Q1 2020 Earnings Call
At this time, all participants are in listen only mode.
After managements prepared remarks.
Instructions for participating in the question in that fashion.
The topic for Stuart Mcelhinney like I said.
It's relations Douglas. Please go ahead.
Thank you joining yesterday on the color Jordan Kaplan, our president and CEO, Kevin Crummy, our CIO and Peter CE, Mark our CFO.
Called being webcast live from our website and will be available for replay during the next 90 days.
You can also find our earnings package at the Investor Relations section of our website.
You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.
During the course of this call we will make forward looking statements. These forward looking statements are based on the beliefs and assumptions made by information currently available to us our actual results will be affected by known and unknown risks trends uncertainties in factors that are beyond our control or ability to predict although we believe that our assumptions the reasonable.
They are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences maybe material.
For a more detailed description of some potential risks please refer to our FCC filings, which can be found an investor relations section of our website.
When we reach the question and answer portion in consideration of others. Please limit yourself to one question and one follow up.
Now I'll turn the call over to Jordan.
Good morning, everyone. I Hope you are staying safe County.
I know, we're all focused on the current situation.
We're addressing that I want to briefly to report on our first quarter results, we had another excellent quarter.
We grew.
By 8.5%, our aided by 16.4 person and our same property cash.
7.7%.
The straight line <unk>, our office leases signed during the quarter was 23% greater prior leases state space.
We made good progress on our two multifamily development projects.
Horsepower first quarter.
True everywhere, our tenants are now struggling with the impacts of the pandemic on their business.
In addition to cities in which we operate.
Past unusually punitive ordinances prohibiting addiction.
Hi, Graham deferral for residential retail and office.
Regardless financial distress.
Eliminating any fees or interest and providing long payback periods.
It's actually happy option.
Uh huh.
Given the current concerning piece in our earnings package, we provided you with our pro rata collections.
<unk> guidance.
To date.
Elections represent 87%.
Good rents bill.
Residential at 95% office, 90% and our small retail component at 22%.
We don't know whether an April will prove to be a good predictor of the next few months for the remainder of the year.
Well, we also did not know how long that.
Last over numerous cycles during the last three years, we designed our operating platform capital structure and investment strategy to weather downturns.
We entered this downturn with strong cash flow and a very healthy balance sheet.
At the end of Q1, we had $175 million a cash on hand.
400 million dollar line of credit.
No debt maturities before 2023.
No financial covenants that good forces to issue equity at one time.
And 41% of our office portfolio.
<unk>.
Yes.
We on many of the highest quality properties in the strongest most desirable submarkets Los Angeles.
Our diverse tenant base represents our nation's most competitive industries and limits our ability to any signal or industry.
Markets have no meaningful new supply so we faced no overhang from new construction as we were covered from this crisis.
Now I will turn the call over to Kevin.
Thanks, Jordan and good morning, everyone.
On the operational on our buildings remain open safe and available for I kind of.
Focus on providing excellent service.
Stringent cleaning protocols same systems and face cover into common areas reduce calendar density.
And you might expect we're seeing lower tenants in our office properties.
I will likely continue at least until the lift you're going to stay at home orders.
During this time, we expect some savings from variable expenses to help offset expected declines in parking revenue.
As Jordan mentioned cities, where we primarily operate Los Angeles Beverly Hills in Santa Monica.
On an enforcement moratoriums to cover our residential retail and office tenants.
Your next does have some carve outs for large tenants.
Generally for other landlords not only from predicting tenants.
So from a posing any late fees or interest.
Under the ordinances and then turned quite can pay back the deferred route within trailing 12 month after the end the emergency.
On the capital fraud.
Function is continuing on our two large multifamily development projects.
Let me take little longer under current conditions.
Honolulu, where we had about 500 apartment units our office conversion project.
Already pre leased and number of units and expect to deliver them onto the next few months.
For our brought one apartment tower, we currently expect celebrity the first units you pushed in the 2022.
For the moment, we've suspended work I knew off this repositioning projects.
And acquisitions in our markets seem to be at home as buyers and sellers evaluate the new conditions.
With that said, we're well positioned to take advantage of any opportunities emerge.
I'll now turn call over his Stewart.
Thanks, Kevin Good morning, everyone.
Q1, we 574 office leases.
During 2000 square feet, including 184000 square feet of new ways.
Leasing spreads for the first quarter were 22.6% straight line rent roll up.
9.3% for casual.
As we discussed last quarter, we got a high number of expirations impact you want.
In anticipated early dip in occupancy this year.
The decline in occupancy for a total office portfolio to 90.8% was in line with our pre probably 99.
I late March 8th of new leasing our office portfolio slowed to a trickle, but we're starting to see some signs of life the tenants and brokers adjusted your normal.
We've often talked about how we make leasing experience and our small tenant office portfolio mirror, the eastern speed and our apartments.
Our first off we were early adopters or virtual touring technology, and we are well complete entirely process remotely from Georgia space planning electronic document execution.
This experience should serve us well and the current environment going forward.
On the Baltic L. beside our portfolio remained actually fully leased at 90%.
Residential new leasing activity also slowed somewhat in late March not sort of thing unexpected office.
Now I'll turn the call over to Peter to discuss our results.
Thanks, Stuart good morning, everyone.
We're pleased with our Q1 results compared to a year ago, the first quarter of 2020.
Increased revenues by 12.1%.
The increase that's about 2.5% $112 million or 55 cents per share.
The increase to ask about 16.4% to $99 million.
We increased our same property cash NOI myself one 7%.
And then only 4.1% of revenues arginine for the first quarter remains well below that our benchmark rate.
As Jordan said, we don't know what will happen in may well in subsequent months.
Any things could change even before the stay in place orders to can be lifted.
Many of our small tenants have applied for federal assistance, which can be forgive me if they pay their run by Jim.
The local governments that of authorize rent deferrals are considering excluding office jobs, which would reduce or eliminate thought headwinds.
Do you think it started to recover as Todd closer to the other there just to make sense.
The other and we can see more tenant stop calling route.
Got it up as much Chris.
He's on certain days, our compounded by many other critical variables I wish we had little information along the current stay in place orders remain.
How they are phased out how business is react after their first job.
And whether there is the second pandemic way as well.
Well in past recessions, our tenants have shown low default rates.
We can't be sure what what happened this time.
As a result, we have withdrawn our guidance for all of 2020.
I'll now turn the call over the operator, so we can take your questions.
Thank you.
[laughter], so I didn't want on your telephone keypad [noise].
The Guy, it's I simply pesticide airport.
God I.
Again in consideration of other participants please limit your queries to one question and one follow up thank you.
[noise] My first question.
Comes from.
Evercore.
[noise] here not just a question on the tend to have not aid right you have any insight as to how many of those parents are experiencing real financial distress versus how many are just opportunistically seeking rent relief.
You know.
Considering there's Jordan.
And I'm, sorry, our voices out so.
Don't have their normal rich tempur, but we have five people at a 46% conference tripped spread out of respect social business.
Currently we feel a microphone also needs to be 16 away [laughter] anyway, but or you know when it comes to when it comes to the office tenants and you know the garbage markets, where again and you know our credit underwriting.
I think we feel pretty good about our attendance ability to pay.
It's hard you know it's hard to go in I mean everyone's impacted by this when it comes to our retail tenants, we actually how smart retail time, probably could pay but you can understand why they're not.
As you saw the residential came in around 95%.
Got it.
That's just one more on capital allocation, you guys announced the approval of a share repurchase program in the quarter, but then we purchased any shares when you know the stock at the mid to low 20 dollar level I guess, just what was the thinking behind not repurchasing shares when it got down to that level.
[noise] well, we set up that program to make sure we had that flexibility.
But at the same time.
You know I don't know then or even now whether we'd have the right kind of visibility to not what we're facing whether its month scares whatever to know exactly what one did show the first stage of what we've been doing as Ben Kinda organizing the company for starters to keep it protected.
Right right on our buildings right.
Our people employed do all that stuff right and then the second stage is to look for opportunities and I think you've done a good job of the first out then we always try to evaluate thanks.
Next question comes from Craig Mailman Keybanc capital markets.
Hey, good afternoon, guys I know, it's a little bit early in May here, but just curious what the early trends you guys are seeing if you're on the same pace you weren't April or if more people or maybe a taking advantage of the moratoriums that are in place.
[noise] well where.
Right now we're tracking about the same as they approach.
Although you know in terms of business days, it's early to know where we're really going to end up in may and I think that we are seeing some tenants are starting to get the P. P. P and I think we've also been pressuring.
Tenant, saying you know what you're doing is not right and frankly, we've been talking to some of the city's insane to them.
You put together programs that are more punitive than any of the other a gateway markets in the United States. It's it's almost.
All right, you're almost asking the tenant to not paid went to waive you're providing a sort of free 12 month loans. So.
But all those things swirling around.
Juxtaposed with the fact that now it's now or in our second month of you know coded and stay in place it's hard to know how well really end up.
That's helpful. Then.
Yeah, the big themes of work from home and easing of Densification or kind of topics and that office space. I'm. Just curious you guys tend to skew smaller I'm just your thoughts on kind of how dense your tenant Scott versus you know maybe some of the larger tech firms and you know whether this way.
From home could just cause some of your smaller tends to just say you know what I'll do my my work out of house, if it's a kind of a small company just kind of curious.
As you guys have kind of looks through that kind of thoughts here.
Well.
Okay. So the first part of your question.
I.
This is very hard I mean, I don't frankly, we don't have a lot more information than you guys do but I will say that in terms of our market generally our market I do not see that our markets are built to the density that other gateway markets are built just right out of the game. So you know when.
We're still building out most people space our space for instance, and many others is built to 200 B plus in terms of the build out and when you get a very small and we're at about 50000 be back when it gets a really small tenants.
Those numbers, you're even larger.
No I am sure for a lot a small tenants that we've evaluated our space. We have set marriage, we need to work on I'm not sure that they're not in a relatively good position to come back even with no changes to the build out of their space.
But I think the Densification that has been rolling that kind of roll through the last decade, whether it be new Yorker, Boston or the Big Tech for ends up in San Francisco.
I'm sure that they're trying to figure out how to Luiz Fernando.
No you know the.
You would that by itself you go by that can be pretty good not positive for those markets.
But I don't know and what that means is that they just say all right well keep this space probably got a number of another group to another area or I don't know what have you know.
What happens there.
The second part of your question was whether our smaller tenants.
Choose to just stay home award.
I think.
For most of our tenants that you know they've always been able to do that and they like having their offices. It, especially you know our whole our whole play here is that we're very short coming from where they live and I literally been saying for decades.
You know these guys, so I'll move out and houses and they're all space because what they're spending for these houses on a imputed per foot basis. The office space is a bargain anyhow.
I think that you'd like having their office I think there like having somewhere to work. So I don't see the fact that people have been able to work from home, causing them to say Wow now I'm just kind of work from home.
I always felt like the fact, you know and when we talked to people even now I think most people are saying.
I can't wait to not be home 24, seven I want to get out all of US I want to go I want to go back to work on I know they have the concerns about the virus and he's been clean and safe and all the rest of it but I think it's human nature to want to be able to not be in one place all it.
All the time, so I've always felt like that's been going offered through for probably two decades now what technology has done.
In terms of people. They live work from home is to expand the workforce and people they couldn't come into an offer some work or could you know or you know for whatever they were doing it was you know efficiency thing and it allows the workforce to be even larger and add more people than the workforce I don't think they're part of the workforce that you know comes along.
Yes worked through their colleagues.
Viewed that as part of like the Winter day, Ron I don't think that changes.
Great. Thanks.
The next question comes and Jamie Feldman Bank of America.
Thank you. So I guess, just thinking about your liquidity position and I know you're cutting back on some spending this year can you kind of that can you still just walk us through how you're thinking about your spending needs. This year and then to the extent you see dislocation in the market you know how you think about potentially funding any investment opportunity or do you feel like.
Not even ready for that at this point.
Well I'm not sure how long a list of investment opportunities into Tomorrow, and then they you know we aren't.
Saying a lot come out.
And by not a lot I'm not I'm, saying.
Pretty much almost nothing.
And you know they probably the opportunities in front of us on the capital market side.
It's three groups. It's refinancing we are focused on that because rates as they go down we just always aggressively chasing them.
And then you have.
Obviously, we put the stock buyback program in place I don't think we're ready to do that the borrowing base.
And then.
You have that construction and the third party construction and we have chosen to continue our two large projects.
We backed off on probably another $100 million of stuff that we can do we do during the year in terms of daily Repositionings lobby rehab a lot of your house et cetera.
To make sure that.
Our cash position was very strong.
So I guess, how do you think about like sources and uses this year.
Kind of your your revised capital plan.
Well I think our income will be sufficient to fund our USIS.
I Hope you're asked me the simple question do it too I think we're sort of trapped in something where were forced to Vietnam or I don't think they are and I don't I don't.
For Jack pad.
You know even with the fact I think we ended up 12% off an april or something like that continuing I think we're in good shape.
Okay, and I guess similar with the distribution at current level.
You can cover everything.
Well, if you're asking me that's been distribution cover our income I think we're in fine shape I think.
The dividend you're talking about the public company.
Right Yeah.
So yeah I think for.
No problem no problem there at all.
Okay.
Alright, and then as you.
He is talking about what the co working companies are doing in your markets now I mean, if they've been I know you don't have any but they paying rent are they.
Good day hearing that they're crumbling just any color from the ground.
It's kind of kids. This is Kevin Jamie It's it's kinda case by case.
Yeah, and speaking with my peers in the marketplace.
You know some of the larger collagen companies are changing some of the other ones are asking for a little.
Rent relief right now while people are using their offices.
We don't have very much exposure in lifestyle.
So, it's it's anecdotally truck market and I know that the.
We work has paid some landlords and not in some other landlords just like across the country.
Okay, Alright, thanks, guys.
[noise] [laughter] from Emmanuel Korchman at Citi.
Hi, everyone. If we think about the 90% collections in the in the office portfolio is there any commonality, whether it be by industry or buy side. So by some other characteristic of the 10% that haven't paid or the fact that you mean spalletti so given on the right not to.
[laughter] I'm quite frankly, if you and you know I've kind of been on on the road on this but they various city councils understates. Our work again, there's a shocking relationship between non tank and be Oh, the rules surrounding the moratorium in the various city.
Okay, and then how well how well people pay or don't pay.
So we I don't want to call out any cities and I think they're working to fix the situation for us, but you know in the cities where you know.
Blanket.
And there's literally no cost and long payback periods, we you know.
No.
Meaningfully statistically meaningfully worse collections and the cities that had more restrictions, maybe you could still charge fees, but certainly the payback much shorter so that benefit of kind of having an angry landlord wasn't as much there that.
Better pay rates that that's the one thing you can see announced last group that really stands out.
Thanks, and then in terms of you your new leasing it looks like the leasing costs were elevated I don't know if that had to do with mix and you know the a base rent that pool were higher if it's just had to deal with spaces, but could you give us some color as to why those new leasing specifically seem.
Higher than recent trends.
Yeah, I mean look I think this is Peter.
Yeah, Yeah then.
Yeah, the overall rate.
That ends up much lower right. So we we had a much lower on the renewal side and then the new leasing and we did.
Small number of deals and a couple of them. We're you know that's at slightly higher cost, but it doesn't look like it's indicative of any kind of.
Any kind of trend.
As you know as a percentage of rent the rent that we're giving is it's a combined blended rent. So when you take that you take new leasing just over the new leasing grants and now it's pretty much in line with what we've seen bass.
Thanks, everyone.
[noise] Alexander our next question comes from Alexander Goldfarb of Piper Sandra.
Hey, good morning parting out there.
No.
Hey, you guys are pretty brace, albeit on a same room together.
[laughter] such a huge copper true it's almost absurd.
Now everyone's realizing that their homes are not big enough odd so I guess.
Two questions first can you just talk a little bit about Hawaii, you know it sounds like the state overall, it's been spine co bid wise and that hopefully can start to reopen but clearly it's going to be awhile before tourism returns. So your product out there the apartments the office what do you.
Guys seeing and is your view that tourism absolutely have to return before you can see benefits in your properties or you think the local economies sufficient enough for you guys to continue building conversions and you know pushing rents and all that good stuff.
[noise] well, okay I first of all.
It varies a group that I think it's worked hard to done a good job what I've seen happened why they've really jumped on it.
Good well recorded.
I thought the city cities Dade County leaders whatever that group is they're all kind of mass together did a really nice job like they have for local banks there. Thank god date, because we for the stuff, we do and why we use local banks you got conversations with them. They were really aggressive you know.
Literally midnight the first rounded pvp they made sure they got all the local companies covered and got good chunk of money out.
You saw us really good engagement now the mayor and others in terms of.
Walking the line.
Let's open I don't think destruction.
So in terms of management I I really you know maybe it's because they're all you know, they're all like a big family, they're all know each other but again, we're really high grade.
So I'm, hoping that you know and nurse Super focused.
On recovery and protecting their economy now they yeah. They for sure out of the problem I'm being a very tourist dependent economies have construction, having huge chunk of military there that they have other stuff, but towards the next is a big deal now no I don't I know that they are working as hard as any hotel company or.
And any.
Airline tend to go how do we saw this and how they make people feel comfortable coming back on the times right.
On the other side a coin when you talk about that it was Senate and our rather than our residential projects are all are going dark starts is going there and our occupancy is fine and our pay rate fine okay.
On our office projects.
Are there interestingly you know we committed to Hawaii originally.
No. It was two decades ago with that thought that.
A run up in tourism facing age out would be very good for that economy, and then now in flow through to the obvious product and that was what we do office and residential. So that's what we did Hawaii is where we learned that tourism to that for sure the plus side as tourism kept running out we did not see it.
Through the office product. So we saw tourism when we went into a wide I think in tourism was like four to five now and and and that's what last year, probably 910 right. So you would have said Wow you called it right, but that did not drive much in terms of the office product.
I'm not sure if that decline will drive much in the way the office product.
But you know overall, having a strong economy is gonna be important and and I think more than any other places where we operate.
They are just collectively growing as a team change and make sure that why that doesn't suffer too much. So we've been very happy about that.
Okay and then the second question Jordan.
When you.
The discussions with your local California politicians and they do the evictions moratoriums I'm sure in there with them. They also put in place a real estate tax moratorium. So it offsets and doesn't put the a landlord in the middle position. So would you phrased that way.
Well, because California, very logical that understands how math works. So what do you think that point.
You reached that point to the politicians do they understand that I mean, I I know that Gavin was facing that yeah. The payment a few weeks ago, but do they understand the ramifications and your ability to yeah, maybe not Doug directly but landlords in general to withhold aksu that they're not being paid because oh god.
Mandates.
Well.
I didn't use quite the level of sarcasm.
You use since I'm trying to get him to do something for me, but I did pointed out that essentially when these.
The impact of these Mark Tarr answer what it's been it's James essentially is just shift us should be.
Exists the borrowing responsibility.
Us versus a tenant and I don't know why that wouldn't be a fair shift.
Now to be fair to their point.
They are worried about.
Most of it but so most of these ordinances were designed first of all by non real estate people that were.
All they were thinking about was residential.
And they literally when you talk to not Oh, Yeah office. They I don't think they were really targeting on.
What they were targeting was residential and then it went when you're talking about they go well you know we don't want our we you know are treated our local retailers to go away because that's part of the fabric and culture. The area right. We don't want a bunch I have two storefront.
And I wouldn't say across the board when you sit and talk to them about that and you talked about like look you were really trying to protect housing no vixens on housing you're really trying to protect their local retailers. They have been very old from open minded about make it changed for the rest the problem is there.
Just any data with problems right not the mentioned that their budgets are just stride now so getting their attention, which we've been able to get and getting that you know the city attorneys to change and redraft. These emerging ordinance, it's just that Todd that's a process and we're going through that with them, but they have not been they.
They haven't been that top on the same way we explained that too I mean, we said look I think you're trying to include do they go commercial I'll say commercial well well who are you, saying, we are converting or not and I said why I think you're trying to cover people, who who know collect sales tax on a majority of the revenue I don't think you're trying to cover hedge funds in my office building.
Oh, yes, you're right. There is the difference is doing it that's the first time name. It starts putting we tell from office. They are gluttony since only have commercial got doesn't say retailer office. So there are there there's sort of accepting that I think they're going to make the right changes in that but it's it's taken just in time you guys think I mean, these things got put in.
Place and going to beginning April and here, we are amongst later and we've gotten meetings with them with on top of the Maynard.
Council members and eight and they're working on it so that's been very good.
Right that they understand that you can't be the middle bad or lender of last resort like if you suffer in inflows on the top obviously, it's going to you you shouldn't be expected to pay out at the bottom they understand that right.
Oh, they haven't understood that because we're still paying all our city taxes and fees.
But as I said I'm not I'm not privy to all like that because I want.
No.
Hey, we're trying to achieve a this is goal of getting a commercial released.
Got it okay listen thank you George.
Thanks.
The next question is from John Kim Midstream, though.
Hi, guys frankly on with John a question I have it.
Do you have a 10th of what percentage for multifamily rent are currently delinquent and can you walk it through your plant on addressing any of that.
Well.
Yes, so that.
You know unhappily.
Well I presented is hey, it's just back but I think it's a little more them now.
It seems pretty highly concentrated.
We've had instead pay to be and some of the nicest spaces in our buildings on the beach.
With rents that are very high and certainly they're betting that space because they had a lot to have a lot of net worth that they wanted to be looking out at the beach walking out on staff and so that when I. When I was looking at that listing and I actually just took the list and ranked by rent.
You know like Iran, and [laughter] feel like if we.
Just for collecting from the people that paid over I think it was for Grad you would collect.
Like the time to that [laughter]. So it's bad for grant for their apartment, they probably can't afford to pay but those rules are set in stone does people just had been told flat they're not to pay.
I've told the cities they don't want to hear about apartment finally, but I've told them you realize that the tenants that field has the most financially sophisticated seem to be the ones taking the most use of these ordinances not they don't want rather build person that's like yeah, I don't want out my rent pile up on me I got to live here and there just kind of Iraq sets. So.
It's the ones that.
Caught a feel like I don't probably I'll pick up extra money.
They seem to be the ones.
Our our make up a lot of that missed missed money, but you know that that'll that'll play out.
And then what's your expectation to recoup that high percentages.
<unk>.
The tenants.
Well, it's hard to predict now we haven't even you know we're trying to get the collection rate higher each month, and then well go back and as I said I've said you know we have you know were pretty good at our underwriting when we leased space we never in the last recession, we never had a false I guess.
Oh, it's here not the Cds, allowing them to pay but doesn't matter. They pay real default I don't think our default ever really got over 2%.
I don't think they did they might have gotten a pretty but I'll be I remember, we got to watch do.
Are you ready when how does that recessions, we pick a big.
And maybe rents go down, but we're really good on the default front. So if you say defaults on those numbers I would expect them to be low, but time to collect seem to be stretched.
Okay, and then second question I have it is I think.
I think your top tenant, but did all that kind of Paypal then on secured particularly on the lease with equinox.
I agree that you know what I.
We're not we added we never really by talking about tenants that we don't really like calling out individual tenants and and so.
We're not going to start start today.
Thank you.
[noise] that next question comes from Dave Rogers said that.
Yeah, Hey, guys, just I guess with your smaller tenants and much faster roll. This all the shorter lease terms that you generally have versus all but one of those discussions like today for the next kind of three to five months I mean, typically I think larger deals would be done, but I think you guys do the little bit more just in time. So can you give us a little bit of color on how those discussions are going and why.
It's you'd expect here in the near term or some of the near term roles.
Yeah, I mean, I'll give you a little I know, maybe Jordan, how smart but.
Smaller guys will usually feel like lot of pressure to get their stuff done about five months ahead of when their lease is coming up so in terms of.
So having data for you on where the world is on renewals right now being a month into this.
That I can't say that we have a lot of data on that because theres not not many people wait to turn for the last day that they had to reduce right. So there's not a lot of leasings going we're doing we're doing leases go ahead. You you can fill them yeah. No I think that's fair I think that a lot of people are just planar suit decision.
But we're still getting worst don't get about a decent amount of leasing Todd definitely slowed way down starting to pick up I mean, we're seeing volume we're seeing calls all that stuff coming back again after shutting down almost completely for awhile.
Like I said in my remarks, we're pretty well set up with virtual tourism and we're going to try to get the brokerage community and it's had a community use because it's world.
The brokers are definitely hungry to do deals, they're not making money when they're not so we're seeing that started to come back I think like Jordan said, most diversity in our tenants kinda delay their decision for a little while.
But most of our tenants tend to go maybe six months before their.
For ground leases is our average when there when they're making their renewal decision.
And then I guess, maybe just on on the rate side, you know Jordan. It wasn't long ago, we were talking about pushing rate and haven't tenants really pushing back and complaining and personal phone calls to you et cetera.
As you kind of think about this next phase in terms of where rents are on leases and where you feel comfortable pushing those are pulling those.
How are those discussions going in and what's the expectation near term that you'd think about.
Yes, we haven't at any rate discussions I have had no rate discussions I don't think we.
Jim but no.
I don't think they raise rates I think we've lowered rates I think we're doing deals.
I mean, there's there's like a there's a measure of just like.
Social sensitivity or something I'd be a little nervous to raise rates, even if the market stays very tight I'd, probably have a little breather for a little while they're just a lot of attention out there in a world.
So you don't it's.
Certainly like amazing that could ever be viewed as Sig grass ever predatory are taken advantage and I think we're gonna be equally Oh, Lord and where we operate in small you know.
Obviously on a small community, but you know you the various markets we're in.
You know we were certainly in a period right now where it's good that have more friends and it's kind of all around.
Okay, and then maybe last month I just got on the parking you mentioned parking revenue how much of that.
Could be at risk or isn't part of are baked into some of the leases.
On a number basis.
Yeah, It's Peter I mean, we're probably at this point, but it's hard to say, how how it's going to go we're probably getting about half the parking income.
Yes that we normally have.
But yes.
That's on a very short time period, and really hard to see where its side, where it's headed for a in the next couple of months and especially as things start to reopen yeah, just don't know, which way it's kind of go well I think there.
Themes reopen I think they're going to drive they're not going to take a bus.
I really don't don't want their parking spaces back.
I suspect park becomes a very short term phenomenon of people being told state.
Yes, I think that makes sense all right. Thank you.
[noise] and next question comes from Ricky This is SMBC.
Hey, I'll take that question, even further I think there should be a parking right in the aftermath, all that because everyone's going to be driving all around the country him I [laughter].
And I find the right [laughter].
I haven't come up yet, but you know not to pile on the regulatory Salinas, California, but prop 13, do you agree with Victor and and and Hudson that that's on the back burner for now for for at least the while.
I don't think backwards right your book I, it's going down the ballot.
Yes I.
I think that it is I think that we are doing a lot of word to fight I think it's about idea and I think it and it's pulling quite poorly I you know for me, it's not just couldn't be beating it I mean, we want to really beat it so that we don't have to face it.
Again I made it you know.
It shows up.
At times from groups that are not really stakeholders and and and in our markets perfectly frame and they are looking to raise money for their own purposes.
And you know you don't see the state or any of the rest from say, we think that's a good idea.
And so.
We want to make it clear not just bidding it but bidding at announced an owner wants a waste their money or our money in the future to having to deal with that again.
But I still feel if what Victor said wed say he feels confident.
That we won't be that I think that's reasonable I feel pretty confident that we'll beat it because its polling so poorly and californians in general not just for that which is much harder to justify but even something for schools and otherwise have just been saying it enough is enough when it comes back to stay there just dot and.
That's unfortunate because we put some taxes on it we're very odd in special things during the Hay day 'cause maybe.
No special purpose group, Tom people into it and now they're going to really need that money for that in general state budget, and so I think theres going to be some.
Shifting now what we'll see what happens.
Good.
You know given that you have a.
You are known for small tenants you know in terms of.
We size and all that do you feel like there is any incremental vulnerabilities to your business just in terms of small companies and perhaps less you know financial wherewithal in this environment that they may perhaps be more exposed to God forbid.
Closing down business or that kind of thing or is that just not in the conversation right now.
Well.
I don't think the fact that they're small or large plays the role that you're indicating and the impact to the economy on now they're capitalization or them closing down their business frankly, most of what I'm reading as large companies closing down their businesses not a lot a smaller ones that are throughout our portfolio.
I I think Dan.
That's fair.
I think it's I.
I think there they have an easier time controlling their expenses and they actually when you look at the capital backing them.
As it relates percentage wise and all other ways to their rent obligation or all of their costs and running their companies I think it's it's actually more capital backing that in some of these larger companies that we know our all over the country that had been running at literally like losing money every.
Here and and borrowing to support that so I don't think the economy.
Alright, I, if you would have gone back to the last recession.
The Okaka financial and East recession, the bank recession, Dallas hard on a lot of our companies because not because if they wanted to go position, but sort of the banks stop lending and doing so with all those guys and I was just harder as hard for new formation.
But this it doesn't seem to be that kind of that qataris recession. So I don't think they will be hit and that way and I think that if you just look at the industries that therein.
You know tag can or cannot medical research and it's a lot of I I actually think that money is going to become more money enter that ended up as areas.
So I'm not as worried with with the small tenants and as I said, even not financial recession. The one that really like bank said liquidity squeeze that happen or what.
789, whatever you want pega can.
We never easy experience more than 2% to fall.
So from that perspective, I feel like we did probably better than a lot of places.
And by the way our rest because we go into these things without new supply overhang.
We don't see the same decline at rents we have a chart that didn't are on our website that shows that in the last recession. We did the lowest point of rents for our company in the last recession was still 10% above.
The previous peak and that cannot be set for anybody other gateway market itself, Washington, DC, which in the last recession, didnt really impact, but in all the other markets.
Okay, great. Thanks very much.
All right.
The next question is from Peter Abramovitz itself.
Thank you I just wanted to ask you about the multifamily portfolio.
As a clip.
Just had two straight quarters of negative same store new girls. So I'm, just thinking in Paris, and I guess, the somebody's apartment is that our and the 2% to 3% topline growth range anything specific that's going on to your portfolio that.
I'd be a drag there.
It's it's Peter I don't think Theres any you know any specific trend weve been running at really high well over 99%.
Yeah.
Whole bunch of up quarters and.
You know, they're small numbers in the same store. So it's a super sensitive on presented that 'cause 1920, yet so.
And address that number down but.
97, <unk> percent leases it's.
Still incredibly high lease rate.
Early to say, whether there's you know what the long term impact. So there's a pandemic are going to be but it's certainly going into <unk>.
Instead, the Evercore is any specific trends.
Gotcha.
Yes.
The lease rate going down you know say a couple hundred basis points the quarter was that at all [noise] endemic permitted in marks the beginning because I think the building with the fires excluded from that as I read correctly Bernhard and we're not seeing any of that no I'm not saying that as an S.
The driving force.
Okay. Thank you.
The next question comes from Danielle, It's no coincidence <unk>.
Great. Thank you I just following up on a previous question about parking revenue I don't think Ah I heard a percentage of revenue that comes from parking are you able to provide that.
We don't we don't break that out separately.
I did say that it's yeah, we probably collected about halfway.
I do.
Okay, but is that.
Those single did it did it's like supply for science or somewhere.
We don't we don't put up right now.
Yeah, the parking enough for parking and other as a line item on our income statement. So yeah, I take that line item and try to read about in half.
All right. So the majority of that it's a market.
No other sources of ancillary though.
Yes, the majority of parking and others hard.
Okay.
And then shorting given that you mentioned the restrictions on addictions are able to utilize security deposits and letters of credits to make up some of the shortfall and non Dana.
We really haven't been doing that I.
I think that if we can.
I think we can write that last group if I do these changes in the city age and I.
And then of course, but there's nothing.
It's something we just said early on the call we have not forgiving anyone. Okay. We have you been any rent for anybody. So this is all none of these collections are a function of well we made your thumb man, we forget some right.
So.
Okay, and I don't I hope that when all said and done.
And I'm not going to say, we're never going to forget I forgot to any ramp, but if we forget rent it'll be in exchange for some other terms middle east or some other group minimal Easter term or whatever the case maybe.
So I I don't think.
[noise] pool, and security deposits and starting to sort of unravel leave lease going kind of Delcam Forum I'm, just wondering if you're right I view right now we're just not there right.
I I think if we get these moratoriums worked out to be left penalizing.
And taking a lot of people just guarino I'll pay now.
I I think it's equivalent.
You know you don't you don't all your 2019 taxes until July so now how many people pay their taxes in April because now I don't know government, turning I don't think very many and and that's what we're dealing with.
Let's make about are good there just see they got presented with something then they took it.
So.
Yeah, we.
We aren't prevented from doing what you said I don't think really doing.
Alright makes sense that's right.
The next question comes from prior OCA Senior Missoula.
Hi, yes.
And one.
Couple of questions for me the first one of the barge and Plaza the apartment complex.
What the latest is with that and the thoughts too.
Refurbishing the apartments that unfortunately did burned down and kind of what the status as with some of these.
Pending class action lawsuits.
Oh, let's see so.
In terms of they'll let acacia and I I mean, we're not going to discuss vacation, but that's been told humor insurers.
That unfortunately in the world that were in people have a hard time not trying to take advantage of disastrous.
For the put that aside if you say, what's happening with the building where deepened the process of rejoin the floors I getting they.
Plans approved and working I think quite well with the city, who rich the city does not out of that we wanted we wanted to prepare the buildings, we wanted to speak their own after the first fire and the city does not have an ordinance that kind of shake hands properly.
With the fair housing Department that allows you to go and and and actually retrofit and sprinkler a high rise residential building and we've gone to that and said.
But we know you want staff around we know we Wanna get away.
And they have been really good about saying, yeah. We're just kind of trying to figure out a way to get you there and so I'm I'm I'm pretty confident now there were not only going to be redoing. The floor is getting them done by I think the city, it's really kind of.
It did a great way come on our team to say, we're going to make provisions are away, even though it's not in our code at the moment, where you're going to get sprinkler. These buildings.
So that we're feeling good about that.
That's a that's helpful.
Just want to go back to Franks question around talent.
He did ask about when ops, but I'm curious what it had from Morgan Stanley given some of the vocal comments, we'll see you didnt make.
On the earnings call about needing less office space going forward, because maldi employees will be working from home.
Okay, and let's say and a quick I mean I've already said.
Everybody, who made some genocea feel just family.
Okay and he thinks more people are going to be working from home.
Right.
On the earnings call that there would be looking up haven't taking less office space going forward because of that.
Mhm.
Okay, I mean, I don't know what those big investment banks will end up doing they'd Ari go out there there are a part of the Prime group. That's worked artist to get down to 150 per person 140 per person anywhere where there when where and New York.
Sure to their visiting and we go out on the those big trading floors and its.
It certainly bad debt at a level that we haven't seen before.
I can't imagine.
He is going to have so many people working from home that on that he's going to achieved for the people working social dispensing and actually also reduce their space and create that kind of proper BARDA, maybe figured out how to do that I don't I I don't know.
But I do think that for the people that are in that position.
I don't think they have any choice but.
To keep people working from home for a lot longer than other companies because I don't think just.
The practically speaking I don't know how they bring.
I mean, even going every other see I think they have a tough time being six feet apart.
So I mean, that's going to be an outlet for that for a long time.
If you say to be human nature.
I watch people I watched technology calm and everyone said, Oh technology does come in and office actually office space filled up more because individuals became more productive and more people were coming into offices and and working with computers. There and then then.
People got the point, where they said alright, I say you know, we're going to expand and expand workforce in that people work from home and let a lot of people work from home and then even a technology companies said you know what we've just on that we're not in love with people working from home. We want teams together and then you saw shift happening where they said no we're going to pack them in.
Our space, because we want people to even casually run across each other so they can have creative conversations and collaborate and all the rest. So there is sort of a complete rupaul towards working from home.
And now in a situation, where and people are saying hey, what about working from home.
I think when all said and done.
There are going to end up.
Figuring out that first of all when people working in the office they don't want to be in a position where they're almost forced to be in a collaborative conversation all the time they want their own space and I also think they're going to find out that that space needs me more than.
You know what 20.
20 foot 20 square feet right and I think that don't find out that there are a lot of people that can work from home and out of weight and make them more productive.
If you're saying.
Human nature is that people like I say I prefer to work from home or companies are going to now switch back to go Okay would change your mind again and now we now likely more working from home.
I I never saw that as a long term track and I still don't think it'll be a long term trend.
That's helpful.
One more if you could indulge me just around the office parking or the income line item in one Q.
Just kind of given some of the discussions you talked about the parts and trend that line item was actually up $3 million and once you 24 key 19 can you talk a little bit about.
Delta and what caused that did increase.
I don't know that answer I superior, starting or trying to look right.
There were some true ups there from prior quarters I mean, it's you know quarter to quarter, you get you got variability there, but theres nothing.
Yeah.
Obviously, I know you're prepared for the question there [laughter].
That's not so much holding true ups in one case plenty on that so that's kind of it.
And the other factor you you'd have to remember we consolidated the.
One of our JV is right.
However, partway through the yeah partway through the fourth quarter, so that'll that'll contribute yeah.
Yes.
Yeah.
But thank you over the weekend.
Me too.
Next question is and mom no question.
Hey, it's Michael Bilerman.
Hmm Hooters weird Where's the where did April.
Occupancy end up at the end of the month.
Where do we chunky.
Yeah, Hi, empty office Oh.
Oh I don't know.
I don't think that publishing month to month occupancy.
And frankly I don't know.
I mean, what I mean, like you had negative net absorption in the first quarter, which yeah because of your short lease duration, you're running call. It 120 basis points of explorations every month right. So I and you are yeah 10 runs a leasing machine I think you guys do like two to three leases a.
Hey, historically, right, whether they're renewals or new leases I'm, just given the tenant size and the number of.
Of leases you have the spaces.
So I'm just trying to get a sense of what occurred during April so that we understand the sort of the cadence of the occupancy declines as you know to shelter in place orders still are there just in terms of how low what point will that low points handling.
Yeah, I don't well, but what creates occupancy declines and I I clearly I do not know the exact answer to your question, but if you look at what creates occupancy declined.
I don't think any of that could have happened in April I don't think obviously, it's impossible to default in our markets.
I didn't hear about you know if you're saying a person's we you know.
Yeah.
Right and that month of April a person sleeves came up and they moved out and we lost it I don't think barely anyone was moving I don't they don't was coming on what's going to always doing anything I don't think even if we had the exact information that April I don't think would give you any indication of a trend line until you see people coming.
You know the world started going again and people start making affirmative decisions about things because nobody's doing anything.
Yeah, I wouldn't be surprised that I've been see April one and occupancy April thirtyth the same number.
Did you buy I don't think I don't think that's a trend I I just don't make any once been able to do anything for the last month.
But I guess what happened to all the leases that expire you probably had like 50 or 60 leases expire during the month of April were all those renewed it.
Well no because that's what I was explaining earlier rent at that one the earlier questions. What I said was.
These guys nobody goes in renews or doesn't renew on the month of exploration I mean, I said five months and then start credit for me to say, it's actually the average these guys a six month, we're not even average the short end so.
People you know six months ago, those renewals happened not you'd go well people there six months off right now how come there not feeling pressure there probably are but they're not doing anything or they did their renewal.
Right.
And what are you doing from just a bringing your you know in terms of reopening and bringing people back into the office.
I think about the larger landlord to a very large tenants are working hand in hand, and providing those services to be able to bring employees back into the office in a social distance way right and they'll go up to maybe get the 50% I would assume a much smaller tenant base when you're dealing with an average.
Lease average tenant size it was about 5000 square feet.
I guess, what do you need to do in those spaces to get those people back in and the cost of doing that.
Just from a sanitation and just opening or building perspective.
So it didnt within the suites were doing our cleaning and as you know as we always have.
And outside and the common areas of the buildings, we are putting together programs.
To bring people in limit the number of people going to the elevators, requiring mass coming we're doing we're putting all those programs together.
And starting to get ready to distribute amount actually there's a meeting about another another meeting about it today.
I think that I don't think that we have.
We have similar problems not the same problems as the huge markets a gigantic buildings like whether be a new Yorker.
Or boss Center, San Francisco, I mean, you know the timing of people, arriving us little more varied here and that and we don't have of colossal crunches through the elevators I mean, we have some other opportunities so to a light things up and we're looking at we're looking at all of them.
And we're putting all those programs and try and.
Make people feel safe about coming back to work now if you say and people and offices how many people.
How many are day, bringing back I mean, that's the choice of the tenant not US all we are doing is a creating good accommodations and notifications and cleaning and and all.
While the rest of that stuff or people coming in through the building and the lobbies and elevators.
Do you think sort of Warner Center market.
Tend to all of this and and post.
Most pandemic world of better or worse for it.
Okay.
The short term post pandemic world is bad for.
Oh.
Just because the economy slowing down and if he ended a day economy as the motor drives everything and so I I don't mean, you could say Warner center suffer from Santa Monica separate from Beverly Hills, L.A., New York, Boston you name it.
I don't think anybody who's going to escape. These impacts so everything would only be on a relative basis.
And I don't know that Warner center will be any more or less impacted than what we would expect out of the industries that are driving the L.A. economy, but if you say a daily economy going to be hit.
Well I, just kind of going to be head, yeah, and all the others I just think everyone's going to be.
Right and you know it's been a check it's been a challenge for a while just in terms of getting that occupancy up but I'm trying to think about how.
The industry trends and where it's located how that evolves.
Oh style of this.
Oh, Yeah. They were I mean, we're going to try and give up a little occupancy as weekend.
Of course, nothing's free because then that would translate into rate.
If you if you're.
Say Wow, I mean, you're going to blow and are now this it now what's next okay. I know what's next is not going in Boston I mean, we got only.
You know.
They had on and keeping the buildings full and let the economy recover.
Right I'm just on left on the deferrals, how long will those drag on is it entirely dependent on shelter in place or are there other variables in those deferrals.
Mohseni cities.
Either said April and May or April may and June so they like they the bombs that how the deferrals.
Now if we're successful we'll get a good part of what we have in our portfolio free of that but it's every every major market has.
A moratorium on evictions, and then that moratorium conduit for different components and depending on what those components are depends on how.
Punitive or how much it's encouraging attendant, whether they need or not to take a free alone and that is whose covered.
Whether late fees or interest can be charged.
Rather significant documentation as needed.
And how many whether they've even said how many months past the crisis, the deferral goes and what we've seen it most of these markets is they all have well say two of those components.
Maybe they all have maybe they have okay everyone's covered.
And you can't church late fees, but maybe then they say, but you have to provide very good documentation and if you don't dead you don't get the benefit us and by the way once the burn she is over its between you and the landlord because now the rents due the next day. Okay. So you can just two of them for things.
And you probably have not created a bad situation, where people are trying to get a free loan where markets. We're all four of those things exists.
No I'm very big need for documentation, just I noticed that might come in very.
Very long pay out periods everybody's covered and no fees. Okay. That's a recipe for disaster and that's what we're facing.
Now, we're trying to get that changed.
So well see with the change how long you know if they change it and they go up we didn't need to include office well now you don't have that problem.
Okay. So if it's got.
Thanks, you're drinking.
Okay.
At this time is showing no further questions. If you like to make any closing remarks.
Yes. Thank you all for joining us and we hope that very soon in the future. We're able to me you again in person.
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