower than historical average in 2019. Was this more of a function of the leases that rolled in 2019 or anything really notable in that figure?
No, I think it we don't have much to lease, but there's nothing specific that went on in 2019. It's any different than any other year.
Okay. And so just in terms of construction costs, it seems like the last few years have seen mid single digit type increases in construction overall construction costs. Can you maybe share your thoughts on what you guys are projecting going forward for total development cost increases?
Michelle, you want to handle that?
Yes. I think it's going to within the same range. We've said it's been that 5% to 7% over the past few years. And I think we expect that the same going forward.
Yes, actually talking with Justin, he is our Executive Vice President of Development, runs all our development construction activities. He's mentioning that we're actually doing he thinks we're going to do better than that now. There's been some changes in notwithstanding all the construction that's going on in our markets, there's been some positive changes in some of the areas. And by the way, that 5% to 7% doesn't mean the project's 5% to 7% higher. It means that various it's a way of kind of all flows through when you look at burden and you look at design and you look at construction materials, the ones that are going up, going down or labor that's going up or whatever it is, it's been translating into about a 3%, 3.5% increase in the cost of the delivered project.
We talk in terms of these 5% to 7% or whatnot in terms of labor and materials, but it's not uniform. That's not 5% to 7% on the total project cost.
Great. Thanks, John.
Our next question comes from Tony Paolone with JPMorgan. Please go ahead.
Thanks. On Culver City, is there any sort of timeline we should think about before we start to see some change in the state of play there?
You mean in terms of redeveloping it?
Yeah, just even coming up with a little more specificity on the plan and what you think you could do there?
Yeah, I'm going to wait for a non political year and we have tenants remind me, Elliot, the tenants don't roll out of there until 2024, is that right? Yes,
over the next 36 months or so.
Yes. So we have a strategy on how rents by the way, when we bought it, we're something like 35%, 40% below market and the buildings are it's kind of a cool little place. If you haven't seen it, go look at it. It's really a neat environment. So we have a strategy to put ourselves in a position to win those tenants get when they roll out that we are capable of proceeding with an enhanced development.
And that means that we'll be submitting our plans and whatnot to the city in due course so that we can be ready to go by that 2024 period. So working backwards, you'll probably see something in '21 or 'twenty two. We might have some things earlier than that to show, but we're pretty good at getting through all this stuff even though it may look like it takes an awful long time and it does and it's frustrating and so forth. It's just an unfortunate process that we have to go through here in this environment. I would imagine New York is probably similar.
Okay. And then just a few numbers items hopefully quickly. I may have missed this. Did you give G and A guidance for 2020?
Yes, it's roughly $85,000,000
Okay. And that's excluding leasing costs, just pure G and A?
Oh, including leasing costs. $85,000,000 Yes. Okay. It's a portion of the development. It's a portion the leasing cost gets split between stabilized and development.
Okay. But if I were to get the income statement, it was like closer to $96,000,000 combined in 2019. So that goes down a decent amount?
Yes, that's about right. Okay.
And then capitalized interest, any number for that?
Around $80,000,000
Okay. And then last question, can you give a sense as to what residential NOI was in 4Q? And then what that might look like when all the projects underway stabilize?
Yes. I mean, we don't really comment on specific projects. I mean, we only have one project. So, we don't comment on the NOI of a specific asset. So, when we have all three up and running, we'll probably be breaking that out.
Okay. So there was no contribution from the second project in the Q4 then? No. Okay. That's it.
Thanks. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Tyler Rose for any closing remarks.
Thank you for joining us today. We appreciate your interest in KRC. Bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.