Good afternoon, everyone. Thank you for joining today’s Q3 2022 Kilroy Realty Corporation Earnings Conference Call. My name is Dante, and I will be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity to ask questions at the end. I would now like to pass the conference over to our host, Mr. Bill Hutcheson, Senior Vice President of Investor Relations and Capital Markets. Sir, the floor is yours.

Thank you. Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy, our Chairman and CEO; Tyler Rose, our President; Rob Paratte, EVP of Leasing and Business Development; and Eliott Trencher, our CIO and Interim CFO. At the outset, I need to say that some of the information discussed during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being 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 SEC and both are also available on our website. John will start the call with third quarter highlights, and Eliott will discuss our financial results and review our updated 2022 earnings guidance. Then we will be happy to take your questions. John?

Thank you, Bill. Hello, everybody, and thank you for joining us today. I will give us some big picture comments and then review recent highlights. Over the course of the past several months, the economy has increasingly become uncertain, while at the same time, showing some encouraging data points. Labor markets remain strong, supply chain constraints are easing, and the consumer continues to spend. However, the unprecedented pace at which Central Banks are raising interest rates to tame inflation is, by many accounts, increasing the likelihood of a hard landing, resulting in increased volatility in the public markets and limited transaction activity in the private markets. While we cannot control the Fed's certain ramifications, we are laser-focused on the items we can control. Just as we positioned KRC to play offense coming out of the 2008, 2009 recession, we believe we are similarly well-positioned this time around. Our leverage is low. We have no debt maturities until the end of 2024 and over $1.6 billion of liquidity, including a fully untapped credit facility. While no one wants a recession, Kilroy is cycle-tested and prepared. During the third quarter, the push to return to the office intensified as many companies implemented stricter policies to encourage in-person work and collaboration. These efforts have been led by financial services and professional service firms, but we are seeing technology and media companies increasingly follow suit. Multi-large cap companies and their smaller counterparts are requiring employees to be back in the office two or three days a week, which has generated tangible progress in both our physical occupancy and data, which recently hit a post-pandemic high. This has also driven steady improvement throughout the year in our parking income. Like many, we believe that softness in the labor market will likely strengthen employers’ resolve around encouraging work from the office and will also result in employees adhering to those plans more closely. The bifurcation between high-quality space and commodity space continues to grow, which bodes well for our young and modern portfolio. According to JLL, in the third quarter, 90% of the space added to the sublease market was in older and less desirable buildings. Furthermore, throughout 2022, nearly 50% of markets nationally set records for high watermark rents on Premier Class A properties. This includes several of our markets such as San Diego, Austin, and San Francisco. Companies that are making decisions today understand the importance of locating in modern amenitized buildings, and we are seeing that. Turning to recent highlights, we signed 390,000 square feet of leases since the end of the second quarter with an average term of eight years and average rent roll-ups of plus 7% on a cash basis and plus 27% on a GAAP basis. Some highlights include a 63,000 square foot renewal of financial services tenant in Mineral Park; 55,000 square feet of renewals and expansions from two apparel companies in Culver City; an 11-year, 28,000 square foot new lease with Boston Consulting Group at 200 Kettner in Little Italy; a 10-year, 70,000 square foot renewal with a scientific research and development company in Del Mar; a seven and a half year, 35,000 square foot renewal in San Francisco signed late yesterday afternoon with a major broadcasting company; and a 15-year, 51,000 square foot lease with Page, a national full-service design firm at Indeed Tower, bringing this project to 68% leased. As we previously signaled, demand in these towers increased over the last couple of quarters and we expect to have more good news to discuss in the coming months. Life science demand, especially in top-tier markets, has been holding up well. Vacancy is roughly 2% in South San Francisco and roughly 2% in the Del Mar Heights and UTC region, our two biggest clusters. We have multiple prospects interested in Kilroy Oyster Point Phase 2, which consists of three buildings and 875,000 square feet. Our 1,000 luxury residential units continue to perform well. Occupancy is approximately 94%, and rents are increasing meaningfully compared to last year. Additionally, Los Angeles is removing the eviction moratorium effective early next year, which is another encouraging sign of policy moving in the right direction. On the capital markets side, we closed the sale of 3130 Wilshire, a 46-year-old building in West LA for $48 million in gross proceeds or roughly $500 per square foot. This property no longer fit our strategy given its age and future capital requirements. Bigger picture, the sales market was quiet during the third quarter; asset-level debt is hard to secure, especially for non-trough assets, and capital, while clinical, is generally on the sidelines. We are pleased to have closed the sale of 3130 Wilshire. As we alluded to last quarter, we think it is prudent to let the capital markets stabilize before selling additional properties. On the investment side, we are staying patient, waiting to see how market conditions evolve and whether motivated sellers come to market. While we expect there will be acquisition opportunities at some point, we are not there yet. Our operating premise over the past 25 years as a public company is that there are times to buy, times to sell, times to develop, and times like now to be patient. To that end, we said on our second quarter call that we were delaying the start of Santa Fe Summit, a 600,000 square foot plus life science development in San Diego. Similarly, we intend to hold off on the construction of Stadium Tower, our Austin development site until the economy gives us more confidence or we pre-lease a substantial portion of the project. As a reminder, the Stadium Tower site is fully designed and permit-ready for a roughly 500,000 square foot building. Since we acquired the project earlier this year, we have done preconstruction work, which reduces the lead time to deliver a completed building. Additionally, we have the right to add density now given our proximity to the light rail, which we plan to study in more detail over the coming months. As I mentioned in my earlier remarks, in 2009, we positioned the company so that we could play offense as the economy improved, which resulted in some well-timed acquisitions and development starts in the Bay Area, Seattle, and Hollywood. We are doing the same today by curbing spending, bolstering liquidity, and getting our top-notch development sites shovel-ready so that we can be an early mover when the time is appropriate. In summary, our strategy can be summarized via three tenets: best-in-class real estate; disciplined capital allocation; and fortress balance sheet. This recipe is cycle-tested, having guided us through up and down markets over the past, and we are confident that the adherence to these principles positions us to be opportunistic as circumstances warrant. Lastly, we want to remind you of our upcoming investor event in South San Francisco to be held on Monday, November 14th, right before NAREIT. We are eager to show everyone to Oyster Point and have some interesting speakers lined up to talk about the project, the overall market, and the company. If you need more details, please reach out, and we hope to see you all there. That completes my remarks. Now I will turn the call over to Eliott.

Thank you, John. FFO was $1.17 per share in the third quarter, similar to the second quarter. On a same-store basis, third quarter cash NOI was up roughly 6%. The growth was driven by free rent burn-off for some office leases, improved parking revenue, and higher occupancy at One Paseo residential. GAAP same-store NOI was up approximately 2%. At the end of the quarter, our stabilized portfolio was 91% occupied and 93% leased. Included in this number are three development and redevelopment properties, which were brought into service during the quarter. These three projects were 59% occupied and leased as of quarter end. Turning to the balance sheet. We enhanced our liquidity post-quarter end by a $400 million unsecured term loan at a rate of adjusted SOFR plus 95 basis points. We have $200 million of the $400 million outstanding, which is subject to an interest rate cap and we can draw down the balance at any point over the next 11 months. We believe this is an efficient source of capital, and it gives us enhanced liquidity to fund our development pipeline while continuing to provide predictability to our interest expense. Net debt to third-quarter annualized EBITDA remained about 6 times and we have no debt maturities until December of 2024. Now let’s discuss our updated 2022 guidance. 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. The COVID-related impact to significant shifts in the economy, our markets, tenant demand, construction costs, or 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 occupancies. With those caveats, our updated assumptions for 2022 are as follows: as always, no acquisitions are forecasted, and as John referenced, we do not anticipate any additional sales for the balance of this year. Our new term loan has $200 million outstanding as of the beginning of the fourth quarter. We do not expect to draw any more in 2022. Development spending for the balance of the year is expected to be $100 million to $150 million, which translates to roughly $400 million of spend for the full year. This is a meaningful decrease from the roughly $600 million of development spend we were projecting earlier in the year. As we discussed last quarter, we expect the year-end occupancy to be at the low end of our range or approximately 91% for the office portfolio, and residential occupancy is projected to stay around the current level in the mid-90% range. Same-store cash NOI growth is now expected to be between 6% and 6.5%, a 75-basis-point increase from our prior estimate. The increase is due to strong results to date specifically around parking revenue and the residential properties. Putting this all together, our updated 2022 FFO guidance is projected to range between $4.62 per share and $4.68 per share with a midpoint of $4.65 per share, which is a $0.07 increase compared to our prior guidance. The increase is due to the solid third-quarter results and the adjusted disposition expectations. The new range implies a $0.02 decline for the fourth quarter as compared to the third quarter, which is predominantly due to the term loan that closed in the beginning of October. That completes my remarks. Now we will be happy to take your questions. Dante?

Our first question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Great. Thanks. I guess, good morning out there. John, I was just wondering if you could provide a little color on the South San Francisco life science demand. We have been out there several times, and it seems like demand has slowed down out there. And I am just curious what you are seeing both broker deals and maybe non-broker deals for KOP 2?

Yeah. Sure. Rob, do you want to take that one?

Sure. Hi, Steve. What I would say is that for, again, let’s talk about KOP compared to other projects that are out there. We have scale. We have three buildings. We can grow companies, which is what a lot of the larger companies are seeking, which is the ability to establish a toehold and grow. No doubt, as we have talked about before, early-stage companies are a little bit on hold, because their boards are putting them under more scrutiny and telling them to slow down taking space while they sort through this uncertain environment we are in. I don’t want to get into a lot of detail on our discussions, but we are, as John mentioned in his comments, having discussions with several firms and we are pleased with the activity we have, and I would call it steady in terms of the inquiries we have had, the tours we have had, and we are having some fairly in-depth conversations with companies.

Okay. And then, John, maybe just on the broader leasing and maybe specifically what you are seeing in downtown San Francisco, I know you have had some either tenant move-outs or some sublease space coming back on the market like Nektar Therapeutics. And I am just wondering what you are hearing from kind of the business leaders about leasing specifically in downtown San Francisco for either vacancy or maybe upcoming availabilities?

Yeah. Let me deal with the big picture for a second then I am going to turn it over to Rob and address some of the specifics that you raised, Steve. I mentioned on the last number of calls that in a period of volatility and uncertainty, it’s natural, whether it’s people or whether it’s companies. If you don’t need to make a decision, you don’t make a decision. If you can delay a decision, you delay a decision that is just smart. And that continues to be in all of our markets, although we are beginning to see a lot more activity. Specific to San Francisco, Rob, can you address that?

Sure, Steve. Again, I think, it’s really important to emphasize the difference between properties, right? There are Class A premium properties, which I think our portfolio falls into. If you have got a young portfolio, young buildings, well-located, modern improvements, amenities, you are going to have activity and that’s borne out in the data in San Francisco. The top 20 buildings in San Francisco according to JLL right now have seen effective rent gains of 15% since 2019, and in some cases, increases beyond that. So, again, if you have got property that tenants want, they are going to be very selective and they are going to absorb it. A really good example of that is Google taking almost 300,000 feet in Q3. A lot of rumors float around the text on the sideline, but I think that is not the case as we have seen in other markets we have as well. Sublease space has remained at about 7.2 million square feet. It fluctuates up and down, but we have been holding in that range for quite a few quarters, and again, it really depends on the quality of the space. The Google lease I mentioned is actually a sublease, and that’s a high-quality building that they took. So there are the haves and the have-nots. And I think the last thing I’d say is, if you compare the REIT industry to the private markets in terms of ownership, some of the private owners are going to have, I think, struggle as debt markets continue to tighten and lending becomes more difficult. So there’s going to be difficulty in fulfilling capital requirements for leases and operating the building in a Class A manner. So Kilroy positions itself as a true partner with our tenants. And what we are really doing, as John mentioned, we got a lease signed later in the evening last night and that was a true partnership with the tenant, working hand in glove with them to get their management onboard with the lease, as well as making the numbers work for Kilroy.

Okay. I guess maybe just as a follow-up, John. Just big picture, given the discussions you have had with the Mayor, I mean do you feel like the city has made enough progress, both in crime, homelessness, and attractiveness to bring people back that makes the city sort of viable going forward?

I believe that they have not made sufficient progress. There is still a lot of work to do. We need to stop any negative trends before we can start improving. They think we are heading in the right direction now, but there is much ahead of us, especially with the upcoming election for the district attorney, Jenkins, which is crucial. There are also important supervisor races. While I’m not in New York, I recognize that leadership and policy significantly impact cities like New York, San Francisco, LA, and Seattle. I've voiced my concerns about politicians and the necessity for good policy over the years. We've seen positive changes in San Francisco and other areas. The upcoming elections will influence our state, country, and localities. Some will go in our favor, and others may not, but I feel we have made progress. People are coming together across different political views because they are frustrated with the current policies, which gives me hope, although we need to continue to advance. I'm definitely more hopeful than I was a year ago, as we've managed to halt the negative momentum. While there are still some issues, I’m cautiously optimistic. It's akin to recovering health; you can see improvement, but there's still a long way to reach a healthy state.

Okay. Great. Thanks. That’s it for me.

Okay. Super. Thank you.

Thank you for your questions, sir. Our next question comes from the line of Camille Bonnel from Bank of America. Your line is now open.

Hi. Good morning. I see leasing activity improved in October with your teams signing nearly a third of leases year-to-date in one month. Can you provide a bit more background behind this leasing activity in the sense of how long were these conversations going on for and how does it compare to leases you were signing at the start of the year?

Rob, do you want to take that one?

Sure. Hi, Camille. As John said earlier, I think, on this call, and he said it multiple times over the years that we are in a position right now where decision-makers are faced with a lot of uncertainty and if you don’t have to make a decision today, you are not going to make one, and that’s the prudent thing to do. And that’s borne out in the leasing that we see, and why transaction velocity seems slower and it is slower, because what’s happening is on our client side, the tenant side, the real estate executives are being scrutinized more in terms of the deal that may get approved, say, in May by a Board of Directors or a subcommittee of a Board. It is coming back up for review in September as an example, because the Board wants to make sure it’s still a viable transaction for the company. Do they need it, et cetera? So that is taking more time. I think that we just are very prudent about how we report our leasing during earnings calls and quarter-to-quarter, but we have had quite a few deals in our pipeline, which you see now coming to fruition in October, and I would say we have more in our pipeline, as John alluded to, that we will be announcing here hopefully shortly. So it’s just a complicated environment, and you have got a lot more eyes looking at transactions than you did in 2019, for example. But again, if you have the right property in the right location, tenants are making choices and they are making decisions, and some are making longer-term decisions to lock in that space.

Yeah. I’d add to that. Since Labor Day, we have seen a big increase in tours throughout all of our markets and we have seen more deals green-lighted that were sort of not on hold, but just going through the added scrutiny that Rob was talking about. So there’s definitely been a shift in deposit it since Labor Day. We hope that continues to gain momentum. But I think that’s sort of a place from which we could say we have seen a big difference.

Okay. I appreciate the color. And second question for me, can you comment on any sublease space, if any, in your portfolio and speak more broadly on whether you are seeing any changes in the market, whether people are leasing or taking back space?

Hi, Camille. It’s Rob again. Yeah. As far as we know now, we don’t have any new major blocks of sublease space in our buildings. Often, what happens, particularly with a sub-tenant that comes along that is somebody would really want, we can make a direct deal. We can do a must take at the end of the term and that sort of thing. So we do work with our tenants, as well as good subtenants when we find them. So, so far, I think the quality of our portfolio is bearing out that we are not seeing a high proportion of sublease space. As I said earlier, San Francisco sublease space has remained fairly static in the 7.3 million square foot range. I would say that about 40% of that 7 million is Class B and C space that’s going to be the last to lease, if it does lease again, or it will be converted to some other use at some point. And then taking a step back across the markets, I think a fair answer to your question is that sublease space is up in most markets. But again, it’s got to be you really have to differentiate between contiguous floors of sublease space, which is more competitive to the product we have versus spots of space in a building. So most markets have seen an uptick in sublease space, but you are also seeing pretty much a supply constraint going on also as far as new development goes.

Thank you for taking my questions.

Thank you for your questions, ma’am. Our next line of questions comes from the line of Derek Johnston from Deutsche Bank. Your line is now open.

Hi, everyone. Thank you. John, a little while back and even briefly in your open, you noted the Indeed Tower. I think the pricing was strong, while the lease-up was slightly behind schedule. With another lease signed, can you provide an update versus plan? And then more broadly, what makes you confident about the demand you expect to see in the Austin market going forward?

Well, I’d ask Rob to comment as he’s directly involved in all those deals. I’d say this, we did increase the rents dramatically and the roster of people we are dealing with are kind of like the who’s who quality, and I think we are going to do extremely well in that asset. But, Rob, why don’t you add some color?

Sure. Sure. Just a little more color. What we really like about the Austin market and if you look at our lease-up at Indeed, is that it’s a diverse market. So we have a mix of tech and we have a mix of professional services, and that’s borne out in our tenant roster at Indeed. And that allows us to cast a wider net in terms of who we are going after. Indeed, because of, again, the amenities, the scale of the project, the food, and just the life in the CBD is attracting both sides of tech and professional services. And a lot of the companies, I would say, particularly on the tech side, that are expanding in Austin and continuing to expand are doing it because of the talent they are getting, and they are locating in locations where that talent wants to be. We are where the young engineers and people coming out of college generally want to be in a CBD where you have an active nightlife and things to do after work. So I think that’s a fair description of what gives us confidence about the market. And then I can’t disclose, but I just know what our pipeline is and the negotiations and discussions we have going on. As John said in his comments, we expect to be able to make some more announcements.

All right. Excellent. Thank you. Look, I know you mentioned this is a market to be patient, right? But with 55% of development committed to life science, that will bring the exposure to just under a third of NOI. So, I guess, I wonder, what’s the capital investment priority between, at some point at least, right, when we are not patient anymore, between increasing life science exposure and/or pushing into new markets? How do you balance both of these?

That's a question that is still developing. We spent five years assessing Austin to find the right opportunity. We would have entered the market sooner if we had found the quality we were looking for. Currently, we are not actively pursuing another market. We review many opportunities but are probably focusing less at this time. In terms of our product, I believe we have one of the best-located life science projects in the country in KOP, which is a proven market. The property has great amenities and characteristics that are highly valued. As Rob mentioned, we have significant interest there and I’m confident we will succeed in Phase 2. Looking ahead, we don’t have a fixed ratio regarding what percentage should be life science or new markets. We will proceed carefully, as we have in the past, establishing a quick presence while ensuring we have enough scale to attract the right talent and offer a differentiated product. We want to avoid being seen as just another option in the market; our goal is to create substantial value over time. That’s the overall strategy, and we intend to remain adaptable. I’ve been in this business longer than most in the REIT sector and have experienced many cycles. In my time as a private company, I've seen the importance of managing debt and liquidity. I want to emphasize that our balance sheet is strong, our liquidity is substantial, and we have ample capital. Our narrative is uncomplicated; we prioritize being straightforward with our clients, collaborating closely on their goals. This was a key factor in our decision to enter Austin, driven by requests from several of our tech clients who believed we could make a meaningful impact with our product there. That's the overarching view, and we'll see how it unfolds.

All right. Great. That’s it for me.

Thank you for your questions, sir. Our next line of question comes from the line of Nick Yulico from Scotiabank. Your line is now open.

Thanks. Hi, everyone. First question is just on the lease expirations over the next year. Hoping to get an update there on the traction you have on space. I know last quarter you mentioned one likely move out in San Francisco, so just to get a feel for what activity is like on the expirations?

Yeah. Hi, Nick. This is Rob. We have four expirations over 100,000 feet in 2023. One of them is a known move-out, which is Pac-12, which we have announced. The other three we are in active discussions with, and that’s about all I can say, but we continue to have dialogue with the remaining three.

Okay. Thanks. And then in terms of the asset sales, reducing that guidance, just hoping to dig into that a little bit. Was that a situation where you specifically brought assets to market and you got disappointing bids or is it just sort of informed by your and color you are hearing from the investment broker world that on a real-time basis asset values are down by some level, because debt costs are up and so you just chose to avoid selling right now for that reason?

It’s the latter. We actively put 3130 on the market. Eliott, I think, we had about more than a dozen bids or whatever, we had dozens and dozens of people signed NDAs and whatnot. So that was a fairly efficient process. As far as the other buildings that we were thinking about, we didn’t take to market. We monitor the market. We are regularly dealing with the big brokerage companies, and we are also having conversations with some of the logical buyers, not specific about an asset, but we follow them with regard to the level of activity that they have. We kind of understand who’s debt dependent and the kind of debt that they like to have and the percentages and so forth. And then a volatile and confusing time like right now, if you are going to sell an asset, we have plenty of assets that we can sell at fabulous prices that are long-term leased to high-quality tenants, but we really don’t want to sell those assets. And we just say to ourselves, why sell into an inefficient market where you have fewer bidders, more contingency with regard to debt or otherwise? That doesn’t make any sense. We built the company around the premise of having a stalwart balance sheet and that allows us the opportunity to be sellers when it makes sense. But not to have to sell to fund things, and that’s what we have elected to do. The markets will come back. I mean, who knows what the new normal will be. But there are a lot of things in the system right now that create uncertainty and we have built the company to weather the storm. And when it returns, then we will be back as sellers of some of the properties we want to sell.

Okay. Thanks, John.

Thank you for your question, sir. Our next line of question comes from the line of Blaine Heck from Wells Fargo. Your line is now open.

Great. Thanks. Just following up on new leasing demand. Again, what we are hearing that large tenants are at least taking a step back recently. So if you could just talk a little bit more about the profile of tenants have active requirements in your markets and maybe some context on the size of that requirement pipeline relative to kind of historical averages? I think that would be helpful?

Hi, Blaine. This is Rob again. Since Labor Day, we've noticed a significant increase in activity, tours, and deal-making, particularly in Los Angeles, San Diego, and Austin. San Francisco and Seattle are somewhat quieter, although there is still activity in those cities. Life science remains steady, with users looking for the best quality spaces. For instance, in Seattle, Blue Origin is expanding by 250,000 square feet, and Alaska Airlines is adding 120,000 square feet. We've also secured a deal for Google Cloud involving 300,000 square feet in San Francisco, and U.S. Bank is expanding in the same area. Recently, Astellas Pharma signed a lease for 154,000 square feet in South San Francisco, while NGM Bio renewed 120,000 square feet. San Diego has been particularly strong, with one of our clients expanding by another 500,000 square feet there, although I can't disclose their name. Vacancy rates in Del Mar and UTC are around 2%, indicating positive market dynamics for larger tenants. While the market is slower than in 2019 and some tech firms are hesitant, not all tech companies are inactive. The examples I provided show diversity among tenants, including banks, Google, scientific organizations, and professional services. Overall, we think the pipeline for these deals is difficult to predict, but we expect a moderate improvement, as John described it—fits and starts.

Great. Thanks, Rob. That’s really helpful. Second question, you guys have a relatively strong balance sheet compared to peers, which is certainly an advantage in this environment, but you do still have some more spend associated with your development pipeline and dispositions are likely a little tougher, as John just talked about. So I guess how should we think about sources and uses and how leverage could trend as we look forward?

Hey, Blaine. This is Eliott. I can take that. I think the way to think about it and we touched on our liquidity a little bit during the prepared remarks. But between the cash we have and the $400 million of unsecured term loan that we raised. We have about $500 million. We also have $1.1 billion on the line, which compares to a remaining spend of the projects under construction of about, call it, $750 million or so. So that gets us a lot of the way there. And frankly, the term loan that we did in the fourth quarter was $400 million. The midpoint of our disposition guidance was $350 million. So we actually enhanced our liquidity as well. So we do think we have quite a bit of runway to fund the pipeline, and as we get a little bit further down we can make a decision on how to fund the balance. But we think a lot of the near-term question has been resolved with the term loan. As far as leverage, we are about 6 times now. I think what we have said in the past is not that we intend on debt funding everything, but if we did debt fund everything just to show a sensitivity that 6 times goes up to 7 times and then once the pipeline is leased, it gets back down to around 6 times.

Thanks. Thank you, guys.

Thank you for your question, sir. Our next line of questions comes from the line of Michael Griffin with Citi. Your line is now open.

Great. Thanks. Maybe back on to leasing. Rob, I am curious, have you noticed from prospective tenants you are talking to anything that they are sort of asking or looking for that they might not have been, call it, six months to 12 months ago?

Michael, regarding concessions, the situation has changed slightly with inflation leading to increased tenant improvement costs. However, we aren't seeing anything unusual in our rental agreement concessions. Tenants are primarily looking for partnerships, meaning we need to collaborate with them. We must assist them in innovative ways and structure deals that accommodate their management and CFO's needs. They are aware of their staffing requirements and the space they need, but we're focusing on inventive deal structuring. This approach doesn’t involve offering extensive free rent followed by high monthly rates; rather, it is about supporting their growth in a strategic manner, particularly for larger tenants, ensuring that the transaction benefits both parties. This process is taking more time compared to 2018 and 2019, as things are progressing more rapidly now.

Thanks. Maybe shifting back on to the political landscape in some of your markets, while it seems like things have improved somewhat. I think John alluded to, you have to stop the train before we turn it north. I mean if you do end up seeing a deterioration in the environment from a regulatory perspective in some of these markets, would it make sense to reallocate at some point out of some of these markets and into Texas, maybe continued expansion there, more kind of business-friendly kind of environments?

This is John. You’ve asked a good question, and the answers seem fairly obvious. I have high expectations when it comes to these individuals, and I’m clear about what I believe they should do. If they’re not acting appropriately, I advocate for change through coalitions. We’re beginning to see some real improvement, but we’re also dealing with 40 years of mismanagement in certain cities that have just been complacent. As a company, I’m not ready to decide whether we should invest more in this area compared to another. However, we are rational thinkers, and your inquiry is reasonable. That’s about as detailed as I can be since I don’t want to disturb the status quo. But I want to assure you, Michael, that I am always direct in my communication, which I’m known for, and I have numerous discussions with politicians daily.

John, I think we appreciate the no-nonsense and the candor there. thank for the time.

Well, I got to tell you this to everybody else in the REIT industry that owns properties in these cities, I am seeing a lot more join in, but more need to join in. This is a battle. It’s a battle all over the country. And we just got to make sure that sensible minds prevail over time. And as I said, I am encouraged. It’s transcending the political landscape now because people have had enough, and I don’t really need to say more; I will probably get into trouble. But thank you.

Thank you for your question, sir. Our next line of questions comes from the line of Dave Rodgers with Baird. Your line is now open.

Yeah. Good morning out there. Eliott, I wanted to start with you. I think other income was up a little bit, not a big deal this quarter. But I wanted to ask them further about kind of parking deferral, retail, ancillary income, how much more you might have to go in terms of a recovery against what your physical occupancy might be and maybe how that’s impacting that other income line?

The main factor driving our performance this quarter and year-to-date has been our parking operations. Our same-store parking revenue has increased by about $4.5 million compared to last year, reflecting significant improvements primarily due to higher physical occupancy. This has contributed to both the same-store revenue increase and our updated guidance. While we’re pleased with this progress, it's difficult to predict exactly what comes next. We don’t anticipate a large boost in revenue from this point, but we believe there is still some potential for growth.

Appreciate that. That’s helpful. On Indeed, Indeed Tower, can you give us an update on any time line for move-in rent payments, build-out, et cetera, that might impact your expectations going forward?

Yeah. So specifically around the revenue recognition for Indeed, which is what I think you are referring to, they are paying cash rent. We are not recognizing revenue yet, and we expect to start recognizing revenue sometime next year.

Any more clarity on kind of the timing around that, obviously, a pretty big lease…

First half.

All right. Appreciate that. And then last one, maybe this is for Rob on the leasing front. It’s a little ways out 2024 the LinkedIn space. You probably aren’t talking to them yet. But I guess maybe the question would be, are they using that space? Do you expect them to stay pretty engaged in that space? It’s a fairly large size lease, and so I just wanted to kind of touch on that quickly?

Silicon Valley has been very active in the past year and a half. LinkedIn is very fond of that area and has been in those buildings for quite some time. We have received some inquiries from other companies, but I don’t want to share too much detail at this point. However, based on what we're hearing and observing in the market, I believe it will attract interest from more companies than just LinkedIn.

All right. Thank you.

Thank you for your question, sir. And with that, we have exhausted all questions. I would now like to pass the conference over back to Bill Hutcheson for any closing remarks.

Great. Thank you for joining us today everybody. We appreciate your continued interest in KRC. Have a great day.

And with that, we will conclude today’s Q3 2022 Kilroy Realty Corporation earnings conference call. Thank you for your participation. You may now disconnect your lines.