Q4 2020 American Assets Trust Inc Earnings Call
Hello, and welcome to the Q for 2020 American Assets Trust, Inc Earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, Inc.
One should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
This conference call is being recorded it is now my pleasure to turn the call over to your host for today, Mr. Adam While EVP and Chief operating officer, Sir the floor is yours.
Thank you good morning, everyone and welcome to American Assets Trust, Inc. Fourth quarter and year end 2020 earnings call yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on form 8-K. Both are now available on the investors section of our website American assets Trust Dot com.
Telephonic replay and on demand webcast will also be available for this call over the next week. During this call. We will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results and our earnings release and supplemental information. We will also be making forward looking statements based on our current expectations. These statements are subject to risks and.
As discussed in our SEC filings you are cautioned not to place undue reliance on these forward looking statements actual events could cause our results to differ materially from these forward looking statements for a number of reasons, including uncertainty related to the scope severity and duration of the COVID-19 pandemic on us and on our tenants and with that I'll turn the call over to Ernest.
Rady, our chairman and CEO to begin the discussion of our fourth quarter and year end 2020 results first thanks, Adam great job.
First and foremost I would like to wish all of our stakeholders and their loved ones continued health and safety during these truly unprecedented times.
Now that people are starting to get vaccinated, we are optimistic from an even hopeful that eventually this pandemic will no longer be a threat.
Our lives will return to some kind of a normalcy and the economy will recover.
However at the present time this pandemic continues to create challenges within our portfolio.
Particularly for our three theaters gyms, and our Waikiki Beach walk for properties.
As most of you know all of our properties in Hawaii, our own fee simple and our very valuable we have a strong view debt post pandemic Waikiki will return to normal and top tourism, returning and every night being like a Friday night.
This pandemic still remains a threat what debt. We believe we are well prepared to endure a prolonged pandemic with our irreplaceable portfolio.
Our best in class operating platform.
Top notch management team, our disciplined financial strength.
Very strong balance sheet.
Such regard I am.
Extremely proud to announce that our inaugural public offering which we closed on January 26 2021.
The offering consisted of 500 million of three and three eighths senior unsecured notes due 2031.
Either way it was oversubscribed for times. This bot offering provides substantial liquidity brainpower.
Brainpower and provided for the repayment of 200 million 250, many other debt and profits all funds needed for the development of La Jolla, Commons, III, which we plan to break ground. This April.
Success and demand of this bond offering in the midst of a pandemic is truly a testament to our incredible properties efficient operating part.
And our top notch management team.
Bob will provide more financial details on the faas offering.
Finally, I'd like to mention that the board of directors quarter.
Quarterly dividend up 28 cents for their for first quarter.
An increase of free from my previous dividend, which we believe is supported by our collection efforts in the fourth quarter and.
And this is an expression of our board's confidence in the embedded growth of our portfolio that we believe will recover post pandemic.
And Bob Adam and Steve will flow into more detail on our various assets segments and financial results and I will be available for any questions. You may have at the conclusion of our prepared remarks, I'm now going to turn the call back to al.
Adam.
Thanks, Ernest good job.
We remain we remain optimistic you can see we're mutually core op.
We remain optimistic with the overall performance of our portfolio even in light of the pandemic and we are pleased to report that 100 per cent of our properties are currently open and accessible by our tenants in each of our markets.
Of course, we do have felt the bumps along the road like everyone else in our sectors get our collections of monthly recurring billings to continue to improve in Q4 over Q3 and Q3 over Q2 for total collections to date of approximately 92% in Q4 versus 90% in Q3 and 87% in Q2.
January is currently trending consistent with Q for just over 91% to date and likely to increase further all despite the headwinds of governor Newsome shutdown restrictions in California. The last day through most of December and January.
Collections for essential tenants.
Our retail portfolio, which represent approximately one third of retail build rents were almost 100% from Q3 and Q4 and collections for non essential tenants continue to improve from 69% in Q3 to over 74% in Q4.
Of note no tenant in our retail portfolio represents more than 2% of our ABR unless six less than 6% of our retail portfolio is due to expire in 2021, assuming no exercise of lease options.
Of the approximately 500 tenants in our retail portfolio since the beginning of the pandemic. We have had 13 retailers file bankruptcy bankruptcy.
Covering 18 total tenant lease spaces of which 13 spaces had been assumed or are in the process of being assumed in bankruptcy, which we believe is a testament to us having superior locations at these restructure tenants want to remain at <unk>.
Notably the rejected leases to date, where less than 13000 square feet in the aggregate.
As you would expect our primary collection challenges remain in the retail segment with our movie theaters and Jones as well as many of our retailers at Waikiki Beach walk, which until mid October had no incoming tourism for sustained meaningful revenue for our tenants that.
So we believe that pent up demand for travel to Hawaii is massive we expected tourism to rebound to occur at a more deliberate pace until a broader vaccine rollout has achieved hopefully by this upcoming summer in the meantime, we are working with these challenged retailers, who historically have been great operators to bridge them through to the recovery.
This is part of our recurring thesis of prioritizing long term strategic growth over the short term.
Despite the uncertainty we remain optimistic that we will continue to see sequential improvement spurred by the vaccines distribution government stimulus and anticipated pent up travel demand in regions that have yet to fully reopen their economies as Ernest mentioned, we believe that we are well positioned to navigate through and manage these challenges we have been through challenging times before.
And each time, we have emerged stronger given our long term focus on high quality diversified asset base. We expect this time will be no different with that I'll turn the call over to Bob to discuss Q4 and year end results in more detail.
Good morning, and thank you Ernest and Adam <unk>.
We reported fourth quarter and year ended 2020 <unk> per share of <unk> 41.
And the $1 89, respectively in fourth quarter and year ended 2020 net income attributable to common stockholders per share of <unk> 46, respectively.
The lower <unk> in the fourth quarter, which is approximately five cents lower than the Bloomberg consensus is primarily the result of additional reserves for theaters gyms, and Waikiki Beach walk retail.
Nevertheless, we remain optimistic of this portfolio even in light of the pandemic. The highlights of this quarter are one we have ample liquidity.
As Ernest previously mentioned, we recently completed our inaugural public bond offering in the midst of this unprecedented pandemic, we closed on $500 million of three and three 8% 10 year senior unsecured notes.
The proceeds from the offering we repaid $150 million senior guaranteed notes series, a and repaid the $100 million outstanding on our revolving line of credit.
We expect to use the remaining $236 million of proceeds to fund our La Jolla Commons III development in the UTC Submarket of San Diego as well as continue our renovation of one Beach Street in San Francisco.
The remaining amounts for general corporate purposes, and potential accretive acquisition opportunities.
At the beginning of this week, we had approximately $380 million of cash on the balance sheet with zero.
Outstanding on our $350 million line of credit.
We chose to access the public debt markets now because of the low treasury yield and strength of the credit markets that we have been seeing during this pandemic.
We had the ability to access the public debt market several years prior to this but we weren't ready to commit to being a regular issuer on a frequent basis until now what's changed is that we have the ability to ladder our existing debt maturities today. So that we have close to if not more than $400 million and future debt.
On a recurring basis over an 18 to 24 month period, while at the same time being laser focused on a five and a half times net debt to EBITDA or less <unk>.
A conservative balance sheet is very important to us.
This pandemic, our EBITDA has been challenged like others with exposure to retail and our hotel, resulting in lower EBITDA, we believe that our high quality portfolio and superior coastal West coast locations will begin to return to normal post pandemic.
And our expectation is that our net debt to EBITDA will begin working its way back down to five 5%.
Or less based on the corporate model that I'm looking at.
Number two we have embedded contractual growth and cash flow and our office port total portfolio with approximately $24 million of in place growth and just the office cash NOI in 'twenty, one 'twenty two.
Number three our same store cash office cash NOI came in at just 3% due to abatements that were provided to our GSA tenants at our first and main building in Portland, Oregon as part of their lease renewal package during Q1 2020.
These abatements continue through February 21.
Absent the short term abatements office same store cash NOI growth in Q4, 'twenty compared to Q4 19 would have been approximately 7%.
Number four or more multifamily properties incurred mixed results based on their geographic locations for our multifamily properties located in Portland occupancy was down 17% compared to the same quarter last year, while the weighted average monthly base rent increased approximately one 4%.
For our multifamily properties located in San Diego occupancy remain stable.
At approximately the same over the prior year, while the weighted average monthly base rent increased seven 3% over the prior year.
Of note, our occupancy levels and Portland have been trending much higher since the beginning of the year with our recent leasing momentum, bringing optimism that we will return to a more normalized pre pandemic occupancy level.
Number five let's talk about guidance.
As previously disclosed we withdrew our guidance in April 2020, due to the uncertainty that the pandemic would have on our existing guidance, particularly in our mixed use and retail sectors.
While we have a clearer view of the duration of the economic impact and the economy shows signs of recovery, we will refrain from issuing formal guidance.
However, what we can do is provide you a framework on how to think about our portfolio.
We believe that Q4 'twenty was close to if not the bottom of the economic impact for us.
We have taken approximately $18 million and combined bad debt expense reserves in 2020 <unk>.
Including turning off most of the straight line rent for which reserves have been taking.
Included in this number is approximately $7 6 million or 10 cents.
Bad debt expense reserves that were included in our <unk> number of 41 cents for Q4 'twenty.
From my perspective, I believe 41 of F. F O for Q4 'twenty is the bottom.
I would suggest that you're conservatively use that as a starting base assume that continues for the first two quarters beginning in Q3 'twenty one assuming most everyone. In America has been vaccinated I would expect theaters restaurants and.
And especially Waikiki Beach walk retail and the embassy suites waikiki to begin their recovery.
I would apply some percentage growth, which is a 41 cents of the queue for 2020 <unk> beginning in Q3, 21, and continuing into Q4 'twenty one.
Adjustments debt.
Also would need to be made include.
In Q1, 'twenty, one approximately <unk> <unk> related to the yield maintenance make whole payment on the series, saying no prepayment will be a nonrecurring expense in Q1 'twenty one.
Also in Q1 'twenty, one through Q4 'twenty one the additional proceeds from the public bond offering are expected to increase our interest expense by approximately <unk> <unk> per quarter.
As we look beyond 'twenty, one we expect to see the following.
First we expect to see the embassy suites Waikiki coming back in full strength in 'twenty, two adding approximately another 13th of F. F O.
Secondly, the Waikiki Beach walk retail coming back and partial strength in 'twenty, two adding approximately another <unk> of that that flow.
Also in our supplemental this quarter. We've included our estimated development yield for La Jolla, Commons, III, which is expected to take between 24 and 30.
Months to develop the estimated yield for this development is approximately between six 5% and seven 5% based on the market conditions today.
We expect this project to be completed by the end of 2023.
A six 5% yield on $175 million is approximately another $11 million of NOI or <unk> of <unk>.
In the meantime, the cash on the balance sheet earmarked for this development will be a short term drag on earnings.
And lastly, we expect our one beach property on the North waterfront of San Francisco to complete its renovation by the end of 2022, and we expect this property to produce approximately five.
Plus of <unk> upon stabilization in 2023.
For now this is our informal big picture framework of what we conservatively expect in 'twenty, one, but it is not considered or is not to be considered as formal guidance as we have more clarity and conviction on the back half of 'twenty. One we will share. It with you. We will continue our best to be as transparent as possible.
<unk>.
I'll now turn the call over to Steve Center, our Vice President of office properties for a brief update on our office segment Steve.
Thanks, Bob.
At the end of the fourth quarter net of one week, which is under redevelopment our office portfolio stood at approximately 95%. Please.
Under 5% expiring from the end of 2021.
Our top 10 office tenants represent 51, 5% of our total office space rent.
Given the quality of our assets and the strength of the markets in which they are located.
Technology and life Sciences, the key market drivers, we continue to execute leases at favorable rental rates delivering continued NOI growth in our office segment, even in this challenging environment.
The weighted average base rent increase for the 700, new wells completed during the fourth quarter was 5%.
With leases already signed we have locked in approximately $24 million of NOI growth in our office segment comprised of approximately $14 million in 2021 and $10 million in 2022.
We anticipate additional NOI growth in 2022, and 2023 through the redevelopment and leasing of the 102000 rentable square feet at one Beach Street in San Francisco, and 33000 Rentable square feet at seven seven Oregon square in the Lloyd's Submarket of Portland.
With the recent entitlements for two blocks at Oregon Square in Portland, We can add up to an additional 555000 rentable square feet to the portfolio. However.
However, we continue evaluating market conditions and perspective tenant interest before commencing development of that project.
And the next few months, we will commence construction of dollar tree or a way of comments for 213000 Rentable square foot 11 story class a plus office tower in the UTC Submarket of San Diego.
With expected completion in Q2 or Q3 of 2023 <unk>.
Comments tower, three we'll grow our office portfolio by six 1%.
We're moving forward because we believe in the long term fundamentals of the market, especially in UTC.
Direct vacancy remains low at six 5%.
And the inventory is aging, which is 26% for three out of 22 class a office buildings being built since 2008, two of which are our own towers in the way of comments. These three newer towers are 97% leased.
Existing office inventory is actually shrinking due to conversion to life science and lab uses in and around UTC.
And record breaking venture capital is flowing into the region.
San Diego companies raised a record breaking $2 $6 billion in venture capital funding in Q4 of 2020.
For 2020 total reached $5 2 billion.
Life Science company has brought in a record $1 8 billion.
The 2020 volume from life Science investment reached a record shattering three 8 billion.
Tech investment hit a record high of $762 1 million for the quarter and $1 3 billion for the year.
UTC is adjacent to UCSB, which pulled in 135 billion in research contracts and grants during the fiscal year that ended June 30, once again shattering our funding record and maintaining the university's standing as one of the 10 largest researchers in the U S.
La Jolla Commons is just a few blocks away from the UTC mall, which has undergone a $1 $2 billion redevelopment, including 990, new tenants and as Westfield Top performing center.
And the San Diego trolley operations, serving UCSD and UTC are expected to begin operations in 2022.
And as for the impact of work from home on our portfolio based upon discussions with many of our tenants not to mentioned significant expenditures are larger tenants are currently investing in their existing spaces. We expect the impact to be relatively short term in nature.
Beyond our portfolio, even though the tech Giants have established long term work from home protocols, we are massively increasing their office footprint by expanding.
Firing buildings and land and leasing significant space across the country all during COVID-19.
<unk> has expanded by $2 2 million square feet, Microsoft by 1 million square feet, Amazon by one 5 million square feet.
And Google now planned three mixed use projects on Google owned land 40 acres, and one 3 million square feet in mountain view San Jose in Sunnyvale.
Further in November Google bought a 10 acre plot for close to its existing campus in Kirkland, Washington, and plans to use it to expand in the area.
Also Apple just acquired a large land site in Culver City, which is Los Angeles for a large office development for at least 1000 people at least an additional 336000 feet in New York City.
In summary, we have a stable office portfolio with a strong tenant roster.
Little near term rollover significant built in NOI growth and additional upside through repositioning and redevelopment within our existing portfolio plus substantial new development on sites, we already own.
Operator, I'll turn the call over to you for questions.
Sure Jonathan.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad again to ask a question. Please press star one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Craig Smith from Bank of America.
Hello, and good morning, Craig.
Good morning.
Im wondering what does the retail leasing pipeline look like heading into 2021, and what do you think youll do relative to the 300000 new lease in 2020.
Chris can you answer that.
Yes, I know it is not.
The pipeline is not as Barron.
The press says, but it's certainly it's not.
Is it billions.
As we'd like.
Craig can you repeat the second half for your question you had a number that you said 300 value.
303000, total retail square footage leased in 2020.
I was thinking you were you referring to the role of Thats going to that comes up through 2021.
From a pipeline standpoint, youre starting to see retailers pop.
Pop their heads back out so im good activity started picking up a little bit in Q4, and it's continuing to roll some momentum coming into.
First quarter 2021, I can't give you an exact number but I'm way more bullish that there.
They are starting to look around and I'm starting to do tours again the phones are ringing.
With more activity and then of course, that's for the role of our renewals coming up and I think the majority of those will probably get.
Renewed as Bob said earlier, I think we really hit the trough in Q4, there's still some turbulence.
But <unk> comment and you're starting to see talk of going back to global vaccines are common and retailers are getting more optimistic.
Great and then.
The trend of leasing spreads.
From negative in the fourth quarter, but it sounds like you're going to you'll see a more positive result on leasing spreads in 'twenty one.
Craig I hope so.
Combat leasing from what I can tell you.
The retailers I don't know when the last time, you bought a new suite was or any of us, but the other retailers are still.
We still have in their travels in quite a few categories. So I don't want to lean to tell you that I'm going to be seen rates come up.
Some situations its a balancing act between occupancy and rate.
And I'm always a fan let's be there to fight another battle.
Hand to hand combat Craig and the retailers at the moment have the upper hand.
I think that.
The biggest cost and real estate is vacancy and were going to focus on keeping our properties well occupied as possible, particularly as we come out of this difficult pandemic.
Thank you that's helpful.
Thank you Sir.
Okay.
Your next question comes from the line of handles Inc. From.
From Mizuho.
And good morning.
Good morning, good job everyone. Thank you. Thank you for.
Yeah.
The one thing we all win.
Yeah.
Yes.
Ernest for you I guess on the dividend I guess were all some of US are scratching my head here on why Youre raising the dividend now versus maybe saving the cash and delevering a bit more your leverages above seven times I understand the higher collections and confidence, but there's still a lot of non sir.
<unk>.
Spreads are under pressure.
Hawaii seems like it's going to be soft, but near term so I guess.
Why not hold off a bit and delever.
That's a very good question I suggested to the board that to increase the dividend.
Penny or two to indicate that we have confidence in and the quality of our portfolio, our financial position and our management. They felt that I was underestimating all those three and they added another penny So the board made that decision independently and.
I think they were fine.
Different by a penny, but not much more I think this is going to be a significant recovery once we get a vaccine.
Yes.
Let me just add to that is.
The methodology is also consistent with our collections and we tried to stay consistent on that or the board tried to stay consistent on that and from.
The other thing is as we mentioned is that we believe that Q4 is the bottom or if not close to the bottom.
What's changed is also too is that people are starting to get vaccines. So theres a lot more data points out there.
And we think the board thought that this is the right thing to do.
Thanks for that Bob maybe as an add on for you you mentioned the mid five times debt to EBITDA for the long term target curious on when do you think we will get there and do we start to see some inflection here in the next quarter too for the last couple of quarters, you've been trending up.
Curious for some perspective on reaching that long term mid funds target you want to know when youre going to hit five five times, you say you'd like to get there and he wants a timeframe.
Well thanks for that question hotel.
I get paid extra for it would be net maternity relative.
Okay.
Yes.
And that's why we also set a framework on how to think about the portfolio I can't tell you what that percentage is for the second half of this year.
But.
Our view or my particular view would be is that once everybody in Americas vaccinated at once to be vaccinated, and we get that immune.
Immunity.
It gives us approximately 12 months from that period of time, and I think we will trend back down to that five five.
Based on the growth based on.
Think about.
How much we've lost out of embassy in Waikiki Beach walk retail I mean, both of those each of those the retail the Waikiki Beach walk retail and the embassy are anywhere from $12 million to $14 million each of <unk>.
Cash NOI, so that's probably about 14.
Each of them for additional <unk>.
<unk> <unk>.
Let us rebound I mean, let us let us get to the vaccine get me to that point gives US 12 months you have no idea how focused he is on five five I say good morning, Bob He replied five five.
Okay.
Yeah.
Yes.
Love It I love It and then on Hawaii, I guess, what are you hearing for tourism expectations for this year.
Obviously, there's lots of uncertainty, but I guess, what's the latest any any thoughts from the tourism border.
Thing that you can put some numbers around to help us understand perhaps what the expectation is.
I don't think we could tell you anything which you could take to take to the bank. It's just so uncertain on the other hand, the direction seems to be right with vaccines becoming available.
I feel strongly that there is a pent up demand for Americans to travel.
Many of us have the resources to travel.
Been pent up for this.
This last nine months and once we get out of an at home, we're going to we're going to travel so I think I.
I don't know, how and I don't know when but I expect its coming.
Fair enough all right. Thank you guys. Good luck. Thank you thanks Andrew.
Your next question comes from Rich Hill from Morgan Stanley.
Hey, good morning, guys.
Rich Ernest I'm really curious about where you are going to go first when the world does reopen but we can that we can have that conversation offline Bob I do have some questions for you I appreciate.
The guidance or the non guidance guidance is that the way we're supposed to call it Bob.
Yeah.
Do you think about 2021.
Occurs to us that there is a lot of noise on straight line rent abatements for Q, the Miss versus our numbers was almost all straight line rents. So as you think about the leasing environment in 2021 and I. Appreciate the guidance about how we should think about the velocity and <unk> and <unk>, but can you maybe talk.
What.
For all of the abatements supposed to go away or all the deferrals for those to go away. How are you thinking about that as you negotiate with retailers or retailers and office tenants for that matter.
Well I think ill try to answer that I mean, I think you know.
What what is out there in terms of the straight line in terms of deferred rents.
We expect to collect those to the extent that we don't collect them, where we don't think that we're.
75% or more confident that we're going to collect them, we'll put a reserve.
But right now I mean, we're still confident on what remains on the books in terms of collecting those in 'twenty.
'twenty one.
We're hopeful and I think.
Everybody in the real estate industry is hopeful that once this vaccine comes together you will start seeing deal.
Retail to start opening.
And Youll start seeing.
<unk>.
The company's and the tenants that we do have straight line rent across.
Pursuing their growth and their companies that we've tried to nurse through this this ugly pandemic. So.
We're still confident on what we got.
Got it so it sounds like <unk> are going to be still a little bit messy hand to hand combat, but then the wants to get back to normal.
From an abatement and deferrals standpoint.
And rent growth standpoint.
<unk> is that a right characterization.
That would be my perspective, where I stand today.
That's our best Guesstimate, and we think with the amount of vaccines that are being disseminated across at this point in time.
I think Ernest assets second shots as last week I've been talking to everybody soon.
Yes.
Debt that this this world this pandemic will ultimately come to an end.
And things will get better from both your lips to God's ears, let's make it happen.
So Steve one quick question for you.
Hi.
I'm nitpicking here, but it looks like occupancy maybe declined slightly.
For La Jolla, and one beach, if I was looking at it correctly again very very slightly could you just maybe go into a little bit more detail on it.
Any quarter over quarter change in demand that you're seeing on those two properties.
But it wasn't one beach so.
Mike.
I think about my beaches kind of offline right now as we redevelop it but but in.
And UTC, we had China towards sublease their space move out of the <unk>.
<unk> thousand foot space.
That that was the blip there if you will.
But we successfully renewed other tenants.
<unk> has no debt.
Net buildings, so we've been really successful holding rates Theres no COVID-19 discount.
We've been more flexible long lease term with smaller tenants who are uncertain about their future I mean, I've got an engineering firm that's got free people over 65, and so there are kind of I don't know that I can commit long term right now Unfortunately, as we pointed out on the call. We've got about 51 five per cent of our tenants our top 10.
And very stable. Furthermore, do.
They continue to grow Vmware, they're coming up they've got 35000 feet rolling.
Next year.
We're already in discussions about trying to find another full for hunt for them in the building as well as hot and renewal.
So we're fortunate in that regard I don't know about the other property and then here in.
Del Mar Heights, we strategically strategically let a couple of smaller tenants role to aggregate bigger blocks of space. So that's been.
Being smart about commodity space versus big blocks, which are scarce, we're going to get premium rents for so.
The blip that you saw I mean, there is some softness due to COVID-19 clearly I mentioned the engineering firm.
Our teams are doing a great job of taking care of our tenants they want to stay with us some to say I don't need 5000 feet to eight three.
And if we're able to accommodate them and keep our existing customers we're doing it.
But.
We'll get 21 is a year of a bunch of small tenants.
Still have 41 tenants rolling at an average of 3700 feet in 2021 'twenty two is a much better story and that about two thirds of the tenants rolling our day their Vmware as there are other bigger customers and then in terms of pricing power.
This quarter the end.
Ending versus new rate is a bit muted, but it just depends on where so.
Going through the portfolio of Bellevue, we're 97% leased but we've got 23, 5% rolling through 2022.
But those are going be outsized increases in rent we've been very successful.
With rent increases there and that should continue.
Portland same story, we're 97% leased there we got eight 4% rolling.
And again.
The rates are holding up there so we're doing well.
San Francisco.
We're out of business there until we have to renew autodesk in 2022.
And then San Diego down here, the rent increases are 2% to 6% versus 20% in Portland, or 30% to 35% in Bellevue. So it's kind of lumpy just depends on when youre going to make these renewals and reset rents and what level. So this was this last quarter. It was just a bit quiet and mainly focused on.
Markets that arent as Hyperinflationary as Bellevue and Portland.
Got it.
These.
To make it clear.
We emptied it so that we could reposition it.
Okay.
Ill go back and look at the disclosure Hey, Bob just one more question for me.
Given that youre guiding without guiding can you talk about 2022, a little bit is it just going to be back to I actually don't I'm not sure the market even cares about 2021 at this point.
Is 2020 to business as usual and all of the plans that we have previously discussing this time last year fully intact.
Yes, nothing has changed on that I mean, we still expect our cash NOI to increase in the office sector by I think $12 million in 'twenty $113 million in 'twenty two.
And we're just.
As we begin our.
Development on the Hoi comments, three which should conclude should be completed by the end of 'twenty three.
See a big pick up after that and one beach would be it should be finished by the end of 'twenty two so.
What we're doing is we're taking advantage of the opportunities that currently exist within our own portfolio. We don't we don't need any acquisitions to create value at this point in time, we're always looking.
But.
But we have plenty, we just within our own portfolio to create significant value.
Perfect. Thanks, Bob Thanks, everyone I appreciate.
The additional color.
Thank you rich thanks rich.
Your next question comes from the line of.
Thomas from Keybanc capital market.
Hi, Tom Hi, Thanks, Hi, good morning.
First question just around the color and detail for 'twenty, one and 'twenty two.
Bob I appreciate those comments and you mentioned that for Q would likely be the bottom or close to the bottom.
Inclusive of the <unk> may call that will be recognized in the first quarter, meaning that excluding that may call you would expect to be at around 46.
Sort of a baseline is that the right way to think about it.
Yes that is I mean, so 41 cents does not include the make whole. So that's so if you continue debt base.
My comments, you would say start with 41.
In Q1 from that you would deduct five sets for that May call.
And net and deduct on other <unk> for incremental interest expense in Q1.
So.
On the script that we just shared with you that it'll give you a roadmap on how we our roadmap for a framework on how I think for we think debt that you can view 21.
And then in the second half of that you make your own assessment are determined which you think the percentage should be on the pickup in that but keep in mind of debt 41 cents for Q4 debt.
Debt I'm, suggesting we start with in Q1.
That includes 10 cents.
Reserves $7 $6 million of reserves in the fourth quarter. So as you start the second half.
Is that really going to happen.
I don't think so.
Okay got it so so 41 goes to 36.
With the make whole in the first quarter less some incremental interest expense and then you would expect to build back throughout the year.
Obviously adjusting for the 5% may call.
Yes.
Yes, Alright, that's helpful. And then if you get if you have any questions. Please feel free to reach out.
Sure I appreciate that and then.
Steve or Bob maybe regarding the $24 million of office cash NOI.
That's locked in that's expected to commence during.
'twenty, one and 'twenty two.
Much of that is being straight line today versus what is yet to commence for.
<unk> purposes on a GAAP basis.
Yes, I don't have that in front of me.
But really that's.
Has been included in our presentation in terms of that debt.
The cash NOI growth.
And really what we're showing is the growth in that Fad and debt. Obviously, we'll drop on down obviously has to be adjusted for.
Anything related to the straight line on that but I don't have the exact number on that.
Good question. Thank you front are moving.
Okay and in terms of the $14 million in 'twenty, one what's kind of the cadence sort of quarterly how should we think about the timing of the cash commencements throughout the year.
Well.
In Q1 and Q2, we have.
We have big Ti going out we have.
Youll, probably $25 million of Ti is related to.
Large tenants up in landmark.
So it'll probably be more in the second half of the year.
Okay.
And then.
With at the multifamily assets. So it sounds like you saw a bounce in occupancy in January and hassle out can you just talk a little bit about the pricing strategy, there and use of concessions.
Maybe provide some color on leasing activity in general it sounds like you're it seems like youre holding holding rates in anticipation of further.
Return in demand just.
Just curious if you could sort of talk about has allowed a little bit in the Portland assets.
Yes.
As Steve pointed out our office portfolio in Portland is excellent.
Our portfolio of residential as we had a management issue, which we've now taken care of so it's too early to say how much of a recovery, we're going to make not to early indications as Bob pointed out in his report is that we see now.
The biggest cost and real estate is vacancy. So we may do some things in the short run to increase our occupancy.
I can eliminate some of the vacancy so I don't know how to answer that question properly it's too early to say.
That will make it work I will tell you that.
Okay can you share what the occupancy build looked like in January.
We have that.
I think we went from 75% to 85% or 87% occupancy not that much in the low eighties no ladies.
So yes, we don't have the right in front of US let me turn the corner.
We're in an upward trajectory.
Okay got it and just one last one if I could on the master lease at Loma Palisades and Pacific Ridge can you just remind us when that expires.
And do you expect the school to re up and renew that master lease or.
What do you expect to happen there.
I don't know that we have an expectation we're certainly.
Looking on it and Abigail do you want to say something and it expires hi, good morning, So that master lease for bad debt.
<unk> expires on May 31.
Sure.
And have you had any discussions about renewing it or is that still.
Take off the table.
We all hope that with the.
Students will be able to return to school in the fall.
And that is the home price.
Average.
We'll just have to play it by year end.
There is a revenue all or is that there is further partnership but I don't have any further information at this current moment.
Okay alright, thank you.
Thank you thanks, Doug.
Your next question comes from the line of Daniel is small from Green Street.
Yes.
Okay.
This is dylan on for for Danny, but Hey, how are you guys doing this morning.
Okay.
Nobody here.
As for everybody.
Uh huh.
Just a few questions on the development of one landmark.
You guys mentioned that thing started and that sometime in the next few months are you guys subject to pre lease or are you guys willing to start that answer that.
Which one each.
Probably.
Total one Beecher La Jolla Commons down in Utah.
Sorry, La Jolla Commons.
Theres no pre leasing I had I had lunch yesterday with one of the senior partners in a law firm and that they were considering that.
Right and they weren't sure if we'd start theres not theres never been pre leasing in San Diego. So we had a couple of years to build it.
During that time, we hope the market recovers its a very strong market.
And that's kind of the story of where volume.
Hey, Danny I think Steve's Steve's comments.
That he shared.
Our very strong reasons, why we should pursue that without any pre lease.
For instance, like on.
Two remaining lots in Oregon square.
That is something that you wouldn't want to pre leased.
You wouldn't want to rebuild you Wouldnt go.
You wouldn't go yes, you look net correct, yes. Thank you.
Wanted to get a tenant before you build debt.
Like Ernest said in UTC and for what Steve's comments, where those are all the comments why you would want to go forward without a tenant at this point in time, obviously, we would love to have a tenant but by the time you finish.
That's going to be an even stronger market than it is today and we've used this time to buy the project out and I think we've had some savings that we would not have had if we were trying to build at a year from now.
So we are going.
Perfect that all makes sense and then just.
Just.
Follow up to that I think are.
Matt we're implies $80 rent per square foot at that property is that I guess is that accurate and b, how does that compare to where you guys signed the alumina lease back in I think late 19. When you guys. Initially acquired these.
Properties over there.
Rents for new product are much higher.
We're in the high force Triple net with $1 70 expenses I'm talking on a monthly basis either convert into it.
Growth for annual book, but.
The alumina lease started at 490 full service.
Is three 3% annual bumps so.
And that the rents I just mentioned the triple net Reits I just mentioned.
Affirmed by two recent deals one in June and one in December for.
Deals new products. So that's today's rents and Thats, what we put in.
For the pro forma and we will see we will see other market goes but we're bullish.
Bullish and we're also printing.
Economy recovers and but in the short run.
The leasing is less certain than we'd like in the long run.
It's a great locations great properties.
Perfect.
Very helpful. Thanks, guys.
Thank you.
And I show no further questions at this time I will now turn the call to Mr. Ernest Rady for any closing remarks.
Guys. Thanks for all those great great questions I hope, you're all able to get a vaccine as quickly as possible. So that we can all and this distance.
Interacting and we can all get together I Miss you all I hope to work with you again as quickly as possible and thank you for your interest in our Great company.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation you may now all disconnect.
Okay.
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